WEINGARTEN REALTY INVESTORS The COVID-19 pandemic has resulted in a widespread health crisis, which has adversely affected international, national and local economies and financial markets generally, and has had an unprecedented negative effect on the commercial real estate industry. While the distribution of vaccinations and the declining infection rates from the peak of the pandemic andDecember 31, 2020 has provided us reasonable optimistic expectations, there remains significant uncertainty regarding the future impact of the pandemic. The discussions below, including without limitation with respect to outlooks and liquidity, are subject to the future effects of the COVID-19 pandemic and the responses to curb its spread, all of which continue to evolve. OnApril 15, 2021 , we announced our entry into the Merger Agreement with Kimco pursuant to which, subject to the satisfaction or waiver of certain conditions, we will merge with and into Kimco, with Kimco continuing as the surviving corporation. Pursuant to the terms of the Merger Agreement, each share of our common shares outstanding immediately prior to the Effective Time of the Merger will be converted into the right to receive (i)$2.89 in cash and (ii) 1.408 shares of common stock of Kimco. During the period from the date of the Merger Agreement until the completion of the Merger, we are subject to certain restrictions on our ability to engage with third parties regarding alternative acquisition proposals and on the conduct of our business. The closing of the Merger is expected to occur during the second half of 2021, subject to the satisfaction of certain closing conditions. There can be no assurance that the Merger will be completed on the terms or timeline currently contemplated or at all. Please see the risks described in Item 1A. "Risk Factors" in our Form 10-K for the year endedDecember 31, 2020 and in Part II, Item 1A of this Quarterly Report on Form 10-Q. It is uncertain as to the magnitude of the impact of such risks on our results of operations, cash flows, financial condition, or liquidity for fiscal year 2021 and beyond. 22 Table of Contents Forward-Looking Statements This quarterly report on Form 10-Q, together with other statements and information publicly disseminated by us, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. Factors which may cause actual results to differ materially from current expectations include, but are not limited to, (i) disruptions in financial markets; (ii) general and regional economic and real estate conditions; (iii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or general downturn in their business; (iv) changes in consumer retail shopping patterns; (v) financing risks, such as the inability to obtain equity, debt, or other sources of financing on favorable terms and changes in LIBOR availability; (vi) changes in governmental laws and regulations; (vii) the level and volatility of interest rates; (viii) the availability of suitable acquisition opportunities; (ix) the ability to dispose of properties; (x) changes in expected development activity; (xi) increases in operating costs; (xii) tax matters, including the effect of changes in tax laws and the failure to qualify as a real estate investment trust; (xiii) technology system failures, disruptions or cybersecurity attacks; (xiv) investments through real estate joint ventures and partnerships, which involve risks not present in investments in which we are the sole investor; (xv) the impact of public health issues, such as the current novel coronavirus ("COVID-19") pandemic, natural disasters or severe weather conditions; and (xvi) risks associated with the Merger , including our ability to consummate the Merger on the proposed terms or on the anticipated timeline, or at all, including risks and uncertainties related to securing the necessary shareholder approvals and satisfaction of other closing conditions to consummate the Merger and the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement. Accordingly, there is no assurance that our expectations will be realized. For further discussion of the factors that could materially affect the outcome of our forward-looking statements and our future results and financial condition, see Item 1A. "Risk Factors" in our Form 10-K for the year endedDecember 31, 2020 and in Part II, Item 1A of this Quarterly Report on Form 10-Q. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto and the comparative summary of selected financial data appearing elsewhere in this report. Historical results and trends which might appear should not be taken as indicative of future operations. Our results of operations and financial condition, as reflected in the accompanying condensed consolidated financial statements and related footnotes, are subject to management's evaluation and interpretation of business conditions, retailer performance, changing capital market conditions and other factors which could affect the ongoing viability of our tenants.
Executive Overview
Weingarten Realty Investors is a REIT organized under the Texas Business Organizations Code. We, and our predecessor entity, began the ownership of shopping centers and other commercial real estate in 1948. Our primary business is leasing space to tenants in the shopping centers we own or lease. These centers may be mixed-use properties that have both retail and residential components. We also provide property management services for which we charge fees to either joint ventures where we are partners or other outside owners. We operate a portfolio of rental properties, primarily neighborhood and community shopping centers, totaling approximately 29.8 million square feet of gross leasable area that is either owned by us or others. We have a diversified tenant base with our largest tenant comprising only 2.7% of base minimum rental revenues during the first three months of 2021. 23
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AtMarch 31, 2021 , we owned or operated under long-term leases, either directly or through our interest in real estate joint ventures or partnerships, a total of 156 properties, which are located in 15 states spanning the country from coast to coast.
We also owned interests in 22 parcels of land held for development that totaled
approximately 11.5 million square feet at
We had approximately 3,400 leases with 2,700 different tenants atMarch 31, 2021 . Rental revenue is primarily derived from operating leases with terms of 10 years or less, and may include multiple options, upon tenant election, to extend the lease term in increments up to five years. Many of our leases have increasing minimum rental rates during the terms of the leases through escalation provisions. In addition, the majority of our leases provide for variable rental revenues, such as reimbursements of real estate taxes, maintenance and insurance and may include an amount based on a percentage of the tenants' sales. Our anchor tenants are supermarkets, value-oriented apparel/discount stores and other retailers or service providers who generally sell basic necessity-type goods and services. Although there is a broad shift in shopping patterns, including internet shopping that continues to affect our tenants, we believe our anchor tenants, most of which have adopted omni-channel networks which help drive foot traffic, combined with convenient locations, attractive and well-maintained properties, high quality retailers and a strong tenant mix, should lessen the effects of these conditions and maintain the viability of our portfolio.
Proposed Merger
OnApril 15, 2021 , we announced our entry into the Merger Agreement with Kimco. The Merger Agreement provides that, among other things and on the terms and subject to the conditions set forth therein, (1) the Company will be merged with and into Kimco, with Kimco continuing as the surviving corporation in the Merger, and (2) at the Effective Time of the Merger, each common share of the Company (other than certain shares as set forth in the Merger Agreement) issued and outstanding immediately prior to the Effective Time will be automatically converted into the right to receive (i)$2.89 in cash and (ii) 1.408 shares of common stock of Kimco. During the period from the date of the Merger Agreement until the completion of the Merger, we are subject to certain restrictions on our ability to engage with third parties regarding alternative acquisition proposals and on the conduct of our business. The closing of the Merger is expected to occur in the second half of 2021, subject to the satisfaction of certain closing conditions. There can be no assurance that the Merger will be completed on the terms or timeline currently contemplated or at all.
Pandemic
The COVID-19 pandemic has dramatically impacted our business due largely to the hardships facing our tenants. Our tenants have been impacted greatly due to a number of factors, including federal, state and local governmental and legislative mandates to temporarily close and/or limit the operations of non-essential businesses, as well as encouraging or mandating most people to shelter in place and general economic conditions. While all of our markets have embarked upon a reopening of select businesses, including retailers, service providers and restaurants, the impact of these measures on the ability of our tenants to pay rent is indeterminable at this time. Many of our tenants have moved to include on-line sales with curbside pickup or delivery, including restaurants, apparel discounters and electronics. The grocery stores and other retailers with a grocery component that anchor the majority of our shopping centers remain strong in this environment. The economy continues to gain traction in the majority of our markets with substantially all of our tenants open for business. Based on annualized base rents, including our share of interest in real estate joint ventures or partnerships, we have estimated that 63% of our tenants are designated as essential businesses, including restaurants. During the three months endedMarch 31, 2021 , tenant fallouts have decreased significantly compared to the prior year. During the first quarter 2021, tenant fallout represented approximately 108,000 square feet representing approximately$3.1 million in annualized base rents, either directly or through our interest in real estate joint ventures or partnerships. We are optimistic that this trend will continue through 2021; however, there can be no assurance that this favorable trend will continue. 24
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We continue negotiations and have entered into rental concession agreements with our tenants to provide some relief to the tenants greatly impacted by the COVID-19 pandemic. As ofApril 20, 2021 , we have negotiated deferrals with tenants on approximately 995 leases, of which nearly$13.4 million remains of rental payments that have been billed or are to be billed and are primarily scheduled to be repaid byDecember 31, 2021 . In addition, for the three months endedMarch 31, 2021 we have increased rental revenues by$1.7 million due to net recoveries of previously written off receivables. Due to the anticipated impact from the administration of the COVID-19 vaccinations and the likely ensuing increase in our tenant operations, our current expectation is that rent collections will trend upward throughout 2021; however, no assurances can be given that this will occur due to the uncertainties surrounding our tenants' reopening and any resurgence of the pandemic and the governmental reaction to any resurgence. As ofApril 20, 2021 , tenant billing data, which includes base minimum rental revenues and escrows for common area maintenance, real estate taxes and insurance either directly or through our interest in real estate joint ventures or partnerships, was as follows: Percent of Cash Percent of Collections for Annualized the Three Months Base Rent Ending March 31, 2021 Essential 63 % 97 % Non-essential 37 92 Total Cash Collections 100 % 95 Deferrals 1 Abatements 1
Total Cash Collections and Other 97 % To conserve liquidity and preserve financial flexibility in light of the uncertainty surrounding the impact of COVID-19, we reduced our quarterly dividend payments in 2020. At the pre-pandemic level we had been paying a quarterly amount of$.395 per common share. Due to the magnitude of gain generated by our dispositions during 2020, we paid a special dividend near year-end of$.36 per common share. For the first quarter of 2021, we paid a quarterly dividend of$.30 per common share. OnApril 26, 2021 , ourBoard of Trust Managers approved a second quarter 2021 dividend of$.23 per common share, which is the amount permitted pursuant to the Merger Agreement. Absent a significant deterioration in cash collections, we believe our cash flow from operations will meet our planned capital needs for 2021; however, no assurances can be given that this level of cash flow will occur due to the uncertainty in the duration and restrictions of operations for our tenants. Further, subject to the applicable restrictions contained in the Merger Agreement, our ability to draw down under our revolving credit facility should provide ample liquidity for us to operate and maintain compliance with our debt covenants.
While all of our offices are currently open, most of our employees have been working remotely to stay healthy, support operations and in response to stay-at-home mandates or recommendations. Working remotely presents various challenges, including (but not all inclusive) concerns about productivity, connectivity, consumer privacy and IT security.
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Strategy
Subject to the proposed Merger, our goal is to remain a leader in owning and
operating top-tier neighborhood and community shopping centers and mixed-use
properties in certain markets of the United States . Our strategic initiatives
include: (1) owning quality shopping centers in preferred locations that attract
strong tenants, (2) growing net income from our existing portfolio by increasing
occupancy and rental rates, (3) raising net asset value and cash flow through
quality acquisitions and new developments, (4) continuously redeveloping our
existing shopping centers to increase cash flow and enhance the value of the
centers and (5) maintaining a strong, flexible consolidated balance sheet and a
well-managed debt maturity schedule. We believe these initiatives will keep our
portfolio of properties among the strongest in our sector. Due to current
capitalization rates in the market along with the uncertainty of changes in
interest rates and various other market conditions, and subject to the
applicable restrictions contained in the Merger Agreement, we intend to continue
to be very prudent in our evaluation of all new investment opportunities. We
have been focused on dispositions of properties with characteristics that impact
our willingness to own them going forward, and although we intend to continue
with this strategy, subject to the applicable restrictions contained in the
Merger Agreement, our dispositions are expected to decrease in 2021 from 2020.
We intend to utilize the proceeds from dispositions to, among other things, fund
acquisitions along with both new development and redevelopment projects.
Dispositions
As we discussed above, we continuously recycle non-core operating centers that no longer meet our ownership criteria and that will provide capital for growth opportunities. During the three months endedMarch 31, 2021 , we disposed of real estate assets, which were owned by us either directly or through our interest in real estate joint ventures or partnerships, with our share of aggregate gross sales proceeds totaling$55.8 million . We have approximately$39.6 million of dispositions currently under contracts or letters of intent; however, there are no assurances that these transactions will close at such prices or at all.
Acquisitions
Subject to evolving market conditions and the applicable restrictions contained in the Merger Agreement, we intend to continue to seek acquisition properties that meet our return hurdles and to actively evaluate other opportunities as they enter the market. Due to the significant amount of capital available in the market, it has been difficult to participate at price points that meet our investment criteria. During the three months endedMarch 31, 2021 , no real estate assets were acquired.
During the three months endedMarch 31, 2021 , we invested$5.0 million in two mixed-use new development projects that are partially or wholly owned and a 30-story, high-rise residential tower at ourRiver Oaks Shopping Center inHouston, Texas , and we invested$.5 million in redevelopment projects that were partially or wholly owned. Also during the three months endedMarch 31, 2021 , three completed redevelopment projects added approximately 100,000 square feet to the portfolio with an incremental investment to date totaling$19.3 million .
Capital
We strive to maintain a strong, conservative capital structure, which should
provide ready access to a variety of attractive long and short-term capital
sources. We carefully balance lower cost, short-term financing with long-term
liabilities associated with acquired or developed long-term assets.
Additionally, proceeds from our disposition program and cash generated from
operations further strengthened our balance sheet in 2021. Due to the
variability in the capital markets and the applicable restrictions contained in
the Merger Agreement, there can be no assurance that favorable pricing and
accessibility will be available in the future.
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Operational Metrics
In assessing the performance of our centers, management carefully monitors
various operating metrics of the portfolio. In light of current circumstances
and the continuing impact related to potentially uncollectible revenues, the
operating metrics of our portfolio performed well through the first three months
of 2021. We focused on collections and leasing efforts; including maintaining
our current tenants, to minimize the decline in same property net operating
income ("SPNOI"). See Non-GAAP Financial Measures for additional information.
Our portfolio delivered the following operating results:
? signed occupancy of 93.0% at
? a decrease of .6% in SPNOI for the three months ended
same period of 2020; and
? rental rate increases of 9.1% for new leases and 3.6% for renewals during the
three months ended
Below are performance metrics associated with our signed and commenced occupancy, SPNOI growth and leasing activity on a pro rata basis:
March 31,
2021 2020
Signed Occupancy:
Anchor (space of 10,000 square feet or greater) 95.4 % 96.9 %
Non-Anchor 88.8 % 90.4 %
Total 93.0 % 94.5 %
Commenced Occupancy 90.8 % 92.1 %
Three Months Ended
March 31, 2021
SPNOI (1) (0.6) %
See Non-GAAP Financial Measures for a definition of the measurement of SPNOI
(1) and a reconciliation to net income attributable to common shareholders within
this section of Item 2.
Average Average Average Cost
New Prior of Tenant Change in
Number Square Rent per Rent per Improvements Base Rent
of Feet Square Square per Square on Cash
Leases ('000's) Foot ($) Foot ($) Foot ($) Basis
Leasing Activity:
Three Months Ended March 31, 2021
New leases (1) 47 127 $ 29.46 $ 27.00 $ 35.56 9.1 %
Renewals 113 796 17.42 16.82 - 3.6 %
Not comparable spaces 31 91
Total 191 1,014 $ 19.08 $ 18.22 $ 4.89 4.7 %
(1) Average external lease commissions per square foot for the three months ended
March 31, 2021 were$7.46 . 27 Table of Contents Changing shopping habits, driven by rapid expansion of internet-driven procurement and accelerated by the pandemic, led to increased financial problems for many businesses, which has had a negative impact on the retail real estate sector. We continue to monitor the effects of these trends, including the impact of retail customer spending over the long-term. We believe the desirability of our physical locations, the significant diversification of our portfolio, both geographically and by tenant base, and the quality of our portfolio, along with its leading retailers and service providers that sell primarily grocery and basic necessity-type goods and services, position us well to mitigate the impact of these changes. Additionally, most retailers have implemented omni-channel models that integrate on-line shopping with in-store experiences that has further reinforced the need for bricks and mortar locations. Despite recent market disruption and tenant bankruptcies, we continue to believe there is long-term retailer demand for quality space within strong, strategically located centers. In 2020, we experienced fluctuations in tenant demand for retail space due to, among other factors, announced bankruptcies and the repositioning of those spaces. Currently, the future impact to occupancy is unknown due to the uncertainty and duration of the pandemic. With an increase in availability of quality retail space, some tenants have started to take advantage of accessing these prime locations which contributed to the increase in overall rental rates on a same-space basis as we completed new leases and renewed existing leases. Given the uncertainty surrounding the impact of the pandemic, we are unclear of its impact to rental rates and the funding of tenant improvements and allowances. The variability in the mix of leasing transactions as to size of space, market, use and other factors may impact the magnitude of these changes, both positively and negatively. Leasing volume is anticipated to fluctuate due to the uncertainty in tenant fallouts; including those related to both bankruptcies and tenant non-renewals; however, leasing activity continues to remain strong compared to the prior year.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis using available information. We base our estimates on current economic conditions, historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Uncertainty in the current economic environment due to the outbreak of COVID-19 has and may continue to significantly impact the judgments regarding estimates and assumptions utilized by management. The disclosure of our critical accounting policies and estimates which affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements is included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 in Management's Discussion and Analysis of Financial Condition and Results of Operations. There have been no significant changes to our critical accounting policies during 2021.
Results of Operations
The COVID-19 pandemic has created uncertainties surrounding the global economy.
Additionally, as noted earlier, tenants have been markedly impacted by the
pandemic, which has affected our results. As a result, the full magnitude of the
pandemic and the ultimate effect upon our future revenues and operations is
uncertain at this time. While we are optimistic there will be a gradual
improvement in the retail environment resulting from the distribution of
vaccinations and the related re-opening of the economy, we do not expect
revenues and operations to return to pre-COVID levels in the near term. In
addition, during the period from the date of the Merger Agreement until the
completion of the Merger, we are subject to certain restrictions on our ability
to engage with third parties regarding alternative acquisition proposals and on
the conduct of our business.
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Comparison of the Three Months Ended
The following table is a summary of certain items in net income from our
Condensed Consolidated Statements of Operations, which we believe represent
items that significantly changed during the three months ended
Three Months Ended March 31,
2021 2020 Change % Change
Revenues $ 121,371 $ 111,352 $ 10,019 9.0 %Depreciation and amortization 38,556 36,656 1,900 5.2 Real estate taxes, net 16,735 15,008 1,727 11.5 General and administrative expenses 10,604 2,307 8,297 359.6 Interest expense, net 16,619 14,602 2,017 13.8 Interest and other income (expense), net 1,654 (5,828) 7,482 128.4 Gain on sale of property 9,131 13,576 (4,445) (32.7) Equity in earnings of real estate joint ventures and partnerships, net 4,087 27,097
(23,010) (84.9) Revenues The increase in revenues of$10.0 million is attributable primarily to a decrease of$11.1 million for COVID related reserves and write-offs primarily recorded in the first quarter of 2020 and the impact of$5.3 million and$2.2 million related to acquisitions and mixed-use new developments, respectively. Partially offsetting these increases are revenues from dispositions of$5.4 million and rent abatements of$.5 million . Revenues have also declined by$2.7 million due primarily to changes in occupancy.
Depreciation and Amortization
The increase in depreciation and amortization of$1.9 million is attributable primarily to the$5.4 million impact of acquisitions and mixed-use new developments. Partially offsetting this increase is$2.1 million from dispositions, and a decrease of$1.4 million from the existing portfolio related primarily with a reduction in the amortization/write-offs of in-place lease intangibles associated with terminated tenant leases.
Real Estate Taxes, net
The$1.7 million increase in real estate taxes, net is attributable primarily to the impact from both acquisitions and mixed-use developments of$1.0 million and$.6 million , respectively. In addition, an increase of$.9 million is attributable primarily to rate and valuation changes for the portfolio between the respective periods, which is partially offset by dispositions of$.8 million .
General and Administrative Expenses
The increase in general and administrative expenses of$8.3 million is attributable primarily to a fair value increase of$7.3 million associated with assets held in a grantor trust related to deferred compensation and an increase in personnel and associated costs. 29 Table of Contents Interest Expense, net
Net interest expense increased
Three Months Ended
March 31,
2021 2020
Gross interest expense $ 17,073 $ 16,556 Amortization of debt deferred costs, net 819 796 Over-market mortgage adjustment
(207) (87)
Capitalized interest (1,066) (2,663)
Total $ 16,619 $ 14,602
The increase in net interest expense is attributable primarily to a reduction in
capitalized interest and an increase in gross interest expense. The reduction of
capitalized interest is primarily attributable to the near completion of two of
the residential portions of our mixed-use new developments. The increase in
gross interest expense between the respective periods is primarily attributable
to an increase in the weighted average debt outstanding from acquisitions, which
is offset by a slight reduction in weighted average interest rates. For the
three months ended March 31, 2021 , the weighted average debt outstanding was
$1.8 billion at a weighted average interest rate of 3.9% as compared to $1.7
billion outstanding at a weighted average interest rate of 4.0% in the same
period of 2020.
Interest and Other Income (Expense), net
The increase of$7.5 million in interest and other income (expense), net is attributable primarily to a fair value increase of$7.3 million associated with assets held in a grantor trust related to deferred compensation and an increase in interest income of$.2 million associated with seller financing note receivables.
Gain on Sale of Property
The decrease of$4.4 million in gain on sale of property is attributable to the disposition of two centers and other property in the first quarter of 2021 as compared to one center in the same period of 2020.
Equity in Earnings of
The decrease of
Capital Resources and Liquidity
Our primary operating liquidity needs are paying our common share dividends,
maintaining and operating our existing properties, paying our debt service
costs, excluding debt maturities, and funding capital expenditures. Our
anticipated cash flows from operating activities in 2021, as well as the
availability of funds under our unsecured revolving credit facility are expected
to meet these planned capital needs; however, no assurance can be given due to,
among other factors, the evolving impact of the pandemic and the restrictions in
the Merger Agreement on the conduct of our business.
The primary sources of capital for funding any debt maturities, acquisitions,
share repurchases, new developments and redevelopments are our excess cash flow
generated by our operating and new development properties; credit facilities;
proceeds from both secured and unsecured debt issuances; proceeds from equity
issuances; cash generated from the sale of property or interests in real estate
joint ventures and partnerships and the formation of joint ventures. Amounts
outstanding under the unsecured revolving credit facility are retired as needed
with proceeds from the issuance of long-term debt, equity, cash generated from
the disposition of properties and cash flow generated by our operating
properties.
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As of March 31, 2021 , we had an available borrowing capacity of $498.1 million
under our unsecured revolving credit facility, and had cash and cash equivalents
available of $52.1 million . Currently, we anticipate our disposition activities
to continue, albeit at a lower rate. We believe other debt and equity
alternatives are available to us based on recent market transactions within our
industry sector, subject to the applicable restrictions contained in the Merger
Agreement.
Subject to the applicable restrictions contained in the Merger Agreement, we
believe net proceeds from planned capital recycling, combined with our available
capacity under the revolving credit and short-term borrowing facilities, will
provide adequate liquidity to fund our capital needs, including acquisitions,
redevelopment and new development activities and, if necessary, special
dividends. In the event our capital recycling program does not progress as
expected, we believe other debt and equity alternatives are available to us,
subject to the applicable restrictions contained in the Merger Agreement.
We generally have the ability to sell or otherwise dispose of our assets subject
to the applicable restrictions contained in the Merger Agreement and in certain
cases, where we are required to obtain our joint venture partners' consent or a
lender's consent for assets held in special purpose entities. Additionally under
many of our joint venture agreements, we and our joint venture partners are
required to fund operating capital upon shortfalls in working capital. As
operating manager of most of these entities, we have considered these funding
requirements in our forecasting. Also our material real estate joint ventures
are with entities which appear sufficiently stable; however, if market
conditions were to deteriorate and our partners are unable to meet their
commitments, our venture agreements provide multiple remedies, including but not
limited to, the liquidation of the venture. Further, under these conditions, we
would be required to reconsider our consolidation conclusions for those
ventures, and it is possible we may have to consolidate any unconsolidated
interests.
Operating Activities
For the three months endedMarch 31, 2021 , cash flows from operations have decreased by$4.6 million compared to the same period in 2020. This decrease is primarily attributable to the disposition of centers and the impact of the pandemic on rent collections including an increase in the number of tenants placed on a cash basis and concession agreements put in place to assist them during this uncertainty. Collections of rents due were initially hindered in the latter part of the first quarter of 2020; however, during the three months endedMarch 31, 2021 , we have collected 95% of our tenant billings. Significant cash requirements for operating activities expected to be paid in 2021 include$37.3 million of real estate tax expenses. Additionally, we expect operating activities in 2021 to cover our human capital expenditures including salaries and related benefits, along with property operating expenses. Since 2018, we have experienced a downward trend in revenues due to dispositions related to our portfolio transformation in which we have pruned our portfolio to concentrate on high-quality, grocery anchored, open-air centers located in the southern and westernU.S. that provide basic goods and services. Additionally, revenues in 2020 also declined due to the impact of the pandemic. We anticipate that 2021 may see lower revenues as a result of our 2020 dispositions and the continued effects of the pandemic; however, we are optimistic that revenues will recover once these effects are overcome.
Investing Activities
Acquisitions
During the three months ended
Dispositions
During the three months endedMarch 31, 2021 , we sold three centers and other property, including real estate assets owned through our interest in unconsolidated real estate joint ventures and partnerships. Our share of aggregate gross sales proceeds from these transactions totaled$55.8 million and generated our share of the gains of approximately$9.1 million . Operating cash flows from assets disposed are included in net cash from operating activities in our Condensed Consolidated Statements of Cash Flows, while proceeds from these disposals are included as investing activities. 31
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We have approximately$39.6 million of dispositions currently under contracts or letters of intent; however, there are no assurances that these transactions will close at such prices or at all. As mentioned under operating activities, our transformation program resulted in significant dispositions over the last few years, which has resulted in a downward trend in our cash flows from dispositions and associated gains. Dispositions have been an essential component of our ongoing strategy to remove properties that no longer meet our growth or geographic targets.
AtMarch 31, 2021 , we had two mixed-use projects in theWashington D. C . market and a 30-story, high-rise residential tower at ourRiver Oaks Shopping Center inHouston in various stages of development, which are partially or wholly owned. We have funded$449.5 million throughMarch 31, 2021 on these projects. Upon completion, we expect our aggregate net investment in these multi-use projects to be$485.0 million and will add approximately .2 million of total square footage for retail and 962 residential units to the property portfolio; however, the timing of the realization of a stabilized return is currently unknown due to the uncertainties regarding the impact of COVID-19. AtMarch 31, 2021 , we had five redevelopment projects with an expected final investment estimated to be$25.4 million , of which we have funded approximately$22.1 million . Realization of the stabilized return may take longer than originally planned due to the impact of COVID-19. During the three months endedMarch 31, 2021 , three completed redevelopment projects added approximately 100,000 square feet to the portfolio with an incremental investment to date totaling$19.3 million .
We had approximately
Capital Expenditures
Capital expenditures for additions to the existing portfolio, acquisitions,
tenant improvements, new development, redevelopment and our share of investments
in unconsolidated real estate joint ventures and partnerships are as follows (in
thousands):
Three Months Ended
March 31,
2021 2020
Acquisitions $ - $ 25,506
New Development 5,170 27,713
Redevelopment 1,003 5,109
Tenant Improvements 5,854 10,399
Capital Improvements 3,722 3,236
Other 232 1,123
Total $ 15,981 $ 73,086
The decrease in capital expenditures is attributable primarily to a reduction in
acquisitions and new development activity as a result of the near completion of
two of the residential portions of our mixed-use new developments.
Further, we have entered into commitments aggregating $33.8 million comprised
principally of construction contracts, which are generally due in 12 to
36 months and anticipated to be funded through our excess cash flow funded by
operating activities or with proceeds from our unsecured revolving credit
facility.
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Capital expenditures for additions described above relate to cash flows from investing activities as follows (in thousands):
Three Months Ended
March 31,
2021 2020Acquisition of real estate and land, net $ -$ 25,506 Development and capital improvements 14,157
44,404
Real estate joint ventures and partnerships - Investments 1,824
3,176 Total$ 15,981 $ 73,086 Capitalized soft costs, including payroll and other general and administrative costs, interest, insurance and real estate taxes, totaled$2.9 million and$5.4 million for the three months endedMarch 31, 2021 and 2020, respectively.
Financing Activities
Debt
Total debt outstanding was$1.8 billion atMarch 31, 2021 , which bears interest at fixed rates. Additionally, of our total debt,$347.9 million was secured by operating properties while the remaining$1.4 billion was unsecured. We also had letters of credit totaling$7.9 million outstanding atMarch 31, 2021 . Our debt maturities for the remainder of 2021 and for 2022 total$17.3 million and$308.3 million , respectively (see Note 5 for additional information on Debt maturities). For 2021, we expect to fund our outstanding maturities through our excess cash flow generated by our operating properties, credit facilities and cash generated from dispositions. If the Merger does not occur prior to such time, the 2022 maturities are expected be funded through our excess cash flow generated by our operating properties, credit facilities, cash generated from dispositions or with proceeds from the issuance of long-term debt. AtMarch 31, 2021 , we have a$500 million unsecured revolving credit facility, which expires inMarch 2024 and provides borrowing rates that float at a margin over LIBOR plus a facility fee. AtMarch 31, 2021 , the borrowing margin and facility fee, which are priced off a grid that is tied to our senior unsecured credit ratings, were 82.5 and 15 basis points, respectively. The facility also contains a competitive bid feature that allows us to request bids for up to$250 million . Additionally, an accordion feature allows us to increase the facility amount up to$850 million . As ofApril 28, 2021 , we had no outstanding balance, and the available balance was$498.1 million , net of$1.9 million in outstanding letters of credit. AtMarch 31, 2021 , we have a$10 million unsecured short-term facility that we maintain for cash management purposes. The facility, which matures inMarch 2022 , provides for fixed interest rate loans at a 30-day LIBOR rate plus borrowing margin, facility fee and an unused facility fee of 125, 10, and 5 basis points, respectively. As ofApril 28, 2021 , we had no amounts outstanding under this facility.
For the three months ended
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We have non-recourse debt secured by properties held in several of our real estate joint ventures and partnerships. AtMarch 31, 2021 , off-balance sheet mortgage debt for our unconsolidated real estate joint ventures and partnerships totaled$191.9 million , of which our pro rata ownership is$45.0 million . Scheduled principal mortgage payments on this debt, excluding deferred debt costs and non-cash related items totaling$(.2) million , at 100% are as follows (in millions): 2021 remaining$ 2.2 2022 172.1 2023 2.2 2024 2.3 2025 2.3 Thereafter 11.0 Total$ 192.1 During the first quarter 2021, a joint venture extended its$170 million loan under an available one-year extension. The remaining 2021 maturities are expected to be paid by excess operating funds from the related venture or partnership and/or capital calls of which we would use our funds from our other operating properties, credit facilities and cash generated from dispositions. For the 2022 maturities, we expect the joint venture to extend its$170 million loan under an available one-year extension or refinance the loan. Our five most restrictive covenants, composed from both our public debt and revolving credit facility, include debt to asset, secured debt to asset, fixed charge, unencumbered asset test and unencumbered interest coverage ratios. We are not aware of any non-compliance with our public debt and revolving credit facility covenants as ofMarch 31, 2021 .
Our most restrictive public debt covenant ratios, as defined in our indenture
and supplemental indenture agreements, were as follows at
Covenant Restriction Actual
Debt to Asset Ratio Less than 60.0 % 37.2 %
Secured Debt to Asset Ratio Less than 40.0 % 7.2 %
Fixed Charge Ratio Greater than 1.5 4.0
Unencumbered Asset Test Greater than 150 % 288.4 %
Included in our debt balance is a guaranty we provided for the payment of any
debt service shortfalls on tax increment revenue bonds issued in connection with
a development project in Sheridan, Colorado . The Sheridan Redevelopment Agency
issued Series A bonds used for an urban renewal project, of which $53.7 million
remain outstanding at March 31, 2021 . The bonds are to be repaid with
incremental sales and property taxes and a PIF to be assessed on current and
future retail sales and, to the extent necessary, any amounts we may have to
provide under a guaranty. The incremental taxes and PIF are to remain intact
until the earlier of the payment of the bond liability in full or 2040.
Equity
Common share dividends paid totaled$38.3 million for the three months endedMarch 31, 2021 . Our dividend payout ratio (as calculated as dividends paid on common shares divided by core funds from operations attributable to common shareholders - basic) for the three months endedMarch 31, 2021 approximated 62.5% (see Non-GAAP Financial Measures for additional information). OurBoard of Trust Managers approved a second quarter 2021 dividend of$.23 per common share, which is the amount permitted pursuant to the Merger Agreement. Funds to pay dividends and share repurchases would come initially from excess proceeds from operations, dispositions and our outstanding credit facilities. 34
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We have a$200 million share repurchase plan. Under this plan, subject to the applicable restrictions set forth in the Merger Agreement, we may repurchase common shares from time-to-time in open-market or in privately negotiated purchases. The timing and amount of any shares repurchased will be determined by management based on its evaluation of market conditions and other factors. The repurchase plan may be suspended or discontinued at any time, and we have no obligations to repurchase any amount of our common shares under the plan. During the three months endedMarch 31, 2021 , no common shares were repurchased. AtMarch 31, 2021 and as of the date of this filing,$149.4 million of common shares remained available to be repurchased under this plan. We have an effective universal shelf registration statement, which expires inSeptember 2023 . Pursuant to the Merger Agreement, we will continue to closely monitor both the debt and equity markets and carefully consider our available financing alternatives, including both public offerings and private placements.
Non-GAAP Financial Measures
Certain of our key performance indicators are considered non-GAAP financial measures. Management uses these measures along with our GAAP financial statements in order to evaluate our operating results. We believe these additional measures provide users of our financial information additional comparable indicators of our industry, as well as, our performance.
Funds from Operations Attributable to Common Shareholders
The National Association of Real Estate Investment Trusts ("NAREIT") defines NAREIT FFO as net income (loss) attributable to common shareholders computed in accordance with GAAP, excluding gains or losses from sales of certain real estate assets (including: depreciable real estate with land, land, development property and securities), change in control of real estate equity investments, and interests in real estate equity investments and their applicable taxes, plus depreciation and amortization related to real estate and impairment of certain real estate assets and in substance real estate equity investments, including our share of unconsolidated real estate joint ventures and partnerships. We calculate NAREIT FFO in a manner consistent with the NAREIT definition. Management believes NAREIT FFO is a widely recognized measure of REIT operating performance, which provides our shareholders with a relevant basis for comparison among other REITs. Management uses NAREIT FFO as a supplemental internal measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income by itself as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that uses historical cost accounting is insufficient by itself. There can be no assurance that NAREIT FFO presented by us is comparable to similarly titled measures of other REITs. We also present Core FFO as an additional supplemental measure as it is more reflective of the core operating performance of our portfolio of properties. Core FFO is defined as NAREIT FFO excluding charges and gains related to non-cash, non-operating assets and other transactions or events that hinder the comparability of operating results. Specific examples of items excluded from Core FFO include, but are not limited to, gains or losses associated with the extinguishment of debt or other liabilities and transactional costs associated with unsuccessful development activities. NAREIT FFO and Core FFO should not be considered as alternatives to net income or other measurements under GAAP as indicators of operating performance or to cash flows from operating, investing or financing activities as measures of liquidity. NAREIT FFO and Core FFO do not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness. 35 Table of Contents
NAREIT FFO and Core FFO is calculated as follows (in thousands):
Three Months Ended
March 31,
2021 2020Net income attributable to common shareholders$ 28,037 $ 52,622 Depreciation and amortization of real estate 38,415
36,475
Depreciation and amortization of real estate of unconsolidated real estate joint ventures and partnerships 4,161
3,797
Impairment of properties and real estate equity investments 325
44
Gain on sale of property, investment securities and interests in real estate equity investments
(9,097) (13,574)
Gain on dispositions of unconsolidated real estate joint ventures and partnerships
(24) (22,372)
Provision for income taxes (1) 20
-
Noncontrolling interests and other (2) (556)
(575)
NAREIT FFO - basic 61,281
56,417
Income attributable to operating partnership units 401
528
NAREIT FFO - diluted 61,682 56,945
Adjustments for Core FFO:
Contract terminations - 340
Core FFO - diluted $ 61,682 $ 57,285 FFO weighted average shares outstanding - basic 126,518
127,862
Effect of dilutive securities: Share options and awards 1,153
943
Operating partnership units 1,429
1,432
FFO weighted average shares outstanding - diluted 129,100
130,237
NAREIT FFO per common share - basic$ 0.48
NAREIT FFO per common share - diluted$ 0.48
Core FFO per common share - diluted$ 0.48
(1) The applicable taxes related to gains and impairments of operating and
non-operating real estate assets.
(2) Related to gains, impairments and depreciation on operating properties and
unconsolidated real estate joint ventures, where applicable.
Same Property Net Operating Income
We consider SPNOI an important additional financial measure because it reflects
only those income and expense items that are incurred at the property level, and
when compared across periods, reflects the impact on operations from trends in
occupancy rates, rental rates and operating costs. We calculate this most useful
measurement by determining our proportional share of SPNOI from all owned
properties, including our share of SPNOI from unconsolidated joint ventures and
partnerships, which cannot be readily determined under GAAP measurements and
presentation. Although SPNOI is a widely used measure among REITs, there can be
no assurance that SPNOI presented by us is comparable to similarly titled
measures of other REITs. Additionally, we do not control these unconsolidated
joint ventures and partnerships, and the assets, liabilities, revenues or
expenses of these joint ventures and partnerships, as presented, do not
represent our legal claim to such items.
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Properties are included in the SPNOI calculation if they are owned and operated
for the entirety of the most recent two fiscal year periods, except for
properties for which significant redevelopment or expansion occurred during
either of the periods presented, and properties that have been sold. While there
is judgment surrounding changes in designations, we move new development and
redevelopment properties once they have stabilized, which is typically upon
attainment of 90% occupancy. A rollforward of the properties included in our
same property designation is as follows:
Three Months Ended
March 31, 2021
Beginning of the period 142
Properties added:
Acquisitions 6
Properties removed:
Dispositions (3)
End of the period 145
We calculate SPNOI using net income attributable to common shareholders and
adjusted for net income attributable to noncontrolling interests, other income
(expense), income taxes and equity in earnings of real estate joint ventures and
partnerships. Additionally to reconcile to SPNOI, we exclude the effects of
property management fees, certain non-cash revenues and expenses such as
straight-line rental revenue and the related reversal of such amounts upon early
lease termination, depreciation and amortization, impairment losses, general and
administrative expenses and other items such as lease cancellation income,
environmental abatement costs, demolition expenses, and lease termination fees.
Consistent with the capital treatment of such costs under GAAP, tenant
improvements, leasing commissions and other direct leasing costs are excluded
from SPNOI. A reconciliation of net income attributable to common shareholders
to SPNOI is as follows (in thousands):
Three Months Ended
March 31,
2021 2020Net income attributable to common shareholders$ 28,037 $ 52,622 Add: Net income attributable to noncontrolling interests 1,842
1,626
Provision for income taxes 238 172
Interest expense, net 16,619 14,602
Property management fees 1,181 1,078
Depreciation and amortization 38,556 36,656
Impairment loss 325 44
General and administrative 10,604 2,307
Other (1) 51 88
Less:
Gain on sale of property (9,131) (13,576)Equity in earnings of real estate joint ventures and partnership interests, net
(4,087) (27,097)
Interest and other (income) expense, net (1,654)
5,828
Other (2) (5,343) 3,125
Adjusted income 77,238 77,475Less: Adjusted income related to consolidated entities not defined as same property and noncontrolling interests (6,294)
(6,081)
Add: Pro rata share of unconsolidated entities defined as same property 6,386
6,411
Same Property Net Operating Income$ 77,330
(1) Other includes items such as environmental abatement costs, demolition
expenses and lease termination fees.
(2) Other consists primarily of straight-line rentals, lease cancellation income
and fee income primarily from real estate joint ventures and partnerships.
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Newly Issued Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements in Item 1 for additional information related to recent accounting pronouncements.
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