NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands, unless otherwise stated)
1. Nature of Business and Financial Statement Presentation
Description of Business
Brixmor Property Group Inc. and subsidiaries (collectively, the “Parent Company”) is an internally-managed real estate investment trust (“REIT”). Brixmor Operating Partnership LP and subsidiaries (collectively, the “Operating Partnership”) is the entity through which the Parent Company conducts substantially all of its operations and owns substantially all of its assets. The Parent Company owns 100% of the limited liability company interests of BPG Subsidiary LLC (“BPG Sub”), which, in turn, is the sole member of Brixmor OP GP LLC (the “General Partner”), the sole general partner of the Operating Partnership. The Parent Company engages in the ownership, management, leasing, acquisition, disposition, and redevelopment of retail shopping centers through the Operating Partnership, and has no other substantial assets or liabilities other than through its investment in the Operating Partnership. The Parent Company, the Operating Partnership, and their controlled subsidiaries on a consolidated basis (collectively, the “Company” or “Brixmor”) owns and operates one of the largest publicly-traded open-air retail portfolios by gross leasable area (“GLA”) in the United States (“U.S.”), comprised primarily of community and neighborhood shopping centers. As of March 31, 2022, the Company’s portfolio was comprised of 380 shopping centers (the “Portfolio”) totaling approximately 67 million square feet of GLA. The Company’s high-quality national Portfolio is primarily located within established trade areas in the top 50 Metropolitan Statistical Areas in the U.S., and its shopping centers are primarily anchored by non-discretionary and value-oriented retailers, as well as consumer-oriented service providers.
The Company does not distinguish its principal business or group its operations on a geographical basis for purposes of measuring performance. Accordingly, the Company has a single reportable segment for disclosure purposes in accordance with U.S. generally accepted accounting principles (“GAAP”).
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the unaudited Condensed Consolidated Financial Statements for the periods presented have been included. The operating results for the periods presented are not necessarily indicative of the results that may be expected for a full fiscal year. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2021 and accompanying notes included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 7, 2022.
Principles of Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Parent Company, the Operating Partnership, each of their wholly owned subsidiaries, and all other entities in which they have a controlling financial interest. All intercompany transactions have been eliminated.
Income Taxes
Brixmor Property Group Inc. has elected to qualify as a REIT in accordance with the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, Brixmor Property Group Inc. must meet several organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. Management intends to continue to satisfy these requirements and maintain Brixmor Property Group Inc.’s REIT status.
As a REIT, Brixmor Property Group Inc. generally will not be subject to U.S. federal income tax, provided that distributions to its stockholders equal at least the amount of its REIT taxable income as defined under the Code. Brixmor Property Group Inc. conducts substantially all of its operations through the Operating Partnership, which is organized as a limited partnership and treated as a pass-through entity for U.S. federal tax purposes. Therefore, U.S.
federal income taxes do not materially impact the unaudited Condensed Consolidated Financial Statements of the Company.
If Brixmor Property Group Inc. fails to qualify as a REIT in any taxable year, it will be subject to U.S. federal taxes at regular corporate rates and may not be able to qualify as a REIT for the four subsequent taxable years. Even if Brixmor Property Group Inc. qualifies for taxation as a REIT, Brixmor Property Group Inc. is subject to certain state and local taxes on its income and property, and to U.S. federal income and excise taxes on its undistributed taxable income as well as other income items, as applicable.
Brixmor Property Group Inc. has elected to treat certain of its subsidiaries as taxable REIT subsidiaries (each a “TRS”), and Brixmor Property Group Inc. may in the future elect to treat newly formed and/or other existing subsidiaries as TRSs. A TRS may participate in non-real estate related activities and/or perform non-customary services for tenants and is subject to certain limitations under the Code. A TRS is subject to U.S. federal, state, and local income taxes at regular corporate rates. Income taxes related to Brixmor Property Group Inc.’s TRSs do not materially impact the unaudited Condensed Consolidated Financial Statements of the Company.
The Company has considered the tax positions taken for the open tax years and has concluded that no provision for income taxes related to uncertain tax positions is required in the Company’s unaudited Condensed Consolidated Financial Statements as of March 31, 2022 and December 31, 2021. Open tax years generally range from 2018 through 2021 but may vary by jurisdiction and issue. The Company recognizes penalties and interest accrued related to unrecognized tax benefits as income tax expense, which is included in Other on the Company’s unaudited Condensed Consolidated Statements of Operations.
New Accounting Pronouncements
Any recently issued accounting standards or pronouncements have been excluded as they either are not relevant to the Company, or they are not expected to have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.
2. Acquisition of Real Estate
During the three months ended March 31, 2022, the Company acquired the following assets, in separate transactions:
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Description(1)(2) | | Location | | Month Acquired | | GLA | | Aggregate Purchase Price(3) |
Brea Gateway | | Brea, CA | | Jan-22 | | 181,819 | | | $ | 83,991 | |
Land at Cobblestone Village | | St. Augustine, FL | | Jan-22 | | N/A | | 1,661 | |
Arboretum Village | | Dallas, TX | | Jan-22 | | 95,354 | | | 46,330 | |
Ravinia Plaza | | Orland Park, IL | | Feb-22 | | 101,800 | | | 26,160 | |
Adjustments related to previously acquired assets | | Various | | Various | | N/A | | 50 | |
| | | | | | 378,973 | | | $ | 158,192 | |
| | | | | | | | |
(1)No debt was assumed related to any of the listed acquisitions.
(2)In addition, during the three months ended March 31, 2022, the Company funded $6.1 million of deposits on assets that are under contract to be acquired.
(3)Aggregate purchase price includes $0.8 million of transaction costs, offset by $2.0 million of closing credits.
During the three months ended March 31, 2021, the Company acquired the following assets, in separate transactions:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Description(1) | | Location | | Month Acquired | | GLA | | Aggregate Purchase Price(2) |
Land at Ellisville Square (3) | | Ellisville, MO | | Jan-21 | | N/A | | $ | 2,014 | |
Outparcel adjacent to Cobblestone Village | | St. Augustine, FL | | Feb-21 | | 5,040 | | | 1,520 | |
Land associated with Westgate Plaza | | Westfield, MA | | Mar-21 | | N/A | | 245 | |
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| | | | | | 5,040 | | | $ | 3,779 | |
(1)No debt was assumed related to any of the listed acquisitions.
(2)Aggregate purchase price includes $0.2 million of transaction costs.
(3)The Company terminated a ground lease and acquired a land parcel.
The aggregate purchase price of the assets acquired during the three months ended March 31, 2022 and 2021, respectively, has been allocated as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
Assets(1) | 2022 | | 2021 |
Land | $ | 44,600 | | | $ | 2,738 | |
Buildings | 100,883 | | | 1,041 | |
Building and tenant improvements | 14,917 | | | — | |
Above-market leases(2) | 543 | | | — | |
In-place leases(3) | 10,319 | | | — | |
Total assets acquired | $ | 171,262 | | | $ | 3,779 | |
| | | |
Liabilities | | | |
Below-market leases(4) | $ | 11,244 | | | $ | — | |
Other liabilities | 1,826 | | | — | |
Total liabilities | 13,070 | | | — | |
Net assets acquired | $ | 158,192 | | | $ | 3,779 | |
(1)In addition, during the three months ended March 31, 2022, the Company funded $6.1 million of deposits on assets that are under contract to be acquired.
(2)The weighted average amortization period at the time of acquisition for above-market leases related to assets acquired during the three months ended March 31, 2022 was 6.4 years.
(3)The weighted average amortization period at the time of acquisition for in-place leases related to assets acquired during the three months ended March 31, 2022 was 12.2 years.
(4)The weighted average amortization period at the time of acquisition for below-market leases related to assets acquired during the three months ended March 31, 2022 was 19.8 years.
3. Dispositions and Assets Held for Sale
During the three months ended March 31, 2022, the Company disposed of five shopping centers and one partial shopping center for aggregate net proceeds of $58.9 million, resulting in aggregate gain of $21.8 million and aggregate impairment of $1.1 million. In addition, during the three months ended March 31, 2022, the Company resolved contingencies related to previously disposed assets, resulting in net gain of $0.1 million.
During the three months ended March 31, 2021, the Company disposed of four shopping centers and four partial shopping centers for aggregate net proceeds of $31.8 million, resulting in aggregate gain of $5.8 million and aggregate impairment of $1.5 million.
As of March 31, 2022, the Company had three properties and two partial properties held for sale. As of December 31, 2021, the Company had one property and two partial properties held for sale. There were no liabilities associated with the properties classified as held for sale. The following table presents the assets associated with the properties classified as held for sale:
| | | | | | | | | | | |
Assets | March 31, 2022 | | December 31, 2021 |
Land | $ | 4,980 | | | $ | 4,339 | |
Buildings and improvements | 33,716 | | | 19,181 | |
Accumulated depreciation and amortization | (14,842) | | | (7,899) | |
Real estate, net | 23,854 | | | 15,621 | |
Other assets | 544 | | | 510 | |
Assets associated with real estate assets held for sale | $ | 24,398 | | | $ | 16,131 | |
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There were no discontinued operations for the three months ended March 31, 2022 and 2021 as none of the dispositions represented a strategic shift in the Company’s business that would qualify as discontinued operations.
4. Real Estate
The Company’s components of Real estate, net consisted of the following:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Land | $ | 1,807,111 | | | $ | 1,773,448 | |
Buildings and improvements: | | | |
Buildings and tenant improvements | 8,220,958 | | | 8,110,742 | |
Lease intangibles(1) | 544,836 | | | 544,224 | |
| 10,572,905 | | | 10,428,414 | |
Accumulated depreciation and amortization(2) | (2,847,814) | | | (2,813,329) | |
Total | $ | 7,725,091 | | | $ | 7,615,085 | |
(1)As of March 31, 2022 and December 31, 2021, Lease intangibles consisted of $492.3 million and $491.0 million, respectively, of in-place leases and $52.5 million and $53.2 million, respectively, of above-market leases. These intangible assets are amortized over the term of each related lease.
(2)As of March 31, 2022 and December 31, 2021, Accumulated depreciation and amortization included $473.5 million and $480.9 million, respectively, of accumulated amortization related to Lease intangibles.
In addition, as of March 31, 2022 and December 31, 2021, the Company had intangible liabilities relating to below-market leases of $341.6 million and $337.1 million, respectively, and accumulated accretion of $252.8 million and $256.2 million, respectively. These intangible liabilities are included in Accounts payable, accrued expenses and other liabilities on the Company’s unaudited Condensed Consolidated Balance Sheets. These intangible assets are accreted over the term of each related lease.
Below-market lease accretion income, net of above-market lease amortization for the three months ended March 31, 2022 and 2021 was $3.0 million and $2.9 million, respectively. These amounts are included in Rental income on the Company’s unaudited Condensed Consolidated Statements of Operations. Amortization expense associated with in-place lease value for the three months ended March 31, 2022 and 2021 was $4.1 million and $3.6 million, respectively. These amounts are included in Depreciation and amortization on the Company’s unaudited Condensed Consolidated Statements of Operations. The Company’s estimated below-market lease accretion income, net of above-market lease amortization expense, and in-place lease amortization expense for the next five years are as follows:
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Year ending December 31, | | Below-market lease accretion (income), net of above-market lease amortization expense | | In-place lease amortization expense |
2022 (remaining nine months) | | $ | (7,754) | | | $ | 10,843 | |
2023 | | (9,330) | | | 11,763 | |
2024 | | (8,677) | | | 8,992 | |
2025 | | (7,350) | | | 6,664 | |
2026 | | (6,453) | | | 5,142 | |
5. Impairments
Management periodically assesses whether there are any indicators, including property operating performance, changes in anticipated hold period, and general market conditions that the carrying value of the Company’s real estate assets (including any related intangible assets or liabilities) may be impaired. If management determines that the carrying value of a real estate asset is impaired, an impairment charge is recognized to reflect the estimated fair value.
The Company recognized the following impairments during the three months ended March 31, 2022:
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Three Months Ended March 31, 2022 |
Property Name(1) | | Location | | GLA | | Impairment Charge |
Torrington Plaza (2) | | Torrington, CT | | 125,496 | | | $ | 3,502 | |
New Garden Center (3) | | Kennett Square, PA | | 147,370 | | | 1,088 | |
| | | | 272,866 | | | $ | 4,590 | |
(1)The Company recognized impairment charges based upon changes in the anticipated hold periods of these properties and/or offers from third-party buyers in connection with the Company’s capital recycling program.
(2)This property was classified as held for sale as of March 31, 2022.
(3)The Company disposed of this property during the three months ended March 31, 2022.
The Company recognized the following impairment during the three months ended March 31, 2021:
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Three Months Ended March 31, 2021 |
Property Name(1) | | Location | | GLA | | Impairment Charge |
Albany Plaza(2) | | Albany, GA | | 114,169 | | | $ | 1,467 | |
| | | | | | |
| | | | 114,169 | | | $ | 1,467 | |
(1)The Company recognized an impairment charge based upon a change in the anticipated hold period of this property and/or offers from third-party buyers in connection with the Company’s capital recycling program.
(2)The Company disposed of this property during the year ended December 31, 2021.
The Company can provide no assurance that material impairment charges with respect to its Portfolio will not occur in future periods. See Note 3 for additional information regarding impairment charges taken in connection with the Company’s dispositions. See Note 8 for additional information regarding the fair value of operating properties that have been impaired.
6. Financial Instruments – Derivatives and Hedging
The Company’s use of derivative instruments is intended to manage its exposure to interest rate movements and such instruments are not utilized for speculative purposes. In certain situations, the Company may enter into derivative financial instruments such as interest rate swap and interest rate cap agreements that result in the receipt and/or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchanging the underlying notional amount. The Company utilizes interest rate swaps to partially hedge the cash flows associated with variable-rate debt. During the three months ended March 31, 2022 and year ended December 31, 2021, the Company did not enter into any new interest rate swap agreements. During the year ended December 31, 2021, interest rate swaps with a notional amount of $250.0 million expired and the Company paid $1.1 million to terminate interest rate swaps with a notional amount of $250.0 million.
Detail on the Company’s interest rate derivatives designated as cash flow hedges outstanding as of March 31, 2022 and December 31, 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Instruments | | Notional Amount |
| March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 |
Interest Rate Swaps | 4 | | 4 | | $ | 300,000 | | | $ | 300,000 | |
The Company has elected to present its interest rate derivatives on its unaudited Condensed Consolidated Balance Sheets on a gross basis as interest rate swap assets and interest rate swap liabilities. Detail on the fair value of the Company’s interest rate derivatives on a gross and net basis as of March 31, 2022 and December 31, 2021 is as follows:
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| | Fair Value of Derivative Instruments |
Interest rate swaps classified as: | | March 31, 2022 | | December 31, 2021 |
Gross derivative assets | | $ | — | | | $ | — | |
Gross derivative liabilities | | (1,304) | | | (12,585) | |
Net derivative liabilities | | $ | (1,304) | | | $ | (12,585) | |
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The gross derivative assets are included in Other assets and the gross derivative liabilities are included in Accounts payable, accrued expenses and other liabilities on the Company’s unaudited Condensed Consolidated Balance Sheets. All of the Company’s outstanding interest rate swap agreements for the periods presented were designated as
cash flow hedges of interest rate risk. The fair value of the Company’s interest rate derivatives is determined using market standard valuation techniques, including discounted cash flow analyses, on the expected cash flows of each derivative. These analyses reflect the contractual terms of the derivative, including the period to maturity, and use observable market-based inputs, including interest rate curves and implied volatilities. These inputs are classified as Level 2 of the fair value hierarchy. The effective portion of changes in the fair value of derivatives designated as cash flow hedges is recognized in other comprehensive income (loss) and is reclassified into earnings as interest expense in the period that the hedged forecasted transaction affects earnings.
The effective portion of the Company’s interest rate swaps that was recognized on the Company’s unaudited Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021 is as follows:
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Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps) | | Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Change in unrealized gain on interest rate swaps | | $ | 9,434 | | | $ | 2,599 | | | | | |
Amortization of interest rate swaps to interest expense | | 1,847 | | | 3,067 | | | | | |
Change in unrealized gain on interest rate swaps, net | | $ | 11,281 | | | $ | 5,666 | | | | | |
The Company estimates that $2.5 million will be reclassified from accumulated other comprehensive loss as an increase to interest expense over the next twelve months. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company’s cash flow hedges during the three months ended March 31, 2022 and 2021.
Non-Designated (Mark-to-Market) Hedges of Interest Rate Risk
The Company does not use derivatives for trading or speculative purposes. As of March 31, 2022 and December 31, 2021, the Company did not have any non-designated hedges.
Credit-risk-related Contingent Features
The Company has agreements with its derivative counterparties that contain provisions whereby if the Company defaults on certain of its indebtedness and the indebtedness has been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. If the Company were to breach any of the contractual provisions of the derivative contracts, it would be required to settle its obligations under such agreements at their termination value, including accrued interest.
7. Debt Obligations
As of March 31, 2022 and December 31, 2021, the Company had the following indebtedness outstanding:
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| Carrying Value as of | | | | | |
| March 31, 2022 | | December 31, 2021 | | Stated Interest Rate(1) | | Scheduled Maturity Date | |
Notes payable | | | | | | | | |
Unsecured notes(2) | $ | 4,618,453 | | | $ | 4,868,453 | | | 2.25% – 7.97% | | 2024 – 2031 | |
Net unamortized premium | 25,935 | | | 26,651 | | | | | | |
Net unamortized debt issuance costs | (25,732) | | | (26,913) | | | | | | |
Total notes payable, net | $ | 4,618,656 | | | $ | 4,868,191 | | | | | | |
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Unsecured Credit Facility and term loans | | | | | | | | |
Unsecured Credit Facility - Revolving Facility | $ | 95,000 | | | $ | — | | | 1.55% | | 2023 | |
Unsecured $300 Million Term Loan(3) | 300,000 | | | 300,000 | | | 1.48% | | 2024 | |
Net unamortized debt issuance costs | (3,088) | | | (3,673) | | | | | | |
Total Unsecured Credit Facility and term loans | $ | 391,912 | | | $ | 296,327 | | | | | | |
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Total debt obligations, net | $ | 5,010,568 | | | $ | 5,164,518 | | | | | | |
(1)Stated interest rates as of March 31, 2022 do not include the impact of the Company’s interest rate swap agreements (described below).
(2)The weighted average stated interest rate on the Company’s unsecured notes was 3.69% as of March 31, 2022.
(3)Effective January 2, 2019, the Company has in place four interest rate swap agreements that convert the variable interest rate on the Company’s $300.0 million term loan agreement, as amended April 29, 2020 (the “$300 Million Term Loan”), to a fixed, combined interest rate of 2.61% (plus a spread of 125 basis points) through July 26, 2024.
2022 Debt Transactions
During the three months ended March 31, 2022, the Operating Partnership repaid $250.0 million principal amount of its Floating Rate Senior Notes due 2022 (the “2022 Notes”), representing all of the outstanding 2022 Notes, with available cash on hand. In addition, during the three months ended March 31, 2022, the Operating Partnership borrowed $95.0 million, net of repayments, under its $1.25 billion revolving credit facility (the “Revolving Facility”), the proceeds of which were used for general corporate purposes, including $99.3 million of acquisitions, net of dispositions.
Pursuant to the terms of the Company’s unsecured debt agreements, the Company, among other things, is subject to the maintenance of various financial covenants. The Company was in compliance with these covenants as of March 31, 2022.
Debt Maturities
As of March 31, 2022 and December 31, 2021, the Company had accrued interest of $44.1 million and $46.3 million outstanding, respectively. As of March 31, 2022, scheduled maturities of the Company’s outstanding debt obligations were as follows:
| | | | | | | | |
Year ending December 31, | | |
2022 (remaining nine months) | | $ | — | |
2023 | | 95,000 | |
2024 | | 800,000 | |
2025 | | 700,000 | |
2026 | | 607,542 | |
Thereafter | | 2,810,911 | |
Total debt maturities | | 5,013,453 | |
Net unamortized premium | | 25,935 | |
Net unamortized debt issuance costs | | (28,820) | |
Total debt obligations, net | | $ | 5,010,568 | |
As of the date the financial statements were issued, the Company did not have any scheduled debt maturities for the next 12 months. See Note 17 - Subsequent Events for information regarding the amendment to the Revolving Facility, which occurred subsequent to March 31, 2022.
8. Fair Value Disclosures
All financial instruments of the Company are reflected in the accompanying unaudited Condensed Consolidated Balance Sheets at amounts which, in management’s judgment, reasonably approximate their fair values, except those instruments listed below:
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| March 31, 2022 | | December 31, 2021 |
| Carrying Amounts | | Fair Value | | Carrying Amounts | | Fair Value |
|
Notes payable | $ | 4,618,656 | | | $ | 4,570,720 | | | $ | 4,868,191 | | | $ | 5,166,291 | |
Unsecured Credit Facility and term loans | 391,912 | | | 395,614 | | | 296,327 | | | 300,629 | |
Total debt obligations, net | $ | 5,010,568 | | | $ | 4,966,334 | | | $ | 5,164,518 | | | $ | 5,466,920 | |
As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy is included in GAAP that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs that are classified within Level 3 of the hierarchy).
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is
based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Based on the above criteria, the Company has determined that the valuations of its debt obligations are classified within Level 3 of the fair value hierarchy. Such fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition.
Recurring Fair Value
The Company’s marketable securities and interest rate derivatives are measured and recognized at fair value on a recurring basis. The valuations of the Company’s marketable securities are based primarily on publicly traded market values in active markets and are classified within Levels 1 and 2 of the fair value hierarchy. See Note 6 for fair value information regarding the Company’s interest rate derivatives.
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured and recognized at fair value on a recurring basis:
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| Fair Value Measurements as of March 31, 2022 |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Marketable securities(1) | $ | 19,315 | | | $ | 1,208 | | | $ | 18,107 | | | $ | — | |
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Liabilities: | | | | | | | |
Interest rate derivatives | $ | (1,304) | | | $ | — | | | $ | (1,304) | | | $ | — | |
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| Fair Value Measurements as of December 31, 2021 |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Marketable securities(1) | $ | 20,224 | | | $ | 6,304 | | | $ | 13,920 | | | $ | — | |
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Liabilities: | | | | | | | |
Interest rate derivatives | $ | (12,585) | | | $ | — | | | $ | (12,585) | | | $ | — | |
(1)As of March 31, 2022 and December 31, 2021, marketable securities included $0.4 million and $0.1 million of net unrealized losses, respectively. As of March 31, 2022, the contractual maturities of the Company’s marketable securities are within the next five years.
Non-Recurring Fair Value
Management periodically assesses whether there are any indicators, including property operating performance, changes in anticipated hold period, and general market conditions that the carrying value of the Company’s real estate assets (including any related intangible assets or liabilities) may be impaired. Fair value is determined by offers from third-party buyers, market comparable data, third party appraisals, or discounted cash flow analyses. The cash flows utilized in such analyses are comprised of unobservable inputs that include forecasted rental revenue and expenses based upon market conditions and future expectations. The capitalization rates and discount rates utilized in such analyses are based upon unobservable rates that the Company believes to be within a reasonable range of current market rates for the respective properties. Based on these inputs, the Company has determined that the valuations of these properties are classified within Level 3 of the fair value hierarchy.
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured and recognized at fair value on a non-recurring basis. The table includes information related to properties that were remeasured to fair value as a result of impairment testing during the three months ended March 31, 2022, excluding the properties sold prior to March 31, 2022. During the year ended December 31, 2021, no properties were remeasured to fair value as a result of impairment testing that were not sold prior to December 31, 2021.
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| Fair Value Measurements as of March 31, 2022 | | |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Impairment of Real Estate Assets |
Assets: | | | | | | | | | |
Properties(1)(2) | $ | 8,695 | | | $ | — | | | $ | — | | | $ | 8,695 | | | $ | 3,502 | |
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(1)Excludes properties disposed of prior to March 31, 2022.
(2)The carrying value of the property remeasured to fair value based upon offers from third-party buyers during the three months ended March 31, 2022 is $8.7 million related to Torrington Plaza.
9. Revenue Recognition
The Company engages in the ownership, management, leasing, acquisition, disposition, and redevelopment of retail shopping centers. Revenue is primarily generated through lease agreements and classified as Rental income on the Company’s unaudited Condensed Consolidated Statements of Operations. These agreements include retail shopping center unit leases; ground leases; ancillary leases or agreements, such as agreements with tenants for cellular towers, ATMs, and short-term or seasonal retail (e.g. Halloween or Christmas-related retail); and reciprocal easement agreements. The agreements range in term from less than one year to 25 or more years, with certain agreements containing renewal options. These renewal options range from as little as one month to five or more years. The Company’s retail shopping center leases generally require tenants to pay a portion of property operating expenses such as common area expenses, utilities, insurance, and real estate taxes, and certain capital expenditures related to the maintenance of the Company’s properties.
Additionally, certain leases may require variable lease payments associated with percentage rents, which are recognized upon the achievement of certain predetermined sales thresholds. The Company recognized $3.4 million and $2.3 million of income based on percentage rents for the three months ended March 31, 2022 and 2021, respectively. These amounts are included in Rental income on the Company’s unaudited Condensed Consolidated Statements of Operations.
10. Leases
The Company periodically enters into agreements in which it is the lessee, including ground leases for shopping centers that it operates and office leases for administrative space. The agreements range in term from less than one year to 50 or more years, with certain agreements containing renewal options for up to an additional 100 years. Upon lease execution, the Company recognizes an operating lease right-of-use (“ROU”) asset and an operating lease liability based on the present value of the minimum lease payments over the non-cancelable lease term. As of March 31, 2022, the Company is not including any prospective renewal or termination options in its ROU assets or lease liabilities, as the exercise of such options is not reasonably certain. Certain agreements require the Company to pay a portion of property operating expenses, including common area expenses, utilities, insurance, and real estate taxes, and certain capital expenditures related to the maintenance of the properties. These payments are not included in the calculation of the lease liability and are presented as variable lease costs. The following tables present additional information pertaining to the Company’s operating leases:
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| | Three Months Ended March 31, | | |
Supplemental Statements of Operations Information | | 2022 | | 2021 | | | | |
Operating lease costs | | $ | 1,438 | | | $ | 1,618 | | | | | |
Short-term lease costs | | — | | | 1 | | | | | |
Variable lease costs | | 80 | | | 115 | | | | | |
Total lease costs | | $ | 1,518 | | | $ | 1,734 | | | | | |
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| | Three Months Ended March 31, | | | | |
Supplemental Statements of Cash Flows Information | | 2022 | | 2021 | | | | |
Operating cash outflows from operating leases | | $ | 1,538 | | | $ | 1,663 | | | | | |
ROU assets obtained in exchange for operating lease liabilities | | 112 | | | — | | | | | |
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Operating Lease Liabilities | | As of March 31, 2022 | | | | | | |
Future minimum operating lease payments: | | | | | | | | |
2022 (remaining nine months) | | $ | 4,459 | | | | | | | |
2023 | | 5,296 | | | | | | | |
2024 | | 5,203 | | | | | | | |
2025 | | 4,902 | | | | | | | |
2026 | | 4,177 | | | | | | | |
Thereafter | | 21,644 | | | | | | | |
Total future minimum operating lease payments | | 45,681 | | | | | | | |
Less: imputed interest | | (13,018) | | | | | | | |
Operating lease liabilities | | $ | 32,663 | | | | | | | |
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Supplemental Balance Sheets Information | | As of March 31, 2022 | | As of December 31, 2021 | | | | |
Operating lease liabilities(1)(2) | | $ | 32,663 | | | $ | 33,713 | | | | | |
ROU assets(1)(3) | | 28,374 | | | 29,325 | | | | | |
(1)As of March 31, 2022 and December 31, 2021, the weighted average remaining lease term was 13.0 years and 12.7 years, respectively, and the weighted average discount rate was 4.43% and 4.41%, respectively.
(2)These amounts are included in Accounts payable, accrued expenses and other liabilities on the Company’s unaudited Condensed Consolidated Balance Sheets.
(3)These amounts are included in Other assets on the Company’s unaudited Condensed Consolidated Balance Sheets.
As of March 31, 2022, there were no material leases that have been executed but not yet commenced.
11. Equity and Capital
ATM Program
In January 2020, the Company established an at-the-market equity offering program (the “ATM Program”) through which the Company may sell, from time to time, up to an aggregate of $400.0 million of its common stock through sales agents. The ATM Program also provides that the Company may enter into forward contracts for shares of its common stock with forward sellers and forward purchasers. The ATM Program is scheduled to expire on January 9, 2023, unless earlier terminated or extended by the Company, sales agents, forward sellers, and forward purchasers.
During the three months ended March 31, 2022, the Company issued 1.7 million shares of common stock under the ATM Program at an average price per share of $25.49 for total gross proceeds of $44.4 million, excluding commissions. The Company incurred commissions of $0.6 million in conjunction with the ATM Program for the three months ended March 31, 2022. During the three months ended March 31, 2021, the Company did not issue any shares of common stock. As of March 31, 2022, $350.4 million of common stock remained available for issuance under the ATM Program.
Share Repurchase Program
In January 2020, the Company established a share repurchase program (the “Program”) for up to $400.0 million of its common stock. The Program is scheduled to expire on January 9, 2023, unless suspended or extended by the board of directors. During the three months ended March 31, 2022 and 2021, the Company did not repurchase any shares of common stock. As of March 31, 2022, the Program had $375.0 million of available repurchase capacity.
Common Stock
In connection with the vesting of restricted stock units (“RSUs”) under the Company’s equity-based compensation plan, the Company withholds shares to satisfy tax withholding obligations. During the three months ended March 31, 2022 and 2021, the Company withheld 0.4 million and 0.3 million shares of its common stock, respectively.
Dividends and Distributions
During the three months ended March 31, 2022 and 2021, the board of directors declared common stock dividends and OP Unit distributions of $0.240 per share/unit and $0.215 per share/unit, respectively. As of March 31, 2022 and December 31, 2021, the Company had declared but unpaid common stock dividends and OP Unit distributions of $74.5 million and $74.4 million, respectively. These amounts are included in Accounts payable, accrued expenses and other liabilities on the Company’s unaudited Condensed Consolidated Balance Sheets.
12. Stock Based Compensation
During the year ended December 31, 2013, the board of directors approved the 2013 Omnibus Incentive Plan (the “Plan”). The Plan provides for a maximum of 15.0 million shares of the Company’s common stock to be issued for qualified and non-qualified options, stock appreciation rights, restricted stock, RSUs, OP Units, performance awards, and other stock-based awards.
During the three months ended March 31, 2022 and the year ended December 31, 2021, the Company granted RSUs to certain employees. The RSUs are divided into multiple tranches, which are all subject to service-based vesting conditions. Certain tranches are also subject to performance-based or market-based criteria, which contain a threshold, target, above target, and maximum number of units that can be earned. The number of units actually earned for each tranche is determined based on performance during a specified performance period. Tranches that only have a service-based component can only earn a target number of units. The aggregate number of RSUs granted, assuming that the target level of performance is achieved, was 0.7 million and 1.0 million for the three months ended March 31, 2022 and the year ended December 31, 2021, respectively, with vesting periods ranging from one to five years. For the performance-based and service-based RSUs granted, fair value is based on the Company’s grant date stock price. For the market-based RSUs granted, fair value is based on a Monte Carlo simulation model that assesses the probability of satisfying the market performance hurdles over the remainder of the performance period based on the Company’s historical common stock performance relative to the other companies within the FTSE Nareit Equity Shopping Centers Index as well as the following significant assumptions:
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Assumption | | Three Months Ended March 31, 2022 | | Year Ended, December 31, 2021 |
Volatility | | 27.0% - 51.0% | | 50.0% - 64.0% |
Weighted average risk-free interest rate | | 1.08% - 1.39% | | 0.11% - 0.18% |
Weighted average common stock dividend yield | | 3.8% - 4.6% | | 4.1% - 5.8% |
During the three months ended March 31, 2022 and 2021, the Company recognized $4.6 million and $2.8 million of equity compensation expense, respectively, of which $0.3 million and $0.2 million was capitalized, respectively. These amounts are included in General and administrative expense on the Company’s unaudited Condensed Consolidated Statements of Operations. As of March 31, 2022, the Company had $34.9 million of total unrecognized compensation expense related to unvested stock compensation, which is expected to be recognized over a weighted average period of approximately 2.5 years.
13. Earnings per Share
Basic earnings per share (“EPS”) is calculated by dividing net income attributable to the Company’s common stockholders, including any participating securities, by the weighted average number of shares outstanding for the period. Certain restricted shares issued pursuant to the Company’s share-based compensation program are considered participating securities, as such stockholders have rights to receive non-forfeitable dividends. Fully-diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into shares of common stock. Unvested RSUs are not allocated net losses and/or any excess of dividends declared over net income, as such amounts are allocated entirely to the Company’s common stock.
The following table provides a reconciliation of the numerator and denominator of the EPS calculations for the three months ended March 31, 2022 and 2021 (dollars in thousands, except per share data):
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| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Computation of Basic Earnings Per Share: | | | | | | | |
Net income | $ | 79,506 | | | $ | 52,371 | | | | | |
Non-forfeitable dividends on unvested restricted shares | (228) | | | (186) | | | | | |
Net income attributable to the Company’s common stockholders for basic earnings per share | $ | 79,278 | | | $ | 52,185 | | | | | |
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Weighted average number shares outstanding – basic | 298,528 | | | 297,110 | | | | | |
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Basic earnings per share attributable to the Company’s common stockholders: | | | | | | | |
Net income per share | $ | 0.27 | | | $ | 0.18 | | | | | |
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Computation of Diluted Earnings Per Share: | | | | | | | |
Net income attributable to the Company’s common stockholders for diluted earnings per share | $ | 79,278 | | | $ | 52,185 | | | | | |
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Weighted average shares outstanding – basic | 298,528 | | | 297,110 | | | | | |
Effect of dilutive securities: | | | | | | | |
Equity awards | 929 | | | 736 | | | | | |
Weighted average shares outstanding – diluted | 299,457 | | | 297,846 | | | | | |
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Diluted earnings per share attributable to the Company’s common stockholders: | | | | | | | |
Net income per share | $ | 0.26 | | | $ | 0.18 | | | | | |
14. Earnings per Unit
Basic earnings per unit is calculated by dividing net income attributable to the Operating Partnership’s common unitholders, including any participating securities, by the weighted average number of partnership common units outstanding for the period. Certain restricted units issued pursuant to the Company’s share-based compensation program are considered participating securities, as such unitholders have rights to receive non-forfeitable dividends. Fully-diluted earnings per unit reflects the potential dilution that could occur if securities or other contracts to issue common units were exercised or converted into common units. Unvested RSUs are not allocated net losses and/or any excess of dividends declared over net income, as such amounts are allocated entirely to the Operating Partnership’s common units.
The following table provides a reconciliation of the numerator and denominator of the earnings per unit calculations for the three months ended March 31, 2022 and 2021 (dollars in thousands, except per unit data):
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| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Computation of Basic Earnings Per Unit: | | | | | | | |
Net income | $ | 79,506 | | | $ | 52,371 | | | | | |
Non-forfeitable dividends on unvested restricted units | (228) | | | (186) | | | | | |
Net income attributable to the Operating Partnership’s common units for basic earnings per unit | $ | 79,278 | | | $ | 52,185 | | | | | |
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Weighted average number common units outstanding – basic | 298,528 | | | 297,110 | | | | | |
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Basic earnings per unit attributable to the Operating Partnership’s common units: | | | | | | | |
Net income per unit | $ | 0.27 | | | $ | 0.18 | | | | | |
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Computation of Diluted Earnings Per Unit: | | | | | | | |
Net income attributable to the Operating Partnership’s common units for diluted earnings per unit | $ | 79,278 | | | $ | 52,185 | | | | | |
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Weighted average common units outstanding – basic | 298,528 | | | 297,110 | | | | | |
Effect of dilutive securities: | | | | | | | |
Equity awards | 929 | | | 736 | | | | | |
Weighted average common units outstanding – diluted | 299,457 | | | 297,846 | | | | | |
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Diluted earnings per unit attributable to the Operating Partnership’s common units: | | | | | | | |
Net income per unit | $ | 0.26 | | | $ | 0.18 | | | | | |
15. Commitments and Contingencies
Legal Matters
The Company is not presently involved in any material litigation arising outside the ordinary course of business. However, the Company is involved in routine litigation arising in the ordinary course of business, none of which the Company believes, individually or in the aggregate, taking into account existing reserves, will have a material impact on the Company’s financial condition, operating results, or cash flows.
Environmental Matters
Under various federal, state, and local laws, ordinances, and regulations, the Company may be or become liable for the costs of removal or remediation of certain hazardous or toxic substances released on or in the Company’s property or disposed of by the Company or its tenants, as well as certain other potential costs that could relate to hazardous or toxic substances (including governmental fines and injuries to persons and property). The Company does not believe that any resulting liability from such matters will have a material impact on the Company’s financial condition, operating results, or cash flows. During the three months ended March 31, 2022 and 2021, the Company did not incur any material governmental fines resulting from environmental matters.
16. Related-Party Transactions
In the ordinary course of conducting its business, the Company enters into agreements with its affiliates in relation to the leasing and management of its real estate assets.
As of March 31, 2022 and December 31, 2021, there were no material receivables from or payables to related parties. During the three months ended March 31, 2022 and 2021, the Company did not engage in any material related-party transactions.
17. Subsequent Events
In preparing the unaudited Condensed Consolidated Financial Statements, the Company has evaluated events and transactions occurring after March 31, 2022 for recognition and/or disclosure purposes. Based on this evaluation, there were no subsequent events from March 31, 2022 through the date the financial statements were issued other than the following:
•On April 28, 2022, the Operating Partnership amended and restated its Unsecured Credit Facility and $300 Million Term Loan. The amendments provide for (i) revolving loan commitments of $1.25 billion (the “Revolving Facility”) scheduled to mature on June 30, 2026 (extending the applicable scheduled maturity date from February 28, 2023); and (ii) a continuation of the existing $300 Million Term Loan scheduled to mature on July 26, 2027 (extending the applicable scheduled maturity date from July 26, 2024) and a new $200.0 million delayed draw term loan, maturing on July 26, 2027 (together, the “Term Loan Facility”). The Revolving Facility includes two six-month maturity extension options, the exercise of which is subject to customary conditions and the payment of a fee on the extended commitments. In addition, the floating reference rate under the Revolving Facility and Term Loan Facility has been amended from LIBOR to SOFR. As of the date the financial statements were issued, the Operating Partnership has not drawn any amounts under its delayed draw term loan. As a result of the amendment, the total capacity under the Operating Partnership’s unsecured credit facilities increased from $1.55 billion to $1.75 billion.