BRIXMOR PROPERTY GROUP INC. The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the accompanying notes thereto. Historical results and percentage relationships set forth in the unaudited Condensed Consolidated Financial Statements and accompanying notes, including trends which might appear, should not be taken as indicative of future operations. Executive Summary Our CompanyBrixmor Property Group Inc. and subsidiaries (collectively, "BPG") is an internally-managed real estate investment trust ("REIT").Brixmor Operating Partnership LP and subsidiaries (collectively, the "Operating Partnership") is the entity through which BPG conducts substantially all of its operations and owns substantially all of its assets. BPG owns 100% of the limited liability company interests ofBPG Subsidiary LLC ("BPG Sub"), which, in turn, is the sole member ofBrixmor OP GP LLC (the "General Partner"), the sole general partner of theOperating Partnership . Unless stated otherwise or the context otherwise requires, "we," "our," and "us" mean BPG and theOperating Partnership , collectively. We own and operate one of the largest publicly-traded open-air retail portfolios by gross leasable area ("GLA") inthe United States ("U.S."), comprised primarily of community and neighborhood shopping centers. As ofMarch 31, 2022 , our portfolio was comprised of 380 shopping centers (the "Portfolio") totaling approximately 67 million square feet of GLA. Our high-quality national Portfolio is primarily located within established trade areas in the top 50 Metropolitan Statistical Areas in theU.S. , and our shopping centers are primarily anchored by non-discretionary and value-oriented retailers, as well as consumer-oriented service providers. As ofMarch 31, 2022 , our three largest tenants by annualized base rent ("ABR") were The TJX Companies, Inc. ("TJX"), The Kroger Co. ("Kroger"), and Burlington Stores, Inc. ("Burlington"). BPG has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under theU.S. federal income tax laws, commencing with our taxable year endedDecember 31, 2011 , has maintained such requirements through our taxable year endedDecember 31, 2021 , and intends to satisfy such requirements for subsequent taxable years. Our primary objective is to maximize total returns to our stockholders through consistent, sustainable growth in cash flow. Our key strategies to achieve this objective include proactively managing our Portfolio to drive internal growth, pursuing value-enhancing reinvestment opportunities, and prudently executing on acquisition and disposition activity, while also maintaining a flexible capital structure positioned for growth. In addition, as we execute on our key strategies, we do so guided by a commitment to operate in a socially responsible manner that allows us to realize our purpose of owning and managing properties that are the centers of the communities we serve.
We believe the following set of competitive advantages positions us to successfully execute on our key strategies:
•Expansive Retailer Relationships - We believe that the scale of our asset base and our nationwide footprint represent competitive advantages in supporting the growth objectives of the nation's largest and most successful retailers. We believe that we are one of the largest landlords by GLA to TJX, Kroger, and Burlington, as well as a key landlord to most major grocers and retail category leaders. We believe that our strong relationships with leading retailers afford us unique insight into their strategies and priority access to their expansion plans. •Fully-Integrated Operating Platform - We manage a fully-integrated operating platform, leveraging our national scope and demonstrating our commitment to operating with a strong regional and local presence. We provide our tenants with dedicated service through both our national accounts leasing team based inNew York and our network of four regional offices inAtlanta ,Chicago ,Philadelphia , andSan Diego , as well as our 13 leasing and property management satellite offices throughout the country. We believe that this structure enables us to obtain critical national market intelligence, while also benefitting from the regional and local expertise of our leasing and operations teams. •Experienced Management - Senior members of our management team are seasoned real estate operators with extensive public company leadership experience. Our management team has deep industry knowledge and well-established relationships with retailers, brokers, and vendors through many years of operational 25 --------------------------------------------------------------------------------
and transactional experience, as well as significant capital markets capabilities and expertise in executing value-enhancing reinvestment opportunities.
Factors That May Influence Our Future Results
We derive our rental income primarily from base rent and expense reimbursements paid by tenants to us under existing leases at each of our properties. Expense reimbursements primarily consist of payments made by tenants to us for 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 our properties. Our ability to maintain or increase rental income is primarily dependent on our ability to maintain or increase rental rates, renew expiring leases, and/or lease available space. Increases in our property operating expenses, including repairs and maintenance, landscaping, snow removal, security, ground rent related to properties for which we are the lessee, utilities, insurance, real estate taxes, and various other costs, to the extent they are not reimbursed by tenants or offset by increases in rental income, will adversely impact our overall performance.
See " Forward-Looking Statements " included elsewhere in this Quarterly Report on Form 10-Q for the factors that could affect our rental income and/or property operating expenses.
Leasing Highlights
As of
The following table summarizes our executed leasing activity for the three months endedMarch 31, 2022 and 2021 (dollars in thousands, except for per square foot ("PSF") amounts): For the Three Months Ended March 31, 2022 Tenant Improvements Third Party Leasing Leases GLA New ABR PSF and Allowances PSF Commissions PSF Rent Spread(1) New, renewal and option leases 374 2,307,147$ 15.55 $ 4.68 $ 1.99 13.1 % New and renewal leases 321 1,390,152 18.74 7.77 3.31 18.1 % New leases 149 779,954 17.63 12.46 5.82 35.9 % Renewal leases 172 610,198 20.14 1.78 0.10 12.1 % Option leases 53 916,995 10.71 - - 5.8 % For the Three Months Ended March 31, 2021 Tenant Improvements Third Party Leasing Leases GLA New ABR PSF and Allowances PSF Commissions PSF Rent Spread(1) New, renewal and option leases 392 2,130,048$ 16.69 $ 4.59 $ 1.60 6.7 % New and renewal leases 355 1,409,570 18.77 6.94 2.42 7.0 % New leases 140 654,505 17.06 14.37 5.16 20.3 % Renewal leases 215 755,065 20.26 0.50 0.05 3.4 % Option leases 37 720,478 12.63 - - 5.9 % (1) Based on comparable leases only, which consist of new leases signed on units that were occupied within the prior 12 months and renewal or option leases signed with the same tenant in all or a portion of the same location or that include the expansion into space that was occupied within the prior 12 months. Excludes leases executed for terms of less than one year. ABR PSF includes the GLA of lessee-owned leasehold improvements.
Acquisition Activity
•During the three months endedMarch 31, 2022 , we acquired three shopping centers and one land parcel and paid less than$0.1 million related to previously acquired assets for an aggregate purchase price of$158.2 million , including transaction costs and closing credits. In addition, during the three months endedMarch 31, 2022 , we funded$6.1 million of deposits on assets that are under contract to be acquired. 26 --------------------------------------------------------------------------------
•During the three months ended
Disposition Activity
•During the three months endedMarch 31, 2022 , we 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 endedMarch 31, 2022 , we resolved contingencies related to previously disposed assets, resulting in net gain of$0.1 million . •During the three months endedMarch 31, 2021 , we 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 . Results of Operations
The results of operations discussion is combined for BPG and the
Comparison of the Three Months EndedMarch 31, 2022 to the Three Months EndedMarch 31, 2021 Revenues (in thousands) Three Months Ended March 31, 2022 2021 $ Change Revenues Rental income$ 298,362 $ 276,461 $ 21,901 Other revenues 267 3,285 (3,018) Total revenues$ 298,629 $ 279,746 $ 18,883 Rental income The increase in rental income for the three months endedMarch 31, 2022 of$21.9 million , as compared to the corresponding period in 2021, was due to a$20.3 million increase for assets owned for the full period and a$1.6 million increase due to acquisition and disposition activity. The increase for assets owned for the full period was due to (i) a$7.5 million increase in base rent; (ii) a$6.3 million decrease in revenues deemed uncollectible; (iii) a$2.3 million increase in straight-line rental income, net; (iv) a$1.3 million increase in expense reimbursements; (v) a$1.2 million increase in percentage rents; (vi) a$1.1 million increase in ancillary and other rental income; and (vii) a$0.7 million increase in accretion of below-market leases, net of amortization of above-market leases and tenant inducements; partially offset by (v) a$0.1 million decrease in lease termination fees. The$7.5 million increase in base rent for assets owned for the full period was primarily due to contractual rent increases and positive rent spreads for new and renewal leases and option exercises of 13.1% during the three months endedMarch 31, 2022 and 10.1% during the year endedDecember 31, 2021 , an increase in weighted average billed occupancy, and a decrease in rent deferrals accounted for as lease modifications and rent abatements related to the current pandemic of the novel coronavirus ("COVID-19"). The decrease in revenues deemed uncollectible was primarily attributable to the impact of COVID-19 reserves in 2021 and recoveries of previously reserved amounts in 2022. The increase in straight-line rental income, net was primarily attributable to the impact of COVID-19 reserves in 2021. Other revenues The decrease in other revenues for the three months endedMarch 31, 2022 of$3.0 million , as compared to the corresponding period in 2021, was primarily due to a decrease in tax increment financing income. 27
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Operating Expenses (in thousands)
Three Months Ended March 31,
2022 2021 $ Change
Operating expenses
Operating costs $ 34,796 $ 31,385 $ 3,411
Real estate taxes 41,640 42,888 (1,248)
Depreciation and amortization 84,222 83,420 802
Impairment of real estate assets 4,590 1,467 3,123
General and administrative 28,000 24,645 3,355
Total operating expenses $ 193,248 $ 183,805 $ 9,443
Operating costs
The increase in operating costs for the three months ended March 31, 2022 of
$3.4 million , as compared to the corresponding period in 2021, was due to a $3.3
million increase for assets owned for the full period primarily due to an
increase in repair and maintenance, utility, and insurance costs, in addition to
a $0.1 million increase in operating costs due to acquisition and disposition
activity.
Real estate taxes
The decrease in real estate taxes for the three months ended March 31, 2022 of
$1.2 million , as compared to the corresponding period in 2021, was due to a $1.5
million decrease for assets owned for the full period, primarily due to an
increase in favorable adjustments related to prior year assessments and an
increase in capitalized real estate taxes, partially offset by a $0.3 million
increase in real estate taxes due to acquisition and disposition activity.
Depreciation and amortization
The increase in depreciation and amortization for the three months endedMarch 31, 2022 of$0.8 million , as compared to the corresponding period in 2021, was due to a$2.5 million increase due to acquisition and disposition activity, partially offset by a$1.7 million decrease for assets owned for the full period, primarily related to a decrease in accelerated depreciation and amortization related to tenant move-outs.
Impairment of real estate assets
During the three months endedMarch 31, 2022 , aggregate impairment of$4.6 million was recognized on one shopping center, as a result of disposition activity, and one operating property. During the three months endedMarch 31, 2021 , aggregate impairment of$1.5 million was recognized on one shopping center, as a result of disposition activity. Impairments recognized were due to changes in anticipated hold periods primarily in connection with our capital recycling program. General and administrative The increase in general and administrative costs for the three months endedMarch 31, 2022 of$3.4 million , as compared to the corresponding period in 2021, was primarily due to an increase in net compensation costs, partially offset by a decrease in litigation and other non-routine legal expenses.
During the three months ended
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Other Income and Expenses (in thousands)
Three Months Ended March 31,
2022 2021 $ Change
Other income (expense)
Dividends and interest $ 75 $ 87 $ (12)
Interest expense (47,322) (48,994) 1,672
Gain on sale of real estate assets 21,911 5,764 16,147
Loss on extinguishment of debt, net - (1,197) 1,197 Other (539) 770 (1,309) Total other expense$ (25,875) $ (43,570) $ 17,695 Dividends and interest
Dividends and interest remained generally consistent for the three months ended
Interest expense
The decrease in interest expense for the three months endedMarch 31, 2022 of$1.7 million , as compared to the corresponding period in 2021, was primarily due to a lower weighted average interest rate and lower overall debt obligations.
Gain on sale of real estate assets
During the three months endedMarch 31, 2022 , four shopping centers and one partial shopping center were disposed of resulting in aggregate gain of$21.8 million . In addition, during the three months endedMarch 31, 2022 , we resolved contingencies related to previously disposed assets resulting in net gain of$0.1 million . During the three months endedMarch 31, 2021 , three shopping centers and four partial shopping center were disposed of resulting in aggregate gain of$5.8 million .
Loss on extinguishment of debt, net
During the three months endedMarch 31, 2021 , we repaid$350.0 million of an unsecured term loan under our senior unsecured credit facility agreement, as amendedApril 29, 2020 (the "Unsecured Credit Facility"), resulting in a$1.2 million loss on extinguishment of debt due to the acceleration of unamortized debt issuance costs. Other The increase in other expense for the three months endedMarch 31, 2022 of$1.3 million , as compared to the corresponding period in 2021, was primarily due to favorable tax adjustments and legal settlements in the prior year.
Liquidity and Capital Resources
We anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months and beyond for all anticipated uses, including all scheduled payments on our outstanding debt, current and anticipated tenant and other capital improvements, stockholder distributions to maintain our qualification as a REIT, and other obligations associated with conducting our business.
Our primary expected sources and uses of capital are as follows:
Sources
•cash and cash equivalent balances;
•operating cash flow;
•available borrowings under the Unsecured Credit Facility;
•dispositions;
•issuance of long-term debt; and
•issuance of equity securities.
29
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•debt repayments;
•maintenance capital expenditures;
•leasing capital expenditures;
•dividend/distribution payments;
•value-enhancing reinvestment capital expenditures;
•acquisitions; and
•repurchases of equity securities.
We believe our capital structure provides us with the financial flexibility and capacity to fund our current capital needs as well as future growth opportunities. We have access to multiple forms of capital, including secured property level debt, unsecured corporate level debt, preferred equity, and common equity, which will allow us to efficiently execute on our strategic and operational objectives. We have investment grade credit ratings from all three major credit rating agencies. As ofMarch 31, 2022 , we had$1.2 billion of available liquidity under our$1.25 billion revolving credit facility (the "Revolving Facility") and$40.4 million in cash and cash equivalents and restricted cash. We intend to continue to enhance our financial and operational flexibility through the additional extension of the duration of our debt. Material Cash Requirements Our expected material cash requirements for the twelve months endedMarch 31, 2023 and thereafter are comprised of (i) contractually obligated expenditures; (ii) other essential expenditures; and (iii) opportunistic expenditures.
Contractually Obligated Expenditures
The following table summarizes our debt maturities (excluding extension options), interest payment obligations (excluding debt premiums and discounts and deferred financing costs), and obligations under non-cancelable operating leases (excluding renewal options), as ofMarch 31, 2022 (dollars in millions): Twelve Months Ended
Contractually Obligated Expenditures
Debt maturities (1) $ 95.0 $ 4,918.5
Interest payments (1)(2) 182.9 846.2
Operating leases 5.8 39.9
Total $ 283.7 $ 5,804.6
(1) Amounts presented do not assume the issuance of new debt upon maturity of
existing debt.
(2) Scheduled interest payments included in these amounts for variable rate
loans are presented using rates (including the impact of interest rate swaps),
as of March 31, 2022 . Amounts presented exclude debt premiums and discounts and
deferred financing costs. See Item 7A. "Quantitative and Qualitative Disclosures
about Market Risk" in our Annual Report on Form 10-K for the year ended December
31, 2021 for a further discussion of these and other factors that could impact
interest payments.
Other Essential Expenditures
We incur certain other essential expenditures in the ordinary course of
business, such as common area expenses, utilities, insurance, real estate taxes,
capital expenditures related to the maintenance of our properties, leasing
capital expenditures, and corporate level expenses. The amount of common area
expenses, utilities, and capital expenditures related to the maintenance of our
properties that we incur depends on changes in the scope of services that we
provide, changes in prevailing market rates, and changes in the size and
composition of our Portfolio. Additionally, we carry comprehensive insurance to
protect our Portfolio against various losses. The amount of insurance expense
that we incur depends on the assessed value of our Portfolio, prevailing market
rates, changes in risk, and the size and composition of our Portfolio.
Furthermore, we incur real estate taxes in the various jurisdictions in which we
operate. The amount of real estate taxes that we incur depends on changes in
assessed values, changes in tax rates assessed by various jurisdictions, and
changes in the size and composition of our Portfolio. Leasing capital
expenditures represent tenant specific costs incurred to lease space, including
tenant improvements, tenant allowances, and external leasing commissions. The
amount of leasing capital expenditures that we incur depends on the volume and
nature of leasing activity. Leases typically provide for the reimbursement of
property operating
30
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expenses such as common area expenses, utilities, insurance, and real estate
taxes, and certain capital expenditures related to the maintenance of our
properties. However, these costs generally do not decrease if a property is not
fully occupied, and certain costs are non-reimbursable.
In order to continue to qualify as a REIT for federal income tax purposes, we
must meet several organizational and operational requirements, including a
requirement that we annually distribute to our stockholders at least 90% of our
REIT taxable income, determined without regard to the deduction for dividends
paid and excluding net capital gains. We intend to continue to satisfy this
requirement and maintain our REIT status. Our board of directors will evaluate
the dividend on a quarterly basis, taking into account a variety of relevant
factors, including REIT taxable income. The following table summarizes our
dividend activity for the first quarter of 2022 and the second quarter of 2022:
First Second
Quarter 2022 Quarter 2022
Dividend declared per common share $ 0.240 $ 0.240
Dividend declaration date February 1, 2022 April
27, 2022
Dividend record date April 5, 2022 July 5, 2022
Dividend payable date April 18, 2022 July 15, 2022
Opportunistic Expenditures
We also intend to continue to utilize cash for opportunistic expenditures such as value-enhancing reinvestment and acquisition activity.
•The amount of value-enhancing reinvestment capital expenditures that we may incur in future periods is contingent on a variety of factors that may change from period to period, such as the number, total expected cost, and nature of value-enhancing reinvestment projects that we execute. See "Improvements to and investments in real estate assets" below for further information regarding our in-process reinvestment projects and pipeline of future redevelopment projects. •The amount of future acquisition and disposition activity depends on the availability of opportunities that further concentrate our Portfolio in attractive retail submarkets and optimize the quality and long-term growth rate of our asset base. Our acquisition strategy focuses on buying assets with strong growth potential that are located in our existing markets and will allow us to leverage our operational platform and expertise to create value. Our acquisition activity may include acquisitions of open-air shopping centers, non-owned anchor spaces, and retail buildings and/or outparcels at, or adjacent to, our shopping centers. We may also dispose of properties when we believe value has been maximized, where there is downside risk, or where we have limited ability or desire to build critical mass in a particular submarket.
Our cash flow activities are summarized as follows (dollars in thousands):
Brixmor Property Group Inc. Three Months Ended March 31, 2022 2021 Net cash provided by operating activities$ 112,260 $ 110,513 Net cash used in investing activities (174,937) (34,125) Net cash used in financing activities (194,682) (73,791)
Three Months Ended
2022 2021
Net cash provided by operating activities $ 112,260 $ 110,513
Net cash used in investing activities (174,937) (34,125)
Net cash used in financing activities (186,052) (73,791)
Cash and cash equivalents and restricted cash for BPG and the Operating
Partnership were $40.4 million and $33.9 million , respectively, as of March 31,
2022 . Cash and cash equivalents and restricted cash for BPG and the Operating
Partnership were $372.7 million and $362.7 million , respectively, as of March
31, 2021 .
31
--------------------------------------------------------------------------------Operating Activities
Net cash provided by operating activities primarily consists of cash inflows from tenant rental payments and expense reimbursements and cash outflows for property operating expenses, general and administrative expenses, and interest expense. During the three months endedMarch 31, 2022 , our net cash provided by operating activities increased$1.7 million as compared to the corresponding period in 2021. The increase was primarily due to (i) an increase in same property net operating income; and (ii) a decrease in cash outflows for interest expense; partially offset by (iii) a decrease from net working capital; (iv) an increase in cash outflows for general and administrative expense; (v) a decrease in net operating income due to acquisition and disposition activity; and (vi) a decrease in lease termination fees.
Investing Activities
Net cash used in investing activities is impacted by the nature, timing, and magnitude of acquisition and disposition activity and improvements to and investments in our shopping centers, including capital expenditures associated with our value-enhancing reinvestment efforts. During the three months endedMarch 31, 2022 , our net cash used in investing activities increased$140.8 million as compared to the corresponding period in 2021. The increase was primarily due to (i) an increase of$160.5 million in acquisitions of real estate assets; (ii) an increase of$7.3 million in improvements to and investments in real estate assets; and (iii) an increase of$0.1 million in purchases of marketable securities, net of proceeds from sales; partially offset by (iv) an increase of$27.1 million in net proceeds from sales of real estate assets.
Improvements to and investments in real estate assets
During the three months endedMarch 31, 2022 and 2021, we expended$70.1 million and$62.8 million , respectively, on improvements to and investments in real estate assets. Included in these amounts are insurance proceeds of$2.0 million and$2.2 million , respectively, which were received during the three months endedMarch 31, 2022 and 2021. Maintenance capital expenditures represent costs to fund major replacements and betterments to our properties. Leasing related capital expenditures represent tenant specific costs incurred to lease space, including tenant improvements, tenant allowances, and external leasing commissions. In addition, we evaluate our Portfolio on an ongoing basis to identify value-enhancing reinvestment opportunities. Such initiatives are tenant driven and focus on upgrading our centers with strong, best-in-class retailers and enhancing the overall merchandise mix and tenant quality of our Portfolio. As ofMarch 31, 2022 , we had 54 in-process anchor space repositioning, redevelopment, and outparcel development projects with an aggregate anticipated cost of$418.9 million , of which$217.0 million had been incurred as ofMarch 31, 2022 . In addition, we have identified a pipeline of future redevelopment projects aggregating approximately$900.0 million of potential capital investment, which we expect to execute over the next several years. We expect to fund these projects with cash and cash equivalents, net cash provided by operating activities, proceeds from sales of real estate assets, and/or available liquidity under the Revolving Facility.
Acquisitions of and proceeds from sales of real estate assets
We continue to evaluate the market for acquisition opportunities and we may acquire shopping centers when we believe strategic opportunities exist, particularly where we can further concentrate our Portfolio in attractive retail submarkets and optimize the quality and long-term growth rate of our asset base. During the three months endedMarch 31, 2022 , we acquired three shopping centers and one land parcel and paid less than$0.1 million related to previously disposed assets for an aggregate purchase price of$158.2 million , including transaction costs and closing credits. In addition, during the three months endedMarch 31, 2022 , we funded$6.1 million of deposits on assets that are under contract to be acquired. During the three months endedMarch 31, 2021 , we acquired one outparcel and two land parcels for an aggregate purchase price of$3.8 million , including transaction costs. We may also dispose of properties when we believe value has been maximized, where there is downside risk, or where we have limited ability or desire to build critical mass in a particular submarket. During the three months endedMarch 31, 2022 , we disposed of five shopping centers and one partial shopping center for aggregate net proceeds of$58.9 million . During the three months endedMarch 31, 2021 , we disposed of four shopping centers and four partial shopping centers for aggregate net proceeds of$31.8 million . 32 --------------------------------------------------------------------------------
Financing Activities
Net cash used in financing activities is impacted by the nature, timing, and magnitude of issuances and repurchases of debt and equity securities, as well as principal payments associated with our outstanding indebtedness and distributions made to our common stockholders. During the three months endedMarch 31, 2022 , our net cash used in financing activities increased$120.9 million as compared to the corresponding period in 2021. The increase was primarily due to (i) a$154.4 million increase in debt repayments, net of borrowings; (ii) an$8.1 million increase in distributions to our common stockholders; and (iii) a$5.4 million increase in repurchases of common shares in conjunction with equity award plans; partially offset by (iv) a$43.9 million increase in issuances of common stock; and (v) a$3.1 million decrease in deferred financing and debt extinguishment costs.
Non-GAAP Performance Measures
We present the non-GAAP performance measures set forth below. These measures should not be considered as alternatives to, or more meaningful than, net income (calculated in accordance with GAAP) or other GAAP financial measures, as an indicator of financial performance and are not alternatives to, or more meaningful than, cash flow from operating activities (calculated in accordance with GAAP) as a measure of liquidity. Non-GAAP performance measures have limitations as they do not include all items of income and expense that affect operations, and accordingly, should always be considered as supplemental financial results to those calculated in accordance with GAAP. Our computation of these non-GAAP performance measures may differ in certain respects from the methodology utilized by other REITs and, therefore, may not be comparable to similarly titled measures presented by such other REITs. Investors are cautioned that items excluded from these non-GAAP performance measures are relevant to understanding and addressing financial performance.
Funds From Operations
Nareit FFO (defined hereafter) is a supplemental, non-GAAP performance measure
utilized to evaluate the operating and financial performance of real estate
companies. Nareit defines funds from operations ("FFO") as net income (loss),
calculated in accordance with GAAP, excluding (i) depreciation and amortization
related to real estate, (ii) gains and losses from the sale of certain real
estate assets, (iii) gains and losses from change in control, (iv) impairment
write-downs of certain real estate assets and investments in entities when the
impairment is directly attributable to decreases in the value of depreciable
real estate held by the entity and (v) after adjustments for unconsolidated
joint ventures calculated to reflect FFO on the same basis.
Considering the nature of our business as a real estate owner and operator, we
believe that Nareit FFO is useful to investors in measuring our operating and
financial performance because the definition excludes items included in net
income that do not relate to or are not indicative of our operating and
financial performance, such as depreciation and amortization related to real
estate, and items which can make periodic and peer analyses of operating and
financial performance more difficult, such as gains and losses from the sale of
certain real estate assets and impairment write-downs of certain real estate
assets.
Our reconciliation of net income to Nareit FFO for the three months ended
Three Months Ended March 31,
2022 2021
Net income $ 79,506 $ 52,371
Depreciation and amortization related to real estate 83,190 82,455
Gain on sale of real estate assets (21,911) (5,764)
Impairment of real estate assets 4,590 1,467
Nareit FFO $ 145,375 $ 130,529
Nareit FFO per diluted share $ 0.49 $ 0.44
Weighted average diluted shares outstanding 299,457 297,846
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Same Property Net Operating Income
Same property net operating income ("NOI") is a supplemental, non-GAAP
performance measure utilized to evaluate the operating performance of real
estate companies. Same property NOI is calculated (using properties owned for
the entirety of both periods and excluding properties under development and
completed new development properties that have been stabilized for less than one
year) as total property revenues (base rent, expense reimbursements, adjustments
for revenues deemed uncollectible, ancillary and other rental income, percentage
rents, and other revenues) less direct property operating expenses (operating
costs and real estate taxes). Same property NOI excludes (i) corporate level
expenses (including general and administrative), (ii) lease termination fees,
(iii) straight-line rental income, net, (iv) accretion of below-market leases,
net of amortization of above-market leases and tenant inducements, (v)
straight-line ground rent expense, and (vi) income (expense) associated with our
captive insurance company.
Considering the nature of our business as a real estate owner and operator, we
believe that same property NOI is useful to investors in measuring the operating
performance of our property portfolio because the definition excludes various
items included in net income that do not relate to, or are not indicative of,
the operating performance of our properties, such as depreciation and
amortization, corporate level expenses (including general and administrative),
lease termination fees, straight-line rental income, net, accretion of
below-market leases, net of amortization of above-market leases and tenant
inducements, and straight-line ground rent expense. We believe that same
property NOI is also useful to investors because it further eliminates
disparities in NOI due to the acquisition or disposition of properties or the
stabilization of completed new development properties during the periods
presented and therefore provides a more consistent metric for comparing the
operating performance of our real estate between periods.
Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended
March 31, 2021
Three Months Ended March 31,
2022 2021 Change
Number of properties 360 360 -
Percent billed 88.5 % 87.7 % 0.8 %
Percent leased 92.0 % 90.8 % 1.2 %
Revenues
Rental income $ 274,368 $ 256,773 $ 17,595
Other revenues 267 273 (6)
274,635 257,046 17,589
Operating expenses
Operating costs (32,895) (29,553) (3,342)
Real estate taxes (39,334) (40,782) 1,448
(72,229) (70,335) (1,894)
Same property NOI $ 202,406 $ 186,711 $ 15,695
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The following table provides a reconciliation of net income to same property NOI for the periods presented (in thousands):
Three Months Ended March 31,
2022 2021
Net income $ 79,506 $ 52,371
Adjustments:
Non-same property NOI (11,866) (14,168)
Lease termination fees (1,130) (1,384)
Straight-line rental income, net (4,739) (2,272)
Accretion of below-market leases, net of amortization of above-market leases and tenant inducements
(2,044) (984)
Straight-line ground rent expense, net (8) 46
Depreciation and amortization 84,222 83,420
Impairment of real estate assets 4,590 1,467
General and administrative 28,000 24,645
Total other expense 25,875 43,570
Same property NOI $ 202,406 $ 186,711
Inflation
Prior to 2021, inflation was low and had a minimal impact on our operating and
financial performance; however, inflation has significantly increased in 2021
and 2022 and may continue to be elevated or increase further. With respect to
our shopping centers, most of our long-term leases contain provisions designed
to mitigate the adverse impact of inflation, including contractual rent
escalations and requirements for tenants 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 our
properties, thereby reducing our exposure to increases in property operating
expenses resulting from inflation; however, we have exposure to increases in
non-reimbursable property operating expenses, including expenses incurred on
vacant units. In addition, we believe that many of our existing rental rates are
below current market rates for comparable space and that upon renewal or
re-leasing, such rates may be increased to be consistent with, or closer to,
current market rates, which may also offset certain inflationary expense
pressures. With respect to our outstanding indebtedness, we periodically
evaluate our exposure to interest rate fluctuations, and have and may continue
to enter into interest rate protection agreements that mitigate, but do not
eliminate, the impact of changes in interest rates on our variable rate loans.
With respect to general and administrative costs, we continually seek
opportunities to offset inflationary cost pressures through routine evaluations
of our spending levels and through ongoing efforts to utilize technology to
enhance the efficiency of our people and processes.
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