ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements in this section or elsewhere in this report may be deemed “forward-looking statements”. See “Item 1A. Risk Factors” in this report for important information regarding these forward-looking statements and certain risk and uncertainties that may affect us. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing in “Item 8. Financial Statements and Supplementary Data” of this report.
Overview
We are an equity real estate investment trust (“REIT”) specializing in the ownership, management, and redevelopment of high quality retail and mixed-use properties located primarily in densely populated and affluent communities in strategically selected metropolitan markets in the Northeast and Mid-Atlantic regions of the United States, California, and South Florida. As of
December 31, 2017
, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as
104
predominantly retail real estate projects comprising approximately
24.2 million
square feet. In total, the real estate projects were
95.3%
leased and
93.9%
occupied at
December 31, 2017
. We have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our dividends per common share for
50
consecutive years.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, referred to as “GAAP”, requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management’s best judgment, after considering past and current events and economic conditions. In addition, information relied upon by management in preparing such estimates includes internally generated financial and operating information, external market information, when available, and when necessary, information obtained from consultations with third party experts. Actual results could differ from these estimates. A discussion of possible risks which may affect these estimates is included in “Item 1A. Risk Factors” of this report. Management considers an accounting estimate to be critical if changes in the estimate could have a material impact on our consolidated results of operations or financial condition.
Our significant accounting policies are more fully described in Note 2 to the consolidated financial statements; however, the most critical accounting policies, which involve the use of estimates and assumptions as to future uncertainties and, therefore, may result in actual amounts that differ from estimates, are as follows:
Revenue Recognition and Accounts Receivable
Our leases with tenants are classified as operating leases. Substantially all such leases contain fixed escalations which occur at specified times during the term of the lease. Base rents are recognized on a straight-line basis from when the tenant controls the space through the term of the related lease, net of valuation adjustments, based on management’s assessment of credit, collection and other business risk. Percentage rents, which represent additional rents based upon the level of sales achieved by certain tenants, are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved and the percentage rents are collectible. Real estate tax and other cost reimbursements are recognized on an accrual basis over the periods in which the related expenditures are incurred. For a tenant to terminate its lease agreement prior to the end of the agreed term, we may require that they pay a fee to cancel the lease agreement. Lease termination fees for which the tenant has relinquished control of the space are generally recognized on the termination date. When a lease is terminated early but the tenant continues to control the space under a modified lease agreement, the lease termination fee is generally recognized evenly over the remaining term of the modified lease agreement.
Current accounts receivable from tenants primarily relate to contractual minimum rent and percentage rent as well as real estate tax and other cost reimbursements. Accounts receivable from straight-line rent is typically longer term in nature and relates to the cumulative amount by which straight-line rental income recorded to date exceeds cash rents billed to date under the contractual lease agreement.
We make estimates of the collectability of our current accounts receivable and straight-line rents receivable which requires significant judgment by management. The collectability of receivables is affected by numerous factors including current economic conditions, bankruptcies, and the ability of the tenant to perform under the terms of their lease agreement. While we make estimates of potentially uncollectible amounts and provide an allowance for them through bad debt expense, actual collectability could differ from those estimates which could affect our net income. With respect to the allowance for current uncollectible tenant receivables, we assess the collectability of outstanding receivables by evaluating such factors as nature and age of the receivable, past history and current financial condition of the specific tenant including our assessment of the tenant’s ability to meet its contractual lease obligations, and the status of any pending disputes or lease negotiations with the tenant. At
December 31, 2017
and
2016
, our allowance for doubtful accounts was
$11.8 million
and
$11.9 million
, respectively. Historically, we have recognized bad debt expense between 0.3% and 1.3% of rental income and it was 0.3% in
2017
. A change in the estimate of collectability of a receivable would result in a change to our allowance for doubtful accounts and correspondingly bad debt expense and net income. For example, in the event our estimates were not accurate and we were required to increase our allowance by 1% of rental income, our bad debt expense would have increased and our net income would have decreased by $8.4 million.
Due to the nature of the accounts receivable from straight-line rents, the collection period of these amounts typically extends beyond one year. Our experience relative to unbilled straight-line rents is that a portion of the amounts otherwise recognizable as revenue is never billed to or collected from tenants due to early lease terminations, lease modifications, bankruptcies and other factors. Accordingly, the extended collection period for straight-line rents along with our evaluation of tenant credit risk may result in the nonrecognition of a portion of straight-line rental income until the collection of such income is reasonably assured. If our evaluation of tenant credit risk changes indicating more straight-line revenue is reasonably collectible than previously estimated and realized, the additional straight-line rental income is recognized as revenue. If our evaluation of tenant credit risk changes indicating a portion of realized straight-line rental income is no longer collectible, a reserve and bad debt expense is recorded. At
December 31, 2017
and
2016
, accounts receivable includes approximately
$93.1 million
and
$80.6 million
, respectively, related to straight-line rents. Correspondingly, these estimates of collectability have a direct impact on our net income.
We are currently under construction on 221 condominium units at our Assembly Row and Pike & Rose properties. Gains or losses on the sale of these condominium units are recognized in accordance with the provisions of ASC Topic 360-20, “Property, Plant and Equipment – Real Estate Sales.” We account for contracted condominium sales under the percentage-of completion method, based on an evaluation of the criteria specified in ASC Topic 360-20 including: the legal commitment of the purchaser in the real estate contract, whether the construction of the project is beyond a preliminary phase, whether sufficient units have been contracted to ensure the project will not revert to a rental project, the ability to reasonably estimate the aggregate project sale proceeds and aggregate project costs, and the determination that the buyer has made an adequate initial and continuing cash investment under the contract. When the percentage-of-completion criteria have not been met, no profit is recognized. The application of these criteria can be complex and requires us to make assumptions. The timing of revenue recognition related to these condominium sales will be impacted by the January 1, 2018 adoption of ASU 2014-09 "Revenue from Contracts with Customers." See "Recent Accounting Pronouncements," in Note 2 to the consolidated financial statements for further discussion regarding the changes.
Real Estate
The nature of our business as an owner, redeveloper and operator of retail shopping centers and mixed-use properties means that we invest significant amounts of capital. Depreciation and maintenance costs relating to our properties constitute substantial costs for us as well as the industry as a whole. We capitalize real estate investments and depreciate them on a straight-line basis in accordance with GAAP and consistent with industry standards based on our best estimates of the assets’ physical and economic useful lives. We periodically review the estimated lives of our assets and implement changes, as necessary, to these estimates and, therefore, to our depreciation rates. These reviews may take into account such factors as the historical retirement and replacement of our assets, expected redevelopments, and general economic and real estate factors. Certain events, such as unforeseen competition or changes in customer shopping habits, could substantially alter our assumptions regarding our ability to realize the expected return on investment in the property and therefore reduce the economic life of the asset and affect the amount of depreciation expense to be charged against both the current and future revenues. These assessments have a direct impact on our net income. The longer the economic useful life, the lower the depreciation expense will be for that asset in a fiscal period, which in turn will increase our net income. Similarly, having a shorter economic useful life would increase the depreciation for a fiscal period and decrease our net income.
Land, buildings and real estate under development are recorded at cost. We calculate depreciation using the straight-line method with useful lives ranging generally from 35 years to a maximum of 50 years on buildings and major improvements. Maintenance and repair costs are charged to operations as incurred. Tenant work and other major improvements, which improve or extend the life of the asset, are capitalized and depreciated over the life of the lease or the estimated useful life of the improvements, whichever is shorter. Minor improvements, furniture and equipment are capitalized and depreciated over useful lives ranging from 2 to 20 years.
Capitalized costs associated with leases are depreciated or amortized over the base term of the lease. Unamortized leasing costs are charged to expense if the applicable tenant vacates before the expiration of its lease. Undepreciated tenant work is written-off if the applicable tenant vacates and the tenant work is replaced or has no future value. Additionally, we make estimates as to the probability of certain development and redevelopment projects being completed. If we determine the redevelopment is no longer probable of completion, we immediately expense all capitalized costs which are not recoverable.
Interest costs on developments and major redevelopments are capitalized as part of developments and redevelopments not yet placed in service. Capitalization of interest commences when development activities and expenditures begin and end upon completion, which is when the asset is ready for its intended use. Generally, rental property is considered substantially complete and ready for its intended use upon completion of tenant improvements, but no later than one year from completion of major construction activity. We make judgments as to the time period over which to capitalize such costs and these assumptions have a direct impact on net income because capitalized costs are not subtracted in calculating net income. If the time period for capitalizing interest is extended, more interest is capitalized, thereby decreasing interest expense and increasing net income during that period.
Certain external and internal costs directly related to the development, redevelopment and leasing of real estate, including pre-construction costs, real estate taxes, insurance, construction costs and salaries and related costs of personnel directly involved, are capitalized. We capitalized external and internal costs related to both development and redevelopment activities of
$410 million
and
$8 million
, respectively, for
2017
and
$420 million
and
$9 million
, respectively, for
2016
. We capitalized external and internal costs related to other property improvements of
$74 million
and
$3 million
, respectively, for
2017
and
$61 million
and
$3 million
, respectively, for
2016
. We capitalized external and internal costs related to leasing activities of
$11 million
and
$6 million
, respectively, for
2017
and
$13 million
and
$6 million
, respectively, for
2016
. The amount of capitalized internal costs for salaries and related benefits for development and redevelopment activities, other property improvements, and leasing activities were
$7 million
,
$3 million
, and
$6 million
, for
2017
and
$8 million
,
$2 million
, and
$6 million
for
2016
. Total capitalized costs were
$512 million
and
$511 million
for
2017
and
2016
, respectively.
When applicable, as lessee, we classify our leases of land and building as operating or capital leases. We are required to use judgment and make estimates in determining the lease term, the estimated economic life of the property and the interest rate to be used in determining whether or not the lease meets the qualification of a capital lease and is recorded as an asset.
Real Estate Acquisitions
Upon acquisition of operating real estate properties, we estimate the fair value of assets and liabilities acquired including land, building, improvements, leasing costs, intangibles such as in-place leases, assumed debt, and current assets and liabilities, if any. Based on these estimates, we allocate the purchase price to the applicable assets and liabilities. We utilize methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. The value allocated to in-place leases is amortized over the related lease term and reflected as rental income in the statement of operations. We consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and
include such renewal options in the calculation of in-place lease value when we consider these to be bargain renewal options. If the value of below market lease intangibles includes renewal option periods, we include such renewal periods in the amortization period utilized. If a tenant vacates its space prior to contractual termination of its lease, the unamortized balance of any in-place lease value is written off to rental income.
Long-Lived Assets and Impairment
There are estimates and assumptions made by management in preparing the consolidated financial statements for which the actual results will be determined over long periods of time. This includes the recoverability of long-lived assets, including our properties that have been acquired or redeveloped and our investment in certain joint ventures. Management’s evaluation of impairment includes review for possible indicators of impairment as well as, in certain circumstances, undiscounted and discounted cash flow analysis. Since most of our investments in real estate are wholly-owned or controlled assets which are held for use, a property with impairment indicators is first tested for impairment by comparing the undiscounted cash flows, including residual value, to the current net book value of the property. If the undiscounted cash flows are less than the net book value, the property is written down to expected fair value.
The calculation of both discounted and undiscounted cash flows requires management to make estimates of future cash flows including revenues, operating expenses, required maintenance and development expenditures, market conditions, demand for space by tenants and rental rates over long periods. Because our properties typically have a long life, the assumptions used to estimate the future recoverability of book value requires significant management judgment. Actual results could be significantly different from the estimates. These estimates have a direct impact on net income, because recording an impairment charge results in a negative adjustment to net income.
Contingencies
We are sometimes involved in lawsuits, warranty claims, and environmental matters arising in the ordinary course of business. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters. We accrue a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, we accrue the best estimate within the range; however, if no amount within the range is a better estimate than any other amount, the minimum within the range is accrued. Any difference between our estimate of a potential loss and the actual outcome would result in an increase or decrease to net income.
Self-Insurance
We are self-insured for general liability costs up to predetermined retained amounts per claim, and we believe that we maintain adequate accruals to cover our retained liability. We currently do not maintain third party stop-loss insurance policies to cover liability costs in excess of predetermined retained amounts. Our accrual for self-insurance liability is determined by management and is based on claims filed and an estimate of claims projected to be incurred but not yet reported. Management considers a number of factors, including third-party actuarial analysis, previous experience in our portfolio, and future increases in costs of claims, when making these determinations. If our liability costs differ from these accruals, it will increase or decrease our net income.
Recently Adopted and Recently Issued Accounting Pronouncements
See Note 2 to the consolidated financial statements.
2017
Property Acquisitions and Dispositions
On
February 1, 2017
, we acquired a leasehold interest in Hastings Ranch Plaza, a
274,000
square foot shopping center in Pasadena, California for
$29.5 million
. The land is subject to a long-term ground lease that expires on April 30, 2054. Approximately
$21.5 million
of assets acquired were allocated to lease intangibles and included within other assets. Approximately
$15.2 million
of net assets acquired were allocated to lease liabilities and included in other liabilities.
On
March 31, 2017
, we acquired the fee interest in Riverpoint Center, a
211,000
square foot shopping center in the Lincoln Park neighborhood of Chicago, Illinois for
$107.0 million
. Approximately
$1.0 million
and
$12.3 million
of net assets acquired were allocated to other assets for "above market leases," and other liabilities for "below market leases," respectively.
We leased
three
parcels of land at our Assembly Row property to
two
ground lessees. Both lessees exercised purchase options under the related ground leases. The sale transaction related to the purchase option on one of our ground leases was completed on
April 4, 2017
for a sales price of
$36.0 million
. On
June 28, 2017
, the sale transactions related to the purchase options on our other two ground lease parcels were completed for a total sales price of
$17.3 million
. The net gain recognized in
connection with these transactions was approximately
$15.4 million
. At
December 31, 2016
, the total cost basis of the related land was
$33.9 million
and is included in "assets held for sale" on our consolidated balance sheet.
On
May 19, 2017
, we acquired the fee interest in a
71,000
square foot, mixed-use property located in Berkeley, California based on a gross value of
$23.9 million
. The acquisition was completed through a newly formed entity for which we own a
90%
controlling interest. Approximately
$0.8 million
and
$0.3 million
of net assets acquired were allocated to other assets for "above market leases," and other liabilities for "below market leases," respectively. Additionally, approximately
$2.4 million
was allocated to noncontrolling interests.
On
August 2, 2017
, we acquired an approximately
90%
interest in a joint venture that owns
six
shopping centers in Los Angeles County, California based on a gross value of
$357 million
, including the assumption of
$79.4 million
of mortgage debt. Approximately
$7.8 million
of assets acquired were allocated to lease intangibles and included within other assets. Approximately
$36.2 million
of net assets acquired were allocated to lease liabilities and included in other liabilities. Additionally, approximately
$30.6 million
was allocated to noncontrolling interests. That joint venture also acquired a
24.5%
interest in La Alameda, a shopping center in Walnut Park, California for
$19.8 million
. The property has
$41.0 million
of mortgage debt, of which the joint venture's share is approximately
$10 million
. Additional information on the properties is listed below:
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Property
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City/State
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GLA
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(in square feet)
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Azalea
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South Gate, CA
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222,000
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Bell Gardens
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Bell Gardens, CA
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330,000
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La Alameda
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Walnut Park, CA
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245,000
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Olivo at Mission Hills (1)
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Mission Hills, CA
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155,000
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Plaza Del Sol
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South El Monte, CA
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48,000
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Plaza Pacoima
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Pacoima, CA
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204,000
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Sylmar Towne Center
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Sylmar, CA
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148,000
|
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1,352,000
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(1) Property is currently being redeveloped. GLA reflects approximate square footage once the property is open and operating.
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On
August 25, 2017
, we sold our property located at 150 Post Street in San Francisco, California for a sales price of
$69.3 million
, resulting in a gain of
$45.2 million
.
On
September 25, 2017
, we sold our North Lake Commons property in Lake Zurich, Illinois for a sales price of
$15.6 million
, resulting in a gain of
$4.9 million
.
On
December 28, 2017
, we sold a parcel of land at our Bethesda Row property in Bethesda, Maryland for a sales price of
$8.5 million
, resulting in a gain of
$6.5 million
.
For the year ended
December 31, 2017
, we recognized a
$5.4 million
gain, net of
$1.4 million
of income taxes, related to the sale of condominiums at our Assembly Row property based on the percentage-of-completion method. In connection with recording the gain, we recognized a receivable of
$67.1 million
as of
December 31, 2017
. The closing of the Assembly Row condominium sales is expected to commence in 2018.
As of
December 31, 2017
, no gain has been recognized for contracted condominium sales at Pike & Rose, as not all of the criteria necessary for profit recognition have been met.
2017
Significant Debt and Equity Transactions
On
June 5, 2017
we refinanced the
$175.0 million
mortgage loan on Plaza El Segundo at a face amount of
$125.0 million
and repaid the remaining
$50.0 million
at par. The new mortgage loan bears interest at
3.83%
and matures on
June 5, 2027
.
On
June 23, 2017
, we issued
$400.0 million
aggregate principal amount of fixed rate senior unsecured notes in two separate series. We issued
$300.0 million
of
3.25%
notes that mature on
July 15, 2027
, which were offered at
99.083%
of the principal amount, with a yield to maturity of
3.358%
. Additionally, we issued
$100.0 million
of
4.50%
notes due
December 1, 2044
. The
4.50%
notes were offered at
105.760%
of the principal amount, with a yield to maturity of
4.143%
, and have the same terms and are of the same series as the senior notes first issued on
November 14, 2014
. Our net proceeds from the June note offering after net issuance premium, underwriting fees and other costs was approximately
$399.5 million
.
In connection with the acquisition of
six
shopping centers in Los Angeles County, California on
August 2, 2017
(as further discussed in Note 3), we assumed mortgage loans with a face amount of
$79.4 million
and a fair value of
$80.1 million
. The mortgage loans are secured by the individual properties with the following contractual terms:
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Principal
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Stated Interest Rate
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Maturity Date
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(in millions)
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Sylmar Towne Center
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$
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17.5
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5.39
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%
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June 6, 2021
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Plaza Del Sol
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8.6
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5.23
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%
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December 1, 2021
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Azalea
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40.0
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3.73
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%
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November 1, 2025
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Bell Gardens
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13.3
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4.06
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%
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August 1, 2026
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On
August 31, 2017
, we refinanced the
$41.8 million
mortgage loan on The Grove at Shrewsbury (East) at a face amount of
$43.6 million
. The new mortgage loan bears interest at
3.77%
and matures on
September 1, 2027
.
On
September 29, 2017
, we issued
6,000,000
Depository Shares, each representing 1/1000th of a
5.0%
Series C Cumulative Redeemable Preferred Share, par value
$0.01
per share ("Series C Preferred Shares"), at the liquidation preference of
$25.00
per depository share (or
$25,000
per Series C Preferred share) in an underwritten public offering. The Series C Preferred Shares accrue dividends at a rate of
5.0%
of the
$25,000
liquidation preference per year and are redeemable at our option on or after
September 29, 2022
. Additionally, they are not convertible and holders of these shares generally have no voting rights, unless we fail to pay dividends for six or more quarters. The net proceeds after underwriting fees and other costs were approximately
$145.0 million
.
On
December 21, 2017
, we issued
$175.0 million
aggregate principal amount of
3.25%
senior unsecured notes due
July 15, 2027
. The notes have the same terms and are of the same series as the
$300.0 million
senior notes issued on
June 23, 2017
. The notes were offered at
99.404%
of the principal amount, with a yield to maturity of
3.323%
. Our net proceeds from the December note offering after net issuance premium, underwriting fees and other costs were approximately
$172.5 million
. The proceeds were used on
December 31, 2017
to repay our
$150.0 million
5.90%
notes prior to the original maturity date of
April 1, 2020
. The redemption price of
$164.1 million
included a make-whole premium of
$11.9 million
and accrued but unpaid interest of
$2.2 million
. The make-whole premium is included in "early extinguishment of debt" in 2017.
On November 4, 2016, we replaced our existing at-the-market (“ATM”) equity program with a new ATM equity program in which we may from time to time offer and sell common shares having an aggregate offering price of up to
$400.0 million
. We intend to use the net proceeds to fund potential acquisition opportunities, fund our development and redevelopment pipeline, repay amounts outstanding under our revolving credit facility and/or for general corporate purposes. For the three months ended
December 31, 2017
, we issued
501,120
common shares at a weighted average price per share of
$132.22
for net cash proceeds of
$65.6 million
and paid
$0.7 million
in commissions and less than
$0.1 million
in additional offering expenses related to the sales of these common shares. For the
year
ended
December 31, 2017
, we issued
826,517
common shares at a weighted average price per share of
$132.56
for net cash proceeds of
$108.3 million
and paid
$1.1 million
in commissions and
$0.2 million
in additional offering expenses related to the sales of these common shares. As of
December 31, 2017
, we had the capacity to issue up to
$261.3 million
in common shares under our ATM equity program.
Outlook
We seek growth in earnings, funds from operations, and cash flows primarily through a combination of the following:
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•
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growth in our same-center portfolio,
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•
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growth in our portfolio from property development and redevelopments, and
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•
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expansion of our portfolio through property acquisitions.
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Our same-center growth is primarily driven by increases in rental rates on new leases and lease renewals, changes in portfolio occupancy, and the redevelopment of those assets. Over the long-term, the infill nature and strong demographics of our properties provide a strategic advantage allowing us to maintain relatively high occupancy and generally increase rental rates. We continue to see strong levels of interest from prospective tenants for our retail spaces; however, the time it takes to complete new lease deals is longer, as tenants have become more selective and more deliberate in their decision-making process. We have also experienced extended periods of time for some government agencies to process permits and inspections further delaying rent commencement on newly leased spaces. Additionally, we have seen an overall decrease in the number of tenants available to fill anchor spaces, and have seen an uptick in the number of retail tenants closing early and/or filing for bankruptcy. We believe the locations and nature of our centers and diverse tenant base partially mitigates any potential negative changes in the economic environment. However, any significant reduction in our tenants' abilities to pay base rent, percentage rent or other charges, will adversely affect our financial condition and results of operations. We seek to maintain a mix of strong national, regional, and local retailers. At
December 31, 2017
, no single tenant accounted for more than
2.9%
of annualized base rent.
Our properties are located primarily in densely populated and/or affluent areas with high barriers to entry which allow us to take advantage of redevelopment opportunities that enhance our operating performance through renovation, expansion,
reconfiguration, and/or retenanting. We evaluate our properties on an ongoing basis to identify these types of opportunities. We currently have redevelopment projects underway with a projected cost of approximately $155 million that we expect to stabilize in the next several years.
We continue our ongoing redevelopment efforts at Santana Row and are under construction on an eight story 284,000 square foot office building which will include an additional 29,000 square feet of retail space and 1,300 parking spaces. The building is expected to cost between $205 and $215 million and to be delivered in 2019. After current phases, we have approximately 4 acres remaining for further redevelopment and entitlements in place for an additional 395 residential units and 321,000 square feet of commercial space. Additionally, we control 12 acres of land adjacent to Santana Row.
We continue to invest in our long-term multi-phased mixed-use development projects at Assembly Row in Somerville, Massachusetts and Pike & Rose in North Bethesda, Maryland which we expect to be involved in over the coming years.
Construction of Phase II of Assembly Row which will include 161,000 square feet of retail space, 447 residential units, and a 158 room boutique hotel (which will be owned and operated by a joint venture in which we are a partner) is underway. Total expected costs range from $280 million to $295 million and remaining delivery is expected in 2018. Approximately 49,000 square feet of retail space in Phase II has opened in 2017, and in September, the first tenants moved into the new residential building. Phase II will also include 122 for-sale condominium units with an expected total cost of $74 million to $79 million. Additionally, as part of the second phase, we entered into a ground lease agreement with Partners HealthCare to bring 741,500 square feet of office space to Assembly Row. The ground lease agreement included a purchase option, which was exercised and the related sale closed on April 4, 2017.
Construction of Phase II of Pike & Rose is also underway. Phase II will include approximately 216,000 square feet of retail space, 272 residential units, and a 177 room boutique hotel. Approximately 151,000 square feet of retail space in Phase II has opened in 2017, and in August, the first tenants moved into the new residential building. Total expected costs range from $200 million to $207 million and remaining delivery is expected in 2018. The hotel will be owned and operated by a joint venture in which we are a partner. Phase II will also include 99 for-sale condominium units with an expected cost of $53 million to $58 million.
We invested $273 million in Assembly Row and Pike & Rose in
2017
and expect to invest between $75 million and $100 million in Assembly Row and Pike & Rose in
2018
.
The development of future phases of Assembly Row, Pike & Rose and Santana Row will be pursued opportunistically based on, among other things, market conditions, tenant demand, and our evaluation of whether those phases will generate an appropriate financial return.
We continue to review acquisition opportunities in our primary markets that complement our portfolio and provide long-term growth opportunities. Initially, some of our acquisitions do not contribute significantly to earnings growth; however, we believe they provide long-term re-leasing growth, redevelopment opportunities, and other strategic opportunities. Any growth from acquisitions is contingent on our ability to find properties that meet our qualitative standards at prices that meet our financial hurdles. Changes in interest rates may affect our success in achieving earnings growth through acquisitions by affecting both the price that must be paid to acquire a property, as well as our ability to economically finance the property acquisition. Generally, our acquisitions are initially financed by available cash and/or borrowings under our revolving credit facility which may be repaid later with funds raised through the issuance of new equity or new long-term debt. We may also finance our acquisitions through the issuance of common shares, preferred shares, or downREIT units as well as through assumed mortgages.
At
December 31, 2017
, the leasable square feet in our properties was
95.3%
leased and
93.9%
occupied. The leased rate is higher than the occupied rate due to leased spaces that are being redeveloped or improved or that are awaiting permits and, therefore, are not yet ready to be occupied. Our occupancy and leased rates are subject to variability over time due to factors including acquisitions, the timing of the start and stabilization of our redevelopment projects, lease expirations and tenant closings and bankruptcies.
Same-Center
Throughout this section, we have provided certain information on a “same-center” basis. Information provided on a same-center basis includes the results of properties that we owned and operated for the entirety of both periods being compared except for properties for which significant redevelopment or expansion occurred during either of the periods being compared. For the year ended
December 31, 2017
and the comparison of
2017
and
2016
, all or a portion of 78 properties were considered same-center and 15 properties were considered redevelopment or expansion. For the year ended
December 31, 2017
, one property was moved from acquisition to same-center, two properties were removed from same-center as they were sold during 2017, and four properties or portions of properties were moved from redevelopment to same-center, compared to the designations as of
December 31, 2016
. For the year ended
December 31, 2016
and the comparison of
2016
and
2015
, all or a portion of 76 properties were considered same-center and 17 properties were considered redevelopment or expansion. For the year ended
December 31, 2016
, three properties or portions of properties were moved from same-center to redevelopment and one property was moved from redevelopment to same-center, compared to the designations as of
December 31, 2015
. While there is judgment surrounding changes in designations, we typically move redevelopment properties to same-center once they have stabilized, which is typically considered 95% occupancy or when the growth expected from the redevelopment has been included in the comparable periods. We typically remove properties from same center when the redevelopment has or is expected to have a significant impact to property operating income within the calendar year. Acquisitions are moved to same-center once we have owned the property for the entirety of comparable periods and the property is not under significant redevelopment or expansion.
YEAR ENDED
DECEMBER 31, 2017
COMPARED TO YEAR ENDED
DECEMBER 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
2017
|
|
2016
|
|
Dollars
|
|
%
|
|
(Dollar amounts in thousands)
|
Rental income
|
$
|
841,461
|
|
|
$
|
786,583
|
|
|
$
|
54,878
|
|
|
7.0
|
%
|
Other property income
|
12,825
|
|
|
11,015
|
|
|
1,810
|
|
|
16.4
|
%
|
Mortgage interest income
|
3,062
|
|
|
3,993
|
|
|
(931
|
)
|
|
(23.3
|
)%
|
Total property revenue
|
857,348
|
|
|
801,591
|
|
|
55,757
|
|
|
7.0
|
%
|
Rental expenses
|
164,890
|
|
|
158,326
|
|
|
6,564
|
|
|
4.1
|
%
|
Real estate taxes
|
107,839
|
|
|
95,286
|
|
|
12,553
|
|
|
13.2
|
%
|
Total property expenses
|
272,729
|
|
|
253,612
|
|
|
19,117
|
|
|
7.5
|
%
|
Property operating income
(1)
|
584,619
|
|
|
547,979
|
|
|
36,640
|
|
|
6.7
|
%
|
General and administrative expense
|
(36,281
|
)
|
|
(33,399
|
)
|
|
(2,882
|
)
|
|
8.6
|
%
|
Depreciation and amortization
|
(216,050
|
)
|
|
(193,585
|
)
|
|
(22,465
|
)
|
|
11.6
|
%
|
Operating income
|
332,288
|
|
|
320,995
|
|
|
11,293
|
|
|
3.5
|
%
|
Other interest income
|
475
|
|
|
374
|
|
|
101
|
|
|
27.0
|
%
|
(Loss) income from real estate partnerships
|
(417
|
)
|
|
50
|
|
|
(467
|
)
|
|
(934.0
|
)%
|
Interest expense
|
(100,125
|
)
|
|
(94,994
|
)
|
|
(5,131
|
)
|
|
5.4
|
%
|
Early extinguishment of debt
|
(12,273
|
)
|
|
—
|
|
|
(12,273
|
)
|
|
100.0
|
%
|
Total other, net
|
(112,340
|
)
|
|
(94,570
|
)
|
|
(17,770
|
)
|
|
18.8
|
%
|
Income from continuing operations
|
219,948
|
|
|
226,425
|
|
|
(6,477
|
)
|
|
(2.9
|
)%
|
Gain on sale of real estate and change in control of interests, net
|
77,922
|
|
|
32,458
|
|
|
45,464
|
|
|
140.1
|
%
|
Net income
|
297,870
|
|
|
258,883
|
|
|
38,987
|
|
|
15.1
|
%
|
Net income attributable to noncontrolling interests
|
(7,956
|
)
|
|
(8,973
|
)
|
|
1,017
|
|
|
(11.3
|
)%
|
Net income attributable to the Trust
|
$
|
289,914
|
|
|
$
|
249,910
|
|
|
$
|
40,004
|
|
|
16.0
|
%
|
(1) Property operating income is a non-GAAP financial measure. See Item 6. Selected Financial Data for further discussion.
Property Revenues
Total property revenue increased
$55.8 million
, or
7.0%
, to
$857.3 million
in
2017
compared to
$801.6 million
in
2016
. The percentage occupied at our shopping centers was
93.9%
at
December 31, 2017
compared to
93.3%
at
December 31, 2016
. Changes in the components of property revenue are discussed below.
Rental Income
Rental income consists primarily of minimum rent, cost reimbursements from tenants and percentage rent. Rental income increased
$54.9 million
, or
7.0%
, to
$841.5 million
in
2017
compared to
$786.6 million
in
2016
due primarily to the following:
|
|
•
|
an increase of $22.0 million from acquisitions, primarily related to the six shopping centers acquired in Los Angeles County, California, Riverpoint Center, and Hastings Ranch Plaza,
|
|
|
•
|
an increase of $16.6 million at redevelopment properties due to the opening of our new office building at Santana Row in late 2016, the lease-up of three of our retail redevelopments, and the lease-up of the new residential building at Congressional Plaza, partially offset by lower occupancy at two of our retail properties in Florida in the beginning stages of redevelopment,
|
|
|
•
|
an increase of $8.0 million at same-center properties due primarily to higher rental rates of approximately $6.0 million, higher recoveries of $3.4 million primarily the result of higher real estate tax assessments, partially offset by lower average occupancy of approximately $1.2 million,
|
|
|
•
|
an increase of $6.1 million from Assembly Row and Pike & Rose due primarily to the lease-up of residential units and the opening of the second phase of retail during the second half of 2017, and
|
|
|
•
|
an increase of $3.2 million from the acquisition of six previously unconsolidated Clarion joint venture properties in January 2016,
|
partially offset by
|
|
•
|
a decrease of $0.9 million from the sale of our 150 Post Street and North Lake Commons properties in August and September 2017, respectively.
|
Other Property Income
Other property income increased
$1.8 million
, or
16.4%
, to
$12.8 million
in
2017
compared to
$11.0 million
in
2016
. Included in other property income are items, which, although recurring, inherently tend to fluctuate more than rental income from period to period, such as lease termination fees. This increase is primarily related to higher lease termination fees.
Mortgage Interest Income
Mortgage interest income decreased
$0.9 million
, or
23.3%
, to
$3.1 million
in
2017
compared to
$4.0 million
in
2016
. This decrease is primarily related to a mortgage note receivable that was repaid in 2016.
Property Expenses
Total property expenses increased
$19.1 million
, or
7.5%
, to
$272.7 million
in
2017
compared to
$253.6 million
in
2016
. Changes in the components of property expenses are discussed below.
Rental Expenses
Rental expenses increased
$6.6 million
, or
4.1%
, to
$164.9 million
in
2017
compared to
$158.3 million
in
2016
. This increase is primarily due to the following:
|
|
•
|
an increase of $4.7 million from acquisitions, primarily related to six shopping centers in Los Angeles County, California, Hastings Ranch Plaza, and Riverpoint Center, and
|
|
|
•
|
an increase of $2.1 million from Assembly Row and Pike & Rose due primarily to the opening of Phase II residential units during the second half of 2017.
|
As a result of the changes in rental income and rental expenses as discussed above, rental expenses as a percentage of rental income plus other property income decreased to
19.3%
for the year ended December 31,
2017
from
19.9%
for the year ended
December 31, 2016
.
Real Estate Taxes
Real estate tax expense increased
$12.6 million
, or
13.2%
to
$107.8 million
in
2017
compared to
$95.3 million
in
2016
due primarily to the following:
|
|
•
|
an increase of $4.4 million at same-center properties primarily due to higher assessments,
|
|
|
•
|
an increase of $4.2 million from acquisitions, primarily related to six shopping centers in Los Angeles County, California, Riverpoint Center, and Hastings Ranch Plaza,
|
|
|
•
|
an increase of $3.0 million from redevelopment properties, primarily related to our new office building at Santana Row and other reassessments on our redevelopments, and
|
|
|
•
|
an increase of $0.9 million related to Assembly Row and Pike & Rose.
|
Property Operating Income
Property operating income increased
$36.6 million
, or
6.7%
, to
$584.6 million
in
2017
compared to
$548.0 million
in
2016
.
This increase is primarily due to growth in earnings at redevelopment and same-center properties, 2017 acquisitions, Assembly Row and Pike & Rose (primarily the lease-up of residential units at Pike & Rose, the opening of the second phase of retail at Pike & Rose, and higher lease termination fees), and the acquisition of the six previously unconsolidated Clarion joint venture properties in January 2016.
Other Operating Expenses
General and Administrative Expense
General and administrative expense increased
$2.9 million
, or
8.6%
, to
$36.3 million
in
2017
from
$33.4 million
in
2016
. This increase is primarily due to higher personnel related costs.
Depreciation and Amortization
Depreciation and amortization expense increased
$22.5 million
, or
11.6%
, to
$216.1 million
in
2017
from
$193.6 million
in
2016
. This increase is primarily due to 2017 acquisitions, redevelopment properties (largely the new office building at Santana Row), Assembly Row and Pike & Rose, and same-center properties.
Operating Income
Operating income increased
$11.3 million
, or
3.5%
, to
$332.3 million
in
2017
compared to
$321.0 million
in
2016
. This increase is primarily due to growth in earnings at redevelopment and same-center properties, our 2017 acquisitions, Assembly Row and Pike & Rose, and the acquisition of the six previously unconsolidated Clarion joint venture properties in January 2016, partially offset by higher personnel related costs.
Other
Interest Expense
Interest expense increased
$5.1 million
, or
5.4%
, to
$100.1 million
in
2017
compared to
$95.0 million
in
2016
. This increase is due primarily to the following:
|
|
•
|
an increase of $16.1 million due to higher borrowings primarily attributable to the $300 million 3.25% senior notes and the $100 million reopening of the 4.5% senior notes both issued in June 2017, the 3.625% senior notes issued in July 2016, and higher weighted average borrowings on our revolving credit facility,
|
partially offset by
|
|
•
|
an increase of $7.5 million in capitalized interest, and
|
|
|
•
|
a decrease of $3.5 million due to a lower overall weighted average borrowing rate.
|
Gross interest costs were
$125.7 million
and
$113.0 million
in
2017
and
2016
, respectively. Capitalized interest was
$25.6 million
and
$18.0 million
in
2017
and
2016
, respectively.
Early Extinguishment of Debt
The
$12.3 million
early extinguishment of debt charge in
2017
relates to the make-whole premium paid as part of the early redemption of our 5.90% senior notes on December 31, 2017 and the related write-off of the unamortized discount and debt fees.
Gain on Sale of Real Estate and Change in Control of Interests, Net
The
$77.9 million
gain on sale of real estate and change in control of interests, net for the year ended December 31, 2017 is primarily due to the following:
|
|
•
|
$45.2 million gain related to the sale of our 150 Post Street property in August 2017,
|
|
|
•
|
$15.4 million gain related to the sale of three ground lease parcels at our Assembly Row property in Somerville, Massachusetts,
|
|
|
•
|
$6.5 million gain related to the sale of a parcel of land at our Bethesda Row property in December 2017,
|
|
|
•
|
$5.4 million net percentage-of-completion gain, related to residential condominium units under binding contract at our Assembly Row property, and
|
|
|
•
|
$4.9 million gain related to the sale of our North Lake Commons property in September 2017.
|
The
$32.5 million
gain on sale of real estate and change in control of interests for the year ended December 31, 2016 is primarily due to the following:
|
|
•
|
$25.7 million gain related to our obtaining control of six properties when we acquired Clarion’s 70% interest in the partnership that owned those properties. The properties were previously accounted for under the equity method of accounting. We consolidated these assets effective January 13, 2016, and consequently recognized a gain on obtaining the controlling interest,
|
|
|
•
|
$4.9 million gain related to the reversal of the unused portion of the warranty reserve for condominium units at Santana Row, as the statutorily mandated latent construction defect period ended in third quarter 2016, and
|
|
|
•
|
$1.8 million gain related to the sale of a building in Coconut Grove, Florida. Our share of the gain, net of noncontrolling interests, was $0.5 million.
|
YEAR ENDED
DECEMBER 31, 2016
COMPARED TO YEAR ENDED
DECEMBER 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
2016
|
|
2015
|
|
Dollars
|
|
%
|
|
(Dollar amounts in thousands)
|
Rental income
|
$
|
786,583
|
|
|
$
|
727,812
|
|
|
$
|
58,771
|
|
|
8.1
|
%
|
Other property income
|
11,015
|
|
|
11,810
|
|
|
(795
|
)
|
|
(6.7
|
)%
|
Mortgage interest income
|
3,993
|
|
|
4,390
|
|
|
(397
|
)
|
|
(9.0
|
)%
|
Total property revenue
|
801,591
|
|
|
744,012
|
|
|
57,579
|
|
|
7.7
|
%
|
Rental expenses
|
158,326
|
|
|
147,593
|
|
|
10,733
|
|
|
7.3
|
%
|
Real estate taxes
|
95,286
|
|
|
85,824
|
|
|
9,462
|
|
|
11.0
|
%
|
Total property expenses
|
253,612
|
|
|
233,417
|
|
|
20,195
|
|
|
8.7
|
%
|
Property operating income
(1)
|
547,979
|
|
|
510,595
|
|
|
37,384
|
|
|
7.3
|
%
|
General and administrative expenses
|
(33,399
|
)
|
|
(35,645
|
)
|
|
2,246
|
|
|
(6.3
|
)%
|
Depreciation and amortization
|
(193,585
|
)
|
|
(174,796
|
)
|
|
(18,789
|
)
|
|
10.7
|
%
|
Operating income
|
320,995
|
|
|
300,154
|
|
|
20,841
|
|
|
6.9
|
%
|
Other interest income
|
374
|
|
|
149
|
|
|
225
|
|
|
151.0
|
%
|
Income from real estate partnerships
|
50
|
|
|
1,416
|
|
|
(1,366
|
)
|
|
(96.5
|
)%
|
Interest expense
|
(94,994
|
)
|
|
(92,553
|
)
|
|
(2,441
|
)
|
|
2.6
|
%
|
Early extinguishment of debt
|
—
|
|
|
(19,072
|
)
|
|
19,072
|
|
|
(100.0
|
)%
|
Total other, net
|
(94,570
|
)
|
|
(110,060
|
)
|
|
15,490
|
|
|
(14.1
|
)%
|
Income from continuing operations
|
226,425
|
|
|
190,094
|
|
|
36,331
|
|
|
19.1
|
%
|
Gain on sale of real estate
|
32,458
|
|
|
28,330
|
|
|
4,128
|
|
|
14.6
|
%
|
Net income
|
258,883
|
|
|
218,424
|
|
|
40,459
|
|
|
18.5
|
%
|
Net income attributable to noncontrolling interests
|
(8,973
|
)
|
|
(8,205
|
)
|
|
(768
|
)
|
|
9.4
|
%
|
Net income attributable to the Trust
|
$
|
249,910
|
|
|
$
|
210,219
|
|
|
$
|
39,691
|
|
|
18.9
|
%
|
(1) Property operating income is a non-GAAP financial measure. See Item 6. Selected Financial Data for further discussion.
Property Revenues
Total property revenue increased
$57.6 million
, or
7.7%
, to
$801.6 million
in
2016
compared to
$744.0 million
in
2015
. The percentage occupied at our shopping centers was
93.3%
at
December 31, 2016
compared to
93.5%
at
December 31, 2015
. Changes in the components of property revenue are discussed below.
Rental Income
Rental income consists primarily of minimum rent, cost reimbursements from tenants and percentage rent. Rental income increased
$58.8 million
, or
8.1%
, to
$786.6 million
in
2016
compared to
$727.8 million
in
2015
due primarily to the following:
|
|
•
|
an increase of $16.9 million attributable to properties acquired in 2015 and 2016,
|
|
|
•
|
an increase of $15.3 million from the acquisition of the six previously unconsolidated Clarion joint venture properties in January 2016,
|
|
|
•
|
an increase of $11.7 million from Assembly Row and Pike & Rose as portions of both projects opened in 2015 and early 2016,
|
|
|
•
|
an increase of $10.6 million at redevelopment properties due primarily to the lease-up of The Point at Plaza El Segundo, as well as six of our other retail redevelopments, and the opening of the new office building at Santana Row, partially offset by lower occupancy as we start redeveloping centers, and
|
|
|
•
|
an increase of $9.5 million at same-center properties due primarily to higher rental rates of approximately $12.8 million, higher recoveries of $1.8 million primarily the net result of higher real estate tax expense offset by lower snow removal expense, partially offset by lower average occupancy of approximately $4.7 million,
|
partially offset by,
|
|
•
|
a decrease of $4.8 million due to the sale of our Houston Street and Courtyard Shops properties in April 2015 and November 2015, respectively.
|
Other Property Income
Other property income decreased
$0.8 million
, or
6.7%
, to
$11.0 million
in
2016
compared to
$11.8 million
in
2015
. The decrease is primarily due to a decrease in fee income as we no longer earn fees on the former Clarion joint venture properties.
Property Expenses
Total property expenses increased
$20.2 million
, or
8.7%
, to
$253.6 million
in
2016
compared to
$233.4 million
in
2015
. Changes in the components of property expenses are discussed below.
Rental Expenses
Rental expenses increased
$10.7 million
, or
7.3%
, to
$158.3 million
in
2016
compared to
$147.6 million
in
2015
. This increase is primarily due to the following:
|
|
•
|
an increase of $6.1 million related to properties acquired in
2015
and
2016
,
|
|
|
•
|
an increase of $3.2 million from the acquisition of the six previously unconsolidated Clarion joint venture properties in January 2016,
|
|
|
•
|
an increase of $2.0 million related to Assembly Row and Pike & Rose, as portions of both projects opened in 2015 and early 2016,
|
|
|
•
|
an increase of $2.0 million at redevelopment properties,
|
partially offset by
|
|
•
|
a decrease of $1.9 million in repairs and maintenance expenses at same-center properties primarily due to lower snow removal costs, and
|
|
|
•
|
a decrease of $1.1 million due to the sale of our Houston Street and Courtyard Shops properties in April 2015 and November 2015, respectively.
|
As a result of the changes in rental income and rental expenses as discussed above, rental expenses as a percentage of rental income plus other property income increased to
19.9%
for the year ended
December 31, 2016
from
20.0%
for the year ended
December 31, 2015
.
Real Estate Taxes
Real estate tax expense increased
$9.5 million
, or
11.0%
to
$95.3 million
in
2016
compared to
$85.8 million
in
2015
due primarily to the following:
|
|
•
|
an increase of $4.2 million at same-center properties due to higher assessments,
|
|
|
•
|
an increase of $2.2 million from properties acquired in 2015 and 2016,
|
|
|
•
|
an increase of $1.9 million due to the acquisition of the six previously unconsolidated Clarion joint venture properties in January 2016,
|
|
|
•
|
an increase of $1.1 million from redevelopment properties, and
|
|
|
•
|
an increase of $0.8 million related to Assembly Row and Pike & Rose,
|
partially offset by
|
|
•
|
a decrease of $0.8 million due to the sale of our Houston Street and Courtyard Shops properties in April 2015 and November 2015, respectively.
|
Property Operating Income
Property operating income increased
$37.4 million
, or
7.3%
, to
$548.0 million
in
2016
compared to
$510.6 million
in
2015
. This increase is primarily due to growth in earnings at same-center and redevelopment properties, the acquisition of the six previously unconsolidated Clarion joint venture properties in January 2016, portions of Assembly Row and Pike & Rose opening in
2015
and early
2016
, and properties acquired in 2015, partially offset by the sale of our Houston Street and Courtyard Shops properties in April 2015 and November 2015, respectively.
Other Operating Expense
General and Administrative Expense
General and administrative expense decreased $2.2 million, or 6.3%, to
$33.4 million
in
2016
from
$35.6 million
in
2015
. This increase is primarily due to lower transaction costs, partially offset by higher personnel related costs.
Depreciation and Amortization
Depreciation and amortization expense increased $18.8 million, or 10.7%, to
$193.6 million
in
2016
from
$174.8 million
in
2015
. This increase is due primarily to the acquisition of the six previously unconsolidated Clarion joint venture properties in
January
2016
, Assembly Row and Pike & Rose, depreciation on redevelopment related assets, and properties acquired in 2015.
Operating Income
Operating income increased
$20.8 million
, or
6.9%
, to
$321.0 million
in
2016
compared to
$300.2 million
in
2015
. This increase is primarily due to properties acquired in 2015, portions of Assembly Row and Pike & Rose opening in 2015 and early 2016, growth in earnings at redevelopment and same-center properties, and the acquisition of the six previously unconsolidated Clarion joint venture properties in January 2016, partially offset by the sale of our Houston Street and Courtyard Shops properties in April 2015 and November 2015, respectively.
Other
Interest Expense
Interest expense increased
$2.4 million
, or
2.6%
, to
$95.0 million
in
2016
compared to
$92.6 million
in
2015
. This increase is due primarily to an increase of $8.6 million due to higher borrowings, partially offset by a decrease of $6.2 million due to a lower overall weighted average borrowing rate.
Gross interest costs were
$113.0 million
and
$110.7 million
in
2016
and
2015
, respectively. Capitalized interest was
$18.0 million
and
$18.1 million
in
2016
and
2015
, respectively.
Early Extinguishment of Debt
The
$19.1 million
early extinguishment of debt in
2015
relates to the make-whole premium paid as part of the early redemption of our 6.20% senior notes in the second quarter of
2015
, partially offset by the related net write-off of unamortized premium and debt fees.
Gain on sale of Real Estate
The
$32.5 million
gain on sale of real estate and change in control of interests is primarily the result of our obtaining control of six properties when we acquired Clarion’s 70% interest in the partnership that owned those properties (see discussion in Note 3 to the consolidated financial statements). The properties were previously accounted for under the equity method of accounting. We consolidated these assets effective January 13, 2016, and consequently recognized a gain of $25.7 million upon obtaining the controlling interest. 2016 also included a $1.8 million gain related to the May 2016 sale of a building in Coconut Grove, Florida by an unconsolidated joint venture (our share of the gain, net of noncontrolling interests, was $0.5 million) and a $4.9 million gain due to the reversal of the warranty reserve for condominium units at Santana Row, as the statutorily mandated latent construction defect period ended in third quarter 2016 and no further claims were filed.
The
$28.3 million
gain on sale of real estate for 2015 is due to the sale of our Houston Street property in April 2015 and the sale of our Courtyard Shops property in November 2015.
Liquidity and Capital Resources
Due to the nature of our business and strategy, we typically generate significant amounts of cash from operations. The cash generated from operations is primarily paid to our common and preferred shareholders in the form of dividends. As a REIT, we must generally make annual distributions to shareholders of at least
90%
of our taxable income.
Our short-term liquidity requirements consist primarily of normal recurring operating expenses, obligations under our capital and operating leases, regular debt service requirements (including debt service relating to additional or replacement debt, as well as scheduled debt maturities), recurring expenditures, non-recurring expenditures (such as tenant improvements and redevelopments) and dividends to common and preferred shareholders. Our long-term capital requirements consist primarily of maturities under our long-term debt agreements, development and redevelopment costs and potential acquisitions.
We intend to operate with and maintain a conservative capital structure that will allow us to maintain strong debt service coverage and fixed-charge coverage ratios as part of our commitment to investment-grade debt ratings. In the short and long term, we may seek to obtain funds through the issuance of additional equity, unsecured and/or secured debt financings, joint venture relationships relating to existing properties or new acquisitions, and property dispositions that are consistent with this conservative structure.
At
December 31, 2017
, we had cash and cash equivalents of
$15.2 million
and
$41.0 million
outstanding on our
$800.0 million
unsecured revolving credit facility which matures on
April 20, 2020
, subject to two six-month extensions at our option. In addition, we have an option (subject to bank approval) to increase the credit facility through an accordion feature to $1.5 billion. Our
$275.0 million
unsecured term loan that matures on
November 21, 2018
, subject to a one-year extension at our option, also has an option (subject to bank approval) to increase the term loan through an accordion feature to $350.0 million. As of
December 31, 2017
, we had the capacity to issue up to
$261.3 million
in common shares under our ATM equity program.
For
2017
, the maximum amount of borrowings outstanding under our revolving credit facility was
$344.0 million
, the weighted average amount of borrowings outstanding was
$147.5 million
and the weighted average interest rate, before amortization of debt fees, was
1.9%
. During
2017
, we raised $716.9 million of net proceeds through three separate public offerings for a total of $575.0 million of senior unsecured notes with a weighted average coupon of 3.47% and term of 13 years and $150.0 million of 5.0% preferred shares in addition to
$108.3 million
raised under our ATM equity program. During 2018, we have only $10.5 million of debt maturing, in addition to our unsecured term loan mentioned above. We currently believe that cash flows from operations, cash on hand, our ATM equity program, our revolving credit facility and our general ability to access the capital markets will be sufficient to finance our operations and fund our debt service requirements and capital expenditures.
Our overall capital requirements during
2018
will depend upon acquisition opportunities, the level of improvements and redevelopments on existing properties and the timing and cost of development of Assembly Row, Pike & Rose and future phases of Santana Row. While the amount of future expenditures will depend on numerous factors, we expect to see a reduced level of capital investments in our properties under development and redevelopment compared to 2017, which is the result of completing construction on Phase II at both Assembly Row and Pike & Rose in 2018. With respect to other capital investments related to our existing properties, we expect to incur levels consistent with prior years. Our capital investments will be funded on a short-term basis with cash flow from operations, cash on hand and/or our revolving credit facility, and on a long-term basis, with long-term debt or equity including shares issued under our ATM equity program. If necessary, we may access the debt or equity capital markets to finance significant acquisitions. Given our past ability to access the capital markets, we expect debt or equity to be available to us. Although there is no intent at this time, if market conditions deteriorate, we may also delay the timing of certain development and redevelopment projects as well as limit future acquisitions, reduce our operating expenditures, or re-evaluate our dividend policy.
In addition to conditions in the capital markets which could affect our ability to access those markets, the following factors could affect our ability to meet our liquidity requirements:
|
|
•
|
restrictions in our debt instruments or preferred shares may limit us from incurring debt or issuing equity at all, or on acceptable terms under then-prevailing market conditions; and
|
|
|
•
|
we may be unable to service additional or replacement debt due to increases in interest rates or a decline in our operating performance.
|
Summary of Cash Flows
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
(In thousands)
|
Cash provided by operating activities
|
$
|
459,177
|
|
|
$
|
423,705
|
|
Cash used in investing activities
|
(836,802
|
)
|
|
(590,221
|
)
|
Cash provided by financing activities
|
369,445
|
|
|
168,838
|
|
(Decrease) increase in cash and cash equivalents
|
(8,180
|
)
|
|
2,322
|
|
Cash and cash equivalents, beginning of year
|
23,368
|
|
|
21,046
|
|
Cash and cash equivalents, end of year
|
$
|
15,188
|
|
|
$
|
23,368
|
|
Net cash provided by operating activities increased
$35.5 million
to
$459.2 million
during
2017
from
$423.7 million
during
2016
. The increase was primarily attributable to higher net income before certain non-cash items, and the timing of payments related to operating costs.
Net cash used in investing activities increased
$246.6 million
to
$836.8 million
during
2017
from
$590.2 million
during
2016
. The increase was primarily attributable to:
|
|
•
|
a $293.7 million increase in acquisitions of real estate, primarily due to the August 2017 acquisition of six shopping centers in Los Angeles County, California,
|
|
|
•
|
a $80.0 million net increase in capital expenditures and leasing costs as we continue to invest in Pike & Rose, Assembly Row, Santana Row, and other current redevelopments, and
|
|
|
•
|
a $13.3 million decrease in cash flows from mortgage notes receivable primarily due to the payoff of an $11.7 million note receivable in September 2016,
|
partially offset by
|
|
•
|
$136.1 million in net proceeds primarily from the sale of our property at 150 Post Street, three land parcels at Assembly Row, North Lake Commons, and a land parcel at our Bethesda Row property in 2017.
|
Net cash provided by financing activities increased
$200.6 million
to
$369.4 million
during
2017
from
$168.8 million
during
2016
. The increase was primarily attributable to:
|
|
•
|
$572.1 million net proceeds from the June 2017 issuance of
$300.0 million
and the December 2017 issuance of $175.0 million of
3.25%
senior unsecured notes that mature on
July 15, 2027
and
$100.0 million
of
4.50%
notes that mature on
December 1, 2044
, compared to $241.8 million in net proceeds from the issuance of 3.625% senior notes in July 2016,
|
|
|
•
|
$145.0 million in net proceeds from the September 29, 2017 issuance of 6,000 Series C Preferred Shares,
|
|
|
•
|
$41.0 million of borrowings on our revolving credit facility in 2017 as compared to $56.9 million of repayments in 2016,
|
|
|
•
|
a $12.8 million increase in contributions from noncontrolling interests primarily due to contributions to fund the $50.0 million partial repayment of the Plaza El Segundo mortgage loan, and
|
|
|
•
|
an $8.9 million decrease in distributions to and redemptions of noncontrolling interests primarily due to the 2016 acquisition of the 10% noncontrolling interest of a partnership which owns a project in Southern California,
|
partially offset by
|
|
•
|
a $210.5 million decrease in net proceeds from the issuance of common shares primarily due to our March 2016 issuance of 1.0 million common shares at $149.43 per share in an underwritten public offering, and
1.2 million
common shares under our ATM equity program at a weighted average price of
$152.92
during 2016, compared to
0.8 million
common shares under our ATM equity program at a weighted average price of
$132.56
during 2017,
|
|
|
•
|
the December 2017 redemption of $150.0 million of senior notes with a make-whole premium of $11.9 million, and
|
|
|
•
|
a $15.3 million increase in dividends paid to shareholders due to an increase in the dividend rate and a higher number of shares outstanding.
|
Contractual Commitments
The following table provides a summary of our fixed, noncancelable obligations as of
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments Due by Period
|
Total
|
|
Less Than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
After 5
Years
|
(In thousands)
|
Fixed rate debt (principal and interest)(1)
|
$
|
4,632,932
|
|
|
$
|
407,626
|
|
|
$
|
305,997
|
|
|
$
|
838,746
|
|
|
$
|
3,080,563
|
|
Fixed and variable rate debt - our share of unconsolidated real estate partnerships (principal and interest)
|
30,825
|
|
|
752
|
|
|
20,610
|
|
|
9,463
|
|
|
—
|
|
Capital lease obligations (principal and interest)
|
171,435
|
|
|
5,800
|
|
|
11,600
|
|
|
11,610
|
|
|
142,425
|
|
Variable rate debt (principal only)(2)
|
41,000
|
|
|
—
|
|
|
41,000
|
|
|
—
|
|
|
—
|
|
Operating leases
|
211,831
|
|
|
4,583
|
|
|
9,486
|
|
|
9,630
|
|
|
188,132
|
|
Real estate commitments
|
67,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
67,500
|
|
Development, redevelopment, and capital improvement obligations
|
326,631
|
|
|
263,610
|
|
|
63,021
|
|
|
—
|
|
|
—
|
|
Contractual operating obligations
|
58,490
|
|
|
28,013
|
|
|
24,997
|
|
|
5,480
|
|
|
—
|
|
Total contractual obligations
|
$
|
5,540,644
|
|
|
$
|
710,384
|
|
|
$
|
476,711
|
|
|
$
|
874,929
|
|
|
$
|
3,478,620
|
|
_____________________
|
|
(1)
|
Fixed rate debt includes our
$275.0 million
term loan as the rate is effectively fixed by
two
interest rate swap agreements.
|
|
|
(2)
|
Variable rate debt includes our revolving credit facility, which currently has
$41.0 million
outstanding and bears interest at LIBOR plus 0.825%.
|
In addition to the amounts set forth in the table above and other liquidity requirements previously discussed, the following potential commitments exist:
(a) Under the terms of the Congressional Plaza partnership agreement, a minority partner has the right to require us and the other minority partner to purchase its
26.63%
interest in Congressional Plaza at the interest’s then-current fair market value. If the other minority partner defaults in their obligation, we must purchase the full interest. Based on management’s current estimate of fair market value as of
December 31, 2017
, our estimated liability upon exercise of the put option would range from approximately
$81 million
to
$85 million
.
(b) Under the terms of various other partnership agreements, the partners have the right to exchange their operating partnership units for cash or the same number of our common shares, at our option. As of
December 31, 2017
, a total of
787,962
operating partnership units are outstanding.
(c) The other member in Montrose Crossing has the right to require us to purchase all of its
10.1%
interest in Montrose Crossing at the interest's then-current fair market value. If the other member fails to exercise its put option, we have the right to purchase its interest on or after December 27, 2021 at fair market value. Based on management’s current estimate of fair market value as of
December 31, 2017
, our estimated maximum liability upon exercise of the put option would range from approximately
$12 million
to
$13 million
.
(d)
Two
of the members in Plaza El Segundo have the right to require us to purchase their
10.0%
and
11.8%
ownership interests at the interests' then-current fair market value. If the members fail to exercise their put options, we have the right to purchase each of their interests on or after December 30, 2026 at fair market value. Based on management’s current estimate of fair market value as of
December 31, 2017
, our estimated maximum liability upon exercise of the put option would range from approximately
$26 million
to
$29 million
.
(e) Effective
January 1, 2017
, the other member in The Grove at Shrewsbury and Brook 35 has the right to require us to purchase all of its approximately
4.8%
interest in The Grove at Shrewsbury and approximately
8.8%
interest in Brook 35 at the interests' then-current fair market value. Based on management's current estimate of fair market value as of
December 31, 2017
, our estimated maximum liability upon exercise of the put option would range from
$9 million
to
$10 million
.
(f) At
December 31, 2017
, we had letters of credit outstanding of approximately
$1.3 million
.
Off-Balance Sheet Arrangements
Other than the items disclosed in the Contractual Commitments Table, we have no off-balance sheet arrangements as of
December 31, 2017
that are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Debt Financing Arrangements
The following is a summary of our total debt outstanding as of
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Debt
|
|
Original
Debt
Issued
|
|
Principal Balance as of December 31, 2017
|
|
Stated Interest Rate as of December 31, 2017
|
|
Maturity Date
|
|
|
(Dollars in thousands)
|
|
|
|
|
Mortgages payable
|
|
|
|
|
|
|
|
|
Secured fixed rate
|
|
|
|
|
|
|
|
|
The Grove at Shrewsbury (West)
|
|
Acquired
|
|
|
$
|
10,545
|
|
|
6.38
|
%
|
|
March 1, 2018
|
Rollingwood Apartments
|
|
24,050
|
|
|
20,820
|
|
|
5.54
|
%
|
|
May 1, 2019
|
The Shops at Sunset Place
|
|
Acquired
|
|
|
66,603
|
|
|
5.62
|
%
|
|
September 1, 2020
|
29th Place
|
|
Acquired
|
|
|
4,341
|
|
|
5.91
|
%
|
|
January 31, 2021
|
Sylmar Towne Center
|
|
Acquired
|
|
|
17,362
|
|
|
5.39
|
%
|
|
June 6, 2021
|
Plaza Del Sol
|
|
Acquired
|
|
|
8,579
|
|
|
5.23
|
%
|
|
December 1, 2021
|
THE AVENUE at White Marsh
|
|
52,705
|
|
|
52,705
|
|
|
3.35
|
%
|
|
January 1, 2022
|
Montrose Crossing
|
|
80,000
|
|
|
71,054
|
|
|
4.20
|
%
|
|
January 10, 2022
|
Azalea
|
|
Acquired
|
|
|
40,000
|
|
|
3.73
|
%
|
|
November 1, 2025
|
Bell Gardens
|
|
Acquired
|
|
|
13,184
|
|
|
4.06
|
%
|
|
August 1, 2026
|
Plaza El Segundo
|
|
125,000
|
|
|
125,000
|
|
|
3.83
|
%
|
|
June 5, 2027
|
The Grove at Shrewsbury (East)
|
|
43,600
|
|
|
43,600
|
|
|
3.77
|
%
|
|
September 1, 2027
|
Brook 35
|
|
11,500
|
|
|
11,500
|
|
|
4.65
|
%
|
|
July 1, 2029
|
Chelsea
|
|
Acquired
|
|
|
6,268
|
|
|
5.36
|
%
|
|
January 15, 2031
|
Subtotal
|
|
|
|
491,561
|
|
|
|
|
|
Net unamortized premium and debt issuance costs
|
|
|
|
(56
|
)
|
|
|
|
|
Total mortgages payable
|
|
|
|
491,505
|
|
|
|
|
|
Notes payable
|
|
|
|
|
|
|
|
|
Unsecured fixed rate
|
|
|
|
|
|
|
|
|
Term Loan (1)
|
|
275,000
|
|
|
275,000
|
|
|
LIBOR + 0.90%
|
|
|
November 21, 2018
|
Various
|
|
7,239
|
|
|
4,819
|
|
|
11.31
|
%
|
|
Various through 2028
|
Unsecured variable rate
|
|
|
|
|
|
|
|
|
Revolving credit facility (2)
|
|
800,000
|
|
|
41,000
|
|
|
LIBOR + 0.825%
|
|
|
April 20, 2020
|
Subtotal
|
|
|
|
320,819
|
|
|
|
|
|
Net unamortized debt issuance costs
|
|
|
|
(554
|
)
|
|
|
|
|
Total notes payable
|
|
|
|
320,265
|
|
|
|
|
|
Senior notes and debentures
|
|
|
|
|
|
|
|
|
Unsecured fixed rate
|
|
|
|
|
|
|
|
|
2.55% notes
|
|
250,000
|
|
|
250,000
|
|
|
2.55
|
%
|
|
January 15, 2021
|
3.00% notes
|
|
250,000
|
|
|
250,000
|
|
|
3.00
|
%
|
|
August 1, 2022
|
2.75% notes
|
|
275,000
|
|
|
275,000
|
|
|
2.75
|
%
|
|
June 1, 2023
|
3.95% notes
|
|
300,000
|
|
|
300,000
|
|
|
3.95
|
%
|
|
January 15, 2024
|
7.48% debentures
|
|
50,000
|
|
|
29,200
|
|
|
7.48
|
%
|
|
August 15, 2026
|
3.25% notes
|
|
475,000
|
|
|
475,000
|
|
|
3.25
|
%
|
|
July 15, 2027
|
6.82% medium term notes
|
|
40,000
|
|
|
40,000
|
|
|
6.82
|
%
|
|
August 1, 2027
|
4.50% notes
|
|
550,000
|
|
|
550,000
|
|
|
4.50
|
%
|
|
December 1, 2044
|
3.625% notes
|
|
250,000
|
|
|
250,000
|
|
|
3.625
|
%
|
|
August 1, 2046
|
Subtotal
|
|
|
|
2,419,200
|
|
|
|
|
|
Net unamortized discount and debt issuance costs
|
|
|
|
(17,760
|
)
|
|
|
|
|
Total senior notes and debentures
|
|
|
|
2,401,440
|
|
|
|
|
|
Capital lease obligations
|
|
|
|
|
|
|
|
|
Various
|
|
|
|
71,556
|
|
|
Various
|
|
|
Various through 2106
|
Total debt and capital lease obligations
|
|
|
|
$
|
3,284,766
|
|
|
|
|
|
_____________________
|
|
1)
|
We entered into
two
interest rate swap agreements that fix the LIBOR portion of the interest rate on the term loan at 1.72%. The spread on the term loan is 90 basis points resulting in a fixed rate of
2.62%
.
|
|
|
2)
|
The maximum amount drawn under our revolving credit facility during
2017
was
$344.0 million
and the weighted average effective interest rate on borrowings under our revolving credit facility, before amortization of debt fees, was
1.9%
.
|
Our revolving credit facility, term loan and other debt agreements include financial and other covenants that may limit our operating activities in the future. As of
December 31, 2017
, we were in compliance with all of the financial and other covenants related to our revolving credit facility, term loan, and senior notes. Additionally, as of
December 31, 2017
, we were in compliance with all of the financial and other covenants that could trigger loan default on our mortgage loans. If we were to breach any of these financial and other covenants and did not cure the breach within an applicable cure period, our lenders could require us to repay the debt immediately and, if the debt is secured, could immediately begin proceedings to take possession of the property securing the loan. Many of our debt arrangements, including our public notes, term loan and our revolving credit facility, are cross-defaulted, which means that the lenders under those debt arrangements can put us in default and require immediate repayment of their debt if we breach and fail to cure a default under certain of our other debt obligations. As a result, any default under our debt covenants could have an adverse effect on our financial condition, our results of operations, our ability to meet our obligations and the market value of our shares. Our organizational documents do not limit the level or amount of debt that we may incur.
The following is a summary of our scheduled principal repayments as of
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
Secured
|
|
Capital Lease
|
|
Total
|
|
|
(In thousands)
|
|
2018
|
$
|
275,506
|
|
(1)
|
$
|
16,228
|
|
|
$
|
41
|
|
|
$
|
291,775
|
|
|
2019
|
563
|
|
|
25,820
|
|
|
42
|
|
|
26,425
|
|
|
2020
|
41,624
|
|
(2)
|
65,539
|
|
|
46
|
|
|
107,209
|
|
|
2021
|
250,694
|
|
|
30,541
|
|
|
51
|
|
|
281,286
|
|
|
2022
|
250,771
|
|
|
117,018
|
|
|
56
|
|
|
367,845
|
|
|
Thereafter
|
1,920,861
|
|
|
236,415
|
|
|
71,320
|
|
|
2,228,596
|
|
|
|
$
|
2,740,019
|
|
|
$
|
491,561
|
|
|
$
|
71,556
|
|
|
$
|
3,303,136
|
|
(3)
|
_____________________
|
|
1)
|
Our
$275.0 million
unsecured term loan matures on
November 21, 2018
, subject to a one-year extension at our option.
|
|
|
2)
|
Our
$800.0 million
revolving credit facility matures on
April 20, 2020
, subject to two six-month extensions at our option. As of
December 31, 2017
, there was
$41.0 million
outstanding under this credit facility.
|
|
|
3)
|
The total debt maturities differs from the total reported on the consolidated balance sheet due to the unamortized net premium/(discount) and debt issuance costs on mortgage loans, notes payable, and senior notes as of
December 31, 2017
.
|
Interest Rate Hedging
We may use derivative instruments to manage exposure to variable interest rate risk. We generally enter into interest rate swaps to manage our exposure to variable interest rate risk and treasury locks to manage the risk of interest rates rising prior to the issuance of debt. We enter into derivative instruments that qualify as cash flow hedges and do not enter into derivative instruments for speculative purposes.
The interest rate swaps associated with our cash flow hedges are recorded at fair value on a recurring basis. We assess effectiveness of our cash flow hedges both at inception and on an ongoing basis. The effective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recorded in other comprehensive income (loss) which is included in accumulated other comprehensive income (loss) on our consolidated balance sheet and our consolidated statement of shareholders' equity. Our cash flow hedges become ineffective if critical terms of the hedging instrument and the debt instrument do not perfectly match such as notional amounts, settlement dates, reset dates, calculation period and LIBOR rate. In addition, we evaluate the default risk of the counterparty by monitoring the credit worthiness of the counterparty which includes reviewing debt ratings and financial performance. However, management does not anticipate non-performance by the counterparty. If a cash flow hedge is deemed ineffective, the ineffective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recognized in earnings in the period affected.
As of
December 31, 2017
, we are party to
two
interest rate swap agreements that effectively fixed the rate on the term loan at
2.62%
. Both swaps were designated and qualified as cash flow hedges and were recorded at fair value. Hedge ineffectiveness has not impacted earnings in
2017
,
2016
and
2015
, and we do not anticipate it will have a significant effect in the future.
REIT Qualification
We intend to maintain our qualification as a REIT under Section 856(c) of the Code. As a REIT, we generally will not be subject to corporate federal income taxes on income we distribute to our shareholders as long as we satisfy certain technical requirements of the Code, including the requirement to distribute at least 90% of our taxable income to our shareholders.
Funds From Operations
Funds from operations (“FFO”) is a supplemental non-GAAP financial measure of real estate companies’ operating performance. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as follows: net income, computed in accordance with U.S. GAAP, plus real estate related depreciation and amortization and excluding extraordinary items and gains and losses on the sale of real estate, and impairment write-downs of depreciable real estate. We compute FFO in accordance with the NAREIT definition, and we have historically reported our FFO available for common shareholders in addition to our net income and net cash provided by operating activities. It should be noted that FFO:
|
|
•
|
does not represent cash flows from operating activities in accordance with GAAP (which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income);
|
|
|
•
|
should not be considered an alternative to net income as an indication of our performance; and
|
|
|
•
|
is not necessarily indicative of cash flow as a measure of liquidity or ability to fund cash needs, including the payment of dividends.
|
We consider FFO available for common shareholders a meaningful, additional measure of operating performance primarily because it excludes the assumption that the value of the real estate assets diminishes predictably over time, as implied by the historical cost convention of GAAP and the recording of depreciation. We use FFO primarily as one of several means of assessing our operating performance in comparison with other REITs. Comparison of our presentation of FFO to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs.
An increase or decrease in FFO available for common shareholders does not necessarily result in an increase or decrease in aggregate distributions because our Board of Trustees is not required to increase distributions on a quarterly basis unless necessary for us to maintain REIT status. However, we must distribute at least
90%
of our taxable income to remain qualified as a REIT. Therefore, a significant increase in FFO will generally require an increase in distributions to shareholders although not necessarily on a proportionate basis.
The reconciliation of net income to FFO available for common shareholders is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(In thousands, except per share data)
|
Net income
|
$
|
297,870
|
|
|
$
|
258,883
|
|
|
$
|
218,424
|
|
Net income attributable to noncontrolling interests
|
(7,956
|
)
|
|
(8,973
|
)
|
|
(8,205
|
)
|
Gain on sale of real estate and change in control of interests, net
|
(77,632
|
)
|
|
(31,133
|
)
|
|
(28,330
|
)
|
Depreciation and amortization of real estate assets
|
188,719
|
|
|
169,198
|
|
|
154,232
|
|
Amortization of initial direct costs of leases
|
19,124
|
|
|
16,875
|
|
|
15,026
|
|
Funds from operations
|
420,125
|
|
|
404,850
|
|
|
351,147
|
|
Dividends on preferred shares (1)
|
(1,917
|
)
|
|
(541
|
)
|
|
(541
|
)
|
Income attributable to operating partnership units
|
3,143
|
|
|
3,145
|
|
|
3,398
|
|
Income attributable to unvested shares
|
(1,374
|
)
|
|
(1,095
|
)
|
|
(1,147
|
)
|
Funds from operations available for common shareholders (2)
|
$
|
419,977
|
|
|
$
|
406,359
|
|
|
$
|
352,857
|
|
Weighted average number of common shares, diluted (1)
|
73,122
|
|
|
71,869
|
|
|
69,920
|
|
|
|
|
|
|
|
Funds from operations available for common shareholders, per diluted share (2)
|
$
|
5.74
|
|
|
$
|
5.65
|
|
|
$
|
5.05
|
|
_____________________
|
|
(1)
|
For the year ended December 31, 2017, dividends on our Series 1 preferred stock are not deducted in the calculation of FFO available to common shareholders, as the related shares are dilutive and included in "weighted average common shares, diluted." The weighted average common shares used to compute FFO per diluted common share also includes
|
operating partnership units that were excluded from the computation of diluted EPS. Conversion of these operating partnership units is dilutive in the computation of FFO per diluted common share but is anti-dilutive for the computation of diluted EPS for the periods presented.
|
|
(2)
|
If the $12.3 million and the $19.1 million early extinguishment of debt charge incurred in 2017 and 2015, respectively, was excluded, our FFO available for common shareholders for 2017 and 2015 would have been
$432.2 million
and $371.9 million, respectively, and FFO available for common shareholders, per diluted share would have been
$5.91
and
$5.32
, respectively.
|