RETAIL PROPERTIES OF AMERICA, INC.
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Quarterly Report on
Form 10-Q 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, insolvency or general downturn in the business 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 London Interbank Offered Rate (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;
•changes in the dividend policy for our Class A common stock;
•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 and related impact on our estimated
investments in such redevelopment, our ability to lease redeveloped space, our
ability to identify and pursue redevelopment opportunities and the risk that it
takes longer than expected for development assets to stabilize or that we do not
achieve our estimated returns on such investments;
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•composition of members of our senior management team;
•our ability to attract and retain qualified personnel;
•our ability to continue to qualify as a real estate investment trust (REIT);
•governmental regulations, tax laws and rates and similar matters;
•our compliance with laws, rules and regulations;
•environmental uncertainties and exposure to natural disasters;
•pandemics or other public health crises, such as the novel coronavirus
(COVID-19) pandemic, and the related impact on (i) our ability to manage our
properties, finance our operations and perform necessary administrative and
reporting functions and (ii) our tenants' ability to operate their businesses,
generate sales and meet their financial obligations, including the obligation to
pay rent and other charges as specified in their leases;
•risks associated with the Merger (defined below), including our ability to
consummate the Merger on the proposed terms or on the anticipated timeline, or
at all, including risks and uncertainties relating to securing the necessary
shareholder approvals and satisfaction of other closing conditions to consummate
the Merger and the occurrence of any event, change or other circumstance that
could give rise to the termination of the Merger Agreement (defined below);
•insurance coverage; and
•the likelihood or actual occurrence of terrorist attacks in the U.S.
The extent to which COVID-19 ultimately impacts us and our tenants will depend,
in part, on future developments, which are highly uncertain and cannot be
predicted with confidence, including the scope, severity and duration of the
pandemic, the actions taken to contain the pandemic or mitigate its impact,
including the adoption of available COVID-19 vaccines, and the direct and
indirect economic effects of the pandemic and containment measures, among
others. For a further discussion of these and other factors that could impact
our future results, performance or transactions, see Part II, "Item 1A. Risk
Factors" in this document and in our Annual Report on Form 10-K for the year
ended December 31, 2020 , which you should interpret as being heightened as a
result of the numerous and ongoing adverse impacts of COVID-19. 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 Quarterly Report on Form 10-Q, except as required by
applicable law.
The following discussion and analysis should be read in conjunction with our
condensed consolidated financial statements and the related notes included in
this report.
Proposed Merger with Kite Realty Group Trust
On July 18, 2021 , we entered into a definitive Agreement and Plan of Merger
(Merger Agreement) with Kite Realty Group Trust (Kite) and KRG Oak, LLC , a
wholly owned subsidiary of Kite (Merger Sub). Upon the terms and subject to the
conditions set forth in the Merger Agreement, we will merge with and into Merger
Sub, with Merger Sub surviving the merger (Merger). Immediately following the
closing of the Merger, Merger Sub will merge with and into Kite Realty Group,
L.P., the operating partnership of Kite with Kite Realty Group, L.P. surviving
such merger, so that all of the assets of Kite are owned at or below the
operating partnership level. At the effective time of the Merger (Effective
Time), each share of our Class A common stock issued and outstanding immediately
prior to the Effective Time will be converted into the right to receive 0.623
common shares of Kite, plus the right, if any, to receive cash in lieu of
fractional common shares of Kite. During the period from the date of the Merger
Agreement until the completion of the Merger, we are subject to certain
restrictions on our ability to engage with third parties regarding alternative
acquisition proposals and on the conduct of our business.
Our board of directors and the board of trustees of Kite each have unanimously
approved the transaction. The closing of the Merger is expected to occur in the
fourth quarter of 2021, subject to the satisfaction of certain closing
conditions, including the approval of both Kite and our shareholders. There can
be no assurance that the Merger will be completed on the terms or timeline
currently contemplated or at all.
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Impact of the COVID-19 Pandemic
The global outbreak of COVID-19 has caused, and could continue to cause,
significant disruptions to the U.S. and global economy, including the retail
sector within the U.S. Additionally, the COVID-19 pandemic has had, and could
continue to have, a significant adverse impact on the underlying industries of
many of our tenants. As a result of the pandemic and the measures implemented to
control the spread of COVID-19, our tenants and their operations, and their
ability to pay rent in full, on time or at all, have been, and may continue to
be, adversely impacted due to restrictions placed on their operations. While
many U.S. states and cities have eased or lifted such restrictions, revocation
of restrictions, including the impact on and of consumer behavior, all of which
vary by geography, could impact our business and such impacts may be significant
and materially adverse to us. While we have been negatively impacted by the
COVID-19 pandemic, including a decline in our retail portfolio occupancy of 230
basis points from 94.1% as of March 31, 2020 to 91.8% as of June 30, 2021 and a
4.2% decrease in annualized base rent (ABR) within our retail operating
portfolio from $366,285 at March 31, 2020 to $350,823 at June 30, 2021 , we also
note recent positive trends, including continued improvement in base rent
collection since the start of the pandemic, positive blended re-leasing spreads
throughout the pandemic and increased leasing demand over the previous three
quarters. However, due to numerous uncertainties, it is not possible to
accurately predict the ultimate impact the pandemic will have on our financial
condition, results of operations and cash flows and we continue to closely
monitor the impact of the pandemic on all aspects of our business.
In response to COVID-19 and its related impact on many of our tenants, we
reached agreements with tenants regarding lease concessions. The majority of the
amounts addressed by the lease concessions are base rent, although certain
concessions also address tenant recoveries and other charges. The majority of
these concessions were agreed to and, in the majority of these circumstances,
executed during the year ended December 31, 2020 . As of June 30, 2021 , we have
agreed in principle and/or executed additional lease concessions to defer,
without an extension of the lease term, $54 of previously uncollected base rent
charges and to address an additional $694 of previously uncollected base rent
charges through abatement, a combination of deferral and abatement or a
concession with the extension of the lease term.
As of July 26, 2021 , we have collected 98% and 97% of base rent charges related
to the three months ended June 30, 2021 and March 31, 2021 , respectively, and
have executed lease concession agreements to address an additional 0.45% and
1.6% of base rent related to the three months ended June 30, 2021 and March 31,
2021 , respectively. Uncollected billed base rent related to tenants who have
declared bankruptcy represents 0.0% for both the three months ended June 30,
2021 and March 31, 2021 . As of July 26, 2021 , we have collected 84%, 92%, 96%
and 97% of billed base rent charges related to the three months ended June 30,
2020 , September 30, 2020 , December 31, 2020 and March 31, 2021 , respectively, as
compared to 81%, 89%, 95% and 96% as of April 26, 2021 , respectively.
As of June 30, 2021 , we have collected 95% of the base rent charges that had
previously been deferred under executed lease concession agreements and were due
to be paid during the three months ended June 30, 2021 . As of June 30, 2021 , the
amounts that have been deferred to future periods under executed lease
concessions, on a weighted average basis, are expected to be received over a
period of approximately six months. While we have reached agreement with the
majority of tenants that have requested lease concessions as a result of
COVID-19, we can provide no assurances whether certain tenants may request
additional concessions in the future. As of June 30, 2021 , all of our properties
were open for the benefit of the communities and customers that our tenants
serve.
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The following ABR information is based on ABR of leases in our retail operating
portfolio that were in effect as of June 30, 2021 , and is being provided to
assist with analysis of the actual and potential impact of COVID-19. The
information may not be indicative of collection and lease concession activity in
future periods. The classification of tenant type, including the classification
between essential and non-essential, is based on management's understanding of
the tenant's operations and may not be comparative to similarly titled
classifications by other companies.
Billed Base Rent Collections as of July 26, 2021
Q2 2021
6/30/2021 % of Billed Base
Resiliency Category/Tenant Type ABR 6/30/2021 ABR Rent Collected
Essential $ 113,026 32 % 100 %
Office 23,042 7 % 98 %
Non-Essential 158,182 45 % 97 %
Restaurants
Restaurants - Full Service 29,120 8 % 99 %
Restaurants - Quick Service 27,453 8 % 97 %
Total Restaurants 56,573 16 % 98 %
Total Retail Operating Portfolio - Billed
base rent collected $ 350,823 100 % 98 %
Addressed through executed lease amendments 0 % (a)
Total Retail Operating Portfolio - Billed
base rent addressed 98 %
(a)We have executed lease amendments to address an additional 0.45% of billed
base rent related to the second quarter of 2021 through deferrals, abatements,
combinations and/or modifications.
Executive Summary
Retail Properties of America, Inc. (we, our, us) is a REIT that owns and
operates high quality, strategically located open-air shopping centers,
including properties with a mixed-use component. As of June 30, 2021 , we owned
100 retail operating properties in the United States representing 19,726,000
square feet of gross leasable area (GLA) and had four 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 of June 30, 2021 :
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 62 10,336 92.6 % 93.6 %
Power centers 21 4,668 94.5 % 95.3 %
Lifestyle centers and mixed-use
properties (b) 15 4,461 86.7 % 90.7 %
Total multi-tenant retail 98 19,465 91.7 % 93.3 %
Single-user retail 2 261 100.0 % 100.0 %
Total retail operating properties 100 19,726 91.8 % 93.4 %
Expansion and redevelopment projects:
Circle East 1
One Loudoun Downtown - Pads G & H (c) -
Carillon 1
The Shoppes at Quarterfield 1
Total number of properties (d) 103
(a)Includes leases signed but not commenced.
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(b)Excludes the following multi-family rental units as of June 30, 2021 :
Average
Monthly Rent Percent Leased
per Occupied Including Leases
Property Number of Units Unit Occupancy Signed
One Loudoun Downtown - Pad
G 99 $ 2,341 38.3 % 63.6 %
Plaza del Lago 18 $ 1,378 88.9 % 94.4 %
(c)The operating portion of this property is included in the property count of
lifestyle centers and mixed-use properties within our retail operating
portfolio.
(d)Excludes two multi-tenant retail operating properties classified as held for
sale as of June 30, 2021 .
We are 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 and Austin . Since our inaugural investor day in 2013, we have:
•improved our retail ABR by 34% to $19.37 per square foot as of June 30, 2021
from $14.46 per square foot as of March 31, 2013 ;
•increased our concentration in lifestyle and mixed-use properties based on
multi-tenant retail ABR by 1,700 basis points to 33% as of June 30, 2021 from
16% as of March 31, 2013 ;
•reduced our top 20 retail tenant concentration of total ABR by 1,070 basis
points to 27.2% as of June 30, 2021 from 37.9% as of March 31, 2013 ; and
•reduced our indebtedness by 32% to $1,760,962 as of June 30, 2021 from
$2,601,912 as of March 31, 2013 .
Additionally, as of June 30, 2021 , approximately 88.2% of our multi-tenant
retail ABR was generated in the top 25 metropolitan statistical areas (MSAs), as
determined by the United States Census Bureau and ranked based on the most
recently available population estimates.
We are focused on optimizing our tenancy, asset level configurations and
merchandising through accretive leasing activity and growth-producing mixed-use
expansion and redevelopment projects. For the six months ended June 30, 2021 , we
achieved a blended re-leasing spread of positive 5.3%, consisting of comparable
cash leasing spreads of 15.2% on new leases and 2.9% on renewal leases. During
this period, we achieved average annual contractual rent increases on comparable
signed new leases of approximately 170 basis points. As of June 30, 2021 , we
have $12,754 of ABR related to 616 square feet of GLA pertaining to 2021 lease
expirations and $8,342 of ABR related to 317 square feet of GLA pertaining to
leases signed but not yet commenced.
Our active expansion and redevelopment projects consist of approximately
$183,000 to $196,000 of expected investment through 2022, equivalent to
approximately 6% of the net book value of our investment properties as of
June 30, 2021 . These predominantly mixed-use-focused projects include the
redevelopment at Circle East, 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 at Southlake Town Square . Our
current portfolio of assets contains numerous additional projects in the
longer-term pipeline, including, among others, redevelopment at Carillon,
additional pad developments at One Loudoun Downtown, pad developments and
expansions at Main Street Promenade and Downtown Crown, and future projects at
Merrifield Town Center , Tysons Corner, Southlake Town Square , Lakewood Towne
Center and One Loudoun Uptown.
Company Highlights - Six Months Ended June 30, 2021
Developments in Progress
During the six months ended June 30, 2021 , we:
•invested $29,943 in our expansion and redevelopment projects at Circle East,
One Loudoun Downtown, The Shoppes at Quarterfield and Southlake Town Square . We
expect the majority of our additional 2021 project spend will be for the One
Loudoun Downtown project;
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•placed portions of Circle East and The Shoppes at Quarterfield in service and
reclassified the related costs from "Developments in progress" into "Land" and
"Building and other improvements" in the accompanying condensed consolidated
balance sheets; and
•placed the 99 multi-family rental units at One Loudoun Downtown - Pad G in
service and reclassified the related costs from "Developments in progress" into
"Land" and "Building and other improvements" in the accompanying condensed
consolidated balance sheets.
The following table summarizes the carrying amount of our developments in
progress as of June 30, 2021 and December 31, 2020 :
December 31,
Property Name MSA June 30, 2021 2020
Expansion and redevelopment
projects
Circle East Baltimore $ 34,336 $ 38,180
One Loudoun Downtown Washington, D.C. 86,030 89,103
Carillon (a) Washington, D.C. 33,660 33,463
The Shoppes at Quarterfield Baltimore 1,349 865
Pad development projects
Southlake Town Square Dallas 2,154 1,495
157,529 163,106
Land held for future development
One Loudoun Uptown Washington, D.C. 25,450 25,450
Total developments in progress $ 182,979 $ 188,556
(a)In response to macroeconomic conditions due to the COVID-19 pandemic, we
halted plans for vertical construction at the redevelopment during 2020. During
the three months ended June 30, 2021 , we announced plans to commence
construction on a medical office building at Carillon in the second half of
2021.
Acquisitions
We did not acquire any properties during the six months ended June 30, 2021 .
Subsequent to June 30, 2021 , we acquired Arcadia Village , a 37,000 square foot
multi-tenant retail operating property located in the Phoenix MSA, for a gross
purchase price of $21,000 .
Dispositions
We did not sell any properties during the six months ended June 30, 2021 .
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Market Summary
The following table summarizes our retail operating portfolio by market as of
June 30, 2021 . 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 $ 79,019 22.9 % $ 23.05 3,943 20.3 % 86.9 % 89.8 %
New York 9 36,515 10.6 % 30.10 1,292 6.6 % 93.9 % 96.4 %
Washington, D.C. 8 36,378 10.5 % 28.86 1,388 7.1 % 90.8 % 92.6 %
Chicago 8 27,468 8.0 % 23.61 1,358 7.0 % 85.7 % 87.2 %
Seattle 9 23,767 6.9 % 16.53 1,516 7.8 % 94.8 % 95.9 %
Baltimore 4 23,122 6.7 % 16.09 1,543 7.9 % 93.2 % 93.6 %
Atlanta 9 20,914 6.1 % 14.15 1,513 7.8 % 97.7 % 98.8 %
Houston 8 13,488 3.9 % 13.58 1,056 5.4 % 94.1 % 94.6 %
San Antonio 2 10,965 3.2 % 18.75 605 3.1 % 96.7 % 96.7 %
Phoenix 3 10,404 3.0 % 17.75 632 3.3 % 92.8 % 95.5 %
Los Angeles 1 6,715 1.9 % 17.70 395 2.0 % 96.1 % 98.8 %
Riverside 1 4,796 1.4 % 16.40 292 1.5 % 100.0 % 100.0 %
Charlotte 1 4,181 1.2 % 13.97 319 1.6 % 93.7 % 97.5 %
St. Louis 1 4,073 1.2 % 9.74 453 2.3 % 92.3 % 92.3 %
Tampa 1 2,339 0.7 % 19.19 126 0.7 % 97.0 % 97.0 %
Subtotal 84 304,144 88.2 % 20.15 16,431 84.4 % 91.9 % 93.5 %
Non-Top 25 MSAs (b) 14 40,815 11.8 % 14.80 3,034 15.6 % 90.9 % 92.3 %
Total Multi-Tenant Retail 98 344,959 100.0 % 19.32 19,465 100.0 % 91.7 % 93.3 %
Single-User Retail 2 5,864 22.49 261 100.0 % 100.0 %
Total Retail
Operating Portfolio (c) 100 $ 350,823 $ 19.37 19,726 91.8 % 93.4 %
(a)Excludes $2,791 of multi-tenant retail ABR and 178 square feet of
multi-tenant retail GLA attributable to Circle East and The Shoppes at
Quarterfield, located in the Baltimore MSA, and Carillon, located in the
Washington, D.C. MSA, all three of which are in redevelopment. Including these
amounts, 88.3% of our multi-tenant retail ABR and 84.6% of our multi-tenant
retail GLA is located in the top 25 MSAs.
(b)Top 25 MSAs are determined by the United States Census Bureau and ranked
based on the most recently available population estimates.
(c)Excludes two multi-tenant retail operating properties classified as held for
sale as of June 30, 2021 and the following multi-family rental units as of
June 30, 2021 :
% Leased
Average Monthly Rent Including
Market Number of Units per Occupied Unit Occupancy Signed
Washington, D.C. 99 $ 2.341 38.3 % 63.6 %
Chicago 18 $ 1.378 88.9 % 94.4 %
30-------------------------------------------------------------------------------- Table of Contents Leasing Activity The following table summarizes the leasing activity in our retail operating portfolio and our active expansion and redevelopment projects during the six months endedJune 30, 2021 . New leases with terms of less than 12 months and renewal leases that extend the lease term by 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 119 898 $ 19.44$ 18.90 2.9 % 5.1$ 2.34 Comparable New Leases 33 184 $ 26.01$ 22.57 15.2 % 9.6$ 43.54 Non-Comparable New and Renewal Leases (c) 74 509 $ 18.39 N/A N/A 6.7$ 15.05 Total 226 1,591 $ 20.56$ 19.52 5.3 % 6.2$ 11.11 (a)Total excludes the impact of Non-Comparable New and Renewal Leases. (b)Excludes tenant allowances and related square foot amounts at our active expansion and redevelopment projects. These tenant allowances, if any, 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 with variable lease payment terms and (iii) leases signed where the previous and current lease do not have a consistent lease structure. Subject to the applicable restrictions contained in the Merger Agreement, our near-term leasing efforts are primarily focused on (i) vacant anchor and small shop space, (ii) upcoming lease expirations and (iii) spaces within our expansion and redevelopment projects. Through these collective efforts, we look to situationally focus on stability and tenancy, and to optimize the mix of operators and unique retailers at our properties. As ofJune 30, 2021 , we have$12,754 of ABR related to 616 square feet of GLA pertaining to 2021 lease expirations and$8,342 of ABR related to 317 square feet of GLA pertaining to leases signed but not commenced. Capital Markets During the six months endedJune 30, 2021 , we made scheduled principal payments of$1,194 related to amortizing loans. Subsequent toJune 30, 2021 , we entered into our sixth amended and restated unsecured credit agreement with a syndicate of financial institutions to provide for an$850,000 unsecured revolving line of credit and amended the pricing terms of the seven-year$150,000 unsecured term loan (Term Loan Due 2026). Distributions We declared quarterly distributions totaling$0.145 per share of common stock during the six months endedJune 30, 2021 comprised of the first quarter 2021 distribution of$0.07 per share and the second quarter 2021 distribution of$0.075 per share. During the six months endedJune 30, 2021 , we paid the fourth quarter 2020 distribution of$0.06 per share inJanuary 2021 and the first quarter 2021 distribution$0.07 per share inApril 2021 . 31 -------------------------------------------------------------------------------- Table of Contents Results of Operations Comparison of Results for the Three Months EndedJune 30, 2021 and 2020 Three Months Ended June 30, 2021 2020 Change Revenues: Lease income$ 121,239 $ 96,803 $ 24,436 Expenses: Operating expenses 17,180 14,843 2,337 Real estate taxes 17,799 17,916 (117) Depreciation and amortization 41,815 43,755 (1,940) General and administrative expenses 10,374 8,491 1,883 Total expenses 87,168 85,005 2,163 Other (expense) income: Interest expense (18,776) (19,360) 584 Other income, net 92 215 (123) Net income (loss) 15,387 (7,347) 22,734 Net loss attributable to noncontrolling interests 9 - 9
Net income (loss) attributable to common shareholders
Net income (loss) attributable to common shareholders was$15,396 for the three months endedJune 30, 2021 compared to$(7,347) for the three months endedJune 30, 2020 . The$22,743 increase was primarily due to the following: •a$24,436 increase in lease income largely due to the impact of COVID-19 and related accounting for lease concession agreements and primarily consisting of: •a$24,268 decrease in reserve for uncollectible lease income primarily due to the significant impact from the COVID-19 pandemic in the comparison period whereby uncollectible lease income, net was$(19,495) , and due to the current period impacts from the following: (i) collection of amounts related to previous periods from tenants accounted for on the cash basis of accounting, (ii) the execution of lease concessions that did not meet deferral accounting treatment, however, were agreed in previous periods; as a result, the impact of these concessions was included within the reserve for uncollectible lease income until executed, and (iii) a decrease in the general reserve due to collections from accrual-basis tenants, partially offset by (iv) the uncollected portion of current period charges related to cash-basis tenants and (v) the impact of lease concessions we have agreed in principle as ofJune 30, 2021 that are not expected to meet deferral accounting treatment, however, such agreements have not been executed as ofJune 30, 2021 ; as a result, the impact of these anticipated concessions are included within the reserve for uncollectible lease income until executed; and •a$2,071 increase in straight-line rental income primarily due to a net reduction in the number of tenants accounted for on the cash basis of accounting. The impact of COVID-19 in the comparison period resulted in the negative straight-line rental income of$(1,284) in 2020 from moving tenants to the cash basis of accounting compared to an increase in straight-line rental income of$787 in 2021 driven by the reduction in tenants accounted for on the cash basis of accounting; partially offset by •a$2,726 decrease in base rent primarily from our same store portfolio; and •a$1,940 decrease in depreciation and amortization primarily due to a decrease in asset write-offs as a result of tenant move-outs during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 ; 32 -------------------------------------------------------------------------------- Table of Contents partially offset by •a$2,337 increase in operating expenses primarily due to lower recoverable property operating expenses in 2020 resulting from the impact of COVID-19 as well as an increase in expenses incurred in 2021 related to theTexas winter storm. 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 amortization of right-of-use lease assets and amortization of lease liabilities. 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 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 For the three and six months endedJune 30, 2021 , our same store portfolio consisted of 100 retail operating properties acquired or placed in service and stabilized prior toJanuary 1, 2020 . The number of properties in our same store portfolio decreased to 100 as ofJune 30, 2021 from 102 as ofMarch 31, 2021 as a result of the removal of two same store investment properties classified as held for sale as ofJune 30, 2021 . The properties and financial results reported in "Other investment properties" primarily include the following: •properties acquired or placed in service and stabilized during 2020 and 2021; •the multi-family rental units atPlaza del Lago and One Loudoun Downtown - Pad G; •Circle East, which is in active redevelopment; •One Loudoun Downtown - Pads G & H, which are in active development; •Carillon, a redevelopment project where we halted plans for vertical construction during 2020 in response to macroeconomic conditions due to the impact of the COVID-19 pandemic. During the three months endedJune 30, 2021 , we announced plans to commence construction on a medical office building at Carillon in the second half of 2021; •The Shoppes at Quarterfield, which is in active redevelopment; •land held for future development; •investment properties that were sold or classified as held for sale during 2020 and 2021; •the net income from our wholly owned captive insurance company; and •noncontrolling interests. 33 -------------------------------------------------------------------------------- Table of Contents The following tables present a reconciliation of net income (loss) attributable to common shareholders to Same Store NOI and details of the components of Same Store NOI for the three months endedJune 30, 2021 and 2020: Three
Months Ended
2021 2020 Change
Net income (loss) attributable to common shareholders
$ (7,347) $ 22,743 Adjustments to reconcile to Same Store NOI: Net loss attributable to noncontrolling interests (9) - (9) Depreciation and amortization 41,815 43,755 (1,940) General and administrative expenses 10,374 8,491 1,883 Interest expense 18,776 19,360 (584) Straight-line rental income, net (787) 1,284 (2,071)
Amortization of acquired above and below market lease intangibles, net
(1,009) (1,796) 787
Amortization of lease inducements 547 453 94
Lease termination fees, net (759) (252) (507)
Non-cash ground rent expense, net 212 212 -
Other income, net (92) (215) 123
NOI 84,464 63,945 20,519
NOI from Other Investment Properties (1,927) (1,742) (185)
Same Store NOI $ 82,537 $ 62,203 $ 20,334
Three Months Ended June 30,
2021 2020 Change
Same Store NOI:
Base rent $ 86,107 $ 88,755 $ (2,648)
Percentage and specialty rent 644 448 196
Tenant recoveries 23,713 23,558 155
Other lease-related income 1,319 1,050 269
Uncollectible lease income, net 4,269 (19,344) 23,613
Property operating expenses (16,361) (14,639) (1,722)
Real estate taxes (17,154) (17,625) 471
Same Store NOI $ 82,537 $ 62,203 $ 20,334
Same Store NOI increased $20,334 , or 32.7%, primarily due to the following:
•a $23,613 decrease in reserve for uncollectible lease income primarily due to
the significant impact from the COVID-19 pandemic in the comparison period
whereby uncollectible lease income, net was $(19,344) , and due to the current
period impacts from the following: (i) collection of amounts related to previous
periods from tenants accounted for on the cash basis of accounting, (ii) the
execution of lease concessions that did not meet deferral accounting treatment,
however, were agreed in previous periods; as a result, the impact of these
concessions was included within the reserve for uncollectible lease income until
executed, and (iii) a decrease in the general reserve due to collections from
accrual-basis tenants, partially offset by (iv) the uncollected portion of
current period charges related to cash-basis tenants and (v) the impact of lease
concessions we have agreed in principle as of June 30, 2021 that are not
expected to meet deferral accounting treatment, however, such agreements have
not been executed as of June 30, 2021 ; as a result, the impact of these
anticipated concessions are included within the reserve for uncollectible lease
income until executed;
partially offset by
•a $2,648 decrease in base rent primarily as a result of (i) a $3,013 decrease
from occupancy declines, (ii) a $672 decrease from lease concession agreements
that do not meet deferral accounting treatment, partially offset by (iii) $787
related to the recognition of amounts previously deferred under lease
concessions that did not meet deferral accounting treatment, and (iv) an
increase of $461 from contractual rent changes. Of the aggregate $672 decrease
from lease concession agreements, $310 was associated with billed base rent from
prior periods; and
•a $1,096 increase in property operating expenses and real estate taxes, net of
tenant recoveries, primarily due to (i) decreases in tenant recoveries as a
result of a decline in occupancy, (ii) an increase in certain recoverable
property
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operating expenses and (iii) an increase in certain non-recoverable property
operating expenses, partially offset by (iv) the positive impact from the common
area maintenance reconciliation process in 2021.
Comparison of Results for the Six Months Ended June 30, 2021 and 2020
Six Months Ended June 30,
2021 2020 Change
Revenues:
Lease income $ 240,619 $ 215,498 $ 25,121
Expenses:
Operating expenses 35,245 31,257 3,988
Real estate taxes 36,733 36,449 284
Depreciation and amortization 89,682 83,928 5,754
Provision for impairment of investment properties - 346 (346)
General and administrative expenses 21,492 17,656 3,836
Total expenses 183,152 169,636 13,516
Other (expense) income:
Interest expense (37,528) (36,406) (1,122)
Gain on litigation settlement - 6,100 (6,100)
Other income (expense), net 161 (546) 707
Net income 20,100 15,010 5,090
Net loss attributable to noncontrolling interests 9 - 9
Net income attributable to common shareholders $ 20,109 Net income attributable to common shareholders was$20,109 for the six months endedJune 30, 2021 compared to$15,010 for the six months endedJune 30, 2020 . The$5,099 increase was primarily due to the following: •a$25,121 increase in lease income primarily due to the impact of COVID-19 and related accounting for lease concession agreements and primarily consisting of: •a$28,694 decrease in reserve for uncollectible lease income primarily due to the significant impact from the COVID-19 pandemic in 2020 whereby uncollectible lease income, net was$(20,377) , and due to the current year impacts from the following: (i) collection of amounts related to previous periods from tenants accounted for on the cash basis of accounting, (ii) the execution of lease concessions that did not meet deferral accounting treatment, however, were agreed in previous periods; as a result, the impact of these concessions was included within the reserve for uncollectible lease income until executed, and (iii) a decrease in the general reserve due to collections from accrual-basis tenants, partially offset by (iv) the uncollected portion of current period charges related to cash-basis tenants and (v) the impact of lease concessions we have agreed in principle as ofJune 30, 2021 that are not expected to meet deferral accounting treatment, however, such agreements have not been executed as ofJune 30, 2021 ; as a result, the impact of these anticipated concessions are included within the reserve for uncollectible lease income until executed; and •a$2,150 increase in straight-line rental income primarily due to a net reduction in the number of tenants accounted for on the cash basis of accounting. The impact of COVID-19 in the comparison period resulted in the negative straight-line rental income of$(943) in 2020 from moving tenants to the cash basis of accounting compared to an increase in straight-line rental income of$1,207 in 2021 driven by the reduction in tenants accounted for on the cash basis of accounting; partially offset by •a$7,085 decrease in base rent primarily from our same store portfolio; partially offset by •a$6,100 gain on litigation settlement recognized during the six months endedJune 30, 2020 related to litigation with a former tenant. No such gain was recognized during the six months endedJune 30, 2021 ; 35 -------------------------------------------------------------------------------- Table of Contents •a$5,754 increase in depreciation and amortization primarily due to the write-off of assets taken out of service due to the demolition of a retail outparcel at our Tacoma South investment property during the six months endedJune 30, 2021 . No such write-off occurred during the six months endedJune 30, 2020 ; and •a$3,988 increase in operating expenses primarily due to lower recoverable property operating expenses in 2020 resulting from the impact of COVID-19 as well as an increase in expenses incurred in 2021 related to theTexas winter storm. 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 six months endedJune 30, 2021 and 2020: Six Months
Ended
2021 2020 Change
Net income attributable to common shareholders $ 20,109 $ 15,010 $ 5,099
Adjustments to reconcile to Same Store NOI:
Net loss attributable to noncontrolling interests (9) - (9)
Gain on litigation settlement - (6,100) 6,100
Depreciation and amortization 89,682 83,928 5,754
Provision for impairment of investment properties - 346 (346)
General and administrative expenses 21,492 17,656 3,836
Interest expense 37,528 36,406 1,122
Straight-line rental income, net (1,207) 943 (2,150)
Amortization of acquired above and below market lease intangibles, net
(2,234) (2,772) 538
Amortization of lease inducements 970 872 98
Lease termination fees, net (1,438) (376) (1,062)
Non-cash ground rent expense, net 424 545 (121)
Other (income) expense, net (161) 546 (707)
NOI 165,156 147,004 18,152
NOI from Other Investment Properties (3,121) (3,559) 438
Same Store NOI $ 162,035 $ 143,445 $ 18,590
Six Months Ended June 30,
2021 2020 Change
Same Store NOI:
Base rent $ 170,174 $ 177,122 $ (6,948)
Percentage and specialty rent 1,164 1,311 (147)
Tenant recoveries 49,636 48,880 756
Other lease-related income 2,604 2,518 86
Uncollectible lease income, net 8,026 (20,179) 28,205
Property operating expenses (33,458) (30,359) (3,099)
Real estate taxes (36,111) (35,848) (263)
Same Store NOI $ 162,035 $ 143,445 $ 18,590
Same Store NOI increased $18,590 , or 13.0%, primarily due to the following:
•a $28,205 decrease in reserve for uncollectible lease income primarily due to
the significant impact from the COVID-19 pandemic in 2020 whereby uncollectible
lease income, net was $(20,179) , and due to the current year impacts from the
following: (i) collection of amounts related to previous periods from tenants
accounted for on the cash basis of accounting, (ii) the execution of lease
concessions that did not meet deferral accounting treatment, however, were
agreed in previous periods; as a result, the impact of these concessions was
included within the reserve for uncollectible lease income until executed, and
(iii) a decrease in the general reserve due to collections from accrual-basis
tenants, partially offset by (iv) the uncollected portion of current period
charges related to cash-basis tenants and (v) the impact of lease concessions we
have agreed in principle as of June 30, 2021 that are not expected to meet
deferral accounting treatment, however, such agreements have not been executed
as of June 30, 2021 ; as a result, the impact of these anticipated concessions
are included within the reserve for uncollectible lease income until executed;
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partially offset by
•a $6,948 decrease in base rent primarily as a result of (i) a $6,582 decrease
from occupancy declines, (ii) a $3,281 decrease from lease concession agreements
that do not meet deferral accounting treatment, partially offset by (iii) $1,791
related to the recognition of amounts previously deferred under lease
concessions that did not meet deferral accounting treatment, (iv) an increase of
$1,002 from contractual rent changes and (v) $323 from lower rent abatements. Of
the aggregate $3,281 increase from lease concession agreements, $1,585 was
associated with billed base rent from prior periods; and
•a $2,606 increase in property operating expenses and real estate taxes, net of
tenant recoveries, primarily due to (i) decreases in tenant recoveries as a
result of a decline in occupancy, (ii) an increase in certain net recoverable
property operating expenses and (iii) an increase in certain non-recoverable
property operating expenses, partially offset by (iv) the positive impact from
the common area maintenance reconciliation process in 2021.
Funds From Operations Attributable to Common Shareholders
The National Association of Real Estate Investment Trusts , or NAREIT, an
industry trade group, has promulgated a financial measure known as funds from
operations (FFO). As defined by NAREIT, FFO means net income attributable to
common shareholders computed in accordance with GAAP, excluding the Company's
share of (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.
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 that 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, (i) the impact on
earnings from gains or losses associated with the early extinguishment of debt
or other liabilities, (ii) litigation involving the Company, including gains
recognized as a result of settlement and costs to engage outside counsel related
to litigation with former tenants, (iii) the impact on earnings from executive
separation, and (iv) 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.
We believe that FFO attributable to common shareholders and Operating FFO
attributable to common shareholders, which are supplemental non-GAAP financial
measures, provide an 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 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.
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The following table presents a reconciliation of net income (loss) attributable
to common shareholders to FFO attributable to common shareholders and Operating
FFO attributable to common shareholders:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net income (loss) attributable to common
shareholders $ 15,396 $ (7,347) $ 20,109 $ 15,010
Depreciation and amortization of real estate
(a) 41,508 43,422 89,048 83,260
Provision for impairment of investment
properties - - - 346
FFO attributable to common shareholders $ 56,904 $ 36,075 $ 109,157 $ 98,616
FFO attributable to common shareholders per
common
share outstanding - diluted $ 0.27 $
0.17 $ 0.51
FFO attributable to common shareholders$ 56,904 $ 36,075 $ 109,157 $ 98,616 Impact on earnings from the early extinguishment of debt, net (b) - - 64 - Gain on litigation settlement - - - (6,100) Other (c) 5 - 33 1,011 Operating FFO attributable to common shareholders$ 56,909 $ 36,075 $ 109,254 $ 93,527 Operating FFO attributable to common shareholders per common share outstanding - diluted $ 0.27 $
0.17 $ 0.51
(a)Includes$7,527 of accelerated depreciation recorded in connection with the write-off of assets taken out of service due to the demolition of a retail outparcel at our Tacoma South investment property during the six months endedJune 30, 2021 . (b)Included within "Interest expense" in the accompanying condensed consolidated statements of operations and other comprehensive income (loss). (c)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 is included within "Other income (expense), net" in the accompanying condensed consolidated statements of operations and other comprehensive income (loss). Liquidity and Capital Resources Subject to the applicable restrictions contained in the Merger Agreement, 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. 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 unsecured recoverable through common area maintenance
revolving charges to tenants
line of credit ? Debt repayments
? Proceeds from capital markets transactions ? Distribution payments
? Proceeds from asset dispositions ? Redevelopment,
expansion and pad development
activities
? Proceeds from the sales of air rights ? Acquisitions
? New development
Over the last several years, we have made substantial progress in reinforcing
the strength of our balance sheet, as demonstrated by our financial flexibility
and abundant liquidity. We believe this progress places us in a position to be
able to better withstand the current unprecedented macroeconomic environment.
However, there can be no assurances in this regard or that additional financing
or capital will be available to us going forward on favorable terms, or at all,
including with respect to the restrictions set forth in the Merger Agreement.
Additionally, as of July 26, 2021 , we have collected 98% and 97% of base rent
charges related to the three months ended June 30, 2021 and March 31, 2021 ,
respectively, and have executed lease concession agreements to address an
additional 0.45% and 1.6% of base rent related to the three months ended
June 30, 2021 and March 31, 2021 , respectively. Uncollected billed base rent
related to tenants who have declared bankruptcy represents 0.0% for both the
three months ended June 30, 2021 and March 31, 2021 . As of July 26, 2021 , we
have collected 84%, 92%, 96% and 97% of billed base rent charges related to the
three months ended June 30, 2020 , September 30, 2020 , December 31, 2020 and
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March 31, 2021 , respectively, as compared to 81%, 89%, 95% and 96% as of April
26, 2021 , respectively. If our cash collection activity deteriorates, and if we
reach additional agreements with tenants to defer or abate rent, our operating
cash flows and liquidity will be negatively impacted. We can make no assurances
that the in-process lease amendments will ultimately be executed in the lease
concession type being actively negotiated, or at all. Over the last several
years as we worked to fortify our balance sheet, we funded debt maturities
primarily through capital markets transactions, including public and private
offerings of senior unsecured notes, as well as asset dispositions. As of
June 30, 2021 , we have no scheduled debt maturities and $1,215 of principal
amortization due through the end of 2021, which we plan on satisfying through a
combination of cash flows from operations, working capital and our unsecured
revolving line of credit, subject to the restrictions set forth in the Merger
Agreement.
The table below summarizes our consolidated indebtedness as of June 30, 2021 :
Aggregate Weighted Weighted
Principal Average Average Years
Debt Amount Interest Rate Maturity Date to Maturity
Fixed rate mortgages payable
(a) $ 90,962 4.37 % Various 3.5 years
Unsecured notes payable:
Senior notes - 4.58% due 2024 150,000 4.58 % June 30, 2024 3.0 years
Senior notes - 4.00% due 2025 350,000 4.00 % March 15, 2025 3.7 years
Senior notes - 4.08% due 2026 100,000 4.08 % September 30, 2026 5.3 years
Senior notes - 4.24% due 2028 100,000 4.24 % December 28, 2028 7.5 years
Senior notes - 4.82% due 2029 100,000 4.82 % June 28, 2029 8.0 years
Senior notes - 4.75% due 2030 400,000 4.75 % September 15, 2030 9.2 years
Total unsecured notes payable
(a) 1,200,000 4.42 % 6.3 years
Unsecured credit facility:
Revolving line of credit -
variable rate - 1.20 % April 22, 2022 (b) 0.8 years
Unsecured term loans:
Term Loan Due 2023 - fixed
rate (c) 200,000 4.10 % November 22, 2023 2.4 years
Term Loan Due 2024 - fixed
rate (d) 120,000 2.88 % July 17, 2024 3.0 years
Term Loan Due 2026 - fixed
rate (e) (f) 150,000 3.37 % July 17, 2026 5.0 years
Total unsecured term loans (a) 470,000 3.56 % 3.4 years
Total consolidated
indebtedness $ 1,760,962 4.19 % 5.4 years
(a)Fixed rate mortgages payable excludes mortgage discount of $(428) and
capitalized loan fees of $(160) , net of accumulated amortization, as of June 30,
2021 . Unsecured notes payable excludes discount of $(6,044) and capitalized loan
fees of $(6,912) , net of accumulated amortization, as of June 30, 2021 .
Unsecured term loans exclude capitalized loan fees of $(2,105) , net of
accumulated amortization, as of June 30, 2021 . Capitalized loan fees related to
the revolving line of credit are included within "Other assets, net" in the
accompanying condensed consolidated balance sheets.
(b)Subsequent to June 30, 2021 , we entered into our sixth amended and restated
unsecured credit agreement that extended the maturity date of the unsecured
revolving line of credit to January 8, 2026 with the option to extend for two
additional six-month periods at our election, subject to (i) customary
representations and warranties, including, but not limited to, the absence of an
event of default as defined in the amended unsecured credit agreement and (ii)
payment of an extension fee equal to 0.075% of the revolving line of credit
capacity. See Note 7 to the accompanying condensed consolidated financial
statements for further details.
(c)Reflects $200,000 of LIBOR-based variable rate debt that has been swapped to
a fixed rate of 2.85% plus a credit spread based on a leverage grid ranging from
1.20% to 1.85% through November 22, 2023 . The applicable credit spread was 1.25%
as of June 30, 2021 .
(d)Reflects $120,000 of LIBOR-based variable rate debt that has been swapped to
a fixed rate of 1.68% plus a credit spread based on a leverage grid ranging from
1.20% to 1.70% through July 17, 2024 . The applicable credit spread was 1.20% as
of June 30, 2021 .
(e)Reflects $150,000 of LIBOR-based variable rate debt that has been swapped to
a fixed rate of 1.77% plus a credit spread based on a leverage grid ranging from
1.50% to 2.20% through July 17, 2026 . The applicable credit spread was 1.60% as
of June 30, 2021 .
(f)Subsequent to June 30, 2021 , we amended the pricing terms of the Term Loan
Due 2026, which will bear interest at a rate of LIBOR plus a credit spread based
on a leverage grid ranging from 1.20% to 1.70%. In accordance with the amended
unsecured term loan agreement, we may elect to convert to an investment grade
pricing grid.
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Mortgages Payable
During the six months ended June 30, 2021 , we made scheduled principal payments
of $1,194 related to amortizing loans.
Unsecured Term Loans and Revolving Line of Credit
Unsecured Credit Facility
On April 23, 2018 , we entered into our fifth amended and restated unsecured
credit agreement with a syndicate of financial institutions to provide for an
unsecured credit facility aggregating $1,100,000 , consisting of an $850,000
unsecured revolving line of credit that matures on April 22, 2022 and a $250,000
unsecured term loan that was scheduled to mature on January 5, 2021 and was
repaid during 2020 (Unsecured Credit Facility). The unsecured revolving line of
credit is priced on a leverage grid at a rate of LIBOR plus a credit spread. In
accordance with the unsecured credit agreement, the credit spread set forth in
the leverage grid resets quarterly based on our leverage, as calculated at the
previous quarter end, and we have the option to make an irrevocable election to
convert to an investment grade pricing grid. As of June 30, 2021 , 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 revolving line of
credit as of June 30, 2021 :
Leverage-Based Pricing Investment Grade Pricing
Unsecured Credit Facility Maturity Date Extension Option Extension Fee Credit Spread Facility Fee Credit Spread Facility Fee
$850,000 unsecured
revolving line of credit 4/22/2022 2 six-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$1,350,000 , 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. Subsequent toJune 30, 2021 , we entered into our sixth amended and restated unsecured credit agreement with a syndicate of financial institutions to provide for an$850,000 unsecured revolving line of credit that will be priced on a leverage grid at a rate of LIBOR plus a credit spread. The following table summarizes the key terms of the sixth amended and restated unsecured credit agreement: Leverage-Based Pricing Investment Grade Pricing Sixth Amended and Restated Unsecured Credit Agreement Maturity Date Extension Option Extension Fee Credit Spread Facility Fee Credit Spread Facility Fee$850,000 unsecured revolving line of credit 1/8/2026 2 six-month 0.075% 1.05%-1.50% 0.15%-0.30%
0.725%-1.40% 0.125%-0.30%
The sixth amended and restated unsecured credit agreement has a$750,000 accordion that allows us, at our election, to increase the total unsecured revolving line of credit 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 amended unsecured credit agreement and (ii) our ability to obtain additional lender commitments. The sixth amended and restated unsecured credit agreement also includes a sustainability metric based on targeted greenhouse gas emission reductions, which permits us to reduce the applicable grid-based spread by one basis point annually upon attainment. As ofJune 30, 2021 , 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 As ofJune 30, 2021 , we have the following unsecured term loans: (i) a seven-year$200,000 unsecured term loan (Term Loan Due 2023), (ii) a five-year$120,000 unsecured term loan (Term Loan Due 2024) and (iii) a seven-year$150,000 unsecured term loan (Term Loan Due 2026), each of which bears interest at a rate of LIBOR plus a credit spread based on a leverage grid. In accordance with the respective term loan agreements, the credit spread set forth in the leverage grid resets quarterly based on our leverage, as calculated at the previous quarter end, and we have the option to make an irrevocable election to convert to an investment grade pricing grid. As ofJune 30, 2021 , making such an election would not have changed the interest rate for the Term Loan Due 2023 and would have resulted in higher interest rates for the Term Loan Due 2024 and Term Loan Due 2026 and, as such, we have not made the election to convert to an investment grade pricing grid. 40 -------------------------------------------------------------------------------- Table of Contents The following table summarizes the key terms of the unsecured term loans as ofJune 30, 2021 : Leverage-Based Pricing Investment Grade 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 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 term loan agreement and (ii) our ability to obtain additional lender commitments. 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 term loan agreement and (ii) our ability to obtain additional lender commitments. Subsequent toJune 30, 2021 , we amended the pricing terms of the Term Loan Due 2026 as follows: Leverage-Based Pricing Investment Grade Pricing Term Loan Due 2026 Maturity Date Credit Spread Credit Spread$150,000 unsecured term loan due 2026 7/17/2026 1.20 % - 1.70% 0.75 % - 1.60% The amendment to the Term Loan Due 2026 also includes a sustainability metric based on targeted greenhouse gas emission reductions, which permits us to reduce the applicable grid-based spread on the Term Loan Due 2026 by one basis point annually upon attainment. Debt Maturities The following table summarizes the scheduled maturities and principal amortization of our indebtedness as ofJune 30, 2021 for the remainder of 2021, each of the next four years and thereafter, and the weighted average interest rates by year, as well as the fair value of our indebtedness as ofJune 30, 2021 . 2021 2022 2023 2024 2025 Thereafter Total Fair Value Debt: Fixed rate debt: Mortgages payable (a)$ 1,215 $ 26,641 $ 31,758 $ 1,737 $ 1,809 $ 27,802 $ 90,962 $ 91,982 Fixed rate term loans (b) - - 200,000 120,000 - 150,000 470,000 470,238 Unsecured notes payable (c) - - - 150,000 350,000 700,000 1,200,000 1,295,501 Total fixed rate debt 1,215 26,641 231,758 271,737 351,809 877,802 1,760,962 1,857,721 Variable rate debt: Variable rate revolving line of credit (d) - - - - - - - - Total debt (e)$ 1,215 $ 26,641 $ 231,758 $ 271,737 $ 351,809 $ 877,802 $ 1,760,962 $ 1,857,721 Weighted average interest rate on debt: Fixed rate debt 4.08 % 4.81 % 4.10 % 3.83 % 4.00 % 4.37 % 4.19 % Variable rate debt (f) - 1.20 % - - - - 1.20 % Total 4.08 % 4.81 % 4.10 % 3.83 % 4.00 % 4.37 % 4.19 % (a)Excludes mortgage discount of$(428) and capitalized loan fees of$(160) , net of accumulated amortization, as ofJune 30, 2021 . (b)Excludes capitalized loan fees of$(2,105) , net of accumulated amortization, as ofJune 30, 2021 . The following variable rate term loans have been swapped to fixed rate debt: (i)$200,000 of LIBOR-based variable rate debt has been swapped to a fixed rate of 2.85% plus a credit spread based on a leverage grid throughNovember 22, 2023 ; (ii)$120,000 of LIBOR-based variable rate debt has been swapped to a fixed rate of 1.68% plus a credit spread based on a leverage grid throughJuly 17, 2024 ; and (iii)$150,000 of LIBOR-based variable rate debt has been swapped to a fixed rate of 1.77% plus a credit spread based on a leverage grid throughJuly 17, 2026 . As ofJune 30, 2021 , the applicable credit spread for (i) was 1.25%, for (ii) was 1.20% and for (iii) was 1.60%. (c)Excludes discount of $(6,044) and capitalized loan fees of$(6,912) , net of accumulated amortization, as ofJune 30, 2021 . 41 -------------------------------------------------------------------------------- Table of Contents (d)Subsequent toJune 30, 2021 , we entered into our sixth amended and restated unsecured credit agreement that extended the maturity date of the unsecured revolving line of credit toJanuary 8, 2026 . (e)The weighted average years to maturity of consolidated indebtedness was 5.4 years as ofJune 30, 2021 . (f)Represents interest rate as ofJune 30, 2021 , however, the revolving line of credit was not drawn as ofJune 30, 2021 . Our unsecured debt agreements, consisting of the (i) unsecured credit agreement, as amended, governing the Unsecured Credit Facility, (ii) term loan agreement, as amended, governing the Term Loan Due 2023, (iii) term loan agreement, as amended, governing the Term Loan Due 2024 and Term Loan Due 2026, (iv) note purchase agreement governing the 4.58% senior unsecured notes due 2024 (Notes Due 2024), (v) indenture, as supplemented, governing the Notes Due 2025, (vi) note purchase agreement governing the 4.08% senior unsecured notes due 2026 and the 4.24% senior unsecured notes due 2028 (Notes Due 2026 and 2028), (vii) note purchase agreement governing the 4.82% senior unsecured notes due 2029 (Notes Due 2029) and (viii) indenture, as supplemented, governing the Notes Due 2030, 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 interest coverage ratios; (iii) minimum fixed charge coverage ratios; (iv) minimum unencumbered interest coverage ratios; (v) a minimum debt service coverage ratio; and (vi) a minimum unencumbered assets to unsecured debt ratio. All financial covenants that include operating results, or derivations thereof, in the covenant calculations are based on the most recent four fiscal quarters of activity. As such, the impact of short-term relative adverse operating results, if any, on our financial covenants is partially mitigated by previous and/or subsequent operating results. As ofJune 30, 2021 , we believe we were in compliance with the financial covenants and default provisions under the unsecured debt agreements. We plan on addressing our debt maturities through a combination of (i) cash flows generated from operations, (ii) working capital, (iii) capital markets transactions and (iv) our unsecured revolving line of credit, subject to the restrictions set forth in the Merger Agreement. 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 Internal Revenue Code of 1986, as amended (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 distributions of all, or substantially all, of our taxable income to shareholders. Our future distributions are subject to the restrictions set forth in the Merger Agreement, including (1) that the declaration and payment by us of regular quarterly dividends, aggregated and paid quarterly in accordance with past practice, will be at a quarterly rate not to exceed$0.075 per share, and (2) that we will coordinate the record and payment date of any such dividend with Kite, which will be consistent with Kite's historical record and payment dates. 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, (vii) the restrictions set forth in the Merger Agreement, including those noted above, and (viii) 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. We declared quarterly distributions totaling$0.145 per share of common stock during the six months endedJune 30, 2021 , comprised of the first quarter 2021 distribution of$0.07 per share and the second quarter 2021 distribution of$0.075 per share. We have an existing common stock repurchase program under which we may repurchase, from time to time, up to a maximum of$500,000 of shares of our Class A common stock. 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 42 -------------------------------------------------------------------------------- Table of Contents program may be suspended or terminated at any time without prior notice. We did not repurchase any shares during the six months endedJune 30, 2021 . As ofJune 30, 2021 ,$189,105 remained available for repurchases of shares of our common stock under our common stock repurchase program. Subsequent toJune 30, 2021 , in connection with the Merger Agreement, we suspended the common stock repurchase program. OnApril 1, 2021 , we established an at-the-market (ATM) equity program under which we may issue and sell shares of our Class A common stock, having an aggregate offering price of up to$250,000 , from time to time. Actual sales may depend on a variety of factors, including, among others, market conditions and the trading price of our Class A common stock. Any net proceeds are expected to be used for general corporate purposes, which may include funding acquisitions and redevelopment activities and repaying debt. We did not sell any shares under our ATM equity program during the six months endedJune 30, 2021 . As ofJune 30, 2021 , we had Class A common shares having an aggregate offering price of up to$250,000 remaining available for sale under our ATM equity program. Subsequent toJune 30, 2021 , in connection with the Merger Agreement, we suspended the ATM equity program. Capital Expenditures and Redevelopment Activity We anticipate that obligations related to capital improvements and redevelopments, including expansions and pad developments, in 2021, subject to the restrictions contained in the Merger Agreement, can be met with (i) cash flows generated from operations, (ii) working capital, (iii) capital markets transactions and (iv) our unsecured revolving line of credit. As ofJune 30, 2021 , we have active expansion and redevelopment projects at Circle East, One Loudoun Downtown, The Shoppes at Quarterfield and a vacant pad development atSouthlake Town Square and we have invested a total of approximately$131,000 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 partner at One Loudoun Downtown. These projects are at various stages of completion, and based on our current plans and estimates, we anticipate that it will require approximately$52,000 to$65,000 of additional investment from us to complete these projects. We capitalized$771 and$1,487 of internal salaries and related benefits of personnel directly involved in capital upgrades and tenant improvements during the three and six months endedJune 30, 2021 , respectively, and$641 and$1,267 during the three and six months endedJune 30, 2020 , respectively. We also capitalized internal leasing incentives of$106 and$163 during the three and six months endedJune 30, 2021 , respectively, and$42 and$102 during the three and six months endedJune 30, 2020 , respectively, all of which were incremental to signed leases. In addition, we capitalized$2,020 and$3,831 of indirect project costs related to redevelopment projects during the three and six months endedJune 30, 2021 , including, among other costs,$359 and$768 of internal salaries and related benefits of personnel directly involved in the redevelopment projects and$1,254 and$2,546 of interest, respectively. We capitalized$1,347 and$2,663 of indirect project costs related to redevelopment projects during the three and six months endedJune 30, 2020 , including, among other costs,$329 and$701 of internal salaries and related benefits of personnel directly involved in the redevelopment projects and$736 and$1,521 of interest, respectively. Dispositions We did not sell any properties during the six months endedJune 30, 2021 . The following table highlights our property disposition during 2020: Aggregate Number of Square Proceeds, Net Debt Properties Sold Footage Consideration (a) Extinguished 2020 Disposition 1 105,900$ 13,900 $ 12,695 $ -
(a)Represents total consideration net of transaction costs.
In addition to the transaction presented in the preceding table, during the year
ended
43
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Table of Contents
Acquisitions
We did not acquire any properties during the six months ended June 30, 2021 . The
following table highlights our asset acquisition during 2020:
Number of
Assets Acquired Square Footage Acquisition Price Mortgage Debt
2020 Acquisition (a) 1 154,700 $ 55,000 $ -
(a)2020 acquisition is the fee interest in our Fullerton Metrocenter
multi-tenant retail operating property. In connection with this acquisition, we
also assumed the lessor position in a ground lease with a shadow anchor. The
total number of properties in our portfolio was not affected by this
transaction.
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