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") 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, and the uncertainty regarding the efficacy and timing of vaccines and other medical responses to the pandemic.
Important factors, among others, that may affect our actual results include:
• negative impacts from the continued spread of COVID-19, including on the
or global economy or on our business, financial position or results of 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;
and
• other risks identified in our Annual Report on Form 10-K under Item 1A. Risk
Factors for the fiscal year ended
filed by the Company with the
19
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Index
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, anchored by
supermarkets, pharmacy/drug-stores and wholesale clubs, with a concentration in
the metropolitan tri-state area outside of the City of New York . Other real
estate assets include office properties, one self-storage facility, 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 January 31, 2021 , 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 5.2 million square feet of
Gross Leasable Area ("GLA"). Of the properties owned by wholly-owned
subsidiaries or joint venture entities that we consolidate, approximately 89.8%
of the GLA was leased (90.4% at October 31, 2020 ). Of the properties owned by
unconsolidated joint ventures, approximately 91.1% of the GLA was leased (91.1%
at October 31, 2020 ). In addition, we own and operate a self-storage facility
at one of our retail properties. This business is managed for us by Extra Space
Storage, a publicly traded REIT. The self-storage facility is located in the
back of our Yorktown Heights, NY shopping center in below grade space. As of
January 31, 2021 , the self-storage facility had 57,414 of available GLA, which
was 98.6% leased. The rent per available square foot was $24.21 .
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 not currently 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 if we
determine that any such store would be a strategic fit for our overall business
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 ofFebruary 20, 2021 . 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 fiscal 2021 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 our 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. During the early part of the pandemic, these containment measures, as implemented by the tri-state area ofConnecticut ,New York andNew Jersey , generally permitted businesses designated as "essential" to remain open, thereby limiting the operations of different categories of our tenants to varying degrees. Since early summer, many (but not all) of these restrictions have been gradually lifted as the COVID-19 situation in the tri-state area significantly improved, with most businesses now permitted to open at reduced capacity and under other limitations intended to control the spread of COVID-19. Moreover, not all tenants have been impacted in the same way or to the same degree by the pandemic and the measures adopted to control the spread of COVID-19. For example, grocery stores, pharmacies and wholesale clubs have been permitted to remain fully open throughout the pandemic and have generally performed well given their focus on food and necessities. Many restaurants have also been considered essential, although social distancing and group gathering limitations have generally prevented or limited dine-in activity, forcing tenants to evaluate alternate means of operations, such as outdoor dining, delivery and pick-up. The large majority of our restaurant tenants are fast casual, rather than full-service restaurants. For a number of our tenants that operate businesses involving high contact interactions with their customers, such as spas and salons, the negative impact of COVID-19 on their business has been more severe and the recovery more difficult. Gyms and fitness tenants have experienced varying results. Dry cleaners have also suffered as a result of many workers continuing to work from home. The following additional information reflects the impact of COVID-19 on our portfolio and tenants:
• As of
restaurants and stand-alone bank branches are open and operating, with
approximately 99.1% of our tenants (based on Annualized Base Rent ("ABR")) open
and fully or partially operating and approximately 0.9% of our tenants currently closed.
• As of
tenants, with approximately 70.7% of our tenants (based on ABR) designated as
"essential businesses" during the early stay-at-home period of the pandemic in
the tri-state area or otherwise permitted to operate through curbside pick-up
and other modified operating procedures in accordance with state guidelines.
These essential businesses are 98.9% open based on ABR.
• As of
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, with the
remaining 2% of our GLA consisting of six suburban office buildings located in
one childcare center. All 6 suburban office buildings are open with some
restrictions on capacity based on state mandates and all of the retail bank
branches are open.
• As of
and 81.7% of lease income, consisting of contractual base rent (leases in place
without consideration of any deferral or abatement agreements), common area
maintenance reimbursement and real estate tax reimbursement billed for April
2020 through
deposits.
• Similar to other retail landlords across
number of requests for rent relief from tenants, with most requests received
during the early days of the pandemic when stay-at-home orders were in place
and many businesses were required to close, but we have continued to receive a
smaller number of new requests even after businesses have re-opened, and in
some cases, follow-on requests from tenants to whom we had already provided
temporarily rent relief. We have been 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 have been 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 difficult or ease with which the tenant could be replaced, and
other factors. Although each negotiation has been specific to that tenant,
most of these concessions have been in the form of deferred rent for some
portion of rents due in April through
back over the later part of the lease, preferably within a period of one year
or less. In addition, some of these concessions have been in the form of rent
abatements for some portion of tenant rents due in
2020 or longer.
• As of
approximately 870 tenants in our consolidated portfolio. Subsequently,
approximately 116 of the 401 tenants withdrew their request for rent relief or
paid their rent in full. These requests represent 44.7% of our ABR and 35.0% of
our GLA. Since the on-set of COVID-19 through
completed 266 lease modifications, consisting of base rent deferrals totaling
3.5% of our ABR. Included in the aforementioned amounts were the rent deferrals
and abatements completed in the three months ended
amounted to 32 rent deferrals or abatements, which deferred
rents, or 0.4% of our ABR and abated
ABR. Included in the$2.0 million in abatement this quarter were for$1.0 million base rents due in periods afterJanuary 31, 2021 . Each reporting period we must make estimates as to the collectability of our tenants' accounts receivable related to base rent, straight-line rent, expense reimbursements and other revenues. Management analyzes accounts receivable by considering tenant creditworthiness, current economic trends, including the impact of the COVID-19 pandemic on tenants' businesses, and changes in tenants' payment patterns when evaluating the adequacy of the allowance for doubtful accounts. As a result of this analysis, we have increased our allowance for doubtful accounts by$654,000 in the three months endedJanuary 31, 2021 , which represents approximately 0.7% of ABR. Management has every intention of collecting as much of our billed rents, to the extent feasible, regardless of the requirement under Generally Accepted Accounting Principles ("GAAP") to reserve for uncollectable accounts. In addition, the GAAP accounting standard governing leases requires, among other things, that if a specific tenant's future lease payments as contracted are not probable of collection, revenue recognition for that tenant must be converted to cash-basis accounting and be limited to the lesser of the amount billed or collected from that tenant, and any straight-line rental receivables would need to be reversed in the period that the collectability assessment is changed to not probable. As a result of the continuing analysis of our entire tenant base we have determined that 80 tenants' future lease payments were no longer probable of collection (9.2% of our approximate 870 tenants), which included 16 tenants' converted to cash-basis accounting in the three months endedJanuary 31, 2021 in accordance with ASC Topic 842. As a result of this assessment, in the three months endedJanuary 31, 2021 , we reversed lease income in the amount of$999,000 , which represented a reversal of prior billed but unpaid accounts receivable related to the tenants converted to cash-basis accounting in the current quarter and billed but unpaid rents for three months endedJanuary 31, 2021 related to all 80 tenants converted to cash basis accounting atJanuary 31, 2021 . The reduction to lease income was approximately 1.0% of ABR. In addition, as a result of this assessment, we reversed$441,000 in the three months endedJanuary 31, 2021 of accrued straight-line rent receivables related to the 16 tenants converted to cash-basis accounting this quarter, which represents approximately 0.5% of ABR. Both of these reversals, totaling$1.4 million in the three months endedJanuary 31, 2021 , results in a direct reduction of lease income on our consolidated income statement. Each reporting period management assesses whether there are any indicators that the value of its real estate investments may be impaired and has concluded that none of its investment properties are impaired atJanuary 31, 2021 . The COVID-19 pandemic has however, 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 the underlying 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 real estate asset portfolio for any impairment indicators as required under GAAP. If we determine that any of our real estate 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.
Actions Taken in Response to COVID-19
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 in March
2020, which worked seamlessly, with no disruption in our service to tenants and
other business partners. On
of
with employees encouraged to continue working from home when feasible
consistent with business needs. 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.
• We are in regular 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 to whom the tenant can turn with questions and concerns during
these uncertain times.
• In addition, we launched a program designating dedicated parking spots for
curbside pick-up at our shopping centers for use by all tenants and their
customers, assisted 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
borrowed
• At
equivalents on our consolidated balance sheet, and an additional
available under our Facility (excluding the
• The only unsecured debt we have outstanding are draws on our Facility.
The
Facility matures in
refinancing of the Facility that will increase the capacity and extend the
maturity for three years with an additional one-year company extension option.
We hope to have the Facility refinanced by our second quarter of fiscal 2021.
Additionally, we do not have any secured debt maturing until
maturing secured debt in fiscal 2022 is generally below a 45% loan-to-value
ratio, and we believe we will be able to refinance that debt.
• 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.
• Although we continue to seek opportunities to acquire high-quality neighborhood
and community shopping centers, we have temporarily redirected the executives
in our acquisition department to help with lease negotiations.
• On
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. The Company has
availed itself of some of the above benefits afforded by The CARES Act.
• On
part of the Consolidated Appropriations Act, 2021 (the "COVID Supplemental
Appropriations Act"). Among other things, the COVID Supplemental
Appropriations Act will enhance various support features of the previously
enacted Cares Act, increase unemployment payments and extend the time frame for
unemployment benefits, and re-implement a modified version of the Paycheck
Protection Program for small businesses and eligible non-profits. As with the
Cares Act, the Company has disseminated information about the COVID
Supplemental Appropriations Act to our tenants through our website and general
ledger system.
• On
50% from pre-pandemic dividend levels of
Class A Common share. The announced dividend level preserved approximately
pre-pandemic dividend levels. Given the reduction of operating cash flow and
taxable income caused by tenants' nonpayment of rent during the period from
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 after careful consideration of all
information available to it at the time that reducing the quarterly dividend,
when compared with the pre-pandemic level, is in the best interests of
stockholders. Based on the Company's updated taxable income projections for the
fiscal year ending 2021, we will most likely need to pay dividends over the
remainder of the fiscal year at higher levels in order to meet the distribution
requirements necessary for it to continue qualifying as a REIT for
income tax requirements. The Board may determine that the increased level
would be more appropriate towards the latter part of fiscal 2021 once,
hopefully, a vaccine has become widely disseminated, the pandemic has begun to
wane and the economy and our properties have returned to some normalcy. We
cannot, however, be certain as to the level or timing of any such dividend
increase. The Board declared the full contractual dividend on both our Series
H and Series K Cumulative Preferred Stock, which was paid on
to holders of record on
will continue to evaluate our dividend policy. The next dividend payment
determination will be made at our regular Board of Directors meeting, which
will be held on
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. See "Risk Factors included in ourOctober 31, 2020 Annual Report on Form 10-K."
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. 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
metropolitan tri-state area outside of the
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 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 (e.g. curbside pick-up), 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, anticipating tenant weakness
when necessary by pre-leasing their spaces and replacing below-market-rent
leases with increased market rents, with an eye towards securing leases that
include regular or fixed contractual increases to minimum rents;
• improve and refine 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 or micro-fulfillment strategy. We launched a program designating dedicated parking spots for curbside pick-up and are assisting tenants in many other ways to help them quickly adapt to these changing circumstances. Many tenants have adapted to the new business environment through use of our curbside pick-up program and early industry data seems to indicate that micro-fulfillment from retailers with physical locations may be a new competitive alternative to e-commerce. 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 in fiscal 2021 (or possibly beyond), as it may be difficult to correctly value a property 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 chose to borrow$35 million under our Facility during March andApril 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 restrict business operations and individuals to adhere to social distancing policies, or potentially until a medical solution is achieved for COVID-19. We will continue to accrue rental revenue during the deferral period, except for tenants for which revenue recognition was converted to cash basis accounting in accordance with ASC Topic 842. However, we anticipate that some tenants eventually will be unable 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 2020 throughJanuary 2021 rental income 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 rates than we 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 impacts of any changes are difficult to predict, particularly during the course of the current COVID-19 pandemic.
Transaction Highlights of Fiscal 2021; Recent Developments
Set forth below are highlights of our recent property acquisitions, potential acquisitions under contract, other investments, property dispositions and financings:
• In
noncontrolling member. The total cash price paid for the redemption was
increased to 17.0% from 16.3%.
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IndexLeasing
For the three months endedJanuary 31, 2021 , we signed leases for a total of 189,000 square feet of retail space in our consolidated portfolio. New leases for vacant spaces were signed for 18,000 square feet at an average rental decrease of 12.3% on a cash basis. Renewals for 171,000 square feet of space previously occupied were signed at an average rental decrease of 3.0% on a cash basis. Tenant improvements and leasing commissions averaged$32.20 per square foot for new leases for the three months endedJanuary 31, 2021 . We did not pay any tenant improvements and leasing commissions on renewal leases for the three months endedJanuary 31, 2021 . The average term for new leases was 6 years and the average term for renewal leases was 4 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 2021 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 Leasing Events
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, and subsequently liquidated 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, the ground lease has been subsequently sold to a national retailer,Ocean State Job Lot who plans to operate a store in approximately 45,000 square feet of the 65,700 square feet covered by the lease.
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.
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IndexCritical Accounting Estimates
Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation and uncertainty and are reasonably likely to have a material impact on the financial condition or results of operations of the Company and require management's most difficult, complex or subjective judgments. Our most significant accounting estimates are as follows:
• Valuation of investment properties
• Revenue recognition
• Determining the amount of our allowance for doubtful accounts
Valuation of investment properties At each reporting period management must assess whether the value of any of its investment properties are impaired. The judgement of impairment is subjective and requires management to make assumptions about future cash flows of an investment property and to consider other factors. The estimation of these factors has a direct effect on valuation of investment properties and consequently net income. As ofJanuary 31, 2021 , management does not believe that any of our investment properties are impaired based on information available to us atJanuary 31, 2021 . In the future, almost any level of impairment would be material to our net income. Revenue Recognition Our main source of revenue is lease income from our tenants for whom we lease space to in our 81 shopping centers. The COVID-19 Pandemic has caused distress for many of our tenants as some of those tenant businesses were forced to close early in the pandemic ,and although most have been allowed to re-open and operate, many tenants like restaurants and fitness/gyms are operating at reduced capacity or operational efficiency. As a result we have many tenants who have had difficulty paying all of their contractually obligated rents and we have reached agreements with many of them to defer or abate portions of the contractual rents due under their leases with the Company. In accordance with ASC Topic 842, where appropriate, we will continue to accrue rental revenue during the deferral period, except for tenants for which revenue recognition was converted to cash basis accounting in accordance with ASC Topic 842. However, we anticipate that some tenants eventually will unable to pay amounts due, and we will incur losses against our rent receivables, which would reduce lease income. The extent and timing of the recognition of such losses will depend on future developments, which are highly uncertain and cannot be predicted and these future losses could be material. Allowance for doubtful accounts GAAP requires us to bill our tenants based on the terms in their leases and to record lease income on a straight-line basis, when a tenant does not pay a billed amount due under their lease it becomes a tenant account receivable, or an asset of the Company. GAAP requires that receivables, like most assets, be recorded at their realizable value. Each reporting period we analyze our tenant accounts receivable and based on the information available to management at the time and record an allowance for doubtful account for any unpaid tenant receivable that we believe is uncollectable. This analysis is subjective and the conclusions reached have a direct impact on net income. As ofJanuary 31, 2021 , the portion of our billed but unpaid tenant receivables, excluding straight-line rent receivables that we believe are collectable amounts to$1.7 million . In addition, we have an additional$3.4 million in unbilled accruals for tenant reimbursement income that we believe to be realizable atJanuary 31, 2021 . For a further discussion about our accounting estimates and critical accounting policies, please see Note 1 in our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q and Note 1 in our consolidated financial statements included in Item 8 of ourOctober 31, 2020 Annual Report on From 10-K.
Liquidity and Capital Resources
Overview
AtJanuary 31, 2021 , we had cash and cash equivalents of$37.1 million , compared to$40.8 million atOctober 31, 2020 . 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 restricting store operations to help prevent the spread of COVID-19, many of our tenants are suffering. Please see the "Impact of COVID-19" section earlier in this Item 2 for more information. For the three months endedJanuary 31, 2021 and 2020, net cash flows from operating activities amounted to$14.6 million and$15.8 million , respectively. 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 three months endedJanuary 31, 2021 and 2020 totaled$5.5 million and$10.9 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, we have made a number of concessions in the form of deferred rents and rent abatements, as more extensively discussed under the "Impact of COVID-19" section earlier in this Item 2. To the extent rent deferral arrangements remain collectible, it will reduce operating cash flow in the near term but most likely increase operating cash flow in future periods. This process is ongoing. During the first quarter of fiscal 2021, the Board of Directors declared and the Company paid quarterly dividends that were reduced from pre-pandemic levels, as more extensively discussed under the "Impact of COVID-19" section earlier in this Item 2. Future determinations regarding quarterly dividends will impact the Company's short-term liquidity requirements. 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 consolidated 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 three months endedJanuary 31, 2021 , we paid approximately$6.7 million for property improvements, tenant improvements and leasing commission costs ($2.2 million representing property improvements,$3.4 million in property improvements related to ourStratford project (see paragraph below) and approximately$1.1 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$4.9 million for anticipated capital improvements, tenant improvements/allowances and leasing costs related to new tenant leases and property improvements during the remainder of fiscal 2021 and fiscal 2022. This amount is inclusive of commitments for theStratford, CT 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 other than the 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 5,200 square feet, which are pre-leased to national retail 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$18.8 million (excluding land cost), of which we have already funded$16.8 million as ofJanuary 31, 2021 and plan on funding the balance with available cash, borrowings on our Facility or other sources, as more fully described earlier in this Item 2. We have completed the construction of one of the retail pads and the self-storage building as ofJanuary 31, 2021 .
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$297.5 million consist of$1.7 million in variable rate debt with an interest rate of 5.09% as ofJanuary 31, 2021 and$295.8 million in fixed-rate mortgage loans with a weighted average interest rate of 4.1% atJanuary 31, 2021 . The mortgages are secured by 24 properties with a net book value of$517 million and have fixed rates of interest ranging from 3.5% to 4.9%. 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. AtJanuary 31, 2021 , we had 51 properties in our consolidated portfolio that were unencumbered by mortgages. Included in the mortgage notes discussed above, we have eight promissory notes secured by properties we consolidate and three 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 the reference rates for our promissory notes or swap contracts 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 33.0% and a fixed charge coverage ratio of over 3.2 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. AtJanuary 31, 2021 , we had borrowing capacity of$64.3 million on our Facility (exclusive of the accordion feature discussed in 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 ofJanuary 31, 2021 ,$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 atJanuary 31, 2021 .
We are currently in the process of renewing our Facility and hope to have it completed in the second quarter of 2021.
At
Net Cash Flows from: Operating Activities
Net cash flows provided by operating activities amounted to
Investing Activities
Net cash flows used in investing activities amounted to$6.2 million for the three months endedJanuary 31, 2021 compared to$1.9 million in the comparable period of fiscal 2020. The increase in net cash flows used in investing activities in the three months endedJanuary 31, 2021 when compared to the corresponding prior period was the result of our investing an additional$819,000 in our properties in the first three months of fiscal 2021 when compared with the first three months of fiscal 2020 and investing in a note receivable in the amount of$2.2 million . In addition, the increase was the result of receiving$983,000 more in proceeds from the sale of properties in the first three months of fiscal 2020 versus the first three months of fiscal 2021.
We regularly make capital investments in our properties for improvements, and pursuant to our obligations for tenant improvements and leasing commissions.
Financing Activities
The$81.5 million decrease in net cash flows used by financing activities for the three months endedJanuary 31, 2021 when compared to the corresponding prior period was predominantly the result of the redemption of our Series G preferred stock for$75 million in the first three months of fiscal 2020. In addition, for the first three months of fiscal 2021 when compared to corresponding prior period, we paid$5.4 million less in dividends on our Common and Class A Common stock in response to a loss of cash flow caused by the effects of the COVID-19 pandemic. 22 -------------------------------------------------------------------------------- Index
Results of Operations
The following information summarizes our results of operations for the three
months ended
Three Months Ended Change Attributable to
Properties Held
January 31, Increase Property In
Both Periods
Revenues 2021 2020 (Decrease) % Change Acquisitions/Sales (Note 1)
Base rents $ 24,159 $ 25,292 $ (1,133 ) (4.5 )% $ 66 $ (1,199 )
Recoveries from tenants 9,978 7,995 1,983 24.8 % - 1,983
Uncollectable amounts in lease income (655 ) (342 ) (313 ) 91.5 % - (313 )
ASC Topic 842 cash basis lease income reversal (999 ) - (999 ) 100.0 % - (999 )
Lease termination 705 209 496 237.3 % - 496
Other income 1,089 1,194 (105 ) (8.8 )% (24 ) (81 )
Operating Expenses
Property operating 6,314 5,929 385 6.5 % (7 ) 392
Property taxes 5,861 5,810 51 0.9 % - 51
Depreciation and amortization 7,518 7,135 383 5.4 % 76 307
General and administrative 2,644 2,777 (133 ) (4.8 )% n/a n/a
Non-Operating Income/Expense
Interest expense 3,392 3,339 53 1.6 % - 53
Interest, dividends, and other investment income 43 94 (51 ) (54.3 )% n/a n/a
Note 1 - Properties held in both periods includes only properties owned for the
entire periods of 2021 and 2020 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 decreased by 4.5% to $24.2 million for the three month period
ended January 31, 2021 as compared with $25.3 million in the comparable period
of 2020. The change in base rent and the changes in other income statement line
items analyzed in the table above were attributable to:
23
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IndexProperty Acquisitions and Properties Sold:
In the first three 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 three months
ended
Properties Held in Both Periods:
Revenues
Base Rent The net decrease in base rents for the three month period endedJanuary 31, 2021 , when compared to the corresponding prior period, was predominantly caused by a reduction of$441,000 in the first three months of fiscal 2021 for a reversal of straight-line rents for tenants whose revenue recognition was switched to cash-basis accounting in accordance with ASC Topic 842. There was no such reversal in the first three months of fiscal 2020. In addition, the reduction of base rents was caused by a decrease in occupancy rates in the first quarter of fiscal 2021 when compared with the corresponding prior period, predominantly related to the vacancies at nine properties. In the first three months of fiscal 2021, we leased or renewed approximately 189,000 square feet (or approximately 4.2% of total GLA). AtJanuary 31, 2021 , the Company's consolidated properties were 89.8% leased (90.4% leased atOctober 31, 2020 ). Tenant Recoveries In the three month period endedJanuary 31, 2021 , recoveries from tenants (which represent reimbursements from tenants for operating expenses and property taxes) increased by a net$2.0 million when compared with the corresponding prior period. The increase in tenant recoveries for the three month period endedJanuary 31, 2021 when compared to the corresponding prior period was the result of having higher common area maintenance expenses in the three month period of fiscal 2021 when compared with the three month period of fiscal 2020 related to roof repairs, canopy repairs, and parking lot repairs. In addition, we completed the 2020 annual reconciliations for both common area maintenance and real estate taxes in the first quarter of fiscal 2021 and those reconciliations resulted in us billing our tenants more than we had anticipated and accrued for in the prior period, which increased tenant reimbursement income in the current quarter. Uncollectable Amounts in Lease Income In the three month period endedJanuary 31, 2021 , uncollectable amounts in lease income increased by$313,000 . This increase was predominantly the result of our assessment of the collectability of existing non-credit small shop tenants' receivables given the on-going COVID-19 pandemic. A number of non-credit small shop tenants' businesses were deemed non-essential by the states where they operate and were forced to close for a portion of fiscal 2020. 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. ASC Topic 842 Cash Basis Lease Income ReversalsThe Company adopted ASC Topic 842 "Leases" at the beginning of fiscal 2020.
ASC
Topic 842 requires amongst other things, that if the collectability of a specific tenant's future lease payments as contracted are not probable of collection, revenue recognition for that tenant must be converted to cash-basis accounting and be limited to the lesser of the amount billed or collected from that tenant, and in addition, any straight-line rental receivables would need to be reversed in the period that the collectability assessment changed to not probable. As a result of continuing to analyze our entire tenant base, we have determined that as a result of the COVID-19 pandemic, 80 tenants' future lease payments were no longer probable of collection (9.2% of our approximate 870 tenants), this included 16 tenants who were converted to cash-basis accounting in this first quarter of fiscal 2021. As a result of this assessment in three months endedJanuary 31, 2021 , we reversed$999,000 of lease income, consisting of billed lease income for all 80 tenants, and prior billed but uncollected accounts receivable related to the 16 tenants converted to cash-basis accounting the first quarter of fiscal 2021, which represented 1.0% of our ABR. This reduction is a direct reduction of lease income in the consolidated statement of income for the three months endedJanuary 31, 2021 .
Expenses
Property Operating In the three month period endedJanuary 31, 2021 , property operating expenses increased by$392,000 as a result of having higher common area maintenance expenses in the three month period of fiscal 2021 when compared with the three month period of fiscal 2020 related to roof repairs, canopy repairs, and parking lot repairs.
Property Taxes
In the three month period ended
Interest
In the three month period ended
Depreciation and Amortization In the three month period endedJanuary 31, 2021 , depreciation and amortization increased by$307,000 when compared with the prior period, primarily as a result of a write-off of tenant improvements related to a tenant that vacated six locations in our portfolio in fiscal 2021 and increased depreciation for tenant improvements for two large grocery store re-tenanting projects at ourEastchester, NY andWayne, NJ properties after the first quarter of fiscal 2020. General and Administrative Expenses In the three month period endedJanuary 31, 2021 , general and administrative expenses decreased by$133,000 when compared with the corresponding prior period, primarily as a result of a decrease in restricted stock compensation amortization expense caused by a lower grant date stock price inJanuary 2021 and a decrease in costs for business travel as many industry conventions were cancelled due to the COVID-19 Pandemic. 24 -------------------------------------------------------------------------------- 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 to be 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 three months endedJanuary 31, 2021 and 2020 (amounts in thousands):
Reconciliation of Net Income Available to Common and Class A Common Stockholders To Funds From Operations:
Three Months Ended
January 31,
2021 2020
Net Income Applicable to Common and Class A Common
Stockholders $ $4,479 $ $5,071
Real property depreciation 5,702 5,671
Amortization of tenant improvements and allowances 1,315 1,036
Amortization of deferred leasing costs 476
407
Depreciation and amortization on unconsolidated joint ventures
375 373
(Gain)/loss on sale of property 28
339
Funds from Operations Applicable to Common and Class A Common Stockholders $$12,375 $$12,897
FFO amounted to
Decreases:
• A decrease in lease income related to additional vacancies in the portfolio in
the first three months of 2021 predominantly at 9 properties.
• A decrease of
of fiscal 2021 when compared with the corresponding prior period.
• 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. A number of non-credit small shop tenants' businesses were
deemed non-essential by the states where they operate and were forced to close
for a portion of our third quarter until states loosened their restrictions and
allowed almost all of our tenants to re-open, although some with operational
restrictions. 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.
• An increase in the write-off of lease income in the first quarter for tenants
in our portfolio whose future lease payments were deemed to be not probable of
collection, requiring us under GAAP to convert revenue recognition for those
tenants to cash-basis accounting. This caused a write-off of lease income in
the three months ended
reversal of billed lease income for all 80 tenants converted to cash-basis
accounting and the write-off of accounts receivable related to the 16 tenants
converted to cash-basis accounting in the first quarter of fiscal 2021. In
addition, we reversed accrued straight-line rents receivable for these
aforementioned 16 tenants of
income in the three months ended
Increases:
• An increase in variable lease income (cost recovery income) related to an
under-accrual adjustment in recoveries from tenants for real estate taxes and
common area maintenance in the first quarter of fiscal 2021, which resulted in
a positive variance in the first quarter of fiscal 2021 when compared to the
same period of fiscal 2020.
• A
fiscal 2021 when compared with the corresponding prior period as a result of
one tenant who occupied multiple spaces in our portfolio ceasing operations and
buying out the remaining terms of their leases.
• A net decrease in general and administrative expenses of
predominantly related to a decrease in compensation and benefits expense for
the reduced amortization expense of restricted stock as a result of a lower
common stock price on theJanuary 2021 grant date. 25
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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
Fixed Interest
Joint Venture At January
Description Location Original Balance 31, 2021
Rate Per Annum Maturity Date
Midway Shopping
Center Scarsdale, NY $ 32,000 $ 25,500 4.80% Dec-2027
Putnam Plaza
Shopping Center Carmel, NY $ 18,900 $ 18,300 4.81% Oct-2028
Gateway Plaza Riverhead, NY $ 14,000 $ 11,500 4.18% Feb-2024
Applebee's Plaza Riverhead, NY $ 2,300 $ 1,800 3.38% Aug-2026
Environmental Matters
Based on 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.
26
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Index© Edgar Online, source
