Certain statements in "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors," "Business" and elsewhere in this Annual Report on Form 10-K may constitute "forward-looking statements" within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act). Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). You can identify forward-looking statements by the use of forward-looking terminology such as "believes," "expects," "may," "should," "intends," "plans," "estimates" or "anticipates" and variations of such words or similar expressions or the negative of such words. You can also identify forward-looking statements by discussions of strategies, plans or intentions. Risks, uncertainties and changes in the following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: • economic, business and financial conditions, and changes in our industry and changes in the real estate markets in particular; • economic and other developments in markets where we have a high concentration of properties;
• our business strategy;
• our projected operating results;
• rental rates and/or vacancy rates;
• frequency and magnitude of defaults on, early terminations of or non-renewal of leases by tenants; • bankruptcy or insolvency of a major tenant or a significant number of smaller tenants;
• adverse impact of e-commerce developments and shifting consumer retail
behavior on our tenants;
• interest rates or operating costs;
• the discontinuation of LIBOR;
• real estate and zoning laws and changes in real property tax rates;
? real estate valuations; • our leverage;
• our ability to generate sufficient cash flows to service our outstanding
indebtedness and make distributions to our shareholders;
• our ability to obtain necessary outside financing;
• the availability, terms and deployment of capital;
• general volatility of the capital and credit markets and the market price
of our Class A common stock;
• risks generally associated with real estate acquisitions and dispositions,
including our ability to identify and pursue acquisition and disposition
opportunities;
• risks generally associated with redevelopment, including the impact of
construction delays and cost overruns, our ability to lease redeveloped
space and our ability to identify and pursue redevelopment opportunities;
• composition of members of our senior management team;
• our ability to attract and retain qualified personnel;
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• our ability to continue to qualify as a REIT;
• governmental regulations, tax laws and rates and similar matters;
• our compliance with laws, rules and regulations;
• environmental uncertainties and exposure to natural disasters;
• insurance coverage; and
• the likelihood or actual occurrence of terrorist attacks in the
For a further discussion of these and other factors that could impact our future results, performance or transactions, see Item 1A. "Risk Factors." Readers should not place undue reliance on any forward-looking statements, which are based only on information currently available to us (or to third parties making the forward-looking statements). We undertake no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date of this Annual Report on Form 10-K, except as required by applicable law. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included in this report. Executive SummaryRetail Properties of America, Inc. is a REIT that owns and operates high quality, strategically located open-air shopping centers, including properties with a mixed-use component. As ofDecember 31, 2019 , we owned 104 retail operating properties inthe United States representing 19,972,000 square feet of GLA and had three active expansion and redevelopment projects. Our retail operating portfolio includes (i) neighborhood and community centers, (ii) power centers, and (iii) lifestyle centers and multi-tenant retail-focused mixed-use properties, as well as single-user retail properties. The following table summarizes our portfolio as ofDecember 31, 2019 : Percent Leased Number of GLA Including Leases Property Type Properties (in thousands) Occupancy Signed (a) Retail operating portfolio: Multi-tenant retail: Neighborhood and community centers 63 10,244 95.5 % 96.8 % Power centers 23 4,922 96.2 % 96.8 % Lifestyle centers and mixed-use properties (b) 16 4,545 93.4 % 94.0 % Total multi-tenant retail 102 19,711 95.2 % 96.2 % Single-user retail 2 261 100.0 % 100.0 % Total retail operating properties 104 19,972 95.2 % 96.2 % Expansion and redevelopment projects: Circle East (c) 1 One Loudoun Downtown - Pads G & H (d) - Carillon 1 Total number of properties 106
(a) Includes leases signed but not commenced.
(b) Excludes the 18 multi-family rental units at
monthly rental rate per unit of
(c) The redevelopment at Circle East is no longer combined with our neighboring
property
and redevelopment projects by one. There was no change to the property count
of lifestyle centers and mixed-use properties as
our retail operating portfolio.
(d) The operating portion of this property is included in the property count of
lifestyle centers and mixed-use properties within our retail operating portfolio. 24
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During the first half of 2018, we completed our portfolio transformation and are now a prominent owner of multi-tenant retail properties, many with a mixed-use component, primarily located in the following markets:Dallas ,Washington, D.C. /Baltimore ,New York ,Chicago ,Seattle ,Atlanta ,Houston ,San Antonio ,Phoenix andAustin . We are primarily focused on growing our portfolio organically through (i) accretive leasing activity and (ii) mixed-use expansion and redevelopment projects. During 2019, we recorded a series of accomplishments in each of these primary areas of focus. Our 2019 leasing activity was accretive as we signed 498 new and renewal leases across 3,255,000 square feet of GLA for a blended comparable re-leasing spread of 8.1%, achieving positive comparable cash leasing spreads of 19.7% on signed new leases and 5.3% on signed renewal leases. This 2019 signed leasing activity represents approximately 16% of our portfolio GLA, just shy of our record high of approximately 17% achieved in 2018. These signings helped us achieve record highs in a number of leasing, occupancy and ABR statistics as ofDecember 31, 2019 , including (i) retail portfolio occupancy of 95.2%, (ii) retail portfolio percent leased, including leases signed but not commenced, of 96.2%, (iii) retail anchor tenant occupancy of 97.6% and (iv) retail anchor tenant percent leased, including leases signed but not commenced, of 98.8%, as well as retail portfolio ABR per occupied square foot of$19.52 . During 2019, we also achieved average annual contractual rent increases on signed new leases of approximately 180 basis points. Our active and near-term expansion and redevelopment projects consist of approximately$372,000 to$407,000 of expected investment through 2022, equivalent to approximately 12% of the net book value of our investment properties as ofDecember 31, 2019 . These predominantly mixed use-focused projects include the redevelopments at Circle East and phase one at Carillon, the expansion projects of Pads G & H at One Loudoun Downtown and site and building reconfiguration at The Shoppes at Quarterfield as well as the vacant pad development atSouthlake Town Square . Our current portfolio of assets contains numerous additional projects in the longer-term pipeline, including, among others, future phases at Carillon, additional pad developments at One Loudoun Downtown, pad developments and expansions at Main Street Promenade and Downtown Crown, and future projects atMerrifield Town Center , Tysons Corner,Southlake Town Square , Lakewood Towne Center and One Loudoun Uptown. During 2019, we recorded several milestones related to our expansion and redevelopment projects. We placed the redevelopment of the multi-family rental units atPlaza del Lago , our first multi-family rental redevelopment, in service. At Carillon, we executed a joint venture agreement for the medical office building component at phase one of the project and completed demolition work on approximately 290,000 square feet of vacant retail GLA. We also broke ground on Pads G & H at One Loudoun Downtown. Lastly, we signed our first lease at the Circle East redevelopment with a prominent fast casual restaurant operator. 2019 Company Highlights Developments in Progress During the year endedDecember 31, 2019 , we: • invested$29,470 in our expansion and redevelopment projects at Circle East,Plaza del Lago , One Loudoun Downtown and Carillon; • commenced development of Pads G & H at One Loudoun Downtown and redevelopment at Carillon and reclassified the related costs from
"Buildings and other improvements" into "Developments in progress" in the
accompanying consolidated balance sheets; and
• placed the
service and reclassified the related costs from "Developments in progress"
into "Buildings and other improvements" in the accompanying consolidated
balance sheets. 25
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The following table summarizes the carrying amount of developments in progress as ofDecember 31, 2019 : Property Name MSA December 31, 2019 Active expansion and redevelopment projects: Circle East Baltimore $ 33,628 One Loudoun Downtown Washington, D.C. 27,868 Carillon Washington, D.C. 26,407 87,903 Land held for future development: One Loudoun Uptown Washington, D.C. 25,450 Total developments in progress $ 113,353 Acquisitions
The following table summarizes our acquisitions during the year ended
Square Acquisition Date Property Name MSA Property Type Footage Price March 7, Multi-tenant 2019 North Benson Center Seattle retail 70,500$ 25,340 June 10, Paradise Valley 2019 Marketplace - Parcel Phoenix Land (a) - 1,343 August Southlake Town Square Single-user 13, 2019 - Parcel Dallas parcel (b) 3,100 3,293 73,600$ 29,976
(a) We acquired a parcel adjacent to our
retail operating property. The total number of properties in our portfolio
was not affected by this transaction.
(b) We acquired a single-user parcel at our
retail operating property. The total number of properties in our portfolio
was not affected by this transaction.
Dispositions
The following table summarizes our dispositions during the year ended
Square Date Property Name Property Type Footage Consideration Edwards Multiplex - March 8, 2019 Fresno (a) Single-user retail
94,600
North Rivers Towne June 28, 2019 Center Multi-tenant retail 141,500 18,900 236,100$ 44,750
(a) Prior to the disposition, we were subject to a ground lease whereby we leased
the underlying land from a third party. The ground lease was assumed by the
purchaser in connection with the disposition.
In addition to the property dispositions listed above, during the year endedDecember 31, 2019 , we received consideration of$5,089 in connection with the second and third phases of the sale of a land parcel at One Loudoun Downtown, which included rights to develop 22 residential units. 26
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Market Summary The following table summarizes our retail operating portfolio by market as ofDecember 31, 2019 . Square feet of GLA is presented in thousands. % of Total ABR per % of Total % Leased Number of Multi-Tenant Occupied Multi-Tenant Including Property Type/Market Properties ABR (a) Retail ABR (a) Sq. Ft. GLA (a) Retail GLA (a) Occupancy Signed Multi-Tenant Retail: Top 25 MSAs (b) Dallas 19$ 84,821 23.2 %$ 22.77 3,942 20.0 % 94.5 % 94.8 % Washington, D.C. 8 39,860 10.9 % 29.44 1,388 7.0 % 97.5 % 97.5 % New York 9 37,797 10.3 % 29.80 1,292 6.6 % 98.1 % 98.1 % Chicago 8 29,156 8.0 % 23.63 1,358 6.9 % 90.9 % 91.3 % Seattle 9 23,879 6.5 % 16.45 1,548 7.9 % 93.8 % 98.2 % Baltimore 5 23,066 6.3 % 16.07 1,604 8.1 % 89.5 % 94.0 % Atlanta 9 20,648 5.7 % 13.85 1,513 7.7 % 98.5 % 98.5 % Houston 9 16,446 4.5 % 15.01 1,141 5.8 % 96.0 % 97.1 % San Antonio 3 12,825 3.5 % 18.04 722 3.7 % 98.5 % 98.5 % Phoenix 3 10,959 3.0 % 17.92 632 3.2 % 96.8 % 98.1 % Los Angeles 1 5,711 1.6 % 25.98 241 1.2 % 91.1 % 93.8 % Riverside 1 4,508 1.2 % 15.72 292 1.5 % 98.1 % 98.1 % St. Louis 1 4,275 1.2 % 9.60 453 2.3 % 98.3 % 98.3 % Charlotte 1 3,964 1.1 % 13.68 320 1.6 % 90.6 % 90.6 % Tampa 1 2,378 0.7 % 19.51 126 0.6 % 97.0 % 97.0 % Subtotal 87 320,293 87.7 % 20.35 16,572 84.1 % 95.0 % 96.1 % Non-Top 25 MSAs (b) 15 44,978 12.3 % 14.91 3,139 15.9 % 96.0 % 96.5 % Total Multi-Tenant Retail 102 365,271 100.0 % 19.47 19,711 100.0 % 95.2 % 96.2 % Single-User Retail 2 5,864 22.49 261 100.0 % 100.0 % Total Retail Operating Portfolio (c) 104 371,135$ 19.52 19,972 95.2 % 96.2 %
(a) Excludes
multi-tenant retail GLA attributable to Circle East and Carillon, both of
which are in active redevelopment and are located in the
multi-tenant retail ABR and 84.2% of our multi-tenant retail GLA is located
in the top 25 MSAs.
(b) Top 25 MSAs and Non-Top 25 MSAs are determined by the United States Census
Bureau and ranked based on the most recently available population estimates.
(c) Excludes the 18 multi-family rental units at
placed in service during the three months ended
monthly rental rate per unit of
Leasing Activity The following table summarizes the leasing activity in our retail operating portfolio during the year endedDecember 31, 2019 . Leasing activity related to our active and near-term expansion and redevelopment projects is also included beginning in the fourth quarter of 2019. Leases with terms of less than 12 months have been excluded from the table. New Contractual Prior % Change Weighted Tenant Number of GLA Signed Rent per Square Contractual over Prior Average Allowances Leases Signed (in thousands) Foot (PSF) (a)
Rent PSF (a) ABR (a) Lease Term PSF (b) Comparable Renewal Leases 310 1,989 $ 20.59$ 19.56 5.3 % 4.8$ 2.15 Comparable New Leases 76 469 23.93 20.00 19.7 % 9.7 58.31 Non-Comparable New and Renewal Leases (c) 112 797 18.53 N/A N/A 7.7 31.96 Total 498 3,255 $ 21.23$ 19.64 8.1 % 6.3$ 17.05
(a) Total excludes the impact of Non-Comparable New and Renewal Leases.
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(b) Excludes tenant allowances and related square foot amounts at our active and
near-term expansion and redevelopment projects. These tenant allowances are
included in the expected investment for each project.
(c) Includes (i) leases signed on units that were vacant for over 12 months, (ii)
leases signed without fixed rental payments and (iii) leases signed where the
previous and the current lease do not have a consistent lease structure.
We anticipate our leasing efforts in 2020 will focus on (i) vacant anchor and small shop space, (ii) upcoming lease expirations and (iii) spaces within our expansion and redevelopment projects. As we lease these spaces, we look to capitalize on the opportunity to mark rents to market, upgrade our tenancy and optimize the mix of operators and unique retailers at our properties. Capital Markets During the year endedDecember 31, 2019 , we: • issued$100,000 of 10-year 4.82% senior unsecured notes in a private
placement transaction pursuant to a note purchase agreement we entered
into with certain institutional investors;
• entered into a term loan agreement with a group of financial institutions
for a five-year
seven-year
loans bear interest at a rate of LIBOR, adjusted based on applicable
reserve percentages established by the
spread based on a leverage grid ranging from 1.20% to 1.70% for the Term
Loan Due 2024 and 1.50% to 2.20% for the Term Loan Due 2026;
• entered into agreements to swap
to a fixed interest rate of 1.68% through
LIBOR-based variable rate debt to a fixed interest rate of 1.77% through
• repaid
credit; and
• repaid
fees and made scheduled principal payments of
loans.
Distributions
We declared quarterly distributions totaling$0.6625 per share of our Class A common stock during 2019. Results of Operations The following information summarizes our results of operations for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 . Information pertaining to fiscal year 2017 was included in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2018 beginning on page 25 under Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," which was filed with theSEC onFebruary 13, 2019 and which information is incorporated by reference in this Item 7. 28
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Comparison of Results for the Years Ended
Year Ended December 31, 2019 2018 Change Revenues: Lease income$ 481,686 $ 482,497 $ (811 ) Expenses: Operating expenses 68,396 74,885 (6,489 ) Real estate taxes 73,247 73,683 (436 ) Depreciation and amortization 194,573 175,977 18,596 Provision for impairment of investment properties 12,298 2,079 10,219 General and administrative expenses 40,489 42,363 (1,874 ) Total expenses 389,003 368,987 20,016 Other (expense) income: Interest expense (76,571 ) (73,746 ) (2,825 ) Gain on sales of investment properties 18,872 37,211 (18,339 ) Other (expense) income, net (2,587 ) 665 (3,252 ) Net income 32,397 77,640 (45,243 ) Net income attributable to noncontrolling interests - - -
Net income attributable to common shareholders
Net income attributable to common shareholders decreased$45,243 from$77,640 for the year endedDecember 31, 2018 to$32,397 for the year endedDecember 31, 2019 primarily as a result of the following: • an$18,596 increase in depreciation and amortization primarily due to the
write-off of assets taken out of service due to the demolition of existing
structures at our Carillon redevelopment during the year ended December
31, 2019. No such write-off occurred during the year endedDecember 31, 2018 ;
• an
the sale of two investment properties, representing approximately 236,100
square feet of GLA, and the sale of two land parcels during the year endedDecember 31, 2019 compared to the sale of 10 investment properties and a
land parcel, representing approximately 1,831,200 square feet of GLA, and
the sale of air rights at Circle East during the year endedDecember 31, 2018 ; and
• a
Based on the results of our evaluations for impairment (see Notes 12 and
13 to the accompanying consolidated financial statements), we recognized
impairment charges of
partially offset by
• a
operating properties during 2018 and 2019 as well as termination fee
expense of
process whereby we were the winning bidder on two leases. No such
termination fee expense was incurred during 2019.
Net operating income (NOI) We define NOI as all revenues other than (i) straight-line rental income (non-cash), (ii) amortization of lease inducements, (iii) amortization of acquired above and below market lease intangibles and (iv) lease termination fee income, less real estate taxes and all operating expenses other than lease termination fee expense and non-cash ground rent expense, which is comprised of straight-line ground rent expense and amortization of acquired ground lease intangibles for the year endedDecember 31, 2018 and amortization of right-of-use lease assets and amortization of lease liabilities for the year endedDecember 31, 2019 . NOI consists of same store NOI (Same Store NOI) and NOI from other investment properties (NOI fromOther Investment Properties ). We believe that NOI, Same Store NOI and NOI fromOther Investment Properties , which are supplemental non-GAAP financial measures, provide an additional and useful operating perspective not immediately apparent from "Net income" or "Net income attributable to common shareholders" in accordance with accounting principles generally accepted inthe United States (GAAP). We use these measures to evaluate our performance on a property-by-property basis because they allow management to evaluate the impact that factors such as lease structure, lease rates and tenant base have on our operating results. NOI, Same Store NOI and 29
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NOI fromOther Investment Properties do not represent alternatives to "Net income" or "Net income attributable to common shareholders" in accordance with GAAP as indicators of our financial performance. Comparison of our presentation of NOI, Same Store NOI and NOI fromOther Investment Properties to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in definition and application by such REITs. For reference and as an aid in understanding our computation of NOI, a reconciliation of net income attributable to common shareholders as computed in accordance with GAAP to Same Store NOI has been presented for each comparable period presented. Same store portfolio - 2019 and 2018 For the year endedDecember 31, 2019 , our same store portfolio consisted of 102 retail operating properties acquired or placed in service and stabilized prior toJanuary 1, 2018 . The number of properties in our same store portfolio increased to 102 as ofDecember 31, 2019 from 101 as ofDecember 31, 2018 as a result of the following: • the addition of three same store investment properties acquired prior toJanuary 1, 2018 ;
partially offset by • the removal of two same store investment properties sold during the year
ended
The properties and financial results reported in "Other investment properties" primarily include the following: • properties acquired afterDecember 31, 2017 ;
•
into our retail operating portfolio during 2018;
• the multi-family rental units at
that was placed in service during 2019;
• Circle East, which is in active redevelopment;
• One Loudoun Downtown - Pads G & H, which are in active development;
• Carillon, which is in active redevelopment;
• properties that were sold or held for sale in 2018 and 2019; and
• the net income from our wholly owned captive insurance company.
The following tables present a reconciliation of net income attributable to
common shareholders to Same Store NOI and details of the components of Same
Store NOI for the years ended
Year EndedDecember 31, 2019 2018
Change
Net income attributable to common shareholders$ 32,397 $ 77,640 $ (45,243 ) Adjustments to reconcile to Same Store NOI: Gain on sales of investment properties (18,872 ) (37,211 ) 18,339 Depreciation and amortization 194,573 175,977 18,596 Provision for impairment of investment properties 12,298 2,079 10,219 General and administrative expenses 40,489 42,363 (1,874 ) Interest expense 76,571 73,746 2,825 Straight-line rental income, net (4,533 ) (5,717 ) 1,184 Amortization of acquired above and below market lease intangibles, net (5,429 ) (5,467 ) 38 Amortization of lease inducements 1,329 1,020 309 Lease termination fees, net (2,024 ) 179 (2,203 ) Non-cash ground rent expense, net 1,356 1,844 (488 ) Other expense (income), net 2,587 (665 ) 3,252 NOI 330,742 325,788 4,954 NOI from Other Investment Properties (10,099 ) (13,556 ) 3,457 Same Store NOI$ 320,643 $ 312,232 $ 8,411 30
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Table of Contents Year Ended December 31, 2019 2018 Change Same Store NOI: Base rent$ 344,872 $ 336,713 $ 8,159 Percentage and specialty rent 3,187 3,681 (494 ) Tenant recoveries 102,932 101,313 1,619 Other lease-related income 5,569 4,675 894 Bad debt, net (2,387 ) (1,915 ) (472 ) Property operating expenses (62,047 ) (61,502 ) (545 ) Real estate taxes (71,483 ) (70,733 ) (750 ) Same Store NOI$ 320,643 $ 312,232 $ 8,411 Same Store NOI increased$8,411 , or 2.7%, primarily due to an increase of$8,159 in base rent driven by increases of (i)$3,575 from contractual rent changes, (ii)$3,105 from occupancy growth and (iii)$2,177 from re-leasing spreads, partially offset by$1,595 from higher rent abatements. Funds From Operations Attributable to Common ShareholdersThe National Association of Real Estate Investment Trusts , or NAREIT, an industry trade group, has promulgated a financial measure known as funds from operations (FFO). InDecember 2018 , NAREIT issued "NAREIT Funds From Operations White Paper - 2018 Restatement" (2018 FFO White Paper) to incorporate interpretive guidance and clarifications made by NAREIT subsequent to their previous FFO White Paper, which was issued inApril 2002 . The 2018 FFO White Paper was effective for annual periods beginning afterDecember 15, 2018 and interim periods therein. We adopted the 2018 FFO White Paper effectiveJanuary 1, 2019 on a retrospective basis. As defined by NAREIT, FFO means net income computed in accordance with GAAP, excluding (i) depreciation and amortization related to real estate, (ii) gains from sales of real estate assets, (iii) gains and losses from change in control and (iv) impairment write-downs of real estate assets and investments in entities directly attributable to decreases in the value of real estate held by the entity. We have adopted the NAREIT definition in our computation of FFO attributable to common shareholders. Management believes that, subject to the following limitations, FFO attributable to common shareholders provides a basis for comparing our performance and operations to those of other REITs. The 2018 FFO White Paper did not change the fundamental definition of FFO; however, it provided clarification and that, to the extent a REIT recognizes a gain on sale or impairment related to assets incidental to the main business of a REIT, the REIT has the option to include or exclude such gains or impairments in the calculation of FFO. In connection with the adoption of the 2018 FFO White Paper, we elected to exclude all gains on sale and impairments of real estate from FFO, whereas we previously only excluded gains on sale and impairments of depreciable investment properties. To be consistent with the current presentation, we restated FFO attributable to common shareholders for the year endedDecember 31, 2018 to exclude the gain on sale of non-depreciable investment property of$3,464 , which was previously included within FFO attributable to common shareholders. There was no change to FFO attributable to common shareholders for the year endedDecember 31, 2017 as a result of the adoption of the 2018 FFO White Paper as there was no gain on sale or impairment of non-depreciable investment property recorded during the year endedDecember 31, 2017 . We define Operating FFO attributable to common shareholders as FFO attributable to common shareholders excluding the impact of discrete non-operating transactions and other events which we do not consider representative of the comparable operating results of our real estate operating portfolio, which is our core business platform. Specific examples of discrete non-operating transactions and other events include, but are not limited to, the impact on earnings from gains or losses associated with the early extinguishment of debt or other liabilities, litigation involving the Company, the impact on earnings from executive separation and the excess of redemption value over carrying value of preferred stock redemption, which are not otherwise adjusted in our calculation of FFO attributable to common shareholders. There was no change to previously reported Operating FFO attributable to common shareholders for the years endedDecember 31, 2018 and 2017 as a result of the adoption of the 2018 FFO White Paper because gains on sale and impairments of non-depreciable investment property have been, and continue to be, excluded from our calculation of Operating FFO attributable to common shareholders. We believe that FFO attributable to common shareholders and Operating FFO attributable to common shareholders, which are supplemental non-GAAP financial measures, provide additional and useful means to assess the operating performance of REITs. FFO attributable to common shareholders and Operating FFO attributable to common shareholders do not represent alternatives to (i) "Net income" or "Net income attributable to common shareholders" as indicators of our financial performance, or (ii) "Cash 31
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flows from operating activities" in accordance with GAAP as measures of our capacity to fund cash needs, including the payment of dividends. Comparison of our presentation of Operating FFO attributable to common shareholders to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in definition and application by such REITs. The following table presents a reconciliation of net income attributable to common shareholders to FFO attributable to common shareholders and Operating FFO attributable to common shareholders: Year Ended
2019 2018
2017
Net income attributable to common shareholders
$ 237,624 Depreciation and amortization of real estate 193,183 (a) 174,672
202,110
Provision for impairment of investment properties 12,298 2,079
67,003
Gain on sales of investment properties (18,872 ) (37,211 )
(b) (337,975 )
FFO attributable to common shareholders
FFO attributable to common shareholders per common share outstanding - diluted$ 1.03 $ 1.00
(b)
FFO attributable to common shareholders
$ 168,762 Impact on earnings from the early extinguishment of debt, net 7,581 5,944
72,654
Provision for hedge ineffectiveness - - 9 Impact on earnings from executive separation (c) - 1,737 (1,086 ) Excess of redemption value over carrying value of preferred stock redemption (d) - -
4,706
Other (e) 3,106 629
441
Operating FFO attributable to common shareholders$ 229,693 $ 225,490
(b)
Operating FFO attributable to common shareholders per common share outstanding - diluted$ 1.08 $ 1.03 (b)$ 1.06
(a) Includes
write-off of assets taken out of service due to the demolition of existing
structures at our Carillon redevelopment during the year ended
2019.
(b) FFO attributable to common shareholders for the year ended
has been restated to exclude
investment property in connection with our adoption of the 2018 FFO White
Paper effective
of non-depreciable investment property was previously excluded from Operating
FFO attributable to common shareholders, there was no change to Operating FFO
attributable to common shareholders.
(c) Reflected as an increase (decrease) within "General and administrative
expenses" in the accompanying consolidated statements of operations and other
comprehensive (loss) income.
(d) Included within "Preferred stock dividends" in the accompanying consolidated
statements of operations and other comprehensive (loss) income.
(e) Primarily consists of the impact on earnings from litigation involving the
Company, including costs to engage outside counsel related to litigation with
former tenants, which are included in "Other (expense) income, net" in the
accompanying consolidated statements of operations and other comprehensive
(loss) income.
Liquidity and Capital Resources We anticipate that cash flows from the below-listed sources will provide adequate capital for the next 12 months and beyond for all scheduled principal and interest payments on our outstanding indebtedness, including maturing debt, current and anticipated tenant allowances or other capital obligations, the shareholder distributions required to maintain our REIT status and compliance with the financial covenants of our unsecured debt agreements. 32
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Our primary expected sources and uses of liquidity are as follows:
SOURCES USES ? Operating cash flow ? Tenant allowances and leasing costs ? Cash and cash equivalents ? Improvements made to individual properties, certain of which are not
? Available borrowings under our recoverable through common area
unsecured revolving maintenance charges to tenants line of credit ? Debt repayments
? Proceeds from capital markets ? Distribution payments
transactions
? Proceeds from asset dispositions ? Redevelopment, expansion and pad
development activities
? Proceeds from the sales of air ? Acquisitions
rights ? New development ? Repurchases of our common stock We have made substantial progress over the last several years in strengthening our balance sheet, as demonstrated by our reduced leverage, improved financial flexibility and higher unencumbered asset ratio. We have funded debt maturities primarily through asset dispositions and capital markets transactions, including the public offering of our common stock and private and public offerings of senior unsecured notes. As ofDecember 31, 2019 , we had no scheduled debt maturities and$2,494 of principal amortization due through the end of 2020, which we plan on satisfying through a combination of cash flows from operations, working capital and our unsecured revolving line of credit. The table below summarizes our consolidated indebtedness as ofDecember 31, 2019 : Aggregate Weighted Weighted Principal Average Average Years Debt Amount Interest Rate Maturity Date to Maturity Fixed rate mortgages payable (a)$ 94,904 4.37 % Various 5.1 years Unsecured notes payable: Senior notes - 4.12% due 2021 100,000 4.12 % June 30, 2021 1.5 years Senior notes - 4.58% due 2024 150,000 4.58 % June 30, 2024 4.5 years Senior notes - 4.00% due 2025 250,000 4.00 % March 15, 2025 5.2 years Senior notes - 4.08% due 2026 100,000 4.08 % September 30, 2026 6.8 years Senior notes - 4.24% due 2028 100,000 4.24 % December 28, 2028 9.0 years Senior notes - 4.82% due 2029 100,000 4.82 % June 28, 2029 9.5 years Total unsecured notes payable (a) 800,000 4.27 % 5.8 years Unsecured credit facility: Term loan due 2021 - fixed rate (b) 250,000 3.20 % January 5, 2021 1.0 year Revolving line of credit - variable rate 18,000 2.85 % April 22, 2022 (c) 2.3 years Total unsecured credit facility (a) 268,000 3.18 % 1.1 years Unsecured term loans: Term Loan Due 2023 - fixed rate (d) 200,000 4.05 % November 22, 2023 3.9 years Term Loan Due 2024 - fixed rate (e) 120,000 2.88 % July 17, 2024 4.5 years Term Loan Due 2026 - fixed rate (f) 150,000 3.27 % July 17, 2026 6.5 years Total unsecured term loans (a) 470,000 3.50 % 4.9 years Total consolidated indebtedness$ 1,632,904 3.88 % 4.7 years
(a) Fixed rate mortgages payable excludes mortgage discount of
capitalized loan fees of
capitalized loan fees of
Capitalized loan fees related to the revolving line of credit are included in
"Other assets, net" in the accompanying consolidated balance sheets.
(b) Reflects
a fixed rate of 2.00% plus a credit spread based on a leverage grid ranging
from 1.20% to 1.70% through
1.20% as of
(c) We have two six-month extension options on the revolving line of credit,
which we may exercise as long as we are in compliance with the terms of the
unsecured credit agreement and we pay an extension fee equal to 0.075% of the
commitment amount being extended. 33
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(d) Reflects
a fixed rate of 2.85% plus a credit spread based on a leverage grid ranging
from 1.20% to 1.85% through
was 1.20% as of
(e) Reflects
a fixed rate of 1.68% plus a credit spread based on a leverage grid ranging
from 1.20% to 1.70% through
1.20% as of
(f) Reflects
a fixed rate of 1.77% plus a credit spread based on a leverage grid ranging
from 1.50% to 2.20% through
1.50% as of
Mortgages Payable During the year endedDecember 31, 2019 , we repaid mortgages payable in the total amount of$107,671 , which had a weighted average fixed interest rate of 4.91%, incurred$8,151 of debt prepayment fees and made scheduled principal payments of$2,875 related to amortizing loans. Unsecured Notes Payable Notes Due 2029 OnJune 28, 2019 , we issued$100,000 of 4.82% senior unsecured notes due 2029 (Notes Due 2029) in a private placement transaction pursuant to a note purchase agreement we entered into with certain institutional investors onApril 5, 2019 . The proceeds were used to repay borrowings on our unsecured revolving line of credit. The note purchase agreement governing the Notes Due 2029 contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of such note purchase agreement, we are subject to various financial covenants, which include the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) a minimum interest coverage ratio; (iii) a minimum unencumbered interest coverage ratio (as set forth in our unsecured credit facility and the note purchase agreements governing the Notes Due 2021 and 2024 and the Notes Due 2026 and 2028 defined below); and (iv) a minimum fixed charge coverage ratio (as set forth in our unsecured credit facility). Notes Due 2026 and 2028 OnSeptember 30, 2016 , we issued$100,000 of 4.08% senior unsecured notes due 2026 in a private placement transaction pursuant to a note purchase agreement we entered into with certain institutional investors onSeptember 30, 2016 . Pursuant to the same note purchase agreement, onDecember 28, 2016 , we also issued$100,000 of 4.24% senior unsecured notes due 2028 (Notes Due 2026 and 2028). The proceeds were used to pay down our unsecured revolving line of credit, early repay certain longer-dated mortgages payable and for general corporate purposes. The note purchase agreement governing the Notes Due 2026 and 2028 contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the note purchase agreement, we are subject to various financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) a minimum interest coverage ratio; (iii) an unencumbered interest coverage ratio (as set forth in our unsecured credit facility and the note purchase agreement governing the Notes Due 2021 and 2024 described below); and (iv) a fixed charge coverage ratio (as set forth in our unsecured credit facility). Notes Due 2025 OnMarch 12, 2015 , we completed a public offering of$250,000 in aggregate principal amount of 4.00% senior unsecured notes due 2025 (Notes Due 2025). The Notes Due 2025 were priced at 99.526% of the principal amount to yield 4.058% to maturity. The proceeds were used to repay a portion of our unsecured revolving line of credit. The indenture, as supplemented, governing the Notes Due 2025 (the Indenture) contains customary covenants and events of default. Pursuant to the terms of the Indenture, we are subject to various financial covenants, including the requirement to maintain the following: (i) maximum secured and total leverage ratios; (ii) a debt service coverage ratio; and (iii) maintenance of an unencumbered assets to unsecured debt ratio. Notes Due 2021 and 2024 OnJune 30, 2014 , we completed a private placement of$250,000 of unsecured notes, consisting of$100,000 of 4.12% senior unsecured notes due 2021 and$150,000 of 4.58% senior unsecured notes due 2024 (Notes Due 2021 and 2024). The proceeds were used to repay a portion of our unsecured revolving line of credit. 34
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The note purchase agreement governing the Notes Due 2021 and 2024 contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the note purchase agreement, we are subject to various financial covenants, some of which are based upon the financial covenants in effect in our unsecured credit facility, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) minimum interest coverage and unencumbered interest coverage ratios; and (iii) a minimum consolidated net worth. As ofDecember 31, 2019 , management believes we were in compliance with the financial covenants under the Indenture and the note purchase agreements. Unsecured Term Loans and Revolving Line of Credit Unsecured Credit Facility OnApril 23, 2018 , we entered into our fifth amended and restated unsecured credit agreement (Unsecured Credit Agreement) with a syndicate of financial institutions led byWells Fargo Bank, National Association serving as syndication agent andKeyBank National Association serving as administrative agent to provide for an unsecured credit facility aggregating$1,100,000 (Unsecured Credit Facility). The Unsecured Credit Facility consists of an$850,000 unsecured revolving line of credit and a$250,000 unsecured term loan and is priced on a leverage grid at a rate of LIBOR plus a credit spread. In accordance with the Unsecured Credit Agreement, we may elect to convert to an investment grade pricing grid. As ofDecember 31, 2019 , making such an election would have resulted in a higher interest rate and, as such, we have not made the election to convert to an investment grade pricing grid. The following table summarizes the key terms of the Unsecured Credit Facility: Leverage-Based Pricing Investment Grade Pricing Unsecured Credit Extension Facility Maturity Date Option Extension Fee Credit Spread Facility Fee Credit Spread Facility Fee$250,000 unsecured term loan due 2021 1/5/2021 N/A N/A 1.20%-1.70% N/A 0.90%-1.75% N/A$850,000 unsecured revolving line of 2-six credit 4/22/2022 month 0.075% 1.05%-1.50% 0.15%-0.30% 0.825%-1.55% 0.125%-0.30% The Unsecured Credit Facility has a$500,000 accordion option that allows us, at our election, to increase the total Unsecured Credit Facility up to$1,600,000 , subject to (i) customary fees and conditions including, but not limited to, the absence of an event of default as defined in the Unsecured Credit Agreement and (ii) our ability to obtain additional lender commitments. The Unsecured Credit Agreement contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the Unsecured Credit Agreement, we are subject to various financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; and (ii) minimum fixed charge and unencumbered interest coverage ratios. As ofDecember 31, 2019 , management believes we were in compliance with the financial covenants and default provisions under the Unsecured Credit Agreement. As ofDecember 31, 2019 , we had letters of credit outstanding totaling$291 that serve as collateral for certain capital improvements at one of our properties and reduce the available borrowings on our unsecured revolving line of credit. Unsecured Term Loans Term Loan Due 2024 and Term Loan Due 2026 OnJuly 17, 2019 , we entered into a term loan agreement (2019 Term Loan Agreement) with a group of financial institutions for a five-year$120,000 unsecured term loan (Term Loan Due 2024) and a seven-year$150,000 unsecured term loan (Term Loan Due 2026). The Term Loan Due 2024 and Term Loan Due 2026 bear interest at a rate of LIBOR, adjusted based on applicable reserve percentages established by theFederal Reserve , plus a credit spread based on a leverage grid. In accordance with the 2019 Term Loan Agreement, we may elect to convert to an investment grade pricing grid. As ofDecember 31, 2019 , making such an election would have resulted in a higher interest rate and, as such, we have not made the election to convert to an investment grade pricing grid. The proceeds were used to repay outstanding indebtedness and for general corporate purposes. Term Loan Due 2023 OnJanuary 3, 2017 , we received funding on a seven-year$200,000 unsecured term loan (Term Loan Due 2023) with a group of financial institutions, which closed during the year endedDecember 31, 2016 and was amended onNovember 20, 2018 . The Term Loan Due 2023 is priced on a leverage grid at a rate of LIBOR plus a credit spread. In accordance with the amended term loan 35
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agreement (Amended 2017 Term Loan Agreement), we may elect to convert to an investment grade pricing grid. As ofDecember 31, 2019 , making such an election would have resulted in a higher interest rate and, as such, we have not made the election to convert to an investment grade pricing grid. The following table summarizes the key terms of the unsecured term loans: Investment Grade Leverage-Based Pricing Pricing Unsecured Term Loans Maturity Date Credit Spread Credit Spread$200,000 unsecured term loan due 2023 11/22/2023 1.20% - 1.85% 0.85% - 1.65%$120,000 unsecured term loan due 2024 7/17/2024 1.20% - 1.70% 0.80% - 1.65%$150,000 unsecured term loan due 2026 7/17/2026 1.50% - 2.20% 1.35% - 2.25% The Term Loan Due 2024 has a$130,000 accordion option and the Term Loan Due 2026 has a$100,000 accordion option that, collectively, allow us, at our election, to increase the total of the Term Loan Due 2024 and Term Loan Due 2026 up to$500,000 , subject to (i) customary fees and conditions, including the absence of an event of default as defined in the 2019 Term Loan Agreement and (ii) our ability to obtain additional lender commitments. The Term Loan Due 2023 has a$100,000 accordion option that allows us, at our election, to increase the Term Loan Due 2023 up to$300,000 , subject to (i) customary fees and conditions, including the absence of an event of default as defined in the Amended 2017 Term Loan Agreement and (ii) our ability to obtain additional lender commitments. The 2019 Term Loan Agreement and the Amended 2017 Term Loan Agreement contain customary representations, warranties and covenants, and events of default. These include financial covenants such as (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) minimum fixed charge coverage ratios; and (iii) minimum unencumbered interest coverage ratios. As ofDecember 31, 2019 , management believes we were in compliance with the financial covenants and default provisions under the 2019 Term Loan Agreement and the Amended 2017 Term Loan Agreement. Debt Maturities The following table summarizes the scheduled maturities and principal amortization of our indebtedness as ofDecember 31, 2019 , for each of the next five years and thereafter and the weighted average interest rates by year, as well as the fair value of our indebtedness as ofDecember 31, 2019 . The table does not reflect the impact of any 2020 debt activity. 2020 2021 2022 2023 2024 Thereafter Total Fair Value Debt: Fixed rate debt: Mortgages payable (a)$ 2,494 $ 2,626 $ 26,678 $ 31,758 $ 1,737 $ 29,611 $ 94,904 $ 98,082 Fixed rate term loans (b) - 250,000 - 200,000 120,000 150,000 720,000 720,000 Unsecured notes payable (c) - 100,000 - -
150,000 550,000 800,000 822,883 Total fixed rate debt 2,494 352,626 26,678 231,758
271,737 729,611 1,614,904 1,640,965 Variable rate debt: Variable rate revolving line of credit - - 18,000 - - - 18,000 18,000 Total debt (d)$ 2,494 $ 352,626 $ 44,678 $ 231,758 $ 271,737 $ 729,611 $ 1,632,904 $ 1,658,965 Weighted average interest rate on debt: Fixed rate debt 4.38 % 3.47 % 4.81 % 4.06 % 3.83 % 4.02 % 3.89 % Variable rate debt (e) - - 2.85 % - - - 2.85 % Total 4.38 % 3.47 % 4.02 % 4.06 % 3.83 % 4.02 % 3.88 %
(a) Excludes mortgage discount of
of accumulated amortization, as of
(b) Excludes capitalized loan fees of
as of
swapped to fixed rate debt: (i)
has been swapped to a fixed rate of 2.00% plus a credit spread based on a
leverage grid through
rate debt has been swapped to a fixed rate of 2.85% plus a credit spread
based on a leverage grid through
LIBOR-based variable rate debt has been swapped to a fixed rate of 1.68% plus
a credit spread based on a leverage grid through
of 1.77% plus a credit spread based on a leverage grid through
As of
was 1.20% and for (iv) was 1.50%. 36
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(c) Excludes discount of
accumulated amortization, as of
(d) The weighted average years to maturity of consolidated indebtedness was 4.7
years as of
(e) Represents interest rate as of
We plan on addressing our debt maturities through a combination of cash flows from operations, working capital, capital markets transactions and our unsecured revolving line of credit. Distributions and Equity Transactions Our distributions of current and accumulated earnings and profits forU.S. federal income tax purposes are taxable to shareholders, generally, as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the shareholders' basis in the shares to the extent thereof (non-dividend distributions) and thereafter as taxable gain. We intend to continue to qualify as a REIT forU.S. federal income tax purposes. The Code generally requires that a REIT annually distributes to its shareholders at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains. The Code imposes tax on any undistributed REIT taxable income. To satisfy the requirements for qualification as a REIT and generally not be subject toU.S. federal income and excise tax, we intend to make regular quarterly distributions of all, or substantially all, of our taxable income to shareholders. Our future distributions will be at the sole discretion of our board of directors. When determining the amount of future distributions, we expect to consider, among other factors, (i) the amount of cash generated from our operating activities, (ii) our expectations of future cash flow, (iii) our determination of near-term cash needs for debt repayments and potential future share repurchases, (iv) the market of available acquisitions of new properties and redevelopment, expansion and pad development opportunities, (v) the timing of significant re-leasing activities and the establishment of additional cash reserves for anticipated tenant allowances and general property capital improvements, (vi) our ability to continue to access additional sources of capital, and (vii) the amount required to be distributed to maintain our status as a REIT, which is a requirement of our Unsecured Credit Agreement, and to avoid or minimize any income and excise taxes that we otherwise would be required to pay. Under certain circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet the REIT distribution requirements. InDecember 2015 , our board of directors authorized a common stock repurchase program under which we may repurchase, from time to time, up to a maximum of$250,000 of shares of our Class A common stock. InDecember 2017 , our board of directors authorized a$250,000 increase to the common stock repurchase program. The shares may be repurchased in the open market or in privately negotiated transactions and are canceled upon repurchase. The timing and actual number of shares repurchased will depend on a variety of factors, including price in absolute terms and in relation to the value of our assets, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The common stock repurchase program may be suspended or terminated at any time without prior notice. We did not repurchase any shares during the year endedDecember 31, 2019 . During the years endedDecember 31, 2018 and 2017, we repurchased 6,341 and 17,683 shares, respectively, at an average price per share of$11.80 and$12.82 , respectively, for a total of$74,952 and$227,102 , respectively. As ofDecember 31, 2019 ,$189,105 remained available for repurchases of shares of our Class A common stock under our common stock repurchase program. Capital Expenditures and Redevelopment Activity We anticipate that obligations related to capital improvements and redevelopments, including expansions and pad developments, in 2020 can be met with cash flows from operations, working capital, capital markets transactions and our unsecured revolving line of credit. As ofDecember 31, 2019 , we have active expansion and redevelopment projects at Circle East, One Loudoun Downtown and Carillon. We have invested a total of approximately$42,000 in these projects, which is net of proceeds of$11,820 from the sale of air rights at Circle East and net of contributions from our joint venture partners at One Loudoun Downtown and Carillon. These projects are at various stages of completion, and based on our current plans and estimates, we anticipate that it will require approximately$319,000 to$352,000 of additional investment from us to complete these projects. In addition, we have a near-term expansion project at The Shoppes at Quarterfield and a vacant pad development atSouthlake Town Square that we anticipate commencing in 2020 and will require approximately$11,000 to$13,000 of investment. We capitalized$3,730 ,$2,128 and$1,202 of indirect project costs, which includes$1,414 ,$1,123 and$268 of internal salaries and related benefits of personnel directly involved in the expansion and redevelopment projects and$1,594 ,$462 and$485 of interest, related to expansion and redevelopment projects during the years endedDecember 31, 2019 , 2018 and 2017, respectively. 37
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In addition, we capitalized$2,685 ,$2,032 and$1,187 of internal salaries and related benefits of personnel directly involved in capital projects and tenant improvements during the years endedDecember 31, 2019 , 2018 and 2017, respectively. We also capitalized$359 ,$384 and$368 of internal leasing incentives, all of which were incremental to signed leases, during the years endedDecember 31, 2019 , 2018 and 2017, respectively. Dispositions The following table highlights our property dispositions during 2019, 2018 and 2017: Aggregate Number of Square Proceeds, Net Debt Properties Sold (a) Footage Consideration (b) Extinguished 2019 Dispositions 2 236,100$ 44,750 $ 39,594 $ - 2018 Dispositions 10 1,831,200$ 201,400 $ 184,109 $ 10,750 2017 Dispositions 47 5,810,700$ 917,808 $ 896,301 $ 27,353 (c)
(a) 2018 dispositions include the disposition of
classified as held for sale as of
include the dispositions of
including the Home Depot parcel, both of which were classified as held for
sale as of
(b) Represents total consideration net of transaction costs, as well as capital
and tenant-related costs credited to the buyer at close, as applicable. 2017
dispositions include proceeds of
related to potential 1031 Exchanges as of
(c) Excludes
prior to disposition of the respective property for the year ended
In addition to the transactions presented in the preceding table, during the year endedDecember 31, 2019 , we received net proceeds of$5,062 in connection with the second and third phases of the sale of a land parcel, which included rights to develop 22 residential units, at One Loudoun Downtown. During the year endedDecember 31, 2018 , we also received (i) net proceeds of$11,820 in connection with the sale of air rights at Circle East, (ii) net proceeds of$1,789 in connection with the sale of the first phase of a land parcel, which included rights to develop eight residential units, at One Loudoun Downtown, and (iii) proceeds of$169 from a condemnation award. During the year endedDecember 31, 2017 , we also received net proceeds of$155 from other transactions, including escrow funds related to a property disposition and a condemnation award. Acquisitions The following table highlights our asset acquisitions during 2019, 2018 and 2017: Number of Assets Acquired Square Footage Acquisition Price Mortgage Debt 2019 Acquisitions (a) 3 73,600 $ 29,976 $ - 2018 Acquisition (b) 1 - $ 25,000 $ - 2017 Acquisitions (c) 10 443,800 $ 202,915 $ -
(a) In addition to the acquisition of one multi-tenant retail operating property,
2019 acquisitions include the purchase of the following that did not affect
our property count: (i) a parcel adjacent to our
multi-tenant retail operating property and (ii) a single-user parcel at our
(b) 2018 acquisition is One Loudoun Uptown, a 58-acre land parcel, which contains
32 acres that are developable, located adjacent to our One Loudoun Downtown
multi-tenant retail operating property. The total number of properties in our
portfolio was not affected by this transaction.
(c) In addition to the acquisition of three multi-tenant retail operating
properties, 2017 acquisitions include the purchase of the following that did
not affect our property count: (i) the fee interest in our Carillon
multi-tenant retail property that was previously subject to a ground lease
with a third party, (ii) the remaining five phases under contract, including
the development rights for additional residential units, at our One Loudoun
Downtown multi-tenant retail operating property that were acquired in phases
as the seller completed construction on stand-alone buildings at the
property, and (iii) a multi-tenant retail outparcel located at our
Town Square multi-tenant retail operating property. 38
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Table of Contents Summary of Cash Flows Year Ended December 31, 2019 2018 Change
Net cash provided by operating activities
$ 27,328 Net cash (used in) provided by investing activities (90,302 ) 87,275 (177,577 ) Net cash used in financing activities (146,343 ) (358,172 ) 211,829 Decrease in cash, cash equivalents and restricted cash (5,154 ) (66,734 ) 61,580 Cash, cash equivalents and restricted cash, at beginning of year 19,601 86,335 Cash, cash equivalents and restricted cash, at end of year$ 14,447 $ 19,601 Cash Flows from Operating Activities Cash flows from operating activities consist primarily of net income from property operations, adjusted for the following, among others: (i) depreciation and amortization, (ii) provision for impairment of investment properties and (iii) gain on sales of investment properties. Net cash provided by operating activities in 2019 increased$27,328 primarily due to the following: • a$4,954 increase in NOI, consisting of an increase in Same Store NOI of
sold or held for sale in 2018 and 2019 and other properties not included
in our same store portfolio of
• ordinary course fluctuations in working capital accounts;
partially offset by • a$1,661 increase in cash paid for leasing fees and inducements;
• a
fees; and
• a
Cash Flows from Investing Activities Cash flows from investing activities consist primarily of cash paid to purchase investment properties and fund capital expenditures, tenant improvements and developments in progress, net of proceeds from the sales of investment properties. Net cash flows from investing activities in 2019 decreased$177,577 due to the following: • a$153,231 decrease in proceeds from the sales of investment properties;
• a
• a
• a
In 2020, we expect to fund redevelopment, expansion and pad development activities, capital expenditures and tenant improvements through cash flows generated from operations, working capital, capital markets transactions and our unsecured revolving line of credit. Cash Flows from Financing Activities Cash flows used in financing activities primarily consist of (i) repayments of our unsecured revolving line of credit and unsecured term loans, (ii) distribution payments, (iii) principal payments on mortgages payable, (iv) debt prepayment costs, (v) payment of loan fees and deposits and (vi) shares repurchased through our common stock repurchase program, partially offset by proceeds from our unsecured revolving line of credit and the issuance of debt instruments. Net cash flows used in financing activities in 2019 decreased$211,829 primarily due to the following: • a$270,000 increase in proceeds from the issuance of the Term Loan Due 2024 and the Term Loan Due 2026 during the year endedDecember 31, 2019 . No such proceeds were received in 2018; 39
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• a
payable to institutional investors in a private placement transaction
during the year ended
2018;
• a
the repayment of our unsecured term loan due 2018 during the year endedDecember 31, 2018 . No such repayments were made in 2019;
• a
common stock repurchase program resulting from the common stock repurchased in 2018. No such repurchases were completed in 2019; • a$3,805 decrease in distributions paid as a result of a decrease in
common shares outstanding due to the repurchase of common shares through
our common stock repurchase program in 2018; and
• a
partially offset by
• a
credit from net borrowings of
2018 compared to net repayments of
• a
• a
In 2020, we plan to continue to address our debt maturities through a combination of cash flows from operations, working capital and our unsecured revolving line of credit. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements. Contractual Obligations The following table presents our obligations and commitments to make future payments under our debt obligations and lease agreements as ofDecember 31, 2019 and excludes the following: • the impact of any 2020 debt activity;
• recorded debt discounts and capitalized loan fees, which are not obligations;
• obligations related to developments, redevelopments, expansions and pad
developments as well as recurring capital additions, as payments are only due upon satisfactory performance under the contracts; and
• letters of credit totaling
capital improvements at one of our properties, which will be satisfied
upon completion of the project.
Payment due by period Less than 1-3 3-5 More than 1 year (b) years (c) years (d) 5 years (e) Total Long-term debt (a): Fixed rate$ 2,494 $ 379,304 $ 503,495 $ 729,611 $ 1,614,904 Variable rate - 18,000 - - 18,000 Interest (f) 63,672 103,400 82,104 58,862 308,038 Operating lease obligations (g) 6,152 12,438 11,800 247,798 278,188$ 72,318 $ 513,142 $ 597,399 $ 1,036,271 $ 2,219,130
(a) Fixed rate amounts for each year include scheduled principal amortization
payments. Interest payments related to variable rate debt were calculated
using interest rates as of
(b) We plan on addressing our 2020 scheduled principal payments on our mortgages
payable through a combination of cash flows from operations, working capital
and our unsecured revolving line of credit. 40
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(c) Included in fixed rate debt is
that has been swapped to a fixed rate through three interest rate swaps
through
(d) Included in fixed rate debt is (i)
that has been swapped to a fixed rate through two interest rate swaps through
been swapped to a fixed rate through three interest rate swaps through July
2024.
(e) Included in fixed rate debt is
that has been swapped to a fixed rate through three interest rate swaps
through
(f) Represents expected interest payments on our consolidated debt obligations as
of
(g) We lease land under non-cancellable leases at certain of our properties
expiring in various years from 2035 to 2073, not inclusive of any available
option period. In addition, unless we can purchase a fee interest in the
underlying land or extend the terms of these leases before or at their
expiration, we will lose our interest in the improvements and the right to
operate these properties. We lease office space under non-cancellable leases
expiring in various years from 2020 to 2023.
Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. For example, significant estimates and assumptions have been made with respect to capitalization of development costs; provision for impairment, including estimates of holding periods, capitalization rates and discount rates (where applicable); and initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions. Actual results could differ from these estimates. Summary of Significant Accounting Policies Critical Accounting Policies and Estimates The following disclosure pertains to accounting policies and estimates we believe are most "critical" to the portrayal of our financial condition and results of operations and require our most difficult, subjective or complex judgments. These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain. GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates. This discussion addresses our judgment pertaining to known trends, events or uncertainties which were taken into consideration upon the application of those policies and the likelihood that materially different amounts would be reported upon taking into consideration different conditions and assumptions. Acquisition of Investment Property We allocate the purchase price of each acquired investment property accounted for as an asset acquisition based upon the relative fair value of the individual assets acquired and liabilities assumed, which generally include (i) land, (ii) building and other improvements, (iii) in-place lease value intangibles, (iv) acquired above and below market lease intangibles, (v) any assumed financing that is determined to be above or below market and (vi) the value of customer relationships. Asset acquisitions do not give rise to goodwill and the related transaction costs are capitalized and included with the allocated purchase price. For tangible assets acquired, including land, building and other improvements, we consider available comparable market and industry information in estimating the acquisition date fair value. We allocate a portion of the purchase price to the estimated acquired in-place lease value intangibles based on estimated lease execution costs for similar leases as well as lost rental payments during an assumed lease-up period. We also evaluate each acquired lease as compared to current market rates. If an acquired lease is determined to be above or below market, we allocate a portion of the purchase price to such above or below market leases based upon the present value of the difference between the contractual lease payments and estimated market rent payments over the remaining lease term. Renewal periods are included within the lease term in the calculation of above and below market lease intangibles if, based upon factors known at the acquisition date, market participants would consider it reasonably assured that the lessee would exercise such options. Fair value estimates used in acquisition accounting, including the discount rate used, require us to consider various factors, including, but not limited to, market knowledge, demographics, age and physical condition of the property, geographic location, size and location of tenant spaces within the acquired investment property, and tenant profile. 41
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Impairment of Long-Lived Assets Our investment properties, including developments in progress, are reviewed for potential impairment at the end of each reporting period or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. At the end of each reporting period, we separately determine whether impairment indicators exist for each property. Examples of situations considered to be impairment indicators for both operating properties and developments in progress include, but are not limited to: • a substantial decline in or continued low occupancy rate or cash flow;
• expected significant declines in occupancy in the near future;
• continued difficulty in leasing space;
• a significant concentration of financially troubled tenants;
• a reduction in anticipated holding period;
• a cost accumulation or delay in project completion date significantly
above and beyond the original development or redevelopment estimate;
• a significant decrease in market price not in line with general market
trends; and
• any other quantitative or qualitative events or factors deemed significant
by our management or board of directors.
If the presence of one or more impairment indicators as described above is identified at the end of a reporting period or at any point throughout the year with respect to a property, the asset is tested for recoverability by comparing its carrying value to the estimated future undiscounted cash flows. An investment property is considered to be impaired when the estimated future undiscounted cash flows are less than its current carrying value. When performing a test for recoverability or estimating the fair value of an impaired investment property, we make certain complex or subjective assumptions that include, but are not limited to: • projected operating cash flows considering factors such as vacancy rates, rental rates, lease terms, tenant financial strength, competitive positioning and property location; • estimated holding period or various potential holding periods when considering probability-weighted scenarios;
• projected capital expenditures and lease origination costs;
• estimated interest and internal costs expected to be capitalized, dates of
construction completion and grand opening dates for developments in
progress;
• projected cash flows from the eventual disposition of an operating
property or development in progress;
• comparable selling prices; and
• a property-specific discount rate.
To the extent impairment has occurred, we will record an impairment charge calculated as the excess of the carrying value of the asset over its estimated fair value. Lease Income We commence recognition of lease income on our leases based on a number of factors. In most cases, revenue recognition under a lease begins when the lessee takes possession or controls the physical use of the leased asset. Generally, this occurs on the lease commencement date. At lease commencement, we expect that collectibility is probable for all of our leases due to the creditworthiness analysis performed by us before entering into a new lease. Lease income, for leases that have fixed and measurable rent escalations, is recognized on a straight-line basis over the term of each lease. The difference between such lease income earned and the cash rent due under the provisions of a lease is recorded as deferred rent receivable and is included as a component of "Accounts and notes receivable" in the accompanying consolidated balance sheets. 42
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Certain leases provide for percentage rent based primarily on tenant sales volume. We recognize percentage rent when the specified target (i.e. breakpoint) that triggers the percentage rent is achieved. Also, most leases provide for the reimbursement of the tenant's pro rata share of certain operating expenses incurred by the landlord including, among others, real estate taxes, insurance, utilities, common area maintenance and management fees, subject to the terms of the respective lease. Certain other tenants are subject to net leases where the tenant is responsible for paying base rent to us but is directly responsible for other costs associated with occupancy, such a real estate taxes. Expenses paid directly by the tenant rather than the landlord are not included in the accompanying consolidated statements of operations and other comprehensive (loss) income. Expenses paid by the landlord, subject to reimbursement by the tenant, are included within "Operating expenses" or "Real estate taxes" and reimbursements are included within "Lease income" along with the associated base rent in the accompanying consolidated statements of operations and other comprehensive (loss) income. We made an accounting policy election to not separate non-lease components (primarily reimbursement of common area maintenance costs) from the related lease components as (i) the fixed non-lease components have the same timing and pattern of transfer as the associated lease component, (ii) the lease component, if accounted for separately, would be classified as an operating lease and (iii) we consider the lease component to be the predominant component of the combined contract. Reimbursements from tenants for recoverable operating expenses are recognized within "Lease income" in the accompanying consolidated statements of operations and other comprehensive (loss) income. In addition, we record lease termination fee income when (i) a termination letter agreement is signed, (ii) all of the conditions of such agreement have been fulfilled, (iii) the tenant is no longer occupying the property and (iv) collectibility is reasonably assured. Upon early lease termination, we provide for losses related to recognized tenant specific intangibles and other assets or adjust the remaining useful life of the assets if determined to be appropriate. Impact of Recently Issued Accounting Pronouncements Recently Adopted Accounting Pronouncements - Prior to 2020 EffectiveJanuary 1, 2019 , we adopted Accounting Standards Update (ASU) 2016-02, Leases. This new guidance, including related ASUs that were subsequently issued, requires lessees to recognize a liability to make lease payments and a right-of-use lease (ROU) asset, initially measured at the present value of lease payments, for both operating and financing leases. For leases with a term of 12 months or less, lessees are permitted to make an accounting policy election, by class of underlying asset, to not recognize lease liabilities and lease assets. The guidance allows lessees and lessors to make an accounting policy election, by class of underlying asset, to not separate non-lease components from lease components. The guidance also provides an optional transition method that would allow entities to initially apply the new guidance in the period of adoption, recognizing a cumulative-effect adjustment to the opening balance of retained earnings, if necessary, and provides a package of three practical expedients whereby companies are not required to reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification (operating vs. capital/financing leases) for any expired or existing leases and (iii) initial direct costs for any existing leases (Package of Three Practical Expedients), as well as practical expedients whereby companies are not required to reassess whether land easements contain a lease and can use hindsight in determining the lease term and assessing impairment of the ROU asset. The guidance requires changes in collectibility of operating lease receivables to be presented as an adjustment to revenue rather than the previous presentation within "Operating expenses" on the consolidated statements of operations and other comprehensive (loss) income. Finally, only incremental direct leasing costs may be capitalized under the new guidance, which is consistent with our previous policies. We adopted this new guidance onJanuary 1, 2019 , applied the requirements as of that date, made an accounting policy election to not separate non-lease components from lease components for all classes of assets, and elected the Package of Three Practical Expedients as well as the practical expedient related to not reassessing whether land easements contain a lease. We did not elect the practical expedient related to hindsight for determining the lease term or assessing impairment of ROU assets. There was no retained earnings adjustment as a result of the adoption. The guidance regarding capitalization of leasing costs did not have any effect on our consolidated financial statements. Upon adoption, we recognized lease liabilities and ROU assets of$103,432 for operating leases where we are the lessee related to long-term ground leases and office leases, which are presented as "Right-of-use lease assets" and "Lease liabilities" in the accompanying consolidated balance sheets. The ROU assets are presented net of our existing straight-line ground rent liabilities of$31,030 and acquired ground lease intangible liability of$11,898 as ofJanuary 1, 2019 . For leases with a term of 12 months or less, we made an accounting policy election to not recognize lease liabilities and lease assets. 43
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For leases where we are the lessor, as noted above, we made an accounting policy election to not separate non-lease components from lease components for all classes of assets and have presented all lease-related revenues in a single line item, "Lease income," rather than the previous presentation that separated revenues between "Rental income," "Tenant recovery income" and "Other property income" in the consolidated statements of operations and other comprehensive (loss) income for the current and comparative periods. This resulted in the reclassification of (i)$370,638 and$414,804 of revenue previously presented as "Rental income," (ii)$105,170 and$115,944 of revenue previously presented as "Tenant recovery income" and (iii)$6,689 and$7,391 of revenue previously presented as "Other property income" for the years endedDecember 31, 2018 and 2017, respectively, into "Lease income" in the accompanying consolidated statements of operations and other comprehensive (loss) income. In addition, we began recording changes in collectibility of operating lease receivables as an adjustment to "Lease income" in the accompanying consolidated statements of operations and other comprehensive (loss) income. For the years endedDecember 31, 2018 and 2017, changes in collectibility of operating lease receivables are presented within "Operating expenses" in the accompanying consolidated statements of operations and other comprehensive (loss) income. EffectiveJanuary 1, 2019 , we adopted ASU 2018-16, Derivatives and Hedging, due to our early adoption of ASU 2017-12, Derivatives and Hedging. This new guidance permits use of the Overnight Index Swap (OIS) Rate based on the Secured Overnight Financing Rate (SOFR) as aU.S. benchmark interest rate for hedge accounting purposes. SOFR represents the fifth permissibleU.S. benchmark rate in addition to the following current eligible benchmark interest rates: (i) directTreasury obligations of theU.S. government (UST), (ii) the LIBOR swap rate, (iii) the OIS Rate based on the Fed Funds Effective Rate and (iv) theSecurities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. The adoption of this pronouncement did not have any effect on our consolidated financial statements as we did not change our benchmark rate. Recently Adopted Accounting Pronouncements - 2020 InJune 2016 , the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. This new guidance was effectiveJanuary 1, 2020 and replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. Financial assets that are measured at amortized cost are required to be presented at the net amount expected to be collected with an allowance for credit losses deducted from the amortized cost basis. In addition, an entity must consider broader information in developing its expected credit loss estimate, including the use of forecasted information. InNovember 2018 , the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which clarifies that receivables arising from operating leases are not within the scope of this new guidance. Generally, the pronouncement requires a modified retrospective method of adoption. The adoption of this pronouncement onJanuary 1, 2020 did not have any effect on our consolidated financial statements as we did not have any financial assets within the scope of this guidance. InAugust 2018 , the FASB issued ASU 2018-13, Fair Value Measurement. This new guidance was effectiveJanuary 1, 2020 and provides new and, in some cases, eliminates or modifies the existing disclosure requirements on fair value measurements. Public entities are now required to disclose the following: (i) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. In addition, public entities are no longer required to disclose the following: (i) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (ii) the policy for timing of transfers between levels and (iii) the valuation processes for Level 3 fair value measurements. The new pronouncement also clarifies and modifies certain existing provisions to promote the appropriate exercise of discretion by entities when considering fair value measurement disclosures and clarifies that materiality is an appropriate consideration when evaluating disclosure requirements. As permitted by the new pronouncement, we removed the discussion of our valuation processes for Level 3 fair value measurements. We did not remove any other disclosures as we did not have any transfers between levels of the fair value hierarchy during the current and comparative periods. The adoption of this pronouncement onJanuary 1, 2020 did not have any effect on our consolidated financial statements. The amended disclosure guidance will be applied prospectively. Inflation Certain of our leases contain provisions designed to mitigate the adverse impact of inflation. Such provisions include clauses enabling us to receive payment of additional rent calculated as a percentage of tenants' gross sales above predetermined thresholds, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. While most escalation clauses are fixed in nature, some may include increases based upon changes in the consumer price index or similar inflation indices. In addition, many of our leases are for terms of less than 10 years, which permits us to seek to increase rents to market rates upon renewal. Most of our leases require the tenant to pay an allocable share of operating expenses, including common area maintenance costs, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. 44
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Subsequent Events Subsequent toDecember 31, 2019 , we: • closed on the disposition ofKing Philip's Crossing, a 105,900 square foot
multi-tenant retail operating property located in
for a sales price of
additional impairment due to previously recognized impairment charges;
• closed on the acquisition of the fee interest in Fullerton Metrocenter,
our existing multi-tenant retail operating property located in
acquisition, we also assumed the lessor position in a ground lease with a
shadow anchor;
• granted 116 restricted shares at a grant date fair value of
share and 331 RSUs at a grant date fair value of
executives in conjunction with our long-term equity compensation plan. The
restricted shares will vest over three years and the RSUs granted are
subject to a three-year performance period. Refer to Note 5 to the
accompanying consolidated financial statements for additional details
regarding the terms of the RSUs; • issued 105 shares of common stock and 175 restricted shares with a one
year vesting term for the RSUs with a performance period that concluded on
December 31, 2019 . An additional 43 shares of common stock were also issued for dividends that would have been paid on the common stock and restricted shares during the performance period; and
• declared the cash dividend for the first quarter of 2020 of
share on our outstanding Class A common stock, which will be paid on April
9, 2020 to Class A common shareholders of record at the close of business
onMarch 26, 2020 . 45
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