URSTADT BIDDLE PROPERTIES INC. The following discussion should be read in conjunction with the consolidated financial statements of the company and the notes thereto included elsewhere in this report.
Forward Looking Statements:
This Quarterly Report on Form 10-Q ofUrstadt Biddle Properties Inc. (the "Company"), including this Item 2, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements can generally be identified by such words as "anticipate", "believe", "can", "continue", "could", "estimate", "expect", "intend", "may", "plan", "seek", "should", "will" or variations of such words or other similar expressions and the negatives of such words. All statements included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future, including such matters as future capital expenditures, dividends and acquisitions (including the amount and nature thereof), business strategies, expansion and growth of our operations and other such matters, are forward-looking statements. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate. Such statements are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, performance or achievements, financial and otherwise, may differ materially from the results, performance or achievements expressed or implied by the forward-looking statements. We caution not to place undue reliance upon any forward-looking statements, which speak only as of the date made. We do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based. Important factors that we think could cause our actual results to differ materially from expected results are summarized below. One of the most significant factors, however, is the ongoing impact of the current outbreak of the novel coronavirus ("COVID-19"), on theU.S. , regional and global economies, theU.S. retail market and the broader financial markets. The current outbreak of COVID-19 has also impacted, and is likely to continue to impact, directly or indirectly, many of the other important factors listed below. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In particular, it is difficult to fully assess the impact of COVID-19 at this time due to, among other factors, uncertainty regarding the severity and duration of the outbreak domestically and internationally, uncertainty regarding the effectiveness of federal, state and local governments' efforts to contain the spread of COVID-19 and respond to its direct and indirect impact on theU.S. economy and economic activity.
Important factors, among others, that may affect our actual results include:
• negative impacts from the continued spread of COVID-19, including on the
operations;
• economic and other market conditions, including real estate and market
conditions, that could impact us, our properties or the financial stability
of our tenants;
• consumer spending and confidence trends, as well as our ability to
anticipate changes in consumer buying practices and the space needs of
tenants;
• our relationships with our tenants and their financial condition and
liquidity;
• any difficulties in renewing leases, filling vacancies or negotiating
improved lease terms;
• the inability of our properties to generate increased, or even sufficient,
revenues to offset expenses, including amounts we are required to pay to
municipalities for real estate taxes, payments for common area maintenance
expenses at our properties and salaries for our management team and other
employees;
• the market value of our assets and the supply of, and demand for, retail
real estate in which we invest;
• risks of real estate acquisitions and dispositions, including our ability to
identify and acquire retail real estate that meet our investment standards
in our markets, as well as the potential failure of transactions to close;
• risks of operating properties through joint ventures that we do not fully
control;
• financing risks, such as the inability to obtain debt or equity financing on
favorable terms or the inability to comply with various financial covenants
included in our Unsecured Revolving Credit Facility (the "Facility") or
other debt instruments we currently have or may subsequently obtain, as well
as the level and volatility of interest rates, which could impact the market
price of our common stock and the cost of our borrowings;
• environmental risk and regulatory requirements;
• risks related to our status as a real estate investment trust, including the
application of complex federal income tax regulations that are subject to
change;
• legislative and regulatory changes generally that may impact us or our
tenants;
• as well as other risks identified in our Annual Report on Form 10-K for the
fiscal year ended
other reports filed by the Company with the Securities and Exchange
Commission (the "SEC").
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Executive Summary
Overview
We are a fully integrated, self-administered real estate company that has
elected to be a Real Estate Investment Trust ("REIT") for federal income tax
purposes, engaged in the acquisition, ownership and management of commercial
real estate, primarily neighborhood and community shopping centers, with a
concentration in the metropolitan tri-state area outside of the City of New
York . Other real estate assets include office properties, single tenant retail
or restaurant properties and office/retail mixed-use properties. Our major
tenants include supermarket chains and other retailers who sell basic
necessities.
At April 30, 2020 , we owned or had equity interests in 81 properties, which
include equity interests we own in five consolidated joint ventures and six
unconsolidated joint ventures, containing a total of 5.3 million square feet of
Gross Leasable Area ("GLA"). Of the properties owned by wholly-owned
subsidiaries or joint venture entities that we consolidate, approximately 91.9%
of the GLA was leased (92.9% at October 31, 2019 ). Of the properties owned by
unconsolidated joint ventures, approximately 94.4% of the GLA was leased (96.1%
at October 31, 2019 ).
In addition to our business of owning and managing real estate, we are also
involved in the beer, wine and spirits retail business, through our ownership of
five subsidiary corporations formed as taxable REIT subsidiaries. Each
subsidiary corporation owns and operates a beer, wine and spirits retail store
at one of our shopping centers. To manage our operations, we have engaged an
experienced third-party, retail beer, wine and spirits manager, which also owns
many stores of its own. Each of these stores occupies space at one of our
shopping centers fulfilling a strategic need for a beer, wine and spirits
business at such shopping center. These five stores are currently not providing
material earnings in excess of what the Company would have earned from leasing
the space to unrelated tenants at market rents. However, these businesses are
continuing to mature, and net sales and earnings may eventually become material
to our financial position and net income. Nevertheless, our primary business
remains the ownership and management of real estate, and we expect that the
beer, wine and spirts business will remain an ancillary aspect of our business
model. However, if the right opportunity presents itself, we may open
additional beer, wine and spirits stores at other shopping centers that we own,
but only if we determine that such a business would be a strategic fit for that
shopping center and the investment return analysis supports such a
determination.
We have paid quarterly dividends to our stockholders continuously since our founding in 1969.
Impact of COVID-19
The following discussion is intended to provide stockholders with certain information regarding the impacts of the COVID-19 pandemic on our business and management's efforts to respond to those impacts. Unless otherwise specified, the statistical and other information regarding our property portfolio and tenants are estimates based on information available to us as ofJune 1, 2020 . As a result of the rapid development, fluidity and uncertainty surrounding this situation, we expect that such statistical and other information will change going forward, potentially significantly, and may not be indicative of the actual impact of the COVID-19 pandemic on our business, operations, cash flows and financial condition for the third quarter of fiscal 2020 and future periods. The spread of COVID-19 is having a significant impact on the global economy, theU.S. economy, the economies of the local markets throughout the northeast region in which the Company's properties are located, and the broader financial markets. Nearly every industry has been impacted directly or indirectly, and theU.S. retail market has come under severe pressure due to numerous factors, including preventive measures taken by local, state and federal authorities to alleviate the public health crisis, such as mandatory business closures, quarantines, restrictions on travel and "shelter-in-place" or "stay-at-home" orders. These containment measures, which generally permit businesses designated as "essential" to remain open are affecting the operations of different categories of our tenant base to varying degrees with, for example, grocery stores and pharmacies and wholesale clubs generally permitted to remain open and operational, restaurants generally limited to take-out and delivery services, and non-essential businesses generally forced to close. There is uncertainty as to when and how these restrictions will be relaxed or lifted, when and how businesses of tenants that have closed will reopen and when customers will re-engage with tenants as they have in the past. We specialize in the ownership and management of necessity-based community and neighborhood shopping centers located predominantly in the suburban communities that surroundNew York City , anchored by supermarkets, pharmacy/drug-stores and wholesale clubs, and our portfolio and tenants have been impacted by these and other factors as follows:
• As of the date of this Quarterly Report on Form 10-Q, all of our 74 retail
shopping centers, stand-alone restaurants and stand-alone bank branches are
open and operating. All of our shopping centers include necessity-based
tenants, 84% of our GLA is located in properties anchored by grocery stores,
pharmacies and wholesale clubs, 6% of our GLA is located in outdoor retail
shopping centers adjacent to regional malls and 8% of our GLA is located in
outdoor neighborhood convenience retail. The remaining 2% of our GLA
consists of six suburban office buildings located in
and
center. Five of our 6 suburban office buildings are open in some capacity
based on state mandates, all of the retail bank branches are open and the
childcare center is closed in accordance with the restrictions by the State
of
• As of
been designated "essential businesses" or are otherwise permitted to operate
through curbside pick-up and other modified operating procedures in
accordance with state guidelines. Of these tenants, approximately 87.5% are
open and operating.
• As of
open and fully or partially operating and approximately 37.3% of our tenants
are currently closed.
• As of
income, consisting of contractual base rent, common area maintenance
reimbursement and real estate tax reimbursement billed for the month of
April, not including the application of any security deposits, and 60.3% for
May, not including the application of any security deposits. Similar to
other retail landlords across
of rent relief requests from tenants, which we are evaluating on a
case-by-case basis. We believe this process will take several months. Our
strategy is to have senior management assist with the individualnegotiations with each tenant making a rent relief request so as to reach
the best agreement for both us and our tenants, with the goal of allowing
the tenants business to return to normal operations and profitability when
the pandemic ends. As of
requests from our approximately 900 tenants in our consolidated portfolio.
These rent relief requests represent 38.2% of our consolidated annualized
base rent and those tenants occupy 31.3% of our consolidated GLA. As of May
22, 2020, we had completed lease amendments with approximately 50 of the 339
tenant rent relief requests.
• Management cannot, at this point, estimate ultimate losses, if any, related
to the COVID-19 pandemic, and accordingly no impairment charges were
reflected in the accompanying financial statements related to this matter.
The COVID-19 pandemic, however, has significantly impacted many of the
retail sectors in which our tenants operate and if the effects of the
pandemic are prolonged, it could have a significant adverse impact on theunderlying industries of many of our tenants. We will continue to monitor
the economic, financial, and social conditions resulting from the COVID-19
pandemic and will assess our asset portfolio for any impairment indicators.
If we determine, that any of our assets are impaired, we would be required
to take impairment charges and such amounts could be material. See Footnote
1 to the Notes to the Company's Consolidated Financial Statements for
additional discussion regarding impairment charges.
Moreover, we have taken a number of proactive measures to maintain the strength of our business and manage the impact of COVID-19 on our operations and liquidity, including the following:
• Along with our tenants and the communities we together serve, the health and
safety of our employees is our top priority. We have adapted our operations
to protect employees, including by implementing a work-from-home policy,
which is working seamlessly, with no disruption in our service to tenants
and other business partners. We continue to closely monitor recommendations
and mandates of federal, state and local governments and health authorities
to ensure the safety of our own employees as well as our properties. On May
20, 2020, in response to a change in the
opened our office at less than 50% capacity, with employees encouraged to
continue working from home when feasible.
• We are in constant communication with our tenants, providing assistance in
identifying local, state and federal resources that may be available to
support their businesses and employees during the pandemic, including
stimulus funds that may be available under the Coronavirus Aid, Relief, and
Economic Security Act of 2020 (the "CARES Act"). We compiled a robust set
of tenant materials explaining these and other programs, which have been
posted to the tenant portal on our website, disseminated by e-mail to all of
our tenants through the tenant portal of our general ledger system and
communicated directly by telephone through our leasing agents. Each of our
tenants was also assigned a leasing agent that the tenant can turn to with
questions and concerns during these uncertain times.
• In addition, we launched a program designating dedicated parking spots for
curbside pickup at our shopping centers for use by all tenants and their
customers, are assisting restaurant tenants in securing municipal approvals
for outdoor seating, and are assisting tenants in many other ways to improve
their business prospects.
• To enhance our liquidity position and maintain financial flexibility, we
have borrowed
• At
equivalents and marketable securities on our balance sheet, and an
additional $64 million available under our Facility (excluding the $50
million accordion feature).
• We do not have any unsecured debt maturing until
we do not have any secured debt maturing until
secure debt is generally below a 55% loan-to-value ratio, and we believe we
will be able to refinance that debt. Construction related to three large
re-tenanting projects, two for grocery stores and one for a national junior
anchor, have been completed during the second quarter or are very near
completion, which will hopefully result in the tenants opening in the fourth
quarter of fiscal 2020. Apart from the aforementioned three re-tenanting
projects, we do not have any other material re-tenanting projects ongoing.
• We have taken proactive measures to manage costs, including reducing, where
possible, our common area maintenance spending. We have one ongoing
construction project at one of our properties, with approximately
remaining to complete the project. Otherwise, only minimal construction is
underway. Further, we expect that the only material capital expenditures at
our properties in the near-term will be tenant improvements and/or other
leasing costs associated with existing and new leases. We have redirected
our acquisition department to help with lease negotiations.
• On
CARES Act. The CARES Act, among other things, includes provisions relating
to refundable payroll tax credits, deferment of employer-side social
security payments, net operating loss carryback periods, alternative minimum
tax credit refunds, modifications to the net interest deduction limitations,
increased limitations on qualified charitable contributions, and technical
corrections to tax depreciation methods for qualified improvement property.
We expect that the Company will avail itself of one or more of the above
benefits afforded by The CARES Act.
• On
75% from second quarter dividends of
Class A Common share, which will preserve approximately
in the third quarter. Given the reduction of operating cash flow and
taxable income caused by tenants' nonpayment of rent during the period from
April through
near and potential long-term impact on our business, and the importance of
preserving our liquidity position, among other considerations, the Board
determined that reducing the quarterly dividend is in the best interests of
stockholders after careful consideration of all information available to
them at the time. Going forward, our Board of Directors will continue toevaluate our dividend policy. We intend to continue to operate our business
in a manner that will allow us to qualify as a REIT for
tax requirements. The Board declared the full contractual dividend on both
our Series H and Series K Cumulative Preferred Stock, payable on
2020 to holders of record on July 17, 2020 .
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Index
We derive revenues primarily from rents and reimbursement payments received from
tenants under leases at our properties. Our operating results therefore depend
materially on the ability of our tenants to make required rental payments. The
extent to which the COVID-19 pandemic impacts the businesses of our tenants, and
therefore our operations and financial condition, will depend on future
developments which are highly uncertain and cannot be predicted with confidence,
including the scope, severity and duration of the COVID-19 pandemic, the actions
taken to contain the COVID-19 pandemic or mitigate its impact, and the direct
and indirect economic effects of the COVID-19 pandemic and such mitigation
measures, among others. While the extent of the outbreak and its impact on us,
our tenants and the U.S. retail market is uncertain, a prolonged crisis could
result in continued disruptions in the credit and financial markets, a continued
rise in unemployment rates, decreases in consumer confidence and consumer
spending levels and an overall worsening of global and U.S. economic conditions.
The factors described above, as well as additional factors that we may not
currently be aware of, could materially negatively impact our ability to collect
rent and could lead to termination of leases by tenants, tenant bankruptcies,
decreases in demand for retail space at our properties, difficulties in
accessing capital, impairment of the Company's long-lived assets and other
impacts that could materially and adversely affect our business, results of
operations, financial condition and ability to pay distributions to
stockholders. See "Risk Factors."
As a result of the stress that the COVID-19 pandemic has had on many of our
tenants, which includes many temporary business closures as a result of state
mandates, we felt it was appropriate to increase our provision for uncollectable
accounts in the three months ended April 30, 2020 by $1.5 million , an increase
of $1.2 million over the prior quarter provision of $343,000 .
Strategy, Challenges & Outlook
We have a conservative capital structure, which includes permanent equity sources of Common Stock, Class A Common Stock and two series of perpetual preferred stock, which are only redeemable at our option. We redeemed our Series G preferred stock onNovember 1, 2019 . In addition, we have mortgage debt secured by some of our properties. As mentioned earlier, we do not have any secured debt maturing until January of 2022.
Key elements of our growth strategies and operating policies are to:
• maintain our focus on community and neighborhood shopping centers, anchored
principally by regional supermarkets, pharmacy chains or wholesale clubs,
which we believe can provide a more stable revenue flow even during
difficult economic times because of the focus on food and other types of
staple goods;
• acquire quality neighborhood and community shopping centers in the
northeastern part of
the metropolitan tri-state area outside of the
further value in these properties with selective enhancements to both the
property and tenant mix, as well as improvements to management and leasing
fundamentals, with hopes to grow our assets through acquisitions by 5% to
10% per year on a dollar value basis subject to the availability of
acquisitions that meet our investment parameters;
• selectively dispose of underperforming properties and re-deploy the proceeds
into potentially higher performing properties that meet our acquisition
criteria;
• invest in our properties for the long-term through regular maintenance,
periodic renovations and capital improvements, enhancing their
attractiveness to tenants and customers, as well as increasing their value;
• leverage opportunities to increase GLA at existing properties, through
development of pad sites and reconfiguring of existing square footage, to
meet the needs of existing or new tenants;
• proactively manage our leasing strategy by aggressively marketing available
GLA, renewing existing leases with strong tenants, and replacing weak ones
when necessary, with an eye towards securing leases that include regular or
fixed contractual increases to minimum rents, replacing below-market-rent
leases with increased market rents when possible and further improving the
quality of our tenant mix at our shopping centers;
• maintain strong working relationships with our tenants, particularly our
anchor tenants;
• maintain a conservative capital structure with low debt levels; and
• control property operating and administrative costs.
We believe our strategy of focusing on community and neighborhood shopping
centers, anchored principally by regional supermarkets, pharmacy chains or
wholesale clubs, is being validated during the COVID-19 pandemic. We believe
the nature of our properties makes them less susceptible to economic downturns
than other retail properties whose anchor tenants do not supply basic
necessities. During normal conditions, we believe that consumers generally
prefer to purchase food and other staple goods and services in person, and even
during the COVID-19 pandemic, our supermarkets, pharmacies and wholesale clubs
have been posting strong in-person sales. Moreover, most of our grocery stores
have also implemented or expanded curbside pick-up or partnered with delivery
services to cater to the needs of their customers during this pandemic.
We recognize, however, that the pandemic may have accelerated a movement towards
e-commerce that may be challenging for weaker tenants that lack an omni-channel
sales strategy. We launched a program designating dedicated parking spots for
curbside pickup and are assisting tenants in many other ways to help them
quickly adapt to these changing circumstances. It is too early to know which
tenants will or will not be successful in making any changes that may be
necessary. It is also too early to determine whether these changes in consumer
behavior are temporary or reflect long-term changes.
Moreover, due to the current disruptions in the economy and our marketplace as a
result of the COVID-19 pandemic and resulting changes to the short-term and
possibly even long-term landscape for brick-and-mortar retail, we anticipate
that it will be more difficult to actively pursue and achieve certain elements
of our growth strategy. For example, it will likely be more difficult for us to
acquire or sell properties for the remainder of the fiscal year (or beyond), as
it may be difficult to value a property correctly given changing circumstances.
Additionally, parties may be unwilling to enter into transactions during such
uncertainty. We may also be less willing to enter into developments or capital
improvements that require large amounts of upfront capital if the expected
return is perceived as delayed or uncertain. We have chosen to borrow $35
million under our Facility during March and April 2020 to enhance our liquidity
position and maintain financial flexibility, which is an approach consistent
with many of our peers. While we believe we still maintain a conservative
capital structure and low debt levels, particularly relative to our peers, our
profile may evolve based on changing needs.
We expect that our rent collections will continue to be below our tenants'
contractual rent obligations at least for as long as governmental orders require
non-essential businesses to remain closed and residents to stay at home. We will
continue to accrue rental revenue during the deferral period. However, we
anticipate that some tenants eventually will not be able to pay amounts due and
we will incur losses against our rent receivables. The extent and timing of the
recognition of such losses will depend on future developments, which are highly
uncertain and cannot be predicted. April and May collections and rent relief
requests to-date may not be indicative of collections or requests in any future
period.
We continue to have active discussions with existing and potential new tenants
for new and renewed leases. However, the uncertainty relating to the COVID-19
pandemic has slowed the pace of leasing activity and could result in higher
vacancy than the Company otherwise would have experienced, a longer amount of
time to fill vacancies and potentially lower rental rates.
As a REIT, we are susceptible to changes in interest rates, the lending
environment, the availability of capital markets and the general economy. The
impact of any changes are difficult to predict, particularly during the course
of the current COVID-19 pandemic.
Transaction Highlights of Fiscal 2020; Recent Developments
Set forth below are highlights of our recent property acquisitions, potential acquisitions under contract, other investments, property dispositions and financings:
• On
G Cumulative Preferred Stock for
of our Series K Cumulative Preferred Stock in
redemption amount was
• In
property located in
sale price of
objectives. In accordance with ASC Topic 360-10-45, the property met all
the criteria to be classified as held for sale in the fourth quarter of
fiscal 2019, and accordingly we recorded a loss on property held for sale of
consolidated statement of income for the year ended
amount of the loss represented the net carrying amount of the property over
the fair value of the asset less estimated cost to sell. In
(fiscal 2020), the Bernardsville Property sale was completed and we realized
an additional loss on sale of property of
continuing operations in the consolidated statement of income for the six
months ended
Operations ("FFO") as discussed below in this Item 2.
• InJanuary 2020 , we sold for$1.3 million a retail property located inCarmel, NY , as that property no longer met our investment objectives. In conjunction with the sale, we realized a loss on sale of property in the amount of$242,000 , which loss is included in continuing operations in the
consolidated statement of income for the six months ended
This loss has been added back to FFO as discussed below in this Item 2.
• InJanuary 2020 , we redeemed 2,250 units ofUB New City I, LLC from the noncontrolling member. The total cash price paid for the redemption was$49,500 . As a result of the redemption, our ownership percentage ofNew City increased to 79.7% from 78.2%.
• In
noncontrolling member. The total cash price paid for the redemption was
Ridge increased to 14.2% from 13.3%.
• In March and
Facility to fund capital improvements and for general corporate purposes.
23
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Index
Leasing
Rollovers
For the six months ended April 30, 2020 , we signed leases for a total of 257,000
square feet of retail space in our consolidated portfolio. New leases for
vacant spaces were signed for 36,000 square feet at an average rental decrease
of 8.1% on a cash basis. Renewals for 221,000 square feet of space previously
occupied were signed at an average rental increase of 4.1% on a cash basis.
Tenant improvements and leasing commissions averaged $27.02 per square foot for
new leases and $0.44 per square foot for renewals for the six months ended April
30, 2020 . The average term for new leases was 6 years and the average term for
renewal leases was 3 years.
The rental increases/decreases associated with new and renewal leases generally
include all leases signed 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 minimum rent
paid on the expiring lease and minimum rent to be paid on the new lease in the
first year. In some instances, management exercises judgment as to how to most
effectively reflect the comparability of spaces reported in this 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, the age of the expiring lease, capital investment made in the space and
the specific lease structure. Tenant improvements include the total dollars
committed for the improvement (fit-out) of a space as it relates to a specific
lease but may also include base building costs (i.e. expansion, escalators or
new entrances) that are required to make the space leasable. Incentives (if
applicable) include amounts paid to tenants as an inducement to sign a lease
that do not represent building improvements.
The leases signed in 2020 generally become effective over the following one to
two years. 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
reasons.
Traditionally, we have seen overall positive increases in rental income for renewal leases and a range of positive 5% to negative 5% for new leases. However, with the uncertainty of the COVID-19 pandemic and the many unknown factors that we, our tenants and the commercial real estate industry face from the pandemic, it is difficult to predict leasing trends into the near future.
Significant Events with Impacts on Leasing
Since the 2015 bankruptcy ofA&P , its former grocery store space at ourPompton Lakes shopping center, totaling 63,000 square feet, has remained vacant. We are continuing to market that space for re-lease and are considering other redevelopment options at that shopping center, including selling a 30,000 square foot portion of this 63,000 square foot space to a grocery store company, who would operate the store at that location. If the sale of the 30,000 square foot portion is successful, it may result in us realizing a loss on the sale of that 30,000 square foot portion. InJuly 2018 , one other 36,000 square foot space formerly occupied byA&P that we had re-leased to a local grocery operator became vacant, as that operator failed to perform under its lease and was evicted. We signed a lease withWhole Foods Market for this location, and we delivered the space to them onJanuary 31, 2020 . That tenant is currently building out their space and hopes to open in the fall of 2020.
In
In
May 2019 , we signed two leases to re-lease a large portion of this space at a rental rate that is 12% below the rent we received from the prior grocery tenant. These two spaces were delivered to the tenant and rent commenced for these tenants onApril 2, 2020 . In 2017, Toys R' Us andBabies R' Us ("Toys") filed a voluntary petition under chapter 11 of title 11 of the United States Bankruptcy Code. Subsequently, Toys determined that it would be liquidating the company. Toys ground leased 65,700 square feet of space at ourDanbury, CT shopping center. InAugust 2018 , this lease was purchased out of bankruptcy from Toys and assumed by a new owner.
The
base lease rate for the 65,700 square foot space was and remains at$0 for the duration of the lease, and we did not have any other leases with Toys, so our cash flow was not impacted by the bankruptcy of Toys. As of the date of this report, we have not been informed by the new owner of the lease which operator will occupy the space.
Impact of Inflation on Leasing
Our long-term leases contain provisions to mitigate the adverse impact of
inflation on our operating results. Such provisions include clauses entitling us
to receive (a) scheduled base rent increases and (b) percentage rents based upon
tenants' gross sales, which could increase as prices rise. In addition, many of
our non-anchor leases are for terms of less than ten years, which permits us to
seek increases in rents upon renewal at then current market rates if rents
provided in the expiring leases are below then existing market rates. Most of
our leases require tenants to pay a share of operating expenses, including
common area maintenance, real estate taxes, insurance and utilities, thereby
reducing our exposure to increases in costs and operating expenses resulting
from inflation.
Critical Accounting Policies
Critical accounting policies are those that are both important to the
presentation of our financial condition and results of operations and require
management's most difficult, complex or subjective judgments. For a further
discussion about our critical accounting policies, please see Note 1 in our
consolidated financial statements included in Item 1 of this Quarterly Report on
Form 10-Q.
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IndexLiquidity and Capital Resources
Overview
AtApril 30, 2020 , we had cash and cash equivalents of$33.9 million , compared to$94.1 million atOctober 31, 2019 (see below). Our sources of liquidity and capital resources include operating cash flows from real estate operations, proceeds from bank borrowings and long-term mortgage debt, capital financings and sales of real estate investments. Substantially all of our revenues are derived from rents paid under existing leases, which means that our operating cash flow depends on the ability of our tenants to make rental payments. As a result of state mandates forcing many non-essential businesses to close or restrict how they operate to help prevent the spread of COVID-19, many of our tenants businesses are suffering. Please see the "Impact of COVID-19" section earlier in this Item 2 for more information. For the six months endedApril 30, 2020 and 2019, net cash flows from operating activities amounted to$30.7 million and$33.2 million , respectively. OnNovember 1, 2019 , we redeemed all 3,000,000 outstanding shares of our 6.75% Series G Cumulative Preferred Stock for$25 per share, which included all accrued and unpaid dividends. The total amount of the redemption amounted to$75 million . The redemption was funded with proceeds from our recently completed sale of 4,400,000 shares of 5.875% Series K Cumulative preferred stock. We issued the Series K shares onOctober 1, 2019 and raised proceeds of$106.5 million . Our short-term liquidity requirements consist primarily of normal recurring operating expenses and capital expenditures, debt service, management and professional fees, cash distributions to certain limited partners and non-managing members of our consolidated joint ventures, and regular dividends paid to our Common and Class A Common stockholders. Cash dividends paid on Common and Class A Common stock for the six months endedApril 30, 2020 and 2019 totaled$21.8 million and$21.3 million , respectively. Historically, we have met short-term liquidity requirements, which is defined as a rolling twelve month period, primarily by generating net cash from the operation of our properties. As a result of the COVID-19 pandemic that has forced the states where our properties are located to close or restrict the operations of certain businesses, many of our tenants are suffering and some of these tenants have not paid their April orMay 2020 billed rents. We are evaluating each request on a case-by-case basis to determine the best course of action, recognizing that in many cases some type of concession may be appropriate and beneficial to our long-term interests. In evaluating these requests, we are considering many factors, including the tenant's financial strength, the tenant's operating history, potential co-tenancy impacts, the tenant's contribution to the shopping center in which it operates, our assessment of the tenant's long-term viability, the difficulty or ease with which the tenant could be replaced, and other factors. Although each negotiation will be specific to that tenant, it is our intention that most of these concessions will be in the form of deferred rent for some portion of rents due in April through June to be paid over a later part of the lease, preferably within a period of one to two years or less. This will reduce operating cash flow in the near term but most likely increase operating cash flow in future periods. This process is just beginning and will take several months to complete. Please see the "Impact of COVID-19" section earlier in this Item 2 for more information. OnJune 5, 2020 , our Board of Directors declared a quarterly dividend of$0.0625 per Common share and$0.07 per Class A Common share to be paid onJuly 17, 2020 to holders of record onJuly 3, 2020 , reduced approximately 75% from second quarter dividends of$0.25 per Common share and$0.28 per Class A Common share, which will preserve approximately$8.2 million of cash in the third quarter. Given the reduction of operating cash flow and taxable income caused by tenants' nonpayment of rent during the period from April throughJune 2020 , the overall uncertainty of the COVID-19 pandemic's near and potential long-term impact on our business, and the importance of preserving our liquidity position, among other considerations, the Board determined that reducing the quarterly dividend is in the best interests of stockholders after careful consideration of all information available to them at the time. Going forward, our Board of Directors will continue to evaluate our dividend policy. One of the many factors that will impact the Board's determinations regarding future dividend payments are federal tax regulations applicable to REITs that require REITs to distribute at least 90% of its taxable income to stockholders. Because any undistributed taxable income is subject to federal taxation, most REITs, including the Company, typically choose to distribute 100% of its taxable income, but are not required to do so. In addition to monitoring the ongoing COVID-19 situation, we will carefully monitor our REIT status and adjust our dividends, if necessary, to satisfy REIT distribution requirements and allow us to continue qualifying as a REIT forU.S. federal income tax requirements. The Board declared the full contractual dividend on both our Series H and Series K Cumulative Preferred Stock, payable onJuly 31, 2020 to holders of record onJuly 17, 2020 . Our long-term liquidity requirements consist primarily of obligations under our long-term debt, dividends paid to our preferred stockholders, capital expenditures and capital required for acquisitions. In addition, the limited partners and non-managing members of our five consolidated joint venture entities,McLean Plaza Associates, LLC ,UB Orangeburg, LLC ,UB High Ridge, LLC ,UB Dumont I, LLC andUB New City I, LLC , have the right to require us to repurchase all or a portion of their limited partner or non-managing member interests at prices and on terms as set forth in the governing agreements. See Note 3 to the financial statements included in Item 1 of this Report on Form 10-Q. Historically, we have financed the foregoing requirements through operating cash flow, borrowings under our Facility, debt refinancings, new debt, equity offerings and other capital market transactions, and/or the disposition of under-performing assets, with a focus on keeping our debt level low. We expect to continue doing so in the future. We cannot assure you, however, that these sources will always be available to us when needed, or on the terms we desire. Capital Expenditures We invest in our existing properties and regularly make capital expenditures in the ordinary course of business to maintain our properties. We believe that such expenditures enhance the competitiveness of our properties. For the six months endedApril 30, 2020 , we paid approximately$11.7 million for property improvements, tenant improvements and leasing commission costs ($700,000 representing property improvements,$5.2 million in property improvements related to ourStratford project (see paragraph below) and approximately$5.8 million related to new tenant space improvements, leasing costs and capital improvements as a result of new tenant spaces). The amount of these expenditures can vary significantly depending on tenant negotiations, market conditions and rental rates. We expect to incur approximately$8.9 million for anticipated capital improvements, tenant improvements/allowances and leasing costs related to new tenant leases and property improvements during the remainder of fiscal 2020; this amount is inclusive of commitments for the development discussed directly below. These expenditures are expected to be funded from operating cash flows, bank borrowings or other financing sources. As a result of the on-going COVID-19 pandemic we have suspended all significant capital improvement projects with the exception of completion of ourStratford, CT project discussed below. We are currently in the process of developing 3.4 acres of recently-acquired land adjacent to a shopping center we own inStratford, CT . We are building two pad site buildings totaling approximately 5,260 square feet, which are pre-leased to national chains, and a self-storage facility of approximately 131,000 square feet, which will be managed for us by a national self-storage company. We anticipate the total development cost will be approximately$15 million , which we have funded and plan on funding the balance with available cash, by borrowing on our Facility or by using other sources of equity as more fully described earlier in this Item 2. As ofApril 30, 2020 , we have invested approximately$9.8 million in this development. We expect to complete the construction of one of the retail pads and the self-storage building in the fall of 2020.
Financing Strategy, Unsecured Revolving Credit Facility and other Financing Transactions
Our strategy is to maintain a conservative capital structure with low leverage levels by commercial real estate standards. Mortgage notes payable and other loans of$303.3 million consist of$1.7 million in variable rate debt with an interest rate of 5.09% as ofApril 30, 2020 and$301.6 million in fixed-rate mortgage loans with a weighted average interest rate of 4.1% atApril 30, 2020 . The mortgages are secured by 24 properties with a net book value of$553 million and have fixed rates of interest ranging from 3.5% to 4.8%. The$1.7 million in variable rate debt is unsecured. We may refinance our mortgage loans, at or prior to scheduled maturity, through replacement mortgage loans. The ability to do so, however, is dependent upon various factors, including the income level of the properties, interest rates and credit conditions within the commercial real estate market. Accordingly, there can be no assurance that such re-financings can be achieved. AtApril 30, 2020 , we had 51 properties in our consolidated portfolio that were unencumbered by mortgages. Included in the mortgage notes discussed above, we have 8 promissory notes secured by properties we consolidate and 3 promissory notes secured by properties in joint ventures that we do not consolidate. The interest rate on these 11 notes is based on some variation of the London Interbank Offered Rate ("LIBOR") plus some amount of credit spread. In addition, on the day these notes were executed by us, we entered into derivative interest rate swap contracts, the counterparty of which was either the lender on the aforementioned promissory notes or an affiliate of that lender. These swap contracts are in accordance with theInternational Swaps and Derivatives Association, Inc ("ISDA"). These swap contracts convert the variable interest rate in the notes, which are based on LIBOR, to a fixed rate of interest for the life of each note. All indications are that the LIBOR reference rate will no longer be published beginning on or around the year 2021. All contracts, including our 11 promissory notes and 11 swap contracts that use LIBOR, will no longer have the reference rate available and the reference rate will need to be replaced. We have good working relationships with all of our lenders to our notes, who are also the counterparties to our swap contracts. All indications we have received from our lenders and counterparties is that their goal is to have the replacement reference rate under the notes match the replacement rates in the swaps. If this were to happen, we believe there would be no material effect on our financial position or results of operations. However, because this will be the first time any of our promissory notes or swap contracts reference rates will stop being published, we cannot be sure how the replacement rate event will conclude. Until we have more clarity from our lenders and counterparties on how they plan on dealing with this replacement rate event, we cannot be certain of the impact on the Company. See "Item 3. Quantitative and Qualitative Disclosures about Market Risk" included in this Report on Form 10-Q for additional information on our interest rate risk. We currently maintain a ratio of total debt to total assets below 33.2% and a fixed charge coverage ratio of over 3.4 to 1 (excluding preferred stock dividends), which we believe will allow us to obtain additional secured mortgage loans or other types of borrowings, if necessary. We own 51 properties in our consolidated portfolio that are not encumbered by secured mortgage debt. AtApril 30, 2020 , we had borrowing capacity of$64.3 million on our Facility (exclusive of the accordion feature discussed the following paragraph). Our Facility includes financial covenants that limit, among other things, our ability to incur unsecured and secured indebtedness. See Note 2 in our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information on these and other restrictions. We have a$100 million unsecured revolving credit facility with a syndicate of three banks, BNY Mellon, Bank of Montreal andWells Fargo N.A. with the ability under certain conditions to additionally increase the capacity to$150 million , subject to lender approval. The maturity date of the Facility isAugust 23, 2021 , following our exercise of the one-year extension option onMay 26, 2020 . Borrowings under the Facility can be used for general corporate purposes and the issuance of up to$10 million of letters of credit. Borrowings will bear interest at our option of Eurodollar rate plus 1.35% to 1.95% orThe Bank of New York Mellon's prime lending rate plus 0.35% to 0.95%, based on consolidated indebtedness, as defined. We pay a quarterly commitment fee on the unused commitment amount of 0.15% to 0.25% per annum, based on outstanding borrowings during the year. As ofApril 30, 2020 ,$64.3 million was available to be drawn on the Facility. Our ability to borrow under the Facility is subject to its compliance with the covenants and other restrictions on an ongoing basis. The principal financial covenants limit our level of secured and unsecured indebtedness and additionally require us to maintain certain debt coverage ratios. We were in compliance with such covenants atApril 30, 2020 .
At
Net Cash Flows from: Operating Activities Net cash flows provided by operating activities amounted to$30.7 million for the six months endedApril 30, 2020 compared to$33.2 million in the comparable period of fiscal 2019. The decrease in operating cash flows when compared with the corresponding prior period was primarily related to an increase in our tenant accounts receivable related to the impact of the COVID-19 pandemic and increase in other assets offset by an increase in accounts payable and accrued expenses. Investing Activities Net cash flows used in investing activities amounted to$15.3 million for the six months endedApril 30, 2020 compared to$10.0 million in the comparable period of fiscal 2019. The increase in net cash flows used in investing activities in the six months endedApril 30, 2020 when compared to the corresponding prior period was the result of generating proceeds from the sale of a marketable security portfolio in the first half of fiscal 2019 and making an investment in marketable securities in the first half of fiscal 2020. This activity in both years created a negative variance in cash used by investing activities of$13 million . In addition, this increase in net cash used by investing activities was the result of one of our unconsolidated joint ventures selling a property in the first half of fiscal 2019 and distributing our share of the sales proceeds to us in the amount of$6.0 million . The increase was further accentuated by our investing an additional$2.1 million in our properties in the first half of fiscal 2020 when compared with the first half of fiscal 2019. This net increase was offset by our selling one property in the first half of fiscal 2020 and realizing sales proceeds of$3.7 million and our purchasing one property in the first half of fiscal 2019 for$11.8 million .
We
did not purchase any properties in the first half of fiscal 2020.
We regularly make capital investments in our properties for improvements, and pursuant to our obligations for tenant improvements and leasing commissions.
Financing Activities
The$50.9 million increase in net cash flows used by financing activities for the six months endedApril 30, 2020 when compared to the corresponding prior period was predominantly the result of our redemption of our Series G preferred stock for$75 million in the first six months of fiscal 2020. In addition, in fiscal 2019 we refinanced a mortgage and generated an additional$11.1 million in mortgage proceeds. This net increase in cash flows used by financing activities was partially offset by our borrowing$35 million on our Facility during the first six months of fiscal 2020 versus a$2.25 million reduction in net borrowing activity on our Facility during the first six months of fiscal 2019. 25 -------------------------------------------------------------------------------- Index
Results of Operations
The following information summarizes our results of operations for the six months and three months endedApril 30, 2020 and 2019 (amounts in thousands): Six months ended April 30, Change Attributable to Properties Held Increase Property In Both Periods Revenues 2020 2019 (Decrease) % Change Acquisitions/Sales (Note 1) Base rents$ 50,883 $ 50,281 $ 602 1.2 % $ (102 ) $ 704 Recoveries from tenants 14,110 16,825 (2,715 ) (16.1 )% (37 ) (2,678 ) Uncollectible amounts in lease income (1,845 ) (496 ) (1,349 ) 272.0 % n/a n/a Lease termination 348 17 331 1,947.1 % - 331 Other income 2,132 1,745 387 22.2 % (6 ) 393 Operating Expenses Property operating 10,730 11,835 (1,105 ) (9.3 )% (85 ) (1,020 ) Property taxes 11,718 11,718 - - (5 ) 5 Depreciation and amortization 14,283 13,925 358 2.6 % (46 ) 404 General and administrative 6,384 4,919 1,465 29.8 % n/a n/a Non-Operating Income/Expense Interest expense 6,648 7,110 (462 ) (6.5 )% 232 (694 ) Interest, dividends, and other investment income 332 184 148 80.4 % n/a n/a Three Months Ended April 30, Change Attributable to Properties Held Increase Property In Both Periods Revenues 2020 2019 (Decrease) % Change Acquisitions/Sales (Note 1) Base rents$ 25,591 $ 25,218 $ 373 1.5 % $ (158 ) $ 531 Recoveries from tenants 6,115 8,373 (2,258 ) (27.0 )% (76 ) (2,182 ) Uncollectible amounts in lease income (1,503 ) (242 ) (1,261 ) 521.1 % n/a n/a Lease termination income 139 - 139 100.0 % - 139 Other income 938 756 182 24.1 % (7 ) 189 Operating Expenses Property operating 4,801 5,905 (1,104 ) (18.7 )% (123 ) (981 ) Property taxes 5,908 5,805 103 1.8 % (39 ) 142 Depreciation and amortization 7,148 6,985 163 2.3 % (51 ) 214 General and administrative 3,607 2,265 1,342 59.2 % n/a n/a Non-Operating Income/Expense Interest expense 3,309 3,532 (223 ) (6.3 )% 112 (335 ) Interest, dividends, and other investment income 238 55 183 332.7 % n/a n/a Note 1 - Properties held in both periods includes only properties owned for the entire periods of 2020 and 2019 and for interest expense the amount also includes parent company interest expense. All other properties are included in the property acquisition/sales column. There are no properties excluded from the analysis. Base rents increased by 1.2% to$50.9 million for the six month period endedApril 30, 2020 as compared with$50.3 million in the comparable period of 2019. Base rents increased by 1.5% to$25.6 million for the three month period endedApril 30, 2020 as compared with$25.2 million in the comparable period of 2019. The change in base rent and the changes in other income statement line items analyzed in the table above were attributable to: 26 -------------------------------------------------------------------------------- Index
Property Acquisitions and Properties Sold:
In the first six months of fiscal 2019, we purchased one property totaling 177,000 square feet, and sold one property totaling 10,100 square feet. In the first six months of fiscal 2020, we sold two properties totaling 18,100 square feet. These properties accounted for all of the revenue and expense changes attributable to property acquisitions and sales in the six months endedApril 30, 2020 when compared with fiscal 2019.
Properties Held in Both Periods:
Revenues
Base Rent The net increase in base rents for the six month and three month periods endedApril 30, 2020 , when compared to the corresponding prior periods, was predominantly caused by an increase in base rents at most properties related to normal base rent increases provided for in our leases, new leasing at some properties and base rent revenue related to two new grocery store leases for which rental recognition began in the first six months of fiscal 2020. The new grocer tenants areWhole Foods at ourValley Ridge shopping center inWayne, NJ and DeCicco's at ourEastchester, NY property. This increase was offset by a decrease in base rent revenue at six properties related to tenant vacancies. The most significant of these vacancies were the vacating of TJ Maxx at ourNew Milford, CT property and a tenant at ourDanbury, CT property after the first half of fiscal 2019.
In the first six months of fiscal 2019, we leased or renewed approximately
257,000 square feet (or approximately 5.6% of total consolidated property
leasable area). At
Tenant Recoveries In the six month and three month periods endedApril 30, 2020 , recoveries from tenants (which represent reimbursements from tenants for operating expenses and property taxes) decreased by a net$2.7 million and$2.3 million , respectively, when compared with the corresponding prior periods. This decrease was predominantly the result of a negative variance relating to reconciliation of the accruals for real estate tax recoveries billed to tenants in the first half of fiscal 2019 and 2020. The decrease was further attributable to accruing a lower percentage of recovery at most of our properties as a result of our assessment that many of our smaller local tenants will have difficulty paying the full amounts required under their leases as a result of the COVID 19 pandemic. This assessment was based on the fact that many smaller tenants' businesses were deemed non-essential by the states where they operate and were forced to close. In addition, this decrease was accentuated by a large real estate tax reduction at one of our properties pursuant to a successful tax reduction proceeding, which reduces the amount to be billed back to tenants at that property. These net decreases were offset by increased tax assessments at our other properties held in both periods, which increases the amount of tax due and the amount billed back to tenants for those billings. Uncollectable Amounts in Lease Income In the six month and three month periods endedApril 30, 2020 , uncollectable amounts in lease income increased by$1.3 million . This increase was the result of an increase in our assessment of the collectability of existing non-credit small shop tenants' receivables given the on-going COVID-19 pandemic. Many non-credit small shop tenants' businesses were deemed non-essential by the states where they operate and were forced to close. Our assessment was based on the premise that as we emerge from the COVID-19 pandemic, our non-credit small shop tenants will need to use most of their resources to re-establish their business footing and any existing accounts receivable attributable to these tenants would most likely be uncollectable.
Expenses
Property Operating In the six month and three month periods endedApril 30, 2020 , property operating expenses decreased by$1.0 million and$981,000 , respectively as a result of a large decrease in snow removal costs and parking lot repairs in the first half of fiscal 2020 when compared with the first half of fiscal 2019. Property Taxes In the six month and three month periods endedApril 30, 2020 , property tax expense was relatively unchanged when compared with the corresponding prior periods. In the first half of fiscal 2020, one of our properties received a large real estate tax expense reduction as a result of a successful tax reduction proceeding. This decrease was offset by increased tax assessments at our other properties held in both periods, which increases the amount of tax due.
Interest
In the six month and three month periods endedApril 30, 2020 , interest expense decreased by$694,000 and$335,000 , respectively, when compared with the corresponding prior periods, as a result of a reduction in interest expense related to our Facility. InOctober 2019 , we used a portion of the proceeds from a new series of preferred stock to repay all amounts outstanding on our Facility. Depreciation and Amortization In the six month and three month periods endedApril 30, 2020 , depreciation and amortization increased by$404,000 and$214,000 , respectively, when compared with the prior periods primarily, as a result of a write off of tenant improvements related to a tenant that vacated ourDanbury, CT property in the first quarter of fiscal 2020. General and Administrative Expenses In the six month and three month periods endedApril 30, 2020 , general and administrative expenses increased by$1.5 million and$1.3 million , respectively, when compared with the corresponding prior periods, as a result of an increase of$1.4 million in restricted stock compensation expense in the second quarter of fiscal 2020 for the accelerated vesting of the grant value of restricted stock for our former Chairman Emeritus when he passed away in the second quarter of fiscal 2020. The increase in the six month period endedApril 30, 2020 was further accentuated by an increase of$353,000 in compensation and benefits expense predominantly related to an increase in cash bonuses paid in the first quarter of fiscal 2020 and an increase in employee medical insurance costs when compared with the corresponding prior periods. 27 -------------------------------------------------------------------------------- Index
Funds from Operations
We consider Funds from Operations ("FFO") to be an additional measure of our
operating performance. We report FFO in addition to net income applicable to
common stockholders and net cash provided by operating activities. Management
has adopted the definition suggested by The National Association of Real Estate
Investment Trusts ("NAREIT") and defines FFO to mean net income (computed in
accordance with GAAP) excluding gains or losses from sales of property, plus
real estate-related depreciation and amortization and after adjustments for
unconsolidated joint ventures.
Management considers FFO a meaningful, additional measure of operating
performance because it primarily excludes the assumption that the value of our
real estate assets diminishes predictably over time and industry analysts have
accepted it as a performance measure. FFO is presented to assist investors in
analyzing our performance. It is helpful as it excludes various items included
in net income that are not indicative of our operating performance, such as
gains (or losses) from sales of property and depreciation and amortization.
However, 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); and
• should not be considered an alternative to net income as an indication of our
performance. FFO as defined by us may not be comparable to similarly titled items reported by other real estate investment trusts due to possible differences in the application of the NAREIT definition used by such REITs. The table below provides a reconciliation of net income applicable to Common and Class A Common stockholders in accordance with GAAP to FFO for the six months and three months endedApril 30, 2020 and 2019 (amounts in thousands): Reconciliation of Net Income Available to Common and Class A Common Stockholders To Funds From Operations: Six months ended Three Months Ended April 30, April 30, 2020 2019 2020 2019 Net Income Applicable to Common and Class A Common Stockholders$ 7,870 $ 11,652 $ 2,799 $ 5,798 Real property depreciation 11,336 11,333 5,665 5,669 Amortization of tenant improvements and allowances 2,075 1,732 1,039 849 Amortization of deferred leasing costs 828 812 421 419 Depreciation and amortization on unconsolidated joint ventures 747 753 374 373 (Gain)/loss on sale of property 328 - (11 ) - Loss on sale of property in unconsolidated joint venture - 457 - 94
Funds from Operations Applicable to
Common and Class A Common Stockholders
FFO amounted to$23.2 million in the six months endedApril 30, 2020 compared to$26.7 million in the comparable period of fiscal 2019. The net decrease in FFO is attributable, among other things to:
Decreases:
• An increase in uncollectable amounts in lease income of
increase was the result of an increase in our assessment of the collectability
of existing non-credit small shop tenants' receivables given the on-going
COVID-19 pandemic. Many non-credit small shop tenants' businesses were deemed
non-essential by the states where they operate and were forced to close. Our
assessment was based on the premise that as we emerge from the COVID-19
pandemic our non-credit small shop tenants will need to use most of their
resources to re-establish their business footing and any existing accounts
receivable attributable to those tenants would most likely be uncollectable.
• A net
related to the COVID-19 pandemic. In the second quarter of fiscal 2020, in
response to the on-going COVID-19 pandemic we lowered our percentage of
recovery at most of our properties as a result of our assessment that many of
our smaller local tenants will have difficulty paying the amounts required
under their leases as a result of the COVID 19 pandemic. This assessment was
based on the fact that many smaller tenants' businesses were deemed
non-essential by the states where they operate and those businesses forced to
close.
• A decrease in variable lease income (cost recovery income) related to an
over-accrual adjustment in recoveries from tenants for real estate taxes in the
first quarter of fiscal 2020 versus an under-accrual adjustment in recoveries
from tenants for real estate taxes in the first quarter of fiscal 2019, which
combined, resulted in a negative variance in the first half of fiscal 2020 when
compared to the first half of fiscal 2019.
• A net increase in general and administrative expenses of
predominantly related to an increase in compensation and benefits expense for
the accelerated vesting of restricted stock grant value upon the death of our
former Chairman Emeritus in the second quarter of fiscal 2020.
• A net increase in preferred stock dividends of
a new series of preferred stock in fiscal 2019 and redeeming an existing
series. The new series has a principal value
redeemed series, which increased preferred stock dividends by
The new series has a lower coupon rate of 5.875% versus 6.75% on the redeemed
series, which reduced preferred stock dividends by
Increases:
• An increase in base rent of
first half of fiscal 2020 to two new large grocery store tenants. The first
was a new 40,000 square foot Whole Foods Markets at our
center in
Shoppes' at
• A
fiscal 2020 when compared with the corresponding prior period.
• A
Facility in the fourth quarter of fiscal 2019 with proceeds from our new series
of preferred stock. FFO amounted to$10.3 million in the three months endedApril 30, 2020 compared to$13.2 million in the comparable period of fiscal 2019. The net decrease in FFO is attributable, among other things to:
Decreases:
• An increase in uncollectable amounts in lease income of
increase was the result of an increase in our assessment of the collectability
of existing non-credit small shop tenants' receivables given the on-going
COVID-19 pandemic. Many non-credit small shop tenants businesses were deemed
non-essential by the states where they operate and forced to close. Our
assessment was based on the premise that as we emerge from the COVID-19
pandemic our non-credit small shop tenants will need to use most of their
resources to re-establish their business footing and any existing accounts
receivable attributable to these tenants would most likely be uncollectable.
• A net
related to the COVID-19 pandemic. In the second quarter of fiscal 2020, in
response to the on-going COVID-19 pandemic we lowered our percentage of
recovery at most of our properties as a result of our assessment that many of
our smaller local tenants will have difficulty paying the full amounts required
under their leases as a result of the COVID 19 pandemic. This assessment was
based on the fact that many smaller tenants businesses were deemed
non-essential by the states where they operate and forced to close.
• A net increase in general and administrative expenses of
predominantly related to an increase in compensation and benefits expense for
the accelerated vesting of restricted stock grant value upon the death of our
former Chairman in the second quarter of fiscal 2020.
• A net increase in preferred stock dividends of
a new series of preferred stock in fiscal 2019 and redeeming an existing
series. The new series has a principal value
redeemed series, which increased preferred stock dividends by
new series has a lower coupon rate of 5.875% versus 6.75% on the redeemed series, which reduced preferred stock dividends by$164,000 .
Increases:
• An increase of base rent of
first half of fiscal 2020 to two new large grocery store tenants. The first
was a new 40,000 square foot Whole Foods Markets at our
center in
Shoppes' at
• A
Facility in the fourth quarter of fiscal 2019 with proceeds from our new series
of preferred stock.
28
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IndexOff-Balance Sheet Arrangements
We have six off-balance sheet investments in real property through unconsolidated joint ventures:
• a 66.67% equity interest in the
• an 11.792% equity interest in
• a 50% equity interest in the
• a 50% equity interest in the
Applebee's Plaza, and
• a 20% interest in a suburban office building with ground level retail.
These unconsolidated joint ventures are accounted for under the equity method of accounting, as we have the ability to exercise significant influence over, but not control of, the operating and financial decisions of these investments.
Our
off-balance sheet arrangements are more fully discussed in Note 4, "Investments in and Advances toUnconsolidated Joint Ventures " in our financial statements in Item 1 of this Quarterly Report on Form 10-Q. Although we have not guaranteed the debt of these joint ventures, we have agreed to customary environmental indemnifications and nonrecourse carve-outs (e.g. guarantees against fraud, misrepresentation and bankruptcy) on certain loans of the joint ventures. The below table details information about the outstanding non-recourse mortgage financings on our unconsolidated joint ventures (amounts in thousands): Principal Balance Joint Venture At April 30, Fixed Interest Rate Description Location Original Balance 2020 Per Annum Maturity Date Midway Shopping
Center
4.80 % Dec-2027
Shopping Center
4.81 % Oct-2028
4.18 % Feb-2024
Applebee's Plaza
3.38 % Aug-2026
Environmental Matters
Based upon management's ongoing review of its properties, management is not
aware of any environmental condition with respect to any of our properties that
would be reasonably likely to have a material adverse effect on us. There can be
no assurance, however, that (a) the discovery of environmental conditions that
were previously unknown, (b) changes in law, (c) the conduct of tenants or (d)
activities relating to properties in the vicinity of our properties, will not
expose us to material liability in the future. Changes in laws increasing the
potential liability for environmental conditions existing on properties or
increasing the restrictions on discharges or other conditions may result in
significant unanticipated expenditures or may otherwise adversely affect the
operations of our tenants, which could adversely affect our financial condition
and results of operations.
29
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Index© Edgar Online, source
