The following discussion should be read in conjunction with the Consolidated Financial Statements and the accompanying notes thereto. Historical results and percentage relationships set forth in the Consolidated Financial Statements and accompanying notes, including trends which might appear, should not be taken as indicative of future operations.
Executive Summary
Our Company
Brixmor Property Group Inc. and subsidiaries (collectively, "BPG") is an internally-managed corporation that has elected to be taxed as a 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 ofDecember 31, 2022 , our portfolio was comprised of 373 shopping centers (the "Portfolio") totaling approximately 66 million square feet of GLA. Our high-quality national Portfolio is primarily located within established trade areas in the top 50 Core-Based 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 ofDecember 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 underU.S. federal income tax laws commencing with our taxable year endedDecember 31, 2011 , has maintained such requirements through our taxable year endedDecember 31, 2022 , 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 our purpose-driven Corporate Responsibility ("CR") strategy and our commitment to environmental, social, and governance ("ESG") issues.
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 12 leasing and property management satellite offices throughout the country. We believe that this structure enables us to obtain critical national market intelligence, while also benefiting 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 and transactional experience, as well as significant capital markets capabilities and expertise in executing value-enhancing reinvestment opportunities. 23 --------------------------------------------------------------------------------
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, such as 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 Annual Report on Form 10-K for additional information regarding risk factors that could affect our financial condition, operating results, and cash flows.
Leasing Highlights
As of
respectively, compared to 88.7% and 92.0%, respectively, as of
2021
The following table summarizes our executed leasing activity for the years endedDecember 31, 2022 and 2021 (dollars in thousands, except for per square foot ("PSF") amounts): For the Year Ended December 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 1,614 10,572,727$ 16.47 $ 4.71 $ 2.05 12.7 % New and renewal leases 1,403 7,095,235 18.31 7.02 3.06 16.0 % New leases 613 3,256,527 19.08 13.05 6.57 37.0 % Renewal leases 790 3,838,708 17.66 1.91 0.08 11.1 % Option leases 211 3,477,492 12.72 - - 6.7 % For the Year Ended December 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 1,641 10,041,399$ 16.05 $ 4.08 $ 1.84 10.1 % New and renewal leases 1,478 6,817,114 18.42 6.01 2.71 11.4 % New leases 639 3,055,371 18.66 12.14 5.92 27.6 % Renewal leases 839 3,761,743 18.22 1.03 0.10 6.3 % Option leases 163 3,224,285 11.04 - - 7.1 % (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 year endedDecember 31, 2022 , we acquired seven shopping centers, one outparcel, and one land parcel and paid less than$0.1 million related to previously acquired assets for an aggregate purchase price of$409.7 million , including transaction costs and closing credits.
•During the year ended
outparcel, and two land parcels for an aggregate purchase price of
million
24 --------------------------------------------------------------------------------
Disposition Activity
•During the year endedDecember 31, 2022 , we disposed of 16 shopping centers and 10 partial shopping centers for aggregate net proceeds of$277.0 million resulting in aggregate gain of$109.2 million and aggregate impairment of$5.7 million . In addition, during the year endedDecember 31, 2022 , we resolved contingencies related to previously disposed assets and had land at one shopping center seized through eminent domain for aggregate net proceeds of$2.8 million , resulting in aggregate gain of$2.4 million . •During the year endedDecember 31, 2021 , we disposed of 17 shopping centers and 15 partial shopping centers for aggregate net proceeds of$237.4 million resulting in aggregate gain of$73.1 million and aggregate impairment of$1.9 million . In addition, during the year endedDecember 31, 2021 , we received aggregate net proceeds of less than$0.1 million from previously disposed assets resulting in aggregate gain of less than$0.1 million .
Results of Operations
The results of operations discussion is combined for BPG and the
Partnership
operations between the two reporting entities.
Comparison of the Year EndedDecember 31, 2022 to the Year EndedDecember 31, 2021 Revenues (in thousands) Year Ended December 31, 2022 2021 $ Change Revenues Rental income$ 1,217,362 $ 1,146,304 $ 71,058 Other revenues 712 5,970 (5,258) Total revenues$ 1,218,074 $ 1,152,274 $ 65,800 Rental income The increase in rental income for the year endedDecember 31, 2022 of$71.1 million , compared to the corresponding period in 2021, was due to a$55.9 million increase for assets owned for the full period and a$15.1 million increase in rental income due to net transaction activity. The increase for assets owned for the full period was due to (i) a$33.6 million increase in base rent; (ii) a$12.1 million increase in expense reimbursements; (iii) a$7.9 million increase in straight-line rental income, net; (iv) a$4.5 million increase in ancillary and other rental income; (v) a$3.1 million increase in percentage rents; and (vi) a$2.6 million increase associated with revenues deemed uncollectible; partially offset by (vii) a$5.5 million decrease in lease termination fees; and (viii) a$2.4 million decrease in accretion of below-market leases, net of amortization of above-market leases and tenant improvements. The$33.6 million increase in base rent for assets owned for the full period was primarily due to contractual rent increases, positive rent spreads for new and renewal leases and option exercises of 12.7% during the year endedDecember 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 COVID-19. The$12.1 million increase in expense reimbursements was primarily attributable to increases in billed occupancy, reimbursable operating expenses, and real estate taxes.
Other revenues
The decrease in other revenues for the year ended
million
decrease in tax increment financing income.
25
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Operating Expenses (in thousands)
Year Ended December 31,
2022 2021 $ Change
Operating expenses
Operating costs $ 141,408 $ 132,042 $ 9,366
Real estate taxes 170,383 165,746 4,637
Depreciation and amortization 344,731 327,152 17,579
Impairment of real estate assets 5,724 1,898 3,826
General and administrative 117,225 105,454 11,771
Total operating expenses $ 779,471 $ 732,292 $ 47,179
Operating costs
The increase in operating costs for the year ended December 31, 2022 of $9.4
million , compared to the corresponding period in 2021, was due to a $7.7 million
increase for assets owned for the full period primarily due to increases in
repairs and maintenance, utilities, and insurance costs, in addition to a $1.7
million increase in operating costs due to net transaction activity.
Real estate taxes
The increase in real estate taxes for the year endedDecember 31, 2022 of$4.6 million , compared to the corresponding period in 2021, was primarily due to a$2.7 million increase due to net transaction activity and a$1.9 million increase for assets owned for the full period, primarily due to an increase in current year assessments.
Depreciation and amortization
The increase in depreciation and amortization for the year ended
2022
primarily due to a
activity, and a
primarily due to capital expenditures, partially offset by accelerated
depreciation and amortization related to tenant move-outs.
Impairment of real estate assets
During the year endedDecember 31, 2022 , aggregate impairment of$5.7 million was recognized on two shopping centers and one partial shopping center as a result of disposition activity. During the year endedDecember 31, 2021 , aggregate impairment of$1.9 million was recognized on two shopping centers as a result of disposition activity.
General and administrative
The increase in general and administrative costs for the year endedDecember 31, 2022 of$11.8 million , compared to the corresponding period in 2021, was primarily due to an increase in net compensation costs, marketing expenses, and travel and entertainment costs, partially offset by decreases in litigation and other non-routine legal, professional, office, and other expenses. During the years endedDecember 31, 2022 and 2021, construction compensation costs of$17.5 million and$16.6 million , respectively, were capitalized to building and improvements and leasing legal costs of$4.1 million and$2.5 million , respectively, and leasing commission costs of$7.9 million and$6.8 million , respectively, were capitalized to deferred charges and prepaid expenses, net. 26
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Other Income and Expenses (in thousands)
Year Ended December 31,
2022 2021 $ Change
Other income (expense)
Dividends and interest $ 314 $ 299 $ 15
Interest expense (192,427) (194,776) 2,349
Gain on sale of real estate assets 111,563
73,092 38,471
Loss on extinguishment of debt, net (221) (28,345) 28,124
Other (3,639) (65) (3,574)
Total other expense $ (84,410) $ (149,795) $ 65,385
Dividends and interest
Dividends and interest remained generally consistent for the year ended
Interest expense
The decrease in interest expense for the year endedDecember 31, 2022 of$2.3 million , compared to the corresponding period in 2021, was primarily due to lower overall debt obligations, partially offset by a higher weighted average interest rate.
Gain on sale of real estate assets
During the year endedDecember 31, 2022 , we disposed of 14 shopping centers and nine partial shopping centers that resulted in aggregate gain of$109.2 million . In addition, during the year endedDecember 31, 2022 , we resolved contingencies related to previously disposed assets and had land at one shopping center seized through eminent domain resulting in aggregate net proceeds of$2.8 million , resulting in aggregate gain of$2.4 million . During the year endedDecember 31, 2021 , we disposed of 16 shopping centers and 15 partial shopping centers that resulted in aggregate gain of$73.1 million . In addition, during the year endedDecember 31, 2021 , we received aggregate net proceeds of less than$0.1 million from previously disposed assets resulting in aggregate gain of less than$0.1 million .
Loss on extinguishment of debt, net
During the year endedDecember 31, 2022 , we amended and restated our unsecured credit facility effectiveApril 28, 2022 (the "Unsecured Credit Facility"), which is comprised of a$1.25 billion revolving credit facility (the "Revolving Facility") and a$300.0 million term loan, in addition to a new$200.0 million delayed draw term loan (together, the "Term Loan Facility"), resulting in a$0.2 million loss on extinguishment of debt due to the acceleration of unamortized debt issuance costs. During the year endedDecember 31, 2021 , we redeemed all$500.0 million of our 3.250% Senior Notes due 2023 and repaid$350.0 million of an unsecured term loan under our Unsecured Credit Facility, resulting in a$28.3 million loss on extinguishment of debt. Loss on extinguishment of debt includes$25.5 million of prepayment fees and$2.8 million of accelerated unamortized debt issuance costs and debt discounts.
Other
The increase in other expense for the year ended
million
favorable tax adjustments and legal settlements in the prior year and an
increase in transaction costs in the current year.
Comparison of the Year Ended
2020
See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K for the year endedDecember 31, 2021 , filed with theSecurities and Exchange Commission ("SEC") onFebruary 7, 2022 , for a discussion of the comparison of the year endedDecember 31, 2021 to the year endedDecember 31, 2020 . 27
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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, including those required 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;
•issuance of long-term debt;
•dispositions; and
•issuance of equity securities.
Uses
•debt repayments
•maintenance capital expenditures;
•leasing capital expenditures;
•value-enhancing reinvestment capital expenditures;
•dividend/distribution payments;
•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 generate significant operating cash flow and have access to multiple forms of external 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 ofDecember 31, 2022 , we had$1.35 billion of available liquidity, including$1.32 billion under our Unsecured Credit Facility and$21.3 million of cash and cash equivalents and restricted cash. We intend to continue to enhance our financial and operational flexibility through periodic extensions of the duration of our debt. Material Cash Requirements Our expected material cash requirements for the twelve months endedDecember 31, 2023 and thereafter are comprised of (i) contractually obligated expenditures; (ii) other essential expenditures; and (iii) opportunistic expenditures. 28
-------------------------------------------------------------------------------- Contractually Obligated Expenditures The following table summarizes our debt maturities (excluding extension options), interest payment obligations, and obligations under non-cancelable operating leases (excluding renewal options), as ofDecember 31, 2022 (dollars in millions): Twelve Months Ended
Contractually Obligated Expenditures
Debt maturities (1) $ - $
5,043.5
Interest payments (1)(2) 188.8 776.2
Operating leases 6.1 52.2
Total $ 194.9 $ 5,871.9
(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 December 31, 2022. See Item 7 A. "Quantita tive and
Qua litative Dis closures abo ut Market Ri sk" for a further
discussion of these and other factors that could impact interest payments
Other Essential Expenditures
We incur certain 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 the scope of services that we provide, prevailing
market rates, and the size and composition of our Portfolio. We carry
comprehensive insurance to protect our Portfolio against various losses. The
amount of insurance expense that we incur depends on the assessed values of our
properties, prevailing market rates, changes in risk generally, and the size and
composition of our Portfolio. We incur real estate taxes in the various
jurisdictions in which we operate. The amount of real estate taxes that we incur
depends on the assessed values of our properties, the tax rates assessed by
various jurisdictions, and the size and composition of our Portfolio. Leasing
capital expenditures represent tenant specific costs incurred to lease or renew
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 expenses such as common area expenses,
utilities, insurance, and real estate taxes, and certain capital expenditures
related to the maintenance of our properties. However, costs that we incur
generally do not decrease if revenue or occupancy decreases, and certain costs
that we incur are not typically reimbursed.
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 these
requirements and maintain our REIT status. Our board of directors evaluates our
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 fourth quarter of 2022 and the first quarter of 2023:
Fourth First
Quarter 2022 Quarter 2023
Dividend declared per common share $ 0.260 $
0.260
Dividend declaration date October 25, 2022 February 1, 2023
Dividend record date January 4, 2023 April 4, 2023
Dividend payable date January 17, 2023 April 17, 2023
Opportunistic Expenditures
We also 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 are underway. See "Improvements to
and investments in real estate assets" below for further information regarding
our in-process reinvestment projects and our pipeline of future redevelopment
projects.
29
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The amount of future acquisition 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.
Our cash flow activities are summarized as follows (dollars in thousands):
Brixmor Property Group Inc. Year Ended December 31, 2022 2021 $ Change Net cash provided by operating activities$ 566,382 $ 552,239 $ 14,143 Net cash used in investing activities (462,453) (331,005) (131,448) Net cash used in financing activities (380,413) (293,578) (86,835) Net change in cash, cash equivalents and restricted cash (276,484) (72,344) (204,140) Cash, cash equivalents and restricted cash at beginning of period 297,743 370,087 (72,344) Cash, cash equivalents and restricted cash at end of period$ 21,259 $ 297,743 $ (276,484)
Year Ended
2022 2021 $ Change Net cash provided by operating activities$ 566,382 $ 552,239 $ 14,143 Net cash used in investing activities (462,453) (331,005) (131,448) Net cash used in financing activities (366,182) (298,722) (67,460) Net change in cash, cash equivalents and restricted cash (262,253) (77,488) (184,765) Cash, cash equivalents and restricted cash at beginning of period 282,585 360,073 (77,488) Cash, cash equivalents and restricted cash at end of period$ 20,332 $ 282,585 $ (262,253)
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 year endedDecember 31, 2022 , our net cash provided by operating activities increased$14.1 million compared to the corresponding period in 2021. The increase was primarily due to (i) an increase in same property net operating income; (ii) an increase in net operating income due to net transaction activity; and (iii) a decrease in cash outflows for interest expense; partially offset by (iv) a decrease from net working capital; (v) a decrease in other non-same property net operating income; (vi) an increase in cash outflows for general and administrative expense; and (vii) a decrease in lease termination fees. Investing Activities
Net cash used in investing activities primarily 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 activity.
During the year endedDecember 31, 2022 , our net cash used in investing activities increased$131.4 million compared to the corresponding period in 2021. The increase was primarily due to (i) an increase of$150.9 million in acquisitions of real estate assets; (ii) an increase of$21.7 million in improvements to and investments in real estate assets; and (iii) an increase of$1.2 million in purchases of marketable securities, net of proceeds from sales; partially offset by (iv) an increase of$42.4 million in net proceeds from sales of real estate assets. 30
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Improvements to and investments in real estate assets
During the years endedDecember 31, 2022 and 2021, we expended$330.4 million and$308.6 million , respectively, on improvements to and investments in real estate assets. These amounts are net of insurance proceeds of$7.7 million and$3.3 million , respectively, which were received during the year endedDecember 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 ofDecember 31, 2022 , we had 48 in-process anchor space repositioning, redevelopment and outparcel development projects with an aggregate anticipated cost of$342.9 million , of which$182.4 million had been incurred as ofDecember 31, 2022 . In addition, we have identified a pipeline of future redevelopment projects aggregating approximately$1.0 billion of potential capital investment, which we expect to execute over the coming 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 proceeds from capital markets transactions.
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. During the year endedDecember 31, 2022 , we acquired seven shopping centers, one outparcel, and one land parcel for an aggregate purchase price of$409.7 million , including transaction costs and closing credits. During the year endedDecember 31, 2021 , we acquired six shopping centers, one outparcel and two land parcels for an aggregate purchase price of$258.8 million , including transaction costs and closing credits. We may also dispose of properties when we believe value has been maximized, where there may be future downside risk, or where we have limited ability or desire to build critical mass in a particular submarket. During the year endedDecember 31, 2022 , we disposed of 16 shopping centers and 10 partial shopping centers for aggregate net proceeds of$277.0 million . In addition, during the year endedDecember 31, 2022 , we resolved contingencies related to previously disposed assets and had land at one shopping center seized through eminent domain for aggregate net proceeds of$2.8 million . During the year endedDecember 31, 2021 , we disposed of 17 shopping centers and 15 partial shopping centers for aggregate net proceeds of$237.4 million . In addition, during the year endedDecember 31, 2021 , we received aggregate net proceeds of less than$0.1 million from previously disposed assets.
Financing Activities
Net cash used in financing activities is primarily impacted by the nature,
timing, and magnitude of issuances and repurchases of debt and equity
securities, as well as borrowings or principal payments associated with our
outstanding indebtedness, including our Unsecured Credit Facility, and
distributions made to our common stockholders.
During the year endedDecember 31, 2022 , our net cash used in financing activities increased$86.8 million compared to the corresponding period in 2021. The increase was primarily due to (i) a$122.7 million increase in debt repayments, net of borrowings; (ii) a$32.4 million increase in distributions to our common stockholders; and (iii) a$5.0 million increase in repurchases of common stock; partially offset by (iv) a$48.0 million increase in issuances of common stock; and (v) a$25.3 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 supplemental financial
measures 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
31
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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 years ended
2022
Year Ended December 31,
2022 2021
Net income $ 354,193 $ 270,187
Depreciation and amortization related to real estate 340,561
323,354
Gain on sale of real estate assets (111,563)
(73,092)
Impairment of real estate assets 5,724 1,898 Nareit FFO$ 588,915 $ 522,347 Nareit FFO per diluted share$ 1.95 $ 1.75 Weighted average diluted shares outstanding 301,742
298,835
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) lease termination
fees, (ii) straight-line rental income, net, (iii) accretion of below-market
leases, net of amortization of above-market leases and tenant inducements, (iv)
straight-line ground rent expense, net, (v) income or expense associated with
our captive insurance company, (vi) depreciation and amortization, (vii)
impairment of real estate assets, (viii) general and administrative expense, and
(ix) other income and expense (including interest expense and gain on sale of
real estate assets).
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 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 lease termination fees,
straight-line rental income, net, accretion of below-market leases, net of
amortization of above-market leases and tenant inducements, straight-line ground
rent expense, net, income or expense associated with our captive insurance
company, depreciation and amortization, impairment of real estate assets,
general and administrative expense, and other income and expense (including
interest expense and gain on sale of real estate assets). 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.
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Comparison of the Year Ended December 31, 2022 to the Year Ended December 31,
2021
Year Ended December 31,
2022 2021 Change
Number of properties 343 343 -
Percent billed 90.3 % 88.7 % 1.6 %
Percent leased 93.9 % 92.1 % 1.8 %
Revenues
Rental income $ 1,084,159 $ 1,027,069 $ 57,090
Other revenues 682 622 60
1,084,841 1,027,691 57,150
Operating expenses
Operating costs (128,614) (122,922) (5,692)
Real estate taxes (156,175) (154,356) (1,819)
(284,789) (277,278) (7,511)
Same property NOI $ 800,052 $ 750,413 $ 49,639
The following table provides a reconciliation of net income to same property NOI
for the periods presented (in thousands):
Year Ended December 31,
2022 2021
Net income $ 354,193 $ 270,187
Adjustments:
Non-same property NOI (70,909) (72,795) Lease termination fees (3,231) (8,640) Straight-line rental income, net (23,458) (14,551)
Accretion of below-market leases, net of amortization of
above-market leases and tenant inducements
(8,793) (8,221) Straight-line ground rent expense 160 134 Depreciation and amortization 344,731 327,152 Impairment of real estate assets 5,724 1,898 General and administrative 117,225 105,454 Total other expense 84,410 149,795 Same property NOI$ 800,052 $ 750,413
Our Critical Accounting Estimates
Our discussion and analysis of our historical financial condition and operating results is based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could ultimately differ from those estimates. The following accounting estimates are considered critical because they are particularly dependent on management's judgment about matters that have a significant level of uncertainty at the time the accounting estimates are made, and changes to those estimates could have a material impact on our financial condition or operating results.
Revenue Recognition and Receivables - Estimating Collectability
We enter into agreements with tenants that convey the right to control the use
of identified space at our shopping centers in exchange for rental revenue.
These agreements meet the criteria for recognition as leases under Accounting
Standards Codification ("ASC") 842, Leases. Rental revenue is recognized on a
straight-line basis over the terms of the related leases. The cumulative
difference between rental revenue recognized on our Consolidated Statements of
Operations and contractual payment terms is recognized as deferred rent and
included in Receivables, net on our Consolidated Balance Sheets. We commence
recognizing rental revenue based on the date we make the underlying asset
available for use by the tenant. Leases also typically provide for the
reimbursement of property operating expenses, including common area expenses,
utilities, insurance, and real estate taxes, and certain capital
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expenditures related to the maintenance of our properties, by the lessee and are
recognized in the period the applicable expenditures are incurred and/or
contractually required to be reimbursed.
We periodically evaluate the collectability of our receivables related to rental revenue, straight-line rent, expense reimbursements, and those attributable to other revenue generating activities. We analyze individual tenant receivables and consider tenant credit-worthiness, the length of time a receivable has been outstanding, and current economic trends when evaluating collectability. In 2022 and 2021, our evaluation included consideration of the impact of COVID-19 on the collectability of our receivables. This assessment involved significant judgment regarding the severity and duration of the disruption caused by COVID-19, as well as judgment regarding which industries and tenants would be most significantly impacted. Any receivables that are deemed to be uncollectible are recognized as a reduction to Rental income on our Consolidated Statements of Operations.
Real Estate - Estimates Related to Valuing Acquired Assets and Liabilities
Real estate assets are recognized on our Consolidated Balance Sheets at historical cost, less accumulated depreciation and amortization. Upon acquisition of real estate operating properties, we estimate the fair value of acquired tangible assets (consisting of land, buildings, and tenant improvements) and identifiable intangible assets and liabilities (consisting of above- and below-market leases and in-place leases) based on an evaluation of available information. Transaction costs incurred during the acquisition process are capitalized as a component of the asset's value. The fair value of tangible assets is determined as if the acquired property is vacant. Fair value is determined using an exit price approach, which contemplates the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In allocating fair value to identifiable intangible assets and liabilities, the value of above-market and below-market leases is estimated based on the present value (using a discount rate reflecting the risks associated with the leases acquired) of the difference between: (i) the contractual amounts to be paid pursuant to the leases negotiated and in-place at the time of acquisition and (ii) management's estimate of fair market lease rates for the property or an equivalent property, measured over a period equal to the lesser of 30 years or the remaining non-cancelable term of the leases, which includes renewal periods with fixed rental terms that are considered to be below-market. The capitalized above-market or below-market intangibles are amortized as a reduction of, or increase to, rental income over the remaining non-cancelable term of the leases. The value of in-place leases is estimated based on management's evaluation of the specific characteristics of each tenant lease, including: (i) fair market rent and the reimbursement of property operating expenses, including common area expenses, utilities, insurance, real estate taxes, and certain capital expenditures related to the maintenance of our properties, that would be forgone during a hypothetical expected lease-up period and (ii) costs that would be incurred, including leasing commissions, legal and marketing costs, and tenant improvements and allowances, to execute similar leases. The value assigned to in-place leases is amortized to depreciation and amortization expense over the remaining term of each lease.
Real Estate - Estimates Related to Impairments
We periodically assess whether there are any indicators, including property
operating performance, changes in anticipated hold period, and general market
conditions, that the carrying value of our real estate assets (including any
related intangible assets or liabilities) may be impaired. If an indicator is
identified, a real estate asset is considered impaired only if our estimate of
aggregate future undiscounted and unleveraged property operating cash flows,
taking into account the anticipated probability-weighted hold period, is less
than the carrying value of the property. Various factors are considered in the
estimation process that are subject to significant management judgment,
including the anticipated hold period, current and/or future reinvestment
projects, and the effects of demand and competition on future operating income
and/or property values. Changes in any estimates and/or assumptions,
particularly the anticipated hold period, could have a material impact on the
projected operating cash flows. If management determines that the carrying value
of a real estate asset is impaired, an impairment charge is recognized to
reflect the estimated fair value of the asset.
When we identify a real estate asset as held for sale, we discontinue
depreciating the asset and estimate its sales price, net of estimated selling
costs. If the estimated net sales price of an asset is less than its net
carrying value, an impairment charge is recognized to reflect the estimated fair
value of the asset.
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Inflation
Prior to 2021, inflation was low and had a minimal impact on our operating and
financial performance; however, inflation significantly increased over the last
two years and may continue to be elevated or increase further. With respect to
our shopping centers, our long-term leases generally 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
certain non-reimbursable property operating expenses, including expenses
incurred on vacant units. 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 our operational efficiency.
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