RPT Realty - Quarter Report: 2021 March (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934
For the quarterly period ended March 31, 2021
Commission file number 1-10093
RPT Realty
(Exact name of registrant as specified in its charter)
| Maryland | 13-6908486 | ||||||||||
| (State of other jurisdiction of incorporation or organization) | (I.R.S Employer Identification Numbers) | ||||||||||
| 19 W 44th Street, | Suite 1002 | ||||||||||
| New York, | New York | 10036 | |||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(212) 221-1261
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange On Which Registered | ||||||||||||
| Common Shares of Beneficial Interest ($0.01 Par Value Per Share) | RPT | New York Stock Exchange | ||||||||||||
| 7.25% Series D Cumulative Convertible Perpetual Preferred | RPT.PRD | New York Stock Exchange | ||||||||||||
| Shares of Beneficial Interest ($0.01 Par Value Per Share) | ||||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☒ | Non-accelerated filer | ☐ | ||||||||||||
| Smaller reporting company | ☐ | Emerging growth company | ☐ | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Number of common shares of beneficial interest ($0.01 par value) of the registrant outstanding as of April 30, 2021: 81,165,033
INDEX
| Page No. | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 6. | ||||||||
Page 2
PART 1 – FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
| RPT REALTY | |||||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
| (In thousands, except per share amounts) | |||||||||||
| (Unaudited) | |||||||||||
| March 31, 2021 | December 31, 2020 | ||||||||||
| ASSETS | |||||||||||
| Income producing properties, at cost: | |||||||||||
| Land | $ | 325,150 | $ | 330,763 | |||||||
| Buildings and improvements | 1,480,675 | 1,489,997 | |||||||||
| Less accumulated depreciation and amortization | (400,004) | (392,301) | |||||||||
| Income producing properties, net | 1,405,821 | 1,428,459 | |||||||||
| Construction in progress and land available for development | 37,052 | 34,789 | |||||||||
| Net real estate | 1,442,873 | 1,463,248 | |||||||||
| Equity investments in unconsolidated joint ventures | 126,015 | 126,333 | |||||||||
| Cash and cash equivalents | 133,002 | 208,887 | |||||||||
| Restricted cash and escrows | 10,353 | 2,597 | |||||||||
Accounts receivable (net of allowance for doubtful accounts of $14,309 and $12,996 as of March 31, 2021 and December 31, 2020, respectively) | 26,790 | 26,571 | |||||||||
| Acquired lease intangibles, net | 24,080 | 26,354 | |||||||||
| Operating lease right-of-use assets | 18,423 | 18,585 | |||||||||
| Other assets, net | 76,281 | 77,465 | |||||||||
| TOTAL ASSETS | $ | 1,857,817 | $ | 1,950,040 | |||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Notes payable, net | $ | 927,112 | $ | 1,027,751 | |||||||
| Finance lease obligation | 875 | 875 | |||||||||
| Accounts payable and accrued expenses | 47,134 | 45,292 | |||||||||
| Distributions payable | 256 | 1,723 | |||||||||
| Acquired lease intangibles, net | 33,716 | 35,283 | |||||||||
| Operating lease liabilities | 17,724 | 17,819 | |||||||||
| Other liabilities | 12,064 | 19,928 | |||||||||
| TOTAL LIABILITIES | 1,038,881 | 1,148,671 | |||||||||
| Commitments and Contingencies | |||||||||||
| RPT Realty ("RPT") Shareholders' Equity: | |||||||||||
Preferred shares of beneficial interest, $0.01 par, 2,000 shares authorized: 7.25% Series D Cumulative Convertible Perpetual Preferred Shares, (stated at liquidation preference $50 per share), 1,849 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | 92,427 | 92,427 | |||||||||
Common shares of beneficial interest, $0.01 par, 240,000 shares authorized, 80,156 and 80,055 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively | 802 | 801 | |||||||||
| Additional paid-in capital | 1,174,961 | 1,174,315 | |||||||||
| Accumulated distributions in excess of net income | (461,887) | (471,017) | |||||||||
| Accumulated other comprehensive loss | (6,770) | (14,132) | |||||||||
| TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO RPT | 799,533 | 782,394 | |||||||||
| Noncontrolling interest | 19,403 | 18,975 | |||||||||
| TOTAL SHAREHOLDERS' EQUITY | 818,936 | 801,369 | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 1,857,817 | $ | 1,950,040 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 3
| RPT REALTY | |||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME | |||||||||||
| (In thousands, except per share amounts) | |||||||||||
| (Unaudited) | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| REVENUE | |||||||||||
| Rental income | $ | 48,937 | $ | 51,722 | |||||||
| Other property income | 840 | 803 | |||||||||
| Management and other fee income | 316 | 351 | |||||||||
| TOTAL REVENUE | 50,093 | 52,876 | |||||||||
| EXPENSES | |||||||||||
| Real estate taxes | 8,489 | 8,151 | |||||||||
| Recoverable operating expense | 6,193 | 5,979 | |||||||||
| Non-recoverable operating expense | 2,557 | 2,277 | |||||||||
| Depreciation and amortization | 18,379 | 20,848 | |||||||||
| Transaction costs | — | 174 | |||||||||
| General and administrative expense | 7,370 | 6,222 | |||||||||
| Insured expenses, net | — | 60 | |||||||||
| TOTAL EXPENSES | 42,988 | 43,711 | |||||||||
| OPERATING INCOME | 7,105 | 9,165 | |||||||||
| OTHER INCOME AND EXPENSES | |||||||||||
| Other (expense) income, net | (107) | 353 | |||||||||
| Gain on sale of real estate | 19,003 | — | |||||||||
| Earnings from unconsolidated joint ventures | 801 | 256 | |||||||||
| Interest expense | (9,406) | (9,401) | |||||||||
| INCOME BEFORE TAX | 17,396 | 373 | |||||||||
| Income tax provision | (88) | (31) | |||||||||
| NET INCOME | 17,308 | 342 | |||||||||
| Net income attributable to noncontrolling partner interest | (398) | (8) | |||||||||
| NET INCOME ATTRIBUTABLE TO RPT | 16,910 | 334 | |||||||||
| Preferred share dividends | (1,675) | (1,675) | |||||||||
| NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS | $ | 15,235 | $ | (1,341) | |||||||
| EARNINGS (LOSS) PER COMMON SHARE | |||||||||||
| Basic | $ | 0.19 | $ | (0.02) | |||||||
| Diluted | $ | 0.19 | $ | (0.02) | |||||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | |||||||||||
| Basic | 80,102 | 79,909 | |||||||||
| Diluted | 81,123 | 79,909 | |||||||||
| Cash Dividend Declared per Common Share | $ | 0.075 | $ | 0.220 | |||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | |||||||||||
| Net income | $ | 17,308 | $ | 342 | |||||||
| Other comprehensive gain (loss): | |||||||||||
| Gain (loss) on interest rate swaps | 7,535 | (17,311) | |||||||||
| Comprehensive income (loss) | 24,843 | (16,969) | |||||||||
| Comprehensive (income) loss attributable to noncontrolling interest | (571) | 393 | |||||||||
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RPT | $ | 24,272 | $ | (16,576) | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 4
| RPT REALTY | |||||||||||||||||||||||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | |||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended March 31, 2021 and March 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity of RPT Realty | |||||||||||||||||||||||||||||||||||||||||
| Preferred Shares | Common Shares | Additional Paid-in Capital | Accumulated Distributions in Excess of Net Income | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interest | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | 92,427 | $ | 801 | $ | 1,174,315 | $ | (471,017) | $ | (14,132) | $ | 18,975 | $ | 801,369 | |||||||||||||||||||||||||||
| Issuance of common shares, net of issuance costs | — | — | (182) | — | — | — | (182) | ||||||||||||||||||||||||||||||||||
| Share-based compensation, net of shares withheld for employee taxes | — | 1 | 828 | — | — | — | 829 | ||||||||||||||||||||||||||||||||||
| Dividends declared to common shareholders | — | — | — | (6,012) | — | — | (6,012) | ||||||||||||||||||||||||||||||||||
| Dividends declared to preferred shareholders | — | — | — | (1,675) | — | — | (1,675) | ||||||||||||||||||||||||||||||||||
| Distributions declared to noncontrolling interests | — | — | — | — | — | (143) | (143) | ||||||||||||||||||||||||||||||||||
| Dividends declared to deferred shares | — | — | — | (93) | — | — | (93) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income adjustment | — | — | — | — | 7,362 | 173 | 7,535 | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 16,910 | — | 398 | 17,308 | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | 92,427 | $ | 802 | $ | 1,174,961 | $ | (461,887) | $ | (6,770) | $ | 19,403 | $ | 818,936 | |||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | 92,427 | $ | 798 | $ | 1,169,557 | $ | (436,361) | $ | 1,819 | $ | 20,015 | $ | 848,255 | |||||||||||||||||||||||||||
| Issuance of common shares, net of issuance costs | — | — | (354) | — | — | — | (354) | ||||||||||||||||||||||||||||||||||
| Share-based compensation, net of shares withheld for employee taxes | — | 2 | 726 | — | — | — | 728 | ||||||||||||||||||||||||||||||||||
| Dividends declared to common shareholders | — | — | — | (17,593) | — | — | (17,593) | ||||||||||||||||||||||||||||||||||
| Dividends declared to preferred shareholders | — | — | — | (1,675) | — | — | (1,675) | ||||||||||||||||||||||||||||||||||
| Distributions declared to noncontrolling interests | — | — | — | — | — | (420) | (420) | ||||||||||||||||||||||||||||||||||
| Dividends declared to deferred shares | — | — | — | (136) | — | — | (136) | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss adjustment | — | — | — | — | (16,910) | (401) | (17,311) | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 334 | — | 8 | 342 | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | 92,427 | $ | 800 | $ | 1,169,929 | $ | (455,431) | $ | (15,091) | $ | 19,202 | $ | 811,836 | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 5
| RPT REALTY | |||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| (In thousands) | |||||||||||
| (Unaudited) | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income | $ | 17,308 | $ | 342 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 18,379 | 20,848 | |||||||||
| Amortization of deferred financing fees | 374 | 343 | |||||||||
| Income tax provision | 88 | 31 | |||||||||
| Earnings from unconsolidated joint ventures | (801) | (256) | |||||||||
| Distributions received from operations of unconsolidated joint ventures | 2,235 | — | |||||||||
| Gain on sale of real estate | (19,003) | — | |||||||||
| Amortization of acquired above and below market lease intangibles, net | (737) | (1,096) | |||||||||
| Amortization of premium on mortgages, net | (211) | (228) | |||||||||
| Service-based restricted share expense | 1,049 | 820 | |||||||||
| Long-term incentive cash and equity compensation expense | 1,166 | 279 | |||||||||
| Changes in assets and liabilities, net of effect of acquisitions and dispositions: | |||||||||||
| Accounts receivable, net | (219) | 1,758 | |||||||||
| Other assets, net | 1,333 | 698 | |||||||||
| Accounts payable and other liabilities | (2,076) | (13,218) | |||||||||
| Net cash provided by operating activities | 18,885 | 10,321 | |||||||||
| INVESTING ACTIVITIES | |||||||||||
| Development and capital improvements | (5,347) | (4,470) | |||||||||
| Capital improvements covered by insurance | — | (1,190) | |||||||||
| Net proceeds from sales of real estate | 29,298 | — | |||||||||
| Investment in equity interests in unconsolidated joint ventures | — | (11) | |||||||||
| Net cash provided by (used in) investing activities | 23,951 | (5,671) | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Repayment of mortgages and notes payable | (624) | (542) | |||||||||
| Proceeds on revolving credit facility | — | 225,000 | |||||||||
| Repayments on revolving credit facility | (100,000) | — | |||||||||
| Payment of deferred financing costs | — | (32) | |||||||||
| Proceeds from issuance of common shares, net of issuance costs | (182) | (354) | |||||||||
| Shares used for employee taxes upon vesting of awards | (769) | (667) | |||||||||
| Dividends paid to preferred shareholders | (3,350) | (1,675) | |||||||||
| Dividends paid to common shareholders | (6,040) | (17,668) | |||||||||
| Distributions paid to operating partnership unit holders | — | (420) | |||||||||
| Net cash (used in) provided by financing activities | (110,965) | 203,642 | |||||||||
| Net change in cash, cash equivalents and restricted cash | (68,129) | 208,292 | |||||||||
| Cash, cash equivalents and restricted cash and escrows at beginning of period | 211,484 | 114,552 | |||||||||
| Cash, cash equivalents and restricted cash and escrows at end of period | $ | 143,355 | $ | 322,844 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 6
| RPT REALTY | |||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| (In thousands) | |||||||||||
| (Unaudited) | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY | |||||||||||
| Contribution of real estate exchanged for an equity investment in unconsolidated joint venture | $ | 1,116 | $ | — | |||||||
| Contribution of real estate exchanged for preferred investment in unconsolidated entities | 2,610 | — | |||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||||||
Cash paid for interest (net of capitalized interest of $1 in both 2021 and 2020) | $ | 6,574 | $ | 6,359 | |||||||
As of March 31, | |||||||||||
| Reconciliation of cash, cash equivalents and restricted cash and escrows | 2021 | 2020 | |||||||||
| Cash and cash equivalents | $ | 133,002 | $ | 320,596 | |||||||
| Restricted cash and escrows | 10,353 | 2,248 | |||||||||
| $ | 143,355 | $ | 322,844 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 7
RPT REALTY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Basis of Presentations
Organization
RPT Realty, together with our subsidiaries (the “Company” or “RPT”), is a real estate investment trust (“REIT”) engaged in the business of owning and operating a national portfolio of open-air shopping destinations principally located in the top U.S. markets. The Company's shopping centers offer diverse, locally-curated consumer experiences that reflect the lifestyles of their surrounding communities and meet the modern expectations of the Company's retail partners. The Company is a fully integrated and self-administered REIT publicly traded on the New York Stock Exchange (“NYSE”). The common shares of beneficial interest of the Company, par value $0.01 per share (the “common share”), are listed and traded on the NYSE under the ticker symbol “RPT”. As of March 31, 2021, the Company's portfolio consisted of 49 multi-tenant shopping centers (including five shopping centers owned through a joint venture) and 13 net lease retail properties (all of which are owned through a separate joint venture) (the “aggregate portfolio”) which together represent 11.9 million square feet of gross leasable area (“GLA”). As of March 31, 2021, the Company’s pro-rata share of the aggregate portfolio was 92.0% leased.
Basis of Presentation
The condensed consolidated financial statements include the accounts of the Company and our majority owned subsidiary, RPT Realty, L.P., a Delaware limited partnership (the “Operating Partnership” or “OP” which was 97.7% owned by the Company at March 31, 2021 and December 31, 2020), and all wholly-owned subsidiaries, including entities in which we have a controlling financial interest or have been determined to be the primary beneficiary of a variable interest entity (“VIE”). The presentation of condensed consolidated financial statements does not itself imply that assets of any consolidated entity (including any special-purpose entity formed for a particular project) are available to pay the liabilities of any other consolidated entity, or that the liabilities of any other consolidated entity (including any special-purpose entity formed for a particular project) are obligations of any other consolidated entity. Investments in real estate joint ventures over which we have the ability to exercise significant influence, but for which we do not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, our share of the earnings (loss) of these joint ventures is included in consolidated net income (loss). All intercompany transactions and balances are eliminated in consolidation.
We have elected to be a REIT for federal income tax purposes. The information furnished is unaudited and reflects all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature. These condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020.
The preparation of our unaudited financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on 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 and reported amounts that are not readily apparent from other sources. The Company considered impacts to its estimates related to the current pandemic of the novel coronavirus disease (“COVID-19”) as appropriate, within its unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods. The Company believes that its accounting estimates are appropriate after giving consideration to the increased uncertainties surrounding the severity and duration of the COVID-19 pandemic. Actual results could differ from those estimates.
Equity Distribution Agreement
In February 2020, the Company entered into an Equity Distribution Agreement (“Equity Distribution Agreement”) pursuant to which the Company may offer and sell, from time to time, the Company's common shares having an aggregate gross sales price of up to $100.0 million. Sales of the shares of common stock may be made, in the Company's discretion, from time to time in "at-the-market" offerings as defined in Rule 415 of the Securities Act of 1933. The Equity Distribution Agreement also provides that the Company may enter into forward contracts for shares of its common stock with forward sellers and forward purchasers. For the three months ended March 31, 2021, we did not issue any common shares through the arrangement. As of March 31, 2021, we have full capacity remaining under the agreement.
Page 8
Significant Risks and Uncertainties
One of the most significant risks and uncertainties is the potential adverse effect of COVID-19. On February 28, 2020, the World Health Organization (“WHO”) raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic. On March 13, 2020, the United States declared a national emergency with respect to COVID-19. As a result of COVID-19, we have received numerous rent relief requests, most often in the form of rent deferrals. We have evaluated, and continue to evaluate, each tenant rent relief request on an individual basis, considering a number of factors. While the Company is unable at this time to reasonably estimate the impact that COVID-19 will continue to have on our business, financial position and operating results in future periods due to numerous uncertainties, the Company is closely monitoring the impact of the pandemic on all aspects of its business. A number of our tenants have closed their stores for a period of time as a result of COVID-19. The COVID-19 pandemic will likely to continue to have repercussions across local, national and global economies and financial markets, including a potential global recession.
COVID-19 may continue to have material and adverse effects on our financial condition, results of operations and cash flows in the near term due to, but not limited to, the following:
•Reduced economic activity severely impacting our tenants' businesses, financial condition and liquidity and may cause tenants to be unable to fully meet their obligations to us or to otherwise seek modifications of such obligations, resulting in increases in uncollectible receivables and reductions in rental income;
•The negative financial impact of COVID-19 could impact our future compliance with financial covenants of our credit agreement and other debt agreements, and as a result, our lenders may require us to accelerate the timing of payments which would have a material adverse effect on our business, operations, financial condition and liquidity, unless we obtain waivers or modifications from our lenders; and
•Weaker economic conditions could cause us to recognize impairment in the value of our tangible and intangible assets based on the then Company's reasonable assessment.
The extent to which COVID-19 impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. As such, we are unable to predict the impact that it ultimately will have on our financial condition, results of operations and cash flows.
Recently Adopted Accounting Pronouncements
In April 2020, the FASB issued a staff question-and-answer (“Q&A”) document focused on the application of the lease guidance in ASC 842, Leases, for lease concessions related to the effects of the COVID-19 pandemic. Included in this Q&A, the FASB staff determined that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 and Topic 840 as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract). Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance in Topic 842 and Topic 840 to those contracts.
The FASB also acknowledged that some concessions will provide a deferral of payments with no substantive changes to the consideration in the original contract. The FASB indicated that a deferral affects the timing, but the amount of the consideration is substantially the same as that required by the original contract. The staff expects that there will be multiple ways to account for those deferrals, none of which the staff believes is more preferable than the others. Two of those methods are:
•Account for the concessions as if no changes to the lease contract were made. Under that accounting, a lessor would increase its lease receivable, and a lessee would increase its accounts payable as receivables/payments accrue. In its income statement, a lessor would continue to recognize income, and a lessee would continue to recognize expense during the deferral period.
•Account for the deferred payments as variable lease payments.
In cases where we have granted a deferral for future periods as a result of COVID-19, we have accounted for the concessions as if no changes to the lease contract were made. Under that accounting, we have increased our lease receivable as the receivables have accrued. In our condensed consolidated statements of operations, we have continued to recognize income during the deferral period to the extent that we believe collection of that income is probable.
Page 9
In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). In addition, the FASB subsequently issued ASU 2021-01 “Reference Rate Reform (Topic 848)” (“ASU 2021-01”) which further clarifies the optional expedients available. ASU 2020-04 and ASU 2021-01 provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, it will be in effect for a limited time through December 31, 2022. The Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. As additional index changes in the market occur, the Company will evaluate the impact of the guidance and may apply other elections as applicable.
2. Real Estate
Included in our net real estate assets are income producing properties that are recorded at cost less accumulated depreciation and amortization, construction in progress and land available for development.
We review our investment in real estate, including any related intangible assets, for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of the property may not be recoverable. These changes in circumstances include, but are not limited to, changes in occupancy, rental rates, net operating income, real estate values and expected holding period.
For the three months ended March 31, 2021 and 2020, we recorded no impairment provision.
Construction in progress represents existing development, redevelopment and tenant build-out projects. When projects are substantially complete and ready for their intended use, balances are transferred to land or building and improvements as appropriate. Construction in progress was $10.9 million and $8.6 million at March 31, 2021 and December 31, 2020, respectively. The increase in construction in progress from December 31, 2020 to March 31, 2021 was due primarily to the capital expenditures for ongoing projects, partially offset by completion of tenant build-outs and property dispositions.
Land available for development includes real estate projects where vertical construction has yet to commence, but which have been identified by us and are available for future development when market conditions dictate the demand for a new shopping center or outparcel pad. The viability of all projects under construction or development, including those owned by our unconsolidated joint ventures, is regularly evaluated under applicable accounting requirements, including requirements relating to abandonment of assets or changes in use. Land available for development was $26.2 million at both March 31, 2021 and December 31, 2020.
Pursuant to the criteria established under ASC Topic 360 we classify properties as held for sale when executed purchase and sales agreement contingencies have been satisfied thereby signifying that the sale is legally binding and probable of closing within one year of the reporting date. As of March 31, 2021, and December 31, 2020, we had no properties and no land parcels classified as held for sale.
3. Property Acquisitions and Dispositions
Acquisitions
There were no acquisitions in the three months ended March 31, 2021.
Page 10
Dispositions
The following table provides a summary of our disposition activity in the three months ended March 31, 2021:
| Gross | ||||||||||||||||||||||||||||||||||||||
| Property Name | Location | Property/ Parcel Count | GLA | Date Sold | Sales Price | Gain on Sale | ||||||||||||||||||||||||||||||||
| (in thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||
Buttermilk Towne Center - Land parcels (1) | Crescent Springs, KY | 2 | 107 | 03/05/21 | $ | 9,785 | $ | 3,809 | ||||||||||||||||||||||||||||||
Deer Grove - Outparcel (1) | Palatine, IL | 1 | 8 | 03/05/21 | 2,500 | 1,456 | ||||||||||||||||||||||||||||||||
Front Range Village - Land parcel (1) | Fort Collins, CO | 1 | 5 | 03/05/21 | 2,750 | 1,709 | ||||||||||||||||||||||||||||||||
Front Range Village - Outparcel (1) | Fort Collins, CO | 1 | 4 | 03/05/21 | 2,475 | 1,197 | ||||||||||||||||||||||||||||||||
Merchants' Square - Outparcels (1) | Carmel, IN | 1 | 19 | 03/05/21 | 3,977 | 2,133 | ||||||||||||||||||||||||||||||||
Promenade at Pleasant Hill - Land parcel (1) | Duluth, GA | 1 | 4 | 03/05/21 | 1,250 | 467 | ||||||||||||||||||||||||||||||||
River City Marketplace - Land parcels (1) | Jacksonville, FL | 2 | 5 | 03/05/21 | 2,895 | 1,938 | ||||||||||||||||||||||||||||||||
Rivertowne Square - Land parcel (1) | Deerfield Beach, FL | 1 | 3 | 03/05/21 | 3,270 | 2,272 | ||||||||||||||||||||||||||||||||
Shoppes of Lakeland - Land parcel (1) | Lakeland, FL | 1 | 3 | 03/05/21 | 1,332 | 800 | ||||||||||||||||||||||||||||||||
Shoppes of Lakeland - Outparcel (1) | Lakeland, FL | 1 | 7 | 03/05/21 | 1,200 | 289 | ||||||||||||||||||||||||||||||||
West Broward - Land parcel (1) | Plantation, FL | 1 | 4 | 03/05/21 | 4,762 | 2,933 | ||||||||||||||||||||||||||||||||
| Total income producing dispositions | 13 | 169 | $ | 36,196 | $ | 19,003 | ||||||||||||||||||||||||||||||||
| Total dispositions | 169 | $ | 36,196 | $ | 19,003 | |||||||||||||||||||||||||||||||||
(1)We contributed net lease retail assets that were subdivided from wholly-owned shopping centers to our newly formed RGMZ Venture REIT LLC joint venture. The properties contributed included both income producing properties in which we owned the depreciable real estate, as well as income producing properties which are subject to a ground lease. Refer to Note 4 of these notes to the condensed consolidated financial statements for additional information.
4. Equity Investments in Unconsolidated Joint Ventures
As of December 31, 2020, we had three joint venture agreements: 1) R2G Venture LLC (“R2G”), 2) Ramco/Lion Venture LP, and 3) Ramco HHF NP LLC, whereby we own 51.5%, 30%, and 7%, respectively, of the equity in each joint venture. Our R2G joint venture owns five income-producing shopping centers, and our other two joint ventures do not own any income producing properties. We and the joint venture partners have joint approval rights for major decisions, including those regarding property operations. We cannot make significant decisions without our partner’s approval. Accordingly, we account for our interest in the joint ventures using the equity method of accounting.
On March 4, 2021, we formed a new core net lease retail real estate joint venture, RGMZ Venture REIT LLC (“RGMZ”), with an affiliate of GIC Private Limited (“GIC”), an affiliate of Zimmer Partners (“Zimmer”) and an affiliate of Monarch Alternative Capital LP (“Monarch”). The Company has initially contributed 13 net lease retail properties that had been created by us upon the subdivision of certain parcels from our existing open-air shopping centers, valued at $36.2 million to RGMZ. Upon contribution, the Company received $32.4 million in gross cash proceeds ($29.3 million in net cash proceeds), as well as a combined $2.6 million preferred equity investment stake in the Zimmer and Monarch affiliates, in exchange for the 93.6% stake in RMGZ that was acquired by the other joint venture partners. The Company retained a 6.4% stake in RGMZ, maintains day-to-day management of the portfolio and earns management, leasing and construction fees. The asset management fee is based upon 0.25% of the gross asset value of net lease retail assets in RGMZ. The Company will be paid an additional annual incentive management fee of 0.15% based upon the appraised gross asset value of the net lease retail assets in RGMZ. However, the Company will not earn this fee until meeting certain financial hurdles measured at sale or initial public offering of the RGMZ joint venture. The Company is also responsible for sourcing future acquisitions for RGMZ. RGMZ has a $21.7 million secured credit facility that includes an accordion feature allowing it to increase future potential commitments up to a total capacity of $500.0 million. RPT and certain of the other joint venture partners will have consent rights for all future acquisitions, and also have approval rights in connection with annual budgets and other specified major decisions. We cannot make significant decisions without our partners' approval. Accordingly, we account for our interest in the joint venture using the equity method of accounting.
Page 11
The combined condensed financial information for our unconsolidated joint ventures is summarized as follows:
| Balance Sheets | March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| ASSETS | R2G | RGMZ | Other | Total | R2G | RGMZ | Other | Total | ||||||||||||||||||||||||||||||||||||||||||
| Investment in real estate, net | $ | 224,785 | $ | 26,946 | $ | — | $ | 251,731 | $ | 226,083 | $ | — | $ | — | $ | 226,083 | ||||||||||||||||||||||||||||||||||
| Other assets | 24,904 | 12,755 | — | 37,659 | 26,125 | — | 47 | 26,172 | ||||||||||||||||||||||||||||||||||||||||||
| Total Assets | $ | 249,689 | $ | 39,701 | $ | — | $ | 289,390 | $ | 252,208 | $ | — | $ | 47 | $ | 252,255 | ||||||||||||||||||||||||||||||||||
| LIABILITIES AND OWNERS' EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes payable | $ | — | $ | 21,718 | $ | — | $ | 21,718 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
| Other liabilities | 14,728 | 417 | — | 15,145 | 14,474 | — | 11 | 14,485 | ||||||||||||||||||||||||||||||||||||||||||
| Owners' equity | 234,961 | 17,566 | — | 252,527 | 237,734 | — | 36 | 237,770 | ||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities and Owners' Equity | $ | 249,689 | $ | 39,701 | $ | — | $ | 289,390 | $ | 252,208 | $ | — | $ | 47 | $ | 252,255 | ||||||||||||||||||||||||||||||||||
| RPT's equity investments in unconsolidated joint ventures | $ | 124,901 | $ | 1,114 | $ | — | $ | 126,015 | $ | 126,333 | $ | — | $ | — | $ | 126,333 | ||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Statements of Operations | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| R2G | RGMZ | Other | Total | R2G | RGMZ | Other | Total | |||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 5,737 | $ | 156 | $ | — | $ | 5,893 | $ | 6,032 | $ | — | $ | — | $ | 6,032 | ||||||||||||||||||||||||||||||||||
Total expenses | 4,157 | 114 | 7 | 4,278 | 5,534 | — | 4 | 5,538 | ||||||||||||||||||||||||||||||||||||||||||
| Income (loss) before other income and expense | 1,580 | 42 | (7) | 1,615 | 498 | — | (4) | 494 | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense | — | 82 | — | 82 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | 1,580 | $ | (40) | $ | (7) | $ | 1,533 | $ | 498 | $ | — | $ | (4) | $ | 494 | ||||||||||||||||||||||||||||||||||
| Preferred member dividends | 19 | — | — | 19 | 17 | — | — | 17 | ||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) available to common members | $ | 1,561 | $ | (40) | $ | (7) | $ | 1,514 | $ | 481 | $ | — | $ | (4) | $ | 477 | ||||||||||||||||||||||||||||||||||
| RPT's share of earnings from unconsolidated joint ventures | $ | 803 | $ | (2) | $ | — | $ | 801 | $ | 256 | $ | — | $ | — | $ | 256 | ||||||||||||||||||||||||||||||||||
Acquisitions
The following table provides a summary of our unconsolidated joint venture property acquisitions during the three months ended March 31, 2021:
| Gross | ||||||||||||||||||||||||||||||||||||||
| Property Name | Location | GLA | Acreage | Date Acquired | Purchase Price | Debt Issued | ||||||||||||||||||||||||||||||||
| (in thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||
RPT Realty - 13 Income Producing Properties (1) | Various (1) | 169 | N/A | 03/05/21 | $ | 37,228 | $ | (21,718) | ||||||||||||||||||||||||||||||
| Total acquisitions | 169 | — | $ | 37,228 | $ | (21,718) | ||||||||||||||||||||||||||||||||
(1)Net lease retail properties acquired are located in Colorado, Florida, Georgia, Illinois, Indiana and Kentucky.
Page 12
The total aggregate fair value of the acquisitions was allocated and is reflected in the following table in accordance with accounting guidance for asset acquisitions. At the time of acquisition, these assets and liabilities were considered Level 3 fair value measurements:
| As of Acquisition Date | |||||
| (In thousands) | |||||
| Land | $ | 22,205 | |||
| Buildings and improvements | 4,749 | ||||
| Above market leases | 7,773 | ||||
| Lease origination costs | 2,779 | ||||
| Below market leases | (278) | ||||
| Net assets acquired | $ | 37,228 | |||
Dispositions
There was no disposition activity in the three months ended March 31, 2021 by any of our unconsolidated joint ventures.
Joint Venture Management and Other Fee Income
We receive a property management fee calculated as a percentage of gross revenues received for providing services to R2G and recognize these fees as the services are rendered. We also receive an asset management fee for services provided to RGMZ, which is based upon 0.25% of the gross asset value of net lease retail assets in RGMZ. The Company will be paid an additional annual incentive management fee equal to 0.15% based upon the appraised gross asset value of the net lease retail assets in RGMZ. However, the Company will not earn this fee until meeting certain financial hurdles measured at sale or initial public offering of the RGMZ joint venture. We also can receive fees from both joint ventures for leasing and investing services.
The following table provides information for our fees earned which are reported in our condensed consolidated statements of operations and comprehensive income:
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||
| R2G | RGMZ | Total | R2G | Other | Total | |||||||||||||||||||||||||||||||||
| Management fees | $ | 229 | $ | 11 | $ | 240 | $ | 229 | $ | 4 | $ | 233 | ||||||||||||||||||||||||||
| Leasing fees | $ | 76 | $ | — | $ | 76 | $ | 118 | $ | — | $ | 118 | ||||||||||||||||||||||||||
| Total | $ | 305 | $ | 11 | $ | 316 | $ | 347 | $ | 4 | $ | 351 | ||||||||||||||||||||||||||
Page 13
5. Debt
The following table summarizes our mortgages, notes payable, revolving credit facility and finance lease obligation as of March 31, 2021 and December 31, 2020:
| Notes Payable and Finance Lease Obligation | March 31, 2021 | December 31, 2020 | ||||||||||||
| (In thousands) | ||||||||||||||
| Senior unsecured notes | $ | 535,000 | $ | 535,000 | ||||||||||
| Unsecured term loan facilities | 310,000 | 310,000 | ||||||||||||
| Fixed rate mortgages | 84,630 | 85,254 | ||||||||||||
| Unsecured revolving credit facility | — | 100,000 | ||||||||||||
| 929,630 | 1,030,254 | |||||||||||||
| Unamortized premium | 892 | 1,103 | ||||||||||||
| Unamortized deferred financing costs | (3,410) | (3,606) | ||||||||||||
| Total notes payable | $ | 927,112 | $ | 1,027,751 | ||||||||||
| Finance lease obligation | $ | 875 | $ | 875 | ||||||||||
Senior Unsecured Notes
The following table summarizes the Company's senior unsecured notes:
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||
| Senior Unsecured Notes | Maturity Date | Principal Balance | Interest Rate/Weighted Average Interest Rate | Principal Balance | Interest Rate/Weighted Average Interest Rate | |||||||||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
| Senior unsecured notes | 6/27/2021 | $ | 37,000 | 3.75 | % | $ | 37,000 | 3.75 | % | |||||||||||||||||||||||
| Senior unsecured notes | 6/27/2023 | 41,500 | 4.12 | % | 41,500 | 4.12 | % | |||||||||||||||||||||||||
| Senior unsecured notes | 5/28/2024 | 50,000 | 4.65 | % | 50,000 | 4.65 | % | |||||||||||||||||||||||||
| Senior unsecured notes | 11/18/2024 | 25,000 | 4.05 | % | 25,000 | 4.05 | % | |||||||||||||||||||||||||
| Senior unsecured notes | 6/27/2025 | 31,500 | 4.27 | % | 31,500 | 4.27 | % | |||||||||||||||||||||||||
| Senior unsecured notes | 7/6/2025 | 50,000 | 4.20 | % | 50,000 | 4.20 | % | |||||||||||||||||||||||||
| Senior unsecured notes | 9/30/2025 | 50,000 | 4.09 | % | 50,000 | 4.09 | % | |||||||||||||||||||||||||
| Senior unsecured notes | 5/28/2026 | 50,000 | 4.74 | % | 50,000 | 4.74 | % | |||||||||||||||||||||||||
| Senior unsecured notes | 11/18/2026 | 25,000 | 4.28 | % | 25,000 | 4.28 | % | |||||||||||||||||||||||||
| Senior unsecured notes | 12/21/2027 | 30,000 | 4.57 | % | 30,000 | 4.57 | % | |||||||||||||||||||||||||
| Senior unsecured notes | 11/30/2028 | 75,000 | 3.64 | % | 75,000 | 3.64 | % | |||||||||||||||||||||||||
| Senior unsecured notes | 12/21/2029 | 20,000 | 4.72 | % | 20,000 | 4.72 | % | |||||||||||||||||||||||||
| Senior unsecured notes | 12/27/2029 | 50,000 | 4.15 | % | 50,000 | 4.15 | % | |||||||||||||||||||||||||
| $ | 535,000 | 4.20 | % | $ | 535,000 | 4.20 | % | |||||||||||||||||||||||||
| Unamortized deferred financing costs | (1,624) | (1,715) | ||||||||||||||||||||||||||||||
| Total | $ | 533,376 | $ | 533,285 | ||||||||||||||||||||||||||||
Page 14
Unsecured Term Loan Facilities and Revolving Credit Facility
The following table summarizes the Company's unsecured term loan facilities and revolving credit facility:
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||
| Unsecured Credit Facilities | Maturity Date | Principal Balance | Interest Rate/Weighted Average Interest Rate | Principal Balance | Interest Rate/Weighted Average Interest Rate | |||||||||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Unsecured term loan - fixed rate (1) | 3/3/2023 | $ | 60,000 | 3.02 | % | $ | 60,000 | 3.02 | % | |||||||||||||||||||||||
Unsecured term loan - fixed rate (2) | 11/6/2024 | 50,000 | 2.51 | % | 50,000 | 2.51 | % | |||||||||||||||||||||||||
Unsecured term loan - fixed rate (3) | 2/6/2025 | 50,000 | 2.57 | % | 50,000 | 2.57 | % | |||||||||||||||||||||||||
Unsecured term loan - fixed rate (4) | 11/6/2026 | 50,000 | 2.95 | % | 50,000 | 2.95 | % | |||||||||||||||||||||||||
Unsecured term loan - fixed rate (5) | 2/5/2027 | 100,000 | 3.12 | % | 100,000 | 3.12 | % | |||||||||||||||||||||||||
| $ | 310,000 | 2.89 | % | $ | 310,000 | 2.89 | % | |||||||||||||||||||||||||
| Unamortized deferred financing costs | (1,786) | (1,891) | ||||||||||||||||||||||||||||||
| Term loans, net | $ | 308,214 | $ | 308,109 | ||||||||||||||||||||||||||||
| Revolving credit facility - variable rate | 11/6/2023 | $ | — | 1.27 | % | 100,000 | 1.30 | % | ||||||||||||||||||||||||
(1)Swapped to a weighted average fixed rate of 1.77%, plus a credit spread of 1.25%, based on a leverage grid at March 31, 2021.
(2)Swapped to a weighted average fixed rate of 1.26%, plus a credit spread of 1.25%, based on a leverage grid at March 31, 2021.
(3)Swapped to a weighted average fixed rate of 1.32%, plus a credit spread of 1.25%, based on a leverage grid at March 31, 2021.
(4)Swapped to a weighted average fixed rate of 1.30%, plus a credit spread of 1.65%, based on a leverage grid at March 31, 2021.
(5)Swapped to a weighted average fixed rate of 1.47%, plus a credit spread of 1.65%, based on a leverage grid at March 31, 2021.
As of March 31, 2021 we had no balance outstanding under our unsecured revolving credit facility, which represented a decrease of $100.0 million from December 31, 2020, as a result of repayments made in February 2021. We had no outstanding letters of credit issued under our revolving credit facility as of March 31, 2021. We had $350.0 million of unused capacity under our $350.0 million unsecured revolving credit facility that could be borrowed subject to compliance with applicable financial covenants. The interest rate as of March 31, 2021 was 1.27%.
Mortgages
The following table summarizes the Company's fixed rate mortgages:
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||
| Mortgage Debt | Maturity Date | Principal Balance | Interest Rate/Weighted Average Interest Rate | Principal Balance | Interest Rate/Weighted Average Interest Rate | |||||||||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
| Bridgewater Falls Shopping Center | 2/6/2022 | $ | 51,965 | 5.70 | % | $ | 52,274 | 5.70 | % | |||||||||||||||||||||||
| The Shops on Lane Avenue | 1/10/2023 | 28,035 | 3.76 | % | 28,169 | 3.76 | % | |||||||||||||||||||||||||
| Nagawaukee II | 6/1/2026 | 4,630 | 5.80 | % | 4,811 | 5.80 | % | |||||||||||||||||||||||||
| $ | 84,630 | 5.06 | % | $ | 85,254 | 5.06 | % | |||||||||||||||||||||||||
| Unamortized premium | 892 | 1,103 | ||||||||||||||||||||||||||||||
| Total | $ | 85,522 | $ | 86,357 | ||||||||||||||||||||||||||||
The fixed rate mortgages are secured by properties that have an approximate net book value of $145.4 million as of March 31, 2021.
Page 15
The mortgage loans encumbering our properties are generally nonrecourse, subject to certain exceptions for which we would be liable for any resulting losses incurred by the lender. These exceptions vary from loan to loan but generally include fraud or a material misrepresentation, misstatement or omission by the borrower, intentional or grossly negligent conduct by the borrower that harms the property or results in a loss to the lender, filing of a bankruptcy petition by the borrower, either directly or indirectly and certain environmental liabilities. In addition, upon the occurrence of certain events, such as fraud or filing of a bankruptcy petition by the borrower, we would be liable for the entire outstanding balance of the loan, all interest accrued thereon and certain other costs, including penalties and expenses.
Covenants
On June 30, 2020, the Company entered into amendments to the note purchase agreements governing all of the Company's outstanding senior unsecured notes. The following is a summary of the material amendments:
•The occupancy tests relating to the minimum ratio of consolidated total unencumbered asset value to unsecured indebtedness were eliminated during the period from June 30, 2020 through and including September 30, 2021 (the “Specified Period”) and were otherwise reduced during the fiscal quarters ended December 31, 2021 and March 31, 2022;
•The minimum ratio of consolidated total unencumbered asset value to unsecured indebtedness that the Operating Partnership is required to maintain was reduced during the Specified Period; and
•The Operating Partnership agreed to a minimum liquidity requirement during the Specified Period.
Our revolving credit facility, senior unsecured notes as amended and term loan facilities contain financial covenants relating to total leverage, fixed charge coverage ratio, unencumbered assets, tangible net worth and various other calculations. As of March 31, 2021, we were in compliance with these covenants.
Debt Maturities
The following table presents scheduled principal payments on mortgages, notes payable and revolving credit facility as of March 31, 2021:
| Year Ending December 31, | |||||
| (In thousands) | |||||
| 2021 (remaining) | $ | 38,884 | |||
| 2022 | 52,397 | ||||
| 2023 | 129,388 | ||||
| 2024 | 125,879 | ||||
| 2025 | 182,431 | ||||
| Thereafter | 400,651 | ||||
| Subtotal debt | 929,630 | ||||
| Unamortized premium | 892 | ||||
| Unamortized deferred financing costs | (3,410) | ||||
| Total debt | $ | 927,112 | |||
Page 16
6. Fair Value
We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Derivative instruments (interest rate swaps) are recorded at fair value on a recurring basis. Additionally, we, from time to time, may be required to record other assets at fair value on a nonrecurring basis. As a basis for considering market participant assumptions in fair value measurements, GAAP establishes three fair value levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The assessed inputs used in determining any fair value measurement could result in incorrect valuations that could be material to our condensed consolidated financial statements. These levels are:
Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2 Valuation is based upon prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 Valuation is generated from model-based techniques that use at least one significant assumption which is not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the assets or liabilities.
The following is a description of valuation methodologies used for our assets and liabilities recorded at fair value.
Derivative Assets and Liabilities
All of our derivative instruments are interest rate swaps for which quoted market prices are not readily available. For those derivatives, we measure fair value on a recurring basis using valuation models that use primarily market observable inputs, such as yield curves. We classify these instruments as Level 2. Refer to Note 7 Derivative Financial Instruments of the notes to the condensed consolidated financial statements for additional information on our derivative financial instruments.
The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020:
| Total Fair Value | Level 2 | |||||||||||||||||||
| Balance Sheet Location | ||||||||||||||||||||
| March 31, 2021 | (In thousands) | |||||||||||||||||||
| Derivative assets - interest rate swaps | Other assets | $ | — | $ | — | |||||||||||||||
| Derivative liabilities - interest rate swaps | Other liabilities | $ | (6,933) | $ | (6,933) | |||||||||||||||
| December 31, 2020 | ||||||||||||||||||||
| Derivative assets - interest rate swaps | Other assets | $ | — | $ | — | |||||||||||||||
| Derivative liabilities - interest rate swaps | Other liabilities | $ | (14,468) | $ | (14,468) | |||||||||||||||
The carrying values of cash and cash equivalents, restricted cash and escrows, receivables and accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short maturity of these financial instruments.
We estimated the fair value of our debt based on our incremental borrowing rates for similar types of borrowing arrangements with the same remaining maturity and on the discounted estimated future cash payments to be made for other debt. The discount rates used approximate current lending rates for loans or groups of loans with similar maturities and credit quality, assume the debt is outstanding through maturity and consider the debt’s collateral (if applicable). Since such amounts are estimates that are based on limited available market information for similar transactions (Level 3), there can be no assurance that the disclosed value of any financial instrument could be realized by immediate settlement of the instrument.
Fixed rate debt (including variable rate debt swapped to fixed through derivatives) with carrying values of $929.6 million and $930.3 million as of March 31, 2021 and December 31, 2020, respectively, had fair values of approximately $948.6 million and $927.5 million, respectively. Variable rate debt’s fair value is estimated to be the carrying value of $100.0 million as of December 31, 2020. After taking into account the impact of converting our variable rate debt to fixed rate debt by use of the interest rate swap agreements, at March 31, 2021, we had no variable rate debt outstanding.
Page 17
The following is a description of valuation methodologies used for our assets and liabilities recorded at fair value on a nonrecurring basis:
Net Real Estate
Our net investment in real estate, including any identifiable intangible assets, is subject to impairment testing on a nonrecurring basis. To estimate fair value, we use discounted cash flow models that include assumptions of the discount rates that market participants would use in pricing the asset or pricing from potential or comparable market transactions. To the extent impairment has occurred, we charge to expense the excess of the carrying value of the property over its estimated fair value. We classify impaired real estate assets as nonrecurring Level 3. During the three months ended March 31, 2021, we did not incur any impairment for income producing shopping centers that are required to be measured at fair value on a nonrecurring basis. We did not have any material liabilities that were required to be measured at fair value on a nonrecurring basis during the period.
7. Derivative Financial Instruments
We utilize interest rate swap agreements for risk management purposes to reduce the impact of changes in interest rates on our variable rate debt. We may also enter into forward starting swaps to set the effective interest rate on planned variable rate financing. On the date we enter into an interest rate swap, the derivative is designated as a hedge against the variability of cash flows that are to be paid in connection with a recognized liability. Subsequent changes in the fair value of a derivative designated as a cash flow hedge that is determined to be effective are recorded in other comprehensive income (“OCI”) until earnings are affected by the variability of cash flows of the hedged transaction. The differential between fixed and variable rates to be paid or received is accrued, as interest rates change, and recognized currently as interest expense in the condensed consolidated statements of operations and comprehensive income. We assess effectiveness of our cash flow hedges both at inception and on an ongoing basis. Our cash flow hedges become ineffective, for example, if critical terms of the hedging instrument and the debt do not perfectly match such as notional amounts, settlement dates, reset dates and calculation period and LIBOR rate. At March 31, 2021, all of our hedges were effective.
In July 2017, the Financial Conduct Authority, the authority that regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In November 2020, the ICE Benchmark Administration, the administrator of LIBOR, announced plans to consult on ceasing publications of LIBOR on December 31, 2021 for only the one week and two week LIBOR tenors, and on June 30, 2023 for all other LIBOR tenors. The Alternative Reference Rates Committee (ARRC) has proposed that the Secured Overnight Financing Rate (SOFR) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. There is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases in benchmark rates, or financing costs to borrowers. We have material contracts that are indexed to USD-LIBOR, and we are monitoring this activity and evaluating the related risks.
At March 31, 2021, we had eleven interest rate swap agreements in effect for an aggregate notional amount of $310.0 million and two forward starting interest rate swap agreements for an aggregate notional amount of $75.0 million, converting our floating rate corporate debt to fixed rate debt.
Page 18
The following table summarizes the notional values and fair values of our derivative financial instruments as of March 31, 2021:
| Hedge Type | Notional Value | Fixed Rate | Fair Value | Expiration Date | ||||||||||||||||||||||||||||
| Underlying Debt | ||||||||||||||||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
| Derivative Liabilities | ||||||||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | $ | 20,000 | 1.498 | % | $ | (44) | 05/2021 | ||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 15,000 | 1.490 | % | (33) | 05/2021 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 40,000 | 1.480 | % | (86) | 05/2021 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 60,000 | 1.770 | % | (1,817) | 03/2023 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 30,000 | 1.260 | % | (753) | 11/2024 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 10,000 | 1.259 | % | (250) | 11/2024 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 10,000 | 1.269 | % | (254) | 11/2024 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 25,000 | 1.310 | % | (662) | 01/2025 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 25,000 | 1.324 | % | (675) | 01/2025 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 50,000 | 1.297 | % | (703) | 11/2026 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 25,000 | 1.402 | % | (464) | 01/2027 | ||||||||||||||||||||||||||
| $ | 310,000 | $ | (5,741) | |||||||||||||||||||||||||||||
| Derivative Liabilities - Forward Swaps | ||||||||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | $ | 50,000 | 1.382 | % | $ | (783) | 01/2027 | ||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 25,000 | 1.398 | % | (409) | 01/2027 | ||||||||||||||||||||||||||
| Total Derivative Liabilities | $ | 385,000 | $ | (6,933) | ||||||||||||||||||||||||||||
The following table summarizes the notional values and fair values of our derivative financial instruments as of December 31, 2020:
| Hedge Type | Notional Value | Fixed Rate | Fair Value | Expiration Date | ||||||||||||||||||||||||||||
| Underlying Debt | ||||||||||||||||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
| Derivative Liabilities | ||||||||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | $ | 20,000 | 1.498 | % | $ | (112) | 05/2021 | ||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 15,000 | 1.490 | % | (83) | 05/2021 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 40,000 | 1.480 | % | (220) | 05/2021 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 60,000 | 1.770 | % | (2,128) | 03/2023 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 30,000 | 1.260 | % | (1,193) | 11/2024 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 10,000 | 1.259 | % | (397) | 11/2024 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 10,000 | 1.269 | % | (401) | 11/2024 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 25,000 | 1.310 | % | (1,071) | 01/2025 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 25,000 | 1.324 | % | (1,085) | 01/2025 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 50,000 | 1.297 | % | (2,522) | 11/2026 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 25,000 | 1.402 | % | (1,425) | 01/2027 | ||||||||||||||||||||||||||
| $ | 310,000 | $ | (10,637) | |||||||||||||||||||||||||||||
| Derivative Liabilities - Forward Swaps | ||||||||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 50,000 | 1.382 | % | (2,541) | 01/2027 | ||||||||||||||||||||||||||
| Unsecured term loan | Cash Flow | 25,000 | 1.398 | % | (1,290) | 01/2027 | ||||||||||||||||||||||||||
| Total Derivative Liabilities | $ | 385,000 | $ | (14,468) | ||||||||||||||||||||||||||||
Page 19
The effect of derivative financial instruments on our condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2021 and 2020 is summarized as follows:
| Amount of Gain (Loss) Recognized in OCI on Derivative | Location of Gain (Loss) Reclassified from Accumulated OCI into Income | Amount of Gain (Loss) Reclassified from Accumulated OCI into Income | ||||||||||||||||||||||||||||||
| Derivatives in Cash Flow Hedging Relationship | Three Months Ended March 31, | Three Months Ended March 31, | ||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
| Interest rate contracts - assets | $ | — | $ | (2,345) | Interest Expense | $ | — | $ | 14 | |||||||||||||||||||||||
| Interest rate contracts - liabilities | 8,519 | (15,039) | Interest Expense | (984) | 59 | |||||||||||||||||||||||||||
| Total | $ | 8,519 | $ | (17,384) | Total | $ | (984) | $ | 73 | |||||||||||||||||||||||
8. Leases
Revenues
Approximate future minimum revenues from rentals under non-cancelable operating leases in effect at March 31, 2021, assuming no new or renegotiated leases or option extensions on lease agreements and no early lease terminations were as follows:
| Year Ending December 31, | |||||
| (In thousands) | |||||
| 2021 (remaining) | $ | 113,270 | |||
| 2022 | 136,547 | ||||
| 2023 | 115,415 | ||||
| 2024 | 95,608 | ||||
| 2025 | 77,415 | ||||
| Thereafter | 222,397 | ||||
| Total | $ | 760,652 | |||
We recognized rental income related to variable lease payments of $12.2 million and $11.3 million for the three months ended March 31, 2021 and 2020, respectively.
Substantially all of the assets included as Income producing properties, net on the condensed consolidated balance sheets, relate to our portfolio of wholly owned shopping centers, in which we are the lessor under operating leases with our tenants. As of March 31, 2021, the Company’s wholly-owned portfolio was 92.2% leased.
Expenses
We have operating leases for our two corporate offices in New York, New York and Southfield, Michigan, that expire in January 2024 and December 2024, respectively. Our operating lease in New York includes an additional five year renewal and our operating lease in Southfield includes two additional five year renewals which are all exercisable at our option. We also have an operating ground lease at Centennial Shops located in Edina, Minnesota which includes rent escalations throughout the lease period and expires in April 2105. In addition, we have a finance ground lease at our Buttermilk Towne Center with the City of Crescent Springs that expires in December 2032. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expenses for these leases on a straight-line basis over the lease term.
Page 20
The components of lease expense were as follows:
| Three Months Ended March 31, | ||||||||||||||
| Statements of Operations | Classification | 2021 | 2020 | |||||||||||
| (In thousands) | ||||||||||||||
| Operating ground lease cost | Non-recoverable operating expense | $ | 291 | $ | 291 | |||||||||
| Operating administrative lease cost | General and administrative expense | 143 | 148 | |||||||||||
| Finance lease cost | Interest Expense | 11 | 12 | |||||||||||
Supplemental balance sheet information related to leases is as follows:
| Balance Sheet | Classification | March 31, 2021 | December 31, 2020 | |||||||||||
| (In thousands) | ||||||||||||||
| ASSETS | ||||||||||||||
| Operating lease assets | Operating lease right-of-use assets | $ | 18,423 | $ | 18,585 | |||||||||
| Finance lease asset | Land | 10,095 | 13,249 | |||||||||||
| Total leased assets | $ | 28,518 | $ | 31,834 | ||||||||||
| LIABILITIES | ||||||||||||||
| Operating lease liabilities | Operating lease liabilities | $ | 17,724 | $ | 17,819 | |||||||||
| Finance lease liability | Finance lease obligation | 875 | 875 | |||||||||||
| Total lease liabilities | $ | 18,599 | $ | 18,694 | ||||||||||
| Weighted Average Remaining Lease Terms | ||||||||||||||
| Operating leases | 71 years | 71 years | ||||||||||||
| Finance lease | 12 years | 12 years | ||||||||||||
| Weighted Average Incremental Borrowing Rate | ||||||||||||||
| Operating leases | 6.12 | % | 6.10 | % | ||||||||||
| Finance lease | 5.23 | % | 5.23 | % | ||||||||||
Supplemental cash flow information related to leases is as follows:
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In thousands) | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | 368 | $ | 370 | |||||||
| Operating cash flows from finance lease | — | — | |||||||||
| Financing cash flows from finance lease | — | — | |||||||||
Page 21
Maturities of lease liabilities as of March 31, 2021 were as follows:
| Maturity of Lease Liabilities | Operating Leases | Finance Lease | ||||||||||||
| (In thousands) | ||||||||||||||
| 2021 (remaining) | $ | 1,102 | $ | 100 | ||||||||||
| 2022 | 1,482 | 100 | ||||||||||||
| 2023 | 1,495 | 100 | ||||||||||||
| 2024 | 1,118 | 100 | ||||||||||||
| 2025 | 1,048 | 100 | ||||||||||||
| Thereafter | 94,430 | 700 | ||||||||||||
| Total lease payments | $ | 100,675 | $ | 1,200 | ||||||||||
| Less imputed interest | (82,951) | (325) | ||||||||||||
| Total | $ | 17,724 | $ | 875 | ||||||||||
9. Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per share:
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In thousands, except per share data) | |||||||||||
| Net income | $ | 17,308 | $ | 342 | |||||||
| Net income attributable to noncontrolling interest | (398) | (8) | |||||||||
| Allocation of income to restricted share awards | (108) | (136) | |||||||||
| Income attributable to RPT | 16,802 | 198 | |||||||||
| Preferred share dividends | (1,675) | (1,675) | |||||||||
| Net income (loss) available to common shareholders - Basic and Diluted | $ | 15,127 | $ | (1,477) | |||||||
| Weighted average shares outstanding, Basic | 80,102 | 79,909 | |||||||||
Restricted stock awards using the treasury method (1) | 1,021 | — | |||||||||
| Weighted average shares outstanding, Diluted | 81,123 | 79,909 | |||||||||
| Income (loss) per common share, Basic | $ | 0.19 | $ | (0.02) | |||||||
| Income (loss) per common share, Diluted | $ | 0.19 | $ | (0.02) | |||||||
(1)Restricted stock awards are not included in the diluted per share calculation where the effect of their inclusion would be anti-dilutive.
We exclude certain securities from the computation of diluted earnings per share. The following table presents the outstanding securities that were excluded from the computation of diluted earnings per share and the number of common shares each was convertible into (in thousands):
| Three Months Ended March 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Outstanding | Convertible | Outstanding | Convertible | ||||||||||||||
| Operating Partnership Units | 1,909 | 1,909 | 1,909 | 1,909 | |||||||||||||
| Series D Preferred Shares | 1,849 | 7,017 | 1,849 | 7,014 | |||||||||||||
| Restricted Stock Awards | — | — | 1,061 | 445 | |||||||||||||
| 3,758 | 8,926 | 4,819 | 9,368 | ||||||||||||||
Page 22
10. Share-based Compensation Plans
As of March 31, 2021, we have two share-based compensation plans in effect: 1) the 2019 Omnibus Long-Term Incentive Plan (“2019 LTIP”) and 2) the Inducement Incentive Plan (“Inducement Plan”). The 2019 LTIP is administered by the compensation committee of the Board (the “Compensation Committee”). The 2019 LTIP provides for the award to our trustees, officers, employees and other service providers of restricted shares, restricted share units, options to purchase shares, share appreciation rights, unrestricted shares, and other awards to acquire up to an aggregate of 3.5 million common shares of beneficial interest plus any shares that become available under the 2012 Omnibus Long-Term Incentive Plan (“2012 LTIP”) as a result of the forfeiture, expiration or cancellation of outstanding awards or any award settled in cash in lieu of shares under such plan. As of March 31, 2021, there were 1.4 million shares of beneficial interest available for issuance under the 2019 LTIP. The Inducement Plan was approved by the Board in April 2018 and under such plan the Compensation Committee may grant, subject to any Company performance conditions as specified by the Compensation Committee, restricted shares, restricted share units, options and other awards to individuals who were not previously employees or members of the Board as an inducement to the individual's entry into employment with the Company. The Inducement Plan allows us to issue up to 6.0 million common shares of beneficial interest, of which 5.0 million remained available for issuance as of March 31, 2021; however, we do not intend to make further awards under the Inducement Plan following adoption of the 2019 LTIP.
On April 28, 2021, our shareholders approved an amendment to the 2019 Plan in order to increase the aggregate number of shares available for issuance under the 2019 Plan by 1.6 million, bringing the total shares reserved under the 2019 Plan to 5.1 million.
As of March 31, 2021, we had 818,728 unvested service-based share awards outstanding under the 2019 LTIP, 72,976 unvested service-based share awards outstanding under the Inducement Plan, and 72,217 unvested service-based share awards outstanding under the 2012 LTIP. These awards have various expiration dates through June 2025.
During the three months ended March 31, 2021, we granted the following awards:
•288,840 shares of service-based restricted stock. The service-based awards were valued based on our closing stock price as of the grant date; and
•Performance-based equity awards that are earned subject to a future performance measurement based on a three-year shareholder return peer comparison (“TSR Grants”).
The service-based restricted share awards to employees vest over three years and the compensation expense is recognized on a graded vesting basis. The service-based restricted share awards to trustees vest over one year. We recognized expense related to service-based restricted share grants of $1.0 million and $0.8 million for the three months ended March 31, 2021 and March 31, 2020, respectively.
Pursuant to ASC 718 – Stock Compensation, we determine the grant date fair value of TSR Grants that will be settled in cash, and any subsequent re-measurements, based upon a Monte Carlo simulation model. We will recognize the compensation expense ratably over the requisite service period. We are required to re-value the cash awards at the end of each quarter using the same methodology as was used at the initial grant date and adjust the compensation expense accordingly. If at the end of the three-year measurement period the performance criterion is not met, compensation expense related to the cash awards previously recognized would be reversed. Compensation expense (benefit) related to the cash awards was $0.6 million and $(0.3) million, for the three months ended March 31, 2021 and March 31, 2020, respectively. The weighted average assumptions used in the Monte Carlo simulation models are summarized in the following table:
| March 31, 2021 | December 31, 2020 | |||||||||||||
| Closing share price | $11.41 | $8.65 | ||||||||||||
| Expected dividend rate | 2.6 | % | — | % | ||||||||||
| Expected stock price volatility | 55.6 | % | 49.8% - 91.5% | |||||||||||
| Risk-free interest rate | 0.1 | % | 0.1% - 0.3% | |||||||||||
| Expected life (years) | 0.75 | 1.0 - 4.00 | ||||||||||||
Page 23
The Company also determines the grant date fair value of the TSR Grants that will be settled in equity based upon a Monte Carlo simulation model and recognizes the compensation expense ratably over the requisite service period. These equity awards are not re-valued at the end of each quarter. The compensation cost will be recognized regardless of whether the performance criterion are met, provided the requisite service has been provided. Compensation expense related to the equity awards was $0.6 million for both the three months ended March 31, 2021 and March 31, 2020. The fair value of each grant for the reported periods is estimated on the date of grant using the Monte Carlo simulation model using the weighted average assumptions noted in the following table:
| Three Months Ended March 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Closing share price | $10.45 | $13.09 | ||||||||||||
| Expected dividend rate | — | % | 6.7 | % | ||||||||||
| Expected stock price volatility | 57.1 | % | 23.3 | % | ||||||||||
| Risk-free interest rate | 0.2 | % | 0.9 | % | ||||||||||
| Expected life (years) | 2.88 | 2.85 | ||||||||||||
We recognized total share-based compensation expense of $2.2 million and $1.1 million for the three months ended March 31, 2021 and March 31, 2020, respectively.
As of March 31, 2021, we had $19.5 million of total unrecognized compensation expense related to unvested restricted shares and performance based equity and cash awards. This expense is expected to be recognized over a weighted-average period of 3.1 years.
11. Taxes
Income Taxes
We conduct our operations with the intent of meeting the requirements applicable to a REIT under sections 856 through 860 of the Internal Revenue Code. In order to maintain our qualification as a REIT, we are required to distribute annually at least 90% of our REIT taxable income, excluding net capital gain, to our shareholders. As long as we qualify as a REIT, we will generally not be liable for federal corporate income taxes.
Certain of our operations, including property management and asset management, as well as ownership of certain land, are conducted through our taxable REIT subsidiaries (“TRSs”) which allows us to provide certain services and conduct certain activities that are not generally considered as qualifying REIT activities.
Deferred tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. Deferred tax assets are reduced by a valuation allowance to the amount where realization is more likely than not assured after considering all available evidence, including expected taxable earnings and potential tax planning strategies. Our temporary differences primarily relate to deferred compensation, depreciation, land basis differences, and net operating loss carry forwards.
As of March 31, 2021, we had a federal and state deferred tax asset of $8.2 million and a valuation allowance of $8.2 million. Our deferred tax assets are reduced by an offsetting valuation allowance where there is uncertainty regarding their realizability. We believe that it is more likely than not that the results of future operations will not generate sufficient taxable income to recognize the deferred tax assets. These future operations are primarily dependent upon the profitability of our TRSs, the timing and amounts of gains on land sales, and other factors affecting the results of operations of the TRSs.
If in the future we are able to conclude it is more likely than not that we will realize a future benefit from a deferred tax asset, we will reduce the related valuation allowance by the appropriate amount. The first time this occurs, it will result in a net deferred tax asset on our balance sheet and an income tax benefit of equal magnitude in our consolidated statement of operations and comprehensive income in the period we make the determination.
We recorded an income tax provision of approximately $0.1 million for the three months ended March 31, 2021. The income tax provision for the three months ended March 31, 2020 was negligible.
Page 24
Sales Taxes
We collect various taxes from tenants and remit these amounts, on a net basis, to the applicable taxing authorities.
12. Commitments and Contingencies
Construction Costs
In connection with the leasing and targeted remerchandinsing of various shopping centers as of March 31, 2021, we had entered into agreements for construction costs of approximately $6.5 million.
Litigation
We are currently involved in certain litigation arising in the ordinary course of business. We are not aware of any matters that would have a material effect on our condensed consolidated financial statements.
Development Obligations
As of March 31, 2021, the Company has $1.9 million of development related obligations that require annual payments through December 2043.
Guarantee
A redevelopment agreement was entered into between the City of Jacksonville, the Jacksonville Economic Development Commission and the Company, to construct and develop River City Marketplace in 2005. As part of the agreement, the city agreed to finance up to $12.2 million of bonds. Repayment of the bonds is to be made in accordance with a level-payment amortization schedule over 20 years, and repayments are made out of tax revenues generated by the redevelopment. The remaining debt service payments due over the life of the bonds, including principal and interest, are $8.0 million. As part of the redevelopment, the Company executed a guaranty agreement whereby the Company would fund debt service payments if incremental tax revenues were not sufficient to fund repayment. There have been no payments made by the Company under this guaranty agreement to date.
Environmental Matters
We are subject to numerous federal, state and local environmental laws, ordinances and regulations in the areas where we own or operate properties. We are not aware of any contamination which may have been caused by us or any of our tenants that would have a material effect on our condensed consolidated financial statements.
As part of our risk management activities, we have applied and been accepted into state sponsored environmental programs which will expedite and assure satisfactory compliance with environmental laws and regulations should contaminants need to be remediated. We also have an environmental insurance policy that covers us against third party liabilities and remediation costs.
While we believe that we do not have any material exposure to environmental remediation costs, we cannot give absolute assurance that changes in the law or new discoveries of contamination will not result in additional liabilities to us.
13. Subsequent Events
We have evaluated subsequent events through the date that the condensed consolidated financial statements were issued.
Page 25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Where we say “Company,” “we,” “us,” or “our,” we mean RPT Realty, RPT Realty, L.P., and/or their subsidiaries, as the context may require.
The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements, including the respective notes thereto, which are included in this Form 10-Q.
Forward-Looking Statements
This document contains 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. These forward-looking statements represent our expectations, plans or beliefs concerning future events and may be identified by terminology such as “may,” “will,” “should,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” “predict” or similar terms. Although the forward-looking statements made in this document are based on our good faith beliefs, reasonable assumptions and our best judgment based upon current information, certain factors could cause actual results to differ materially from those in the forward-looking statements. Many of the factors that will determine the outcome of forward-looking statements are beyond our ability to predict or control. Currently, one of the most significant factors is the potential adverse effect of the current COVID-19 pandemic on the financial condition, results of operations, cash flows and performance of the Company and our tenants (including their ability to timely make rent payments), the real estate market (including the local markets where our properties are located), the financial markets and general global economy as well as the potential adverse impact on our ability to enter into new leases or renew leases with existing tenants on favorable terms or at all. The impact COVID-19 has, and will continue to have, on the Company and its tenants is highly uncertain, cannot be predicted and will vary based upon the duration, magnitude and scope of the COVID-19 pandemic, the short-term and long-term effect of COVID-19 on consumer behaviors, the availability of vaccines or cures for COVID-19, as well as the actions taken by federal, state and local governments to mitigate the impact of COVID-19, including social distancing protocols and restrictions on business activities and “shelter-in-place” and “stay at home” mandates, and the effect of any relaxation or revocation of current restrictions. Additional factors which may cause actual results to differ materially from current expectations include, but are not limited to: our success or failure in implementing our business strategy; economic conditions generally and in the commercial real estate and finance markets specifically; the cost and availability of capital, which depends in part on our asset quality and our relationships with lenders and other capital providers; risks associated with bankruptcies or insolvencies or general downturn in the businesses of tenants; the potential adverse impact from tenant defaults generally or from the unpredictability of the business plans and financial condition of the Company's tenants, which are heightened as a result of the COVID-19 pandemic; the execution of deferral or rent concession agreements by tenants; our business prospects and outlook; acquisition, disposition, development and joint venture risks; our insurance costs and coverages; risks related to cybersecurity an loss of confidential information and other business interruptions; changes in governmental regulations, tax rates and similar matters; our continuing to qualify as a REIT; and other factors detailed from time to time in our filings with the Securities and Exchange Commission ("SEC"), including in particular those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020. Given these uncertainties, you should not place undue reliance on any forward-looking statements. Except as required by law, we assume no obligation to update these forward-looking statements, even if new information becomes available in the future.
Overview
RPT Realty owns and operates a national portfolio of open-air shopping destinations principally located in top U.S. markets. The Company's shopping centers offer diverse, locally-curated consumer experiences that reflect the lifestyles of their surrounding communities and meet the modern expectations of the Company's retail partners. The Company is a fully integrated and self-administered REIT publicly traded on the NYSE. The common shares of beneficial interest of the Company, par value $0.01 per share, are listed and traded on the NYSE under the ticker symbol “RPT”. As of March 31, 2021, the Company's portfolio consisted of 49 multi-tenant shopping centers (including five shopping centers owned through our joint venture, R2G Venture LLC “R2G”) and 13 net lease retail properties (all of which are owned through a separate joint venture) which together represent 11.9 million square feet of GLA. As of March 31, 2021, the Company’s pro-rata share of the aggregate portfolio was 92.0% leased.
Impact of COVID-19
The Company continues to closely monitoring the COVID-19 pandemic, including the impact on our business, our tenants, our vendors and our partners. The following summary is intended to provide shareholders with information pertaining to the impacts of the COVID-19 pandemic on the Company’s business and management’s strategy and actions to respond to these impacts. Unless otherwise specified, the statistical and other information regarding the Company’s portfolio and tenants included in this subsection are based on information available to the Company and includes its consolidated properties and its
Page 26
pro-rata share of unconsolidated joint ventures. Due to the uncertainty and rapidly changing nature of the COVID-19 situation, the Company anticipates that any such statistics and information will potentially change significantly. As a result, the information provided may not be indicative of the actual impact of the COVID-19 pandemic on the Company’s business, operations, cash flows and financial condition for the first quarter of 2021 and future periods.
The spread of COVID-19 has caused significant market volatility and adverse impacts on the U.S. retail market, the U.S. economy, the global economy, and financial markets. In order to mitigate the spread of COVID-19, federal, state and local governments have issued recommendations and mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay at home” orders and social distancing protocols. These measures have impacted our tenants in various ways based upon their business classifications. For example, many jurisdictions have permitted only “essential” businesses to continue to fully operate, have required all “non-essential” businesses to cease or significantly modify operations and have limited restaurants to take-out and delivery services. While the Company is actively monitoring each jurisdiction's plans, it is impossible to predict when restrictions will be partially or completely lifted or relaxed, when tenants will fully re-open or what restrictions will remain in place when re-opening occurs, how such re-opening restrictions will continue to impact, or the effect of any re-opening or relaxation of such restrictions will have on, the business of our tenants and whether consumer demand and spending will return to the same levels as prior to the COVID-19 pandemic. COVID-19 has impacted the Company's properties and tenants by these and other factors as follows:
•100% of the Company's 62 retail properties remain open and operating as of April 26, 2021.
•95% of our total tenants were open and operating, on a pro-rata basis, as of April 26, 2021 based on ABR.
•66% of the Company’s properties by ABR had a grocery or grocer component and 87% of ABR stemmed from national or regional tenants, on a pro-rata basis, as of March 31, 2021.
•92% of first quarter 2021 rents have been paid, on a pro-rata basis, as of April 26, 2021.
•92% of fourth quarter 2020 rents have been paid, on a pro-rata basis, as of April 26, 2021.
The Company has taken a number of proactive measures to maintain the strength of its business and manage the impact of COVID-19 on the Company’s operations and liquidity, including the following:
•The health and safety of our employees and their families, our tenants and our shopping center customers is our priority. Employees were required to work from home pursuant to the Company's pre-existing work-from-home infrastructure already in-place, mitigating concerns regarding the loss of employee productivity, cybersecurity concerns, and greater difficulty in maintaining internal controls over financial reporting.
•The Company maintains continuous communication with its tenants and is providing resources and assisting tenants in identifying local, state and federal aid that may be available to support their businesses and employees during the pandemic. The Company created a dedicated COVID-19 page containing resources for tenants, including with respect to information on the Coronavirus Aid, Relief, and Economic Security Act, including the historic Paycheck Protection Program, and Families First Coronavirus Response Act; information on the Small Business Administration (“SBA”) loan and debt relief programs and references to state-by-state resources to help our tenants understand specific directives that may impact their businesses.
•During the second quarter of 2020, the Company completed a workforce reduction and instituted temporary compensation reductions for the executive officers ranging from 10% to 20% of their annual base salaries. Certain executive officers also agreed to further reductions of 10% to 20% of their annual base salaries in exchange for restricted common shares with an equal value. The temporary compensation reductions ended as of December 27, 2020.
•To enhance its liquidity position and maintain financial flexibility, the Company borrowed $225.0 million on its unsecured revolving credit facility in March 2020. As of March 31, 2021, the Company had repaid the amounts borrowed and we had full capacity under our $350.0 million unsecured revolving credit facility subject to compliance with financial covenants.
•We have suspended all new development and redevelopment project starts until further notice and currently have no committed development or redevelopment projects in progress.
•In light of the disruption caused by the COVID-19 pandemic, the Board of Trustees temporarily suspended the quarterly common dividend to retain cash starting with the second quarter of 2020. On February 11, 2021, the Company's Board of Trustees reinstated the first quarter 2021 common dividend at $0.075 per share payable on April 1, 2021, to the holders of record of Common Shares as of the close of business on March 19, 2021. In addition, we paid our first quarter preferred dividend in the amount of $1.7 million on March 31, 2021 to shareholders of record as of March 19, 2021.
Page 27
The Company’s predominant source of revenue is from rents and reimbursable expenses received from tenants pursuant to lease agreements. Therefore, the Company’s financial results may be adversely impacted in the event our tenants are unable to make rental payments due to the COVID-19 pandemic. The ability of tenants to pay rent is highly uncertain and cannot be predicted based upon the uncertainty surrounding the magnitude, duration and scope of the COVID-19 pandemic. As a result, the full impact of COVID-19 on our business is currently unknown. Our strong balance sheet and operational flexibility allowed us to successfully manage through the initial impact of COVID-19 while protecting our cash flow and liquidity. The factors described above, as well as additional factors that the Company may not currently be aware of, could materially negatively impact the Company’s ability to collect rent and could lead to tenant bankruptcies, rejection of tenant leases in bankruptcy, difficulties in renewing or re-leasing retail space, difficulties in accessing capital, impairment of the Company’s assets and other effects that could materially and adversely affect the Company’s business, results of operations, financial condition and ability to pay distributions to shareholders. See “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.
Our Strategy
Our primary business goals are to increase operating cash flows and deliver above average relative shareholder return. Specifically, we pursue the following methods to achieve these goals:
•Capitalize on accretive acquisition opportunities of open-air shopping centers through our complimentary joint venture platforms and balance sheet. We intend to pursue growth through the strategic acquisition of attractively priced open-air shopping centers and subdivide the asset between our balance sheet and our single tenant, net lease joint venture platform, highlighting the meaningful arbitrage opportunities that we can create for our shareholders.
•Acquire high quality open-air shopping centers and single tenant, net lease retail assets in the top U.S. metropolitan statistical areas (“MSA”). Our stringent criteria for acquisition opportunities include a strong demographic profile, educational attainment, tech/life science/university adjacencies, pro-business environments, job growth, high exposure to essential tenants, tenant credit/term and an attractive risk-adjusted return.
•Disciplined capital recycling strategy. We employ a rigorous investment management strategy by selectively selling assets with returns and value that have been maximized and redeploy the capital into leasing, redevelopment, and acquisition of properties.
•Remerchandise and redevelop our assets. Our strategy is to strategically remerchandise and redevelop several of our existing properties where we have significant pre-leasing and can improve tenant credit and term, enhance the merchandising mix, augment the consumer experience with an alternative non-retail use, generate attractive returns, and drive meaningful value creation.
•Hands-on active asset management. We proactively manage our properties, employ targeted leasing strategies, maintain strong tenant relationships, drive rent and occupancy, focus on reducing operating expenses and property capex, and attract high quality and creditworthy tenants; all of which enhance the value of our properties.
•Curate our real estate to align with the current and future shopping center landscape. We intend to leverage technology and data, optimize distribution points for brick-and-mortar and e-commerce purchases, engage in best-in-class sustainability programs and create an optimal merchandising mix to continue to attract and engage our shoppers.
•Maintain a strong, flexible and investment grade balance sheet. Our strategy is to maintain low leverage and high liquidity, proactively manage our liability management and stagger debt maturities, and retain access to diverse sources of capital to support the business in any environment.
•Retain motivated, talented and high performing employees. To facilitate the attraction, retention and promotion of a talented and diverse workforce, we provide competitive compensation, best in class benefits and health and wellness programs, and by championing programs that build connections between our employees and the communities where they live and at the properties we own.
Page 28
The following table summarizes our aggregate multi-tenant operating portfolio by market as of March 31, 2021:
Market Summary (1) | ||||||||||||||||||||||||||||||||||||||
| MSA | Number of Properties | GLA (in thousands) | Leased % | Occupied % | ABR/SF | % of ABR | ||||||||||||||||||||||||||||||||
| Multi-Tenant Retail | ||||||||||||||||||||||||||||||||||||||
| Top 40 MSAs: | ||||||||||||||||||||||||||||||||||||||
| Atlanta | 3 | 524 | 87.5 | % | 87.5 | % | $ | 12.75 | 3.7 | % | ||||||||||||||||||||||||||||
| Austin | 1 | 76 | 89.6 | % | 89.6 | % | 26.19 | 1.1 | % | |||||||||||||||||||||||||||||
| Baltimore | 1 | 252 | 91.6 | % | 90.7 | % | 9.70 | 1.4 | % | |||||||||||||||||||||||||||||
| Chicago | 4 | 759 | 84.4 | % | 83.9 | % | 14.67 | 5.9 | % | |||||||||||||||||||||||||||||
| Cincinnati | 3 | 1,156 | 92.0 | % | 91.7 | % | 16.70 | 11.1 | % | |||||||||||||||||||||||||||||
| Columbus | 2 | 435 | 94.5 | % | 93.6 | % | 18.46 | 4.7 | % | |||||||||||||||||||||||||||||
| Denver | 1 | 495 | 96.8 | % | 89.6 | % | 19.88 | 5.5 | % | |||||||||||||||||||||||||||||
| Detroit | 9 | 2,322 | 92.1 | % | 90.1 | % | 14.95 | 19.2 | % | |||||||||||||||||||||||||||||
| Indianapolis | 1 | 232 | 95.4 | % | 86.9 | % | 14.16 | 1.8 | % | |||||||||||||||||||||||||||||
| Jacksonville | 2 | 751 | 92.5 | % | 90.6 | % | 16.76 | 7.1 | % | |||||||||||||||||||||||||||||
| Miami | 6 | 1,027 | 87.8 | % | 87.4 | % | 16.81 | 7.2 | % | |||||||||||||||||||||||||||||
| Milwaukee | 2 | 546 | 91.9 | % | 90.8 | % | 12.73 | 4.0 | % | |||||||||||||||||||||||||||||
| Minneapolis | 2 | 445 | 89.7 | % | 89.2 | % | 25.67 | 6.4 | % | |||||||||||||||||||||||||||||
| Nashville | 1 | 633 | 96.5 | % | 95.7 | % | 13.20 | 5.0 | % | |||||||||||||||||||||||||||||
| St. Louis | 4 | 827 | 94.5 | % | 93.3 | % | 14.61 | 6.3 | % | |||||||||||||||||||||||||||||
| Tampa | 4 | 744 | 97.2 | % | 96 | % | 12.90 | 5.8 | % | |||||||||||||||||||||||||||||
| Top 40 MSA subtotal | 46 | 11,224 | 92.1 | % | 90.6 | % | $ | 15.62 | 96.2 | % | ||||||||||||||||||||||||||||
| Non Top 40 MSA | 3 | 516 | 91.3 | % | 91.3 | % | 12.43 | 3.7 | % | |||||||||||||||||||||||||||||
| Subtotal | 49 | 11,740 | 92.0 | % | 90.6 | % | $ | 15.48 | 99.9 | % | ||||||||||||||||||||||||||||
| Net Leased Retail - RGMZ | 13 | 169 | 98.2 | % | 98.2 | % | 14.04 | 0.1 | % | |||||||||||||||||||||||||||||
| Total | 62 | 11,909 | 92.0 | % | 90.6 | % | $ | 15.47 | 100.0 | % | ||||||||||||||||||||||||||||
(1) Shown at pro-rata except for number of properties and GLA.
We accomplished the following activity during the three months ended March 31, 2021:
Leasing Activity
Our properties reported the following leasing activity, which is shown at pro-rata except for number of leasing transactions and square feet:
| Leasing Transactions | Square Footage | Base Rent/SF (1) | Prior Rent/SF (2) | Tenant Improvements/SF (3) | Leasing Commissions/SF | |||||||||||||||
| Renewals | 38 | 418,666 | $14.57 | $14.03 | $0.66 | $0.03 | ||||||||||||||
| New Leases - Comparable | 10 | 55,251 | $20.24 | $13.43 | $116.58 | $7.77 | ||||||||||||||
Non-Comparable Transactions (4) | 14 | 82,318 | $15.01 | N/A | $18.31 | $2.85 | ||||||||||||||
| Total | 62 | 556,235 | $15.19 | N/A | $14.66 | $1.20 | ||||||||||||||
(1) Base rent represents contractual minimum rent under the new lease for the first 12 months of the term.
(2) Prior rent represents minimum rent, if any, paid by the prior tenant in the final 12 months of the term.
(3) Includes estimated tenant improvement cost, tenant allowances, and landlord costs. Excludes first generation space and leases related to development and redevelopment activity.
(4) Non-comparable lease transactions include (i) leases for space vacant for greater than 12 months and (ii) leases signed where the previous and current lease do not have a consistent lease structure.
Page 29
Investing Activity
On March 4, 2021, we formed a new core net lease retail real estate joint venture, RGMZ Venture REIT LLC (“RGMZ”), with an affiliate of GIC Private Limited (“GIC”), an affiliate of Zimmer Partners (“Zimmer”) and an affiliate of Monarch Alternative Capital LP (“Monarch”). The Company has initially contributed 13 net lease retail properties, that had been created by us upon the subdivision of certain parcels from our existing open-air shopping centers, valued at $36.2 million to RGMZ. Upon contribution, the Company received $32.4 million in gross cash proceeds ($29.3 million in net cash proceeds), as well as a combined $2.6 million preferred equity investment stake in the Zimmer and Monarch affiliates, in exchange for the 93.6% stake in RMGZ that was acquired by the other joint venture partners. The Company retained a 6.4% stake in RGMZ, maintains day-to-day management of the portfolio and earns management, leasing and construction fees. The Company is also responsible for sourcing future acquisitions for RGMZ. GIC, Zimmer, Monarch and the Company have committed to fund $470.0 million in RGMZ over the next three years for approved acquisitions, including the initial investment portfolio that was contributed by the Company. RGMZ will target the acquisition of over $1.2 billion of strategic assets, with 60-65% target leverage, creating a scalable, stable-growth investment platform. RGMZ has a $21.7 million secured credit facility that includes an accordion feature allowing it to increase future potential commitments up to a total capacity of $500.0 million. RPT and certain of the other joint venture partners will have consent rights for all future acquisitions, and also have approval rights in connection with annual budgets and other specified major decisions. We cannot make significant decisions without our partner’s approval. Accordingly, we account for our interest in the joint ventures using the equity method.
Refer to Note 3 of the notes to our condensed consolidated financial statements in this report for additional information related to acquisitions and dispositions.
Financing Activity
Debt
As of March 31, 2021, we had net debt of $786.5 million, reflecting net debt to total market capitalization of 42.9% as compared to 60.1% at March 31, 2020. Net debt decreased by $45.1 million compared to March 31, 2020, primarily as a result of an increase in cash and cash equivalents from proceeds received upon the contribution of properties to the newly formed RGMZ joint venture in March 2021, the temporary suspension of the common dividend by the Board of Trustees in response to the economic impact of COVID-19 and positive cash flow from operations.
Equity
In February 2020, the Company entered into an Equity Distribution Agreement (“Equity Distribution Agreement”) pursuant to which the Company may offer and sell, from time to time, the Company's common shares having an aggregate gross sales price of up to $100.0 million. Sales of the shares of common stock may be made, in the Company's discretion, from time to time in “at-the-market” offerings as defined in Rule 415 of the Securities Act of 1933. The Equity Distribution Agreement also provides that the Company may enter into forward contracts for shares of its common stock with forward sellers and forward purchasers. For the three months ended March 31, 2021, we did not issue any common shares through the arrangement. As of March 31, 2021, we have full capacity remaining under the agreement. The sale of such shares issuable pursuant to the Equity Distribution Agreement was registered with the SEC pursuant to a prospectus supplement filed in February 2020 and the accompanying base prospectus statement forming part of the Company's shelf registration statement on Form S-3 (No. 333-232007) which was filed with the SEC in June 2019.
Land Available for Development
At March 31, 2021, our three largest development sites are Parkway Shops, Lakeland Park Center and Hartland Towne Square. We continue to evaluate the best use for land available for development, portions of which are adjacent to our existing shopping centers. It is our policy to start vertical construction on new development projects only after the project has received entitlements, significant anchor commitments and construction financing, if appropriate.
Our development and construction activities are subject to risks such as our inability to obtain the necessary governmental approvals for a project, our determination that the expected return on a project is not sufficient to warrant continuation of the planned development, or our change in plan or scope for the development. If any of these events occur, we may record an impairment provision.
Page 30
Accounting Policies and Estimates
Our Annual Report on Form 10-K for the year ended December 31, 2020, contains a description of our critical accounting policies, including policies for the initial adoption of accounting policies, revenue recognition and accounts receivable, real estate investment, off balance sheet arrangements, fair value measurements and deferred charges.
As discussed above, the COVID-19 pandemic has impacted states and cities where the Company’s tenants operate their businesses and where the Company’s properties are located, and, accordingly our tenants may be unable to operate their businesses, maintain profitability and make timely rental payments to the Company under their leases. Under such circumstances it is possible our estimates for rental income not probable of collection for future periods may be higher than our recent historical trends. Also, the worsening of estimated future cash flows could result in the recognition of an impairment charge on certain of the Company’s long-lived assets. Management does not believe that the value of any of the Company’s real estate investments was impaired as of March 31, 2021.
In April 2020, the Financial Accounting Standards Board (“FASB”) issued a staff question-and-answer document (“Q&A”) focused on the application of the lease guidance in ASC 842, Leases, for lease concessions related to the effects of the COVID-19 pandemic. Included in this Q&A, the FASB staff determined that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 and Topic 840 as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract). Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance in Topic 842 and Topic 840 to those contracts.
The FASB also acknowledged that some concessions would provide a deferral of payments with no substantive changes to the consideration in the original contract. The FASB indicated that a deferral affects the timing, but the amount of the consideration is substantially the same as that required by the original contract. In cases where we grant a deferral for future periods, as a result of COVID-19, we account for the concessions as if no changes to the lease contract were made. Under that accounting, we increase our lease receivable as receivables accrue. In our income statement, we continue to recognize income during the deferral period.
Comparison of three months ended March 31, 2021 to March 31, 2020
The following summarizes certain line items from our unaudited condensed consolidated statements of operations and comprehensive income that we believe are important in understanding our operations and/or have significantly changed in the three months ended March 31, 2021 as compared to the same period in 2020:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | Dollar Change | Percent Change | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Total revenue | $ | 50,093 | $ | 52,876 | $ | (2,783) | (5.3) | % | ||||||||||||||||||
| Real estate taxes | 8,489 | 8,151 | 338 | 4.1 | % | |||||||||||||||||||||
| Recoverable operating expense | 6,193 | 5,979 | 214 | 3.6 | % | |||||||||||||||||||||
| Non-recoverable operating expense | 2,557 | 2,277 | 280 | 12.3 | % | |||||||||||||||||||||
| Depreciation and amortization | 18,379 | 20,848 | (2,469) | (11.8) | % | |||||||||||||||||||||
| Transaction costs | — | 174 | (174) | NM | ||||||||||||||||||||||
| General and administrative expense | 7,370 | 6,222 | 1,148 | 18.5 | % | |||||||||||||||||||||
| Gain on sale of real estate | 19,003 | — | 19,003 | NM | ||||||||||||||||||||||
| Earnings from unconsolidated joint ventures | 801 | 256 | 545 | NM | ||||||||||||||||||||||
| Interest expense | 9,406 | 9,401 | 5 | 0.1 | % | |||||||||||||||||||||
| Preferred share dividends | 1,675 | 1,675 | — | — | % | |||||||||||||||||||||
| NM - Not meaningful | ||||||||||||||||||||||||||
Page 31
Total revenue for the three months ended March 31, 2021 decreased $2.8 million, or (5.3)%, from the same period in 2020. The decrease is primarily due to the following:
•$3.0 million decrease due to increased rental income not probable of collection as well as rent abatements in the current period, primarily due to the COVID-19 pandemic;
•$0.8 million decrease in minimum rent billings at existing properties due to decreased occupancy as compared to the prior period; and
•$0.3 million decrease from acceleration of a below market lease in the prior period attributable to a tenant who vacated prior to the original estimated lease end date; partially offset by
•$0.9 million increase in recovery income at existing properties due to higher net recoverable expenses and higher recovery rates as compared to the prior year.
Real estate tax expense for the three months ended March 31, 2021 increased $0.3 million, or 4.1% from the same period in 2020, primarily due to higher net expense at our existing properties.
Recoverable operating expense for the three months ended March 31, 2021 increased $0.2 million, or 3.6% from the same period in 2020, primarily due to higher insurance expenses at existing properties.
Non-recoverable operating expense for the three months ended March 31, 2021 increased $0.3 million, or 12.3% from the same period in 2020, primarily due to higher legal fees associated with bankruptcy and collection efforts due to the COVID-19 pandemic.
Depreciation and amortization expense for the three months ended March 31, 2021 decreased $2.5 million, or (11.8)%, from the same period in 2020. The decrease is primarily a result of higher asset write offs in the prior period for tenant lease terminations prior to their original estimated term.
During the three months ended March 31, 2020, the Company recorded transaction costs of $0.2 million related to legal and professional fees associated with a property acquisition and property sale of a center that were terminated during the prior period.
General and administrative expense for the three months ended March 31, 2021 increased $1.1 million, or 18.5%, from the same period in 2020, primarily as a result of higher stock-based compensation expense.
The Company had gains on real estate disposals of $19.0 million during the three months ended March 31, 2021. Refer to Note 3 of the notes to the condensed consolidated financial statements in this report for further detail on dispositions.
Earnings from unconsolidated joint ventures for the three months ended March 31, 2021 increased $0.5 million from the same period in 2020 primarily due to transaction costs associated with terminated acquisitions that were incurred by our R2G joint venture during the prior period which did not recur.
Interest expense for the three months ended March 31, 2021 was flat from the same period in 2020. We had a 3.7% increase in our average outstanding debt, which was offset by a 50 basis point decrease in our weighted average interest rate. The increase in our average outstanding debt was the result of $100.0 million of borrowings made in March 2020 on our unsecured revolving credit facility to strengthen the Company's liquidity position due to the COVID-19 pandemic. The Company repaid the full amount of the borrowings in February 2021.
The comparability of the Company’s results of operations for the three months ended March 31, 2021 to future periods may be significantly impacted by the effects of the COVID-19 pandemic.
Page 32
Liquidity and Capital Resources
Our primary uses of capital include principal and interest payments on our outstanding indebtedness, ongoing capital expenditures such as leasing capital expenditures and building improvements, shareholder distributions, operating expenses of our business, debt maturities, acquisitions and discretionary capital expenditures such as targeted remerchandising, expansions, redevelopment and development. We generally strive to cover our principal and interest payments, operating expenses, shareholder distributions, and ongoing capital expenditures from cash flow from operations, although from time to time we have borrowed or sold assets to finance a portion of those uses. We believe the combination of cash flow from operations, cash balances, favorable relationships with our lenders, issuance of debt, property dispositions, reducing our planned capital expenditures, suspension of our quarterly common share dividend and issuance of equity securities will provide adequate capital resources to fund all of our expected uses over at least the next 12 months. Although we believe that the combination of factors discussed above will provide sufficient liquidity, no such assurance can be given. As discussed above, the COVID-19 pandemic outbreak has adversely impacted states and cities where the Company’s tenants operate their businesses and where the Company’s properties are located. The effects of COVID-19 and attempts to mitigate its outbreak have had an adverse impact on our short-term cash flow due to a significant number of tenants not paying rent for the period of April 2020 through March 2021 and could continue to have a material adverse effect on our financial condition, results of operations and cash flows as the reduced economic activity severely impacts certain of our tenants’ businesses, financial condition and liquidity and may cause certain tenants to be unable to meet their obligations to us in full, timely or at all. Continued nonpayment of rent or closures by our tenants of their stores could reduce our cash flows, which would adversely impact our liquidity and the achievement of our financial forecast.
We believe our current capital structure provides us with the financial flexibility to fund our current capital needs. We intend to continue to enhance our financial and operational flexibility by extending the duration of our debt, laddering our debt maturities, expanding our unencumbered asset base, and improving our leverage profile. In addition, we believe we have access to multiple forms of capital which includes unsecured corporate debt, secured mortgage debt, and preferred and common equity. However, there can be no assurances in this regard and additional financing and capital may not ultimately be available to us going forward, on favorable terms or at all.
At March 31, 2021 and 2020, we had $143.4 million and $322.8 million, respectively, in cash and cash equivalents and restricted cash. Restricted cash generally consists of funds held in escrow by mortgage lenders to pay real estate taxes, insurance premiums and certain capital expenditures. As of March 31, 2021, we had $37.0 million of debt maturing in 2021, and we had full unused capacity under our $350.0 million unsecured revolving credit facility that could be borrowed subject to compliance with applicable financial covenants. Refer to Note 5 of the notes to the condensed consolidated financial statements for further discussion on our covenants.
Our long-term, post-COVID-19 pandemic, liquidity needs consist primarily of funds necessary to pay indebtedness at maturity, potential acquisitions of properties, redevelopment of existing properties, the development of land and discretionary capital expenditures. We continually search for investment opportunities that may require additional capital and/or liquidity. We will continue to pursue the strategy of selling non-core properties or land that no longer meet our investment criteria or advance our business strategy. Our ability to obtain acceptable selling prices and satisfactory terms and financing will impact the timing of future sales. We anticipate using net proceeds from the sale of properties or land to reduce outstanding debt and support current and future growth oriented initiatives. To the extent that asset sales are not sufficient to meet our long-term liquidity needs, we expect to meet such needs by raising debt or issuing equity.
We have on file with the SEC an automatic shelf registration statement relating to the offer and sale of an indeterminable amount of debt securities, preferred shares, common shares, depository shares, warrant and rights. From time to time, we may issue securities under this registration statement for working capital and other general corporate purposes.
For the three months ended March 31, 2021, our cash flows were as follows compared to the same period in 2020:
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In thousands) | |||||||||||
| Net cash provided by operating activities | $ | 18,885 | $ | 10,321 | |||||||
| Net cash provided by (used in) investing activities | $ | 23,951 | $ | (5,671) | |||||||
| Net cash (used in) provided by financing activities | $ | (110,965) | $ | 203,642 | |||||||
Page 33
Operating Activities
Net cash provided by operating activities increased $8.6 million in the three months ended March 31, 2021 compared to the same period in 2020 primarily due to the following:
•Higher working capital changes in the prior period due to the timing of payments of accounts payable and accrued expenses; and
•Cash distributions from our unconsolidated joint ventures increased $2.2 million; partially offset by
•Lower rental income receipts of $3.6 million as a result of the COVID-19 pandemic.
Investing Activities
Net cash provided by investing activities was $24.0 million in the three months ended March 31, 2021, compared to net cash used in investing activities of $5.7 million for the same period in 2020. The $29.6 million change in net cash from investing activities was primarily due to net proceeds from the sale of real estate in the current period.
On March 4, 2021, we formed RGMZ and subsequently contributed properties valued at $36.2 million to RGMZ and received net cash proceeds of $29.3 million for the 93.6% stake in RGMZ that was acquired by our joint venture partners. Refer to Note 3 of the notes to the condensed consolidated financial statements in this report for additional information related to dispositions.
Financing Activities
Net cash used in financing activities was $111.0 million in the three months ended March 31, 2021, compared to net cash provided by financing activities of $203.6 million in 2020. The change of $314.6 million was primarily the result of the following:
•net payments on our revolving credit facility of $100.0 million in 2021, compared to net borrowings of $225.0 million in 2020; partially offset by
•a decrease of $10.4 million in distributions made to our common shareholders, operating partnership unit holders, and preferred shareholders.
For further information on our unsecured revolving credit facility and other debt, refer to Note 5 of the notes to the condensed consolidated financial statements.
Dividends and Equity
We currently qualify, and intend to continue to qualify in the future, as a REIT under the Internal Revenue Code ("Code"). As a REIT, we must distribute to our shareholders at least 90% of our REIT taxable income annually, excluding net capital gains. Distributions paid are at the discretion of our Board of Trustees and depend on our actual net income available to common shareholders, cash flow, financial condition, capital requirements, restrictions in financing arrangements, the annual distribution requirements under REIT provisions of the Code and such other factors as our Board of Trustees deems relevant.
On February 11, 2021, our Board of Trustees declared a quarterly cash dividend of $0.075 per common shares to shareholders of record as of March 19, 2021. Additionally, we declared a quarterly cash dividend of $0.90625 per Series D Cumulative Convertible Perpetual Preferred Share to preferred shareholders of record as of March 19, 2021. Our dividend policy is to make distributions to shareholders of at least 90% of our REIT taxable income, excluding net capital gains, in order to maintain qualification as a REIT. Distributions paid by us are generally expected to be funded from cash flows from operating activities. To the extent that cash flows from operating activities are insufficient to pay total distributions for any period, alternative funding sources are used. Examples of alternative funding sources include proceeds from sales of real estate and bank borrowings. The Board of Trustees will continue to evaluate the Company’s dividend policy throughout the remainder of 2021 based upon the Company's financial performance and economic outlook and intends to maintain a quarterly common dividend of at least the amount required to continue qualifying as a REIT for U.S. federal income tax requirements.
Page 34
In February 2020, the Company entered into an Equity Distribution Agreement ("Equity Distribution Agreement") pursuant to which the Company may offer and sell, from time to time, the Company's common shares having an aggregate gross sales price of up to $100.0 million. Sales of the shares of common stock may be made, in the Company's discretion, from time to time, in "at-the-market" offerings as defined in Rule 415 of the Securities Act. The Equity Distribution Agreement also provides that the Company may enter into forward contracts for shares of its common stock with forward sellers and forward purchasers. For the three months ended March 31, 2021, we did not issue any common shares through the arrangement. As of March 31, 2021, we have full capacity remaining under the agreement. The sale of such shares issuable pursuant to the Equity Distribution Agreement was registered with the SEC pursuant to a prospectus supplement filed in February 2020 and the accompanying base prospectus statement forming part of the Company's shelf registration statement on Form S-3 (No. 333-232007) which was filed with the SEC in June 2019.
Debt
At March 31, 2021, we had $929.6 million of debt outstanding consisting of $535.0 million in senior unsecured notes, $310.0 million of unsecured term loan facilities and $84.6 million of fixed rate mortgage loans encumbering certain properties.
Our $845.0 million of senior unsecured notes and term loan facilities have interest ranging from 2.51% to 4.74% and are due at various maturity dates from June 2021 through December 2029.
Our $84.6 million of fixed rate mortgages have interest rates ranging from 3.76% to 5.80% and are due at various maturity dates from February 2022 through June 2026. The fixed rate mortgage notes are secured by mortgages on properties that have an approximate net book value of $145.4 million as of March 31, 2021.
In addition, we have eleven interest rate swap agreements in effect for an aggregate notional amount of $310.0 million and two forward starting interest rate swap agreements for an aggregate notional amount of $75.0 million converting our floating rate corporate debt to fixed rate debt. After taking into account the impact of converting our variable rate debt to fixed rate debt by use of the interest rate swap agreements, at March 31, 2021, we had no variable rate debt outstanding.
Our revolving credit facility, senior unsecured notes and term loan facilities contain representations, warranties and covenants, and events of default. These include financial covenants such as total leverage, fixed charge coverage ratio, unsecured leverage ratio, tangible net worth and various other calculations, which are detailed in the specific agreements governing our indebtedness, many of which are exhibits to our most recent Annual Report on Form 10-K. Additionally, our senior unsecured notes only permitted us to include an unencumbered real estate asset in the measurement of our unsecured leverage ratio if such asset satisfied 80% and 85% occupancy tests for the prior quarter. Such occupancy tests were generally based on the percentage of tenants operating, paying rent and not otherwise in default based on leases requiring current rental payments. Accordingly, as a result of the various uncertainties and factors surrounding COVID-19 and its impact on our tenants and their businesses, and, therefore, its potential impact on our ability to maintain compliance with our loan covenants, on June 30, 2020, we entered into amendments to the note purchase agreements governing all of our outstanding senior unsecured notes. The following is a summary of the material amendments to the note purchase agreements:
•The occupancy tests relating to the minimum ratio of consolidated total unencumbered asset value to unsecured indebtedness were eliminated during the period from June 30, 2020 through and including September 30, 2021 (the “Specified Period”) and were otherwise reduced during the fiscal quarters ended December 31, 2021 and March 31, 2022;
•The minimum ratio of consolidated total unencumbered asset value to unsecured indebtedness that the Operating Partnership is required to maintain was reduced during the Specified Period; and
•The Operating Partnership agreed to a minimum liquidity requirement during the Specified Period.
Off Balance Sheet Arrangements
Real Estate Joint Ventures
We consolidate entities in which we own less than 100% equity interest if we have a controlling interest or are the primary beneficiary in a variable interest entity, as defined in the Consolidation Topic of FASB ASC 810. From time to time, we enter into joint venture arrangements from which we believe we can benefit by owning a partial interest in one or more properties.
As of March 31, 2021, our investments in unconsolidated joint ventures were approximately $126.0 million representing our ownership interest in four joint ventures. We account for these entities under the equity method. Refer to Note 4 of the notes to the condensed consolidated financial statements for more information.
Page 35
We review our equity investments in unconsolidated entities for impairment on a venture-by-venture basis whenever events or changes in circumstances indicate that the carrying value of the equity investment may not be recoverable. In testing for impairment of these equity investments, we primarily use cash flow models, discount rates, and capitalization rates to estimate the fair value of properties held in joint ventures, and we also estimate the fair value of the debt of the joint ventures based on borrowing rates for similar types of borrowing arrangements with the same remaining maturity. Considerable judgment by management is applied when determining whether an equity investment in an unconsolidated entity is impaired and, if so, the amount of the impairment. Changes to assumptions regarding cash flows, discount rates, or capitalization rates could be material to our condensed consolidated financial statements.
We are engaged by our joint ventures to provide asset management, property management, leasing and investing services for such venture’s respective properties. We receive fees for our services, including a property management fee calculated as a percentage of gross revenues received or as a percentage of gross asset value of property held.
Guarantee
A redevelopment agreement was entered into between the City of Jacksonville, the Jacksonville Economic Development Commission and the Company, to construct and develop River City Marketplace in 2005. As part of the agreement, the city agreed to finance up to $12.2 million of bonds. Repayment of the bonds is to be made in accordance with a level-payment amortization schedule over 20 years, and repayments are made out of tax revenues generated by the redevelopment. The remaining debt service payments due over the life of the bonds, including principal and interest, are $8.0 million. As part of the redevelopment, the Company executed a guaranty agreement whereby the Company would fund debt service payments if incremental tax revenues were not sufficient to fund repayment. There have been no payments made by the Company under this guaranty agreement to date.
Contractual Obligations
The following are our contractual cash obligations as of March 31, 2021:
| Payments due by period | |||||||||||||||||||||||||||||
| Contractual Obligations | Total | Less than 1 year (1) | 1-3 years | 4-5 years | More than 5 years | ||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Mortgages and notes payable: | |||||||||||||||||||||||||||||
| Scheduled amortization | $ | 6,622 | $ | 1,884 | $ | 3,156 | $ | 1,582 | $ | — | |||||||||||||||||||
| Payments due at maturity | 923,008 | 37,000 | 304,508 | 306,500 | 275,000 | ||||||||||||||||||||||||
Total mortgages and notes payable (2) | 929,630 | 38,884 | 307,664 | 308,082 | 275,000 | ||||||||||||||||||||||||
Interest expense (3) | 160,769 | 26,509 | 85,880 | 32,248 | 16,132 | ||||||||||||||||||||||||
Finance lease (4) | 1,200 | 100 | 300 | 200 | 600 | ||||||||||||||||||||||||
Operating leases | 98,768 | 1,102 | 4,095 | 1,757 | 91,814 | ||||||||||||||||||||||||
| Construction commitments | 6,475 | 6,475 | — | — | — | ||||||||||||||||||||||||
Development obligations (5) | 2,390 | 206 | 589 | 369 | 1,226 | ||||||||||||||||||||||||
| Total contractual obligations | $ | 1,199,232 | $ | 73,276 | $ | 398,528 | $ | 342,656 | $ | 384,772 | |||||||||||||||||||
(1)Amounts represent balance of obligation for the remainder of 2021.
(2)Excludes $0.9 million of unamortized mortgage debt premium and $3.4 million in net deferred financing costs.
(3)Variable-rate debt interest is calculated using rates at March 31, 2021.
(4)Includes interest payments associated with the finance lease obligation of $0.3 million.
(5)Includes interest payments associated with the development obligations of $0.5 million.
At March 31, 2021, we did not have any contractual obligations that required or allowed settlement, in whole or in part, with consideration other than cash.
Debt
See the analysis of our debt included in “Liquidity and Capital Resources.”
Page 36
Operating and Finance Leases
We have an operating ground lease at Centennial Shops located in Edina, Minnesota. The lease includes rent escalations throughout the lease period and expires in April 2105.
We have an operating lease for our 12,572 square foot corporate office in Southfield, Michigan, which commenced in August 2019, and an operating lease for our 5,629 square foot corporate office in New York, New York. These leases are set to expire in December 2024 and January 2024, respectively. Our Southfield, Michigan corporate office lease includes two additional five year renewal options to extend the lease through December 2034 and our New York, New York corporate office lease includes an additional five year renewal to extend the lease through January 2029.
We also have a ground finance lease at our Buttermilk Towne Center with the City of Crescent Springs, Kentucky. The lease provides for fixed annual payments of $0.1 million through maturity in December 2032, at which time we can acquire the land for one dollar.
Construction Costs
In connection with the leasing and targeted remerchandinsing of various shopping centers as of March 31, 2021, we had entered into agreements for construction activities with an aggregate remaining cost of approximately $6.5 million.
Planned Capital Spending
We are focused on enhancing the value of our existing portfolio of shopping centers through successful leasing efforts, including the reconfiguration of anchor-space and small shop lease-up.
For the remainder of 2021, we anticipate spending between $25.0 million and $35.0 million for capital expenditures, of which $6.5 million is reflected in the construction commitments in the contractual obligations table. Our 2021 estimate includes ongoing capital expenditure spending between $17.0 million and $23.0 million and discretionary capital expenditure spending between $8.0 million and $12.0 million. Ongoing capital expenditures relates to leasing costs and building improvements whereas discretionary capital expenditures relate to targeted remerchandising, outlots/expansion, and development/redevelopment. Estimates for future spending will change as new projects are approved.
Page 37
Capitalization
At March 31, 2021 our total market capitalization was $1.8 billion. The table below reconciles total debt to net debt and sets forth our calculation of our total market capitalization as of March 31, 2021 and 2020:
| March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In thousands) | |||||||||||
| Notes payable, net | $ | 927,112 | $ | 1,155,176 | |||||||
| Add: Unamortized premiums and deferred financing costs | 2,518 | 1,863 | |||||||||
| Pro-rata share of debt from unconsolidated joint venture | 1,386 | — | |||||||||
| Finance lease obligation | 875 | 926 | |||||||||
| Cash, cash equivalents and restricted cash | (143,355) | (322,844) | |||||||||
| Pro-rata share of unconsolidated entities cash, cash equivalents and restricted cash | (2,022) | (3,537) | |||||||||
Net debt (1) | $ | 786,514 | $ | 831,584 | |||||||
| Common shares outstanding | 80,156 | 79,969 | |||||||||
| Operating Partnership Units outstanding | 1,909 | 1,909 | |||||||||
| Restricted share awards (treasury method) | 1,021 | 445 | |||||||||
| Total common shares and equivalents | 83,086 | 82,323 | |||||||||
| Market price per common share (at March 31, 2021 and 2020) | $ | 11.41 | $ | 6.03 | |||||||
| Equity market capitalization | $ | 948,011 | $ | 496,408 | |||||||
| 7.25% Series D Cumulative Convertible Perpetual Preferred Shares | 1,849 | 1,849 | |||||||||
| Market price per convertible preferred share (at March 31, 2021 and 2020) | $ | 54.29 | $ | 30.60 | |||||||
| Convertible perpetual preferred shares (at market) | $ | 100,382 | $ | 56,579 | |||||||
| Total market capitalization | $ | 1,834,907 | $ | 1,384,571 | |||||||
| Net debt to total market capitalization | 42.9 | % | 60.1 | % | |||||||
(1)Net debt represents (i) our total debt principal, which excludes unamortized premium and deferred financing costs, net, plus (ii) our finance lease obligation, plus (iii) our pro-rata share of total debt principal of each of our unconsolidated joint entities, less (iv) our cash, cash equivalents and restricted cash, less (v) our pro-rata share of cash, cash equivalents and restricted cash of each of our unconsolidated entities. We believe this calculation is useful to understand our financial condition. Our method of calculating net debt may be different from methods used by other companies and may not be comparable.
At March 31, 2021, the non-controlling interest in the Operating Partnership was approximately 2.3%. The OP Units outstanding may, under certain circumstances, be exchanged for our common shares of beneficial interest on a one-for-one basis. We, as sole general partner of the Operating Partnership, have the option, but not the obligation, to settle exchanged OP Units held by others in cash based on the current trading price of our common shares of beneficial interest. Assuming the exchange of all non-controlling interest OP Units, there would have been approximately 82.1 million common shares of beneficial interest outstanding at March 31, 2021, with a market value of approximately $936.4 million.
Inflation
Inflation has been relatively low in recent years and has not had a significant detrimental impact on the results of our operations. Should inflation rates increase in the future, substantially all of our tenant leases contain provisions designed to mitigate the negative impact of inflation in the near term. Such lease provisions include clauses that require our tenants to reimburse us for real estate taxes and many of the operating expenses we incur. Also, many of our leases provide for periodic increases in base rent which are either of a fixed amount or based on changes in the consumer price index and/or percentage rents (where the tenant pays us rent based on percentage of its sales). Significant inflation rate increases over a prolonged period of time may have a material adverse impact on our business.
Page 38
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. However, these measures do not represent alternatives to GAAP measures as indicators of performance and a comparison of the Company's presentations to similarly titled measures of other REITs may not necessarily be meaningful due to possible differences in definitions and application by such REITs.
Funds from Operations
We consider funds from operations, also known as “FFO,” to be an appropriate supplemental measure of the financial performance of an equity REIT. The National Association of Real Estate Investment Trusts (“NAREIT”) is an industry body public REITs participate in and provides guidance to its members. Under the NAREIT definition, FFO represents net income (computed in accordance with GAAP), excluding gains (or losses) from sales of operating real estate assets and impairment provisions on operating real estate assets or on investments in non-consolidated investees that are driven by measurable decreases in the fair value of operating real estate assets held by the investee, plus depreciation and amortization, (excluding amortization of financing costs). Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis. We have adopted the NAREIT definition in our computation of FFO.
In addition to FFO, we include Operating FFO as an additional measure of our financial and operating performance. Operating FFO excludes transactions costs and periodic items such as gains (or losses) from sales of non-operating real estate assets and impairment provisions on non-operating real estate assets, bargain purchase gains, severance expense, accelerated amortization of debt premiums, gains or losses on extinguishment of debt, insured expenses, net, accelerated write-offs of above and below market lease intangibles, accelerated write-offs of lease incentives and bond interest proceeds that are not adjusted under the current NAREIT definition of FFO. We provide a reconciliation of FFO to Operating FFO. In future periods, Operating FFO may also include other adjustments, which will be detailed in the reconciliation for such measure, that we believe will enhance comparability of Operating FFO from period to period. FFO and Operating FFO should not be considered alternatives to GAAP net income available to common shareholders or as alternatives to cash flow as measures of liquidity.
While we consider FFO and Operating FFO useful measures for reviewing our comparative operating and financial performance between periods or to compare our performance to different REITs, our computations of FFO and Operating FFO may differ from the computations utilized by other real estate companies, and therefore, may not be comparable.
We recognize the limitations of FFO and Operating FFO when compared to GAAP net income available to common shareholders. FFO and Operating FFO do not represent amounts available for needed capital replacement or expansion, debt service obligations, or other commitments and uncertainties. In addition, FFO and Operating FFO do not represent cash generated from operating activities in accordance with GAAP and are not necessarily indicative of cash available to fund cash needs, including the payment of dividends.
The following table illustrates the calculations of FFO and Operating FFO:
Page 39
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In thousands, except per share data) | |||||||||||
| Net income | $ | 17,308 | $ | 342 | |||||||
| Net income attributable to noncontrolling partner interest | (398) | (8) | |||||||||
| Preferred share dividends | (1,675) | (1,675) | |||||||||
| Net income (loss) available to common shareholders | 15,235 | (1,341) | |||||||||
| Adjustments: | |||||||||||
| Rental property depreciation and amortization expense | 18,230 | 20,720 | |||||||||
Pro-rata share of real estate depreciation from unconsolidated joint ventures (1) | 1,255 | 1,412 | |||||||||
| Gain on sale of depreciable real estate | (19,003) | — | |||||||||
| FFO available to common shareholders | 15,717 | 20,791 | |||||||||
Noncontrolling interest in Operating Partnership (2) | — | 8 | |||||||||
Preferred share dividends (assuming conversion) (3) | — | 1,675 | |||||||||
| FFO available to common shareholders and dilutive securities | 15,717 | 22,474 | |||||||||
Transaction costs (4) | — | 174 | |||||||||
| Insured expenses, net | — | 60 | |||||||||
Severance expense (5) | 28 | 62 | |||||||||
| Above and below market lease intangible write-offs | (99) | (401) | |||||||||
Pro-rata share of acquisition costs from unconsolidated joint ventures (1) | — | 617 | |||||||||
Pro-rata share of above and below market lease intangible write-offs from unconsolidated joint ventures (1) | 10 | — | |||||||||
Bond interest proceeds (6) | — | (213) | |||||||||
| Operating FFO available to common shareholders and dilutive securities | $ | 15,656 | $ | 22,773 | |||||||
| Weighted average common shares | 80,102 | 79,909 | |||||||||
Shares issuable upon conversion of OP Units (2) | — | 1,909 | |||||||||
| Dilutive effect of restricted stock | 1,021 | 445 | |||||||||
Shares issuable upon conversion of preferred shares (3) | — | 7,014 | |||||||||
| Weighted average equivalent shares outstanding, diluted | 81,123 | 89,277 | |||||||||
Diluted earnings (loss) per share (7) | $ | 0.19 | $ | (0.02) | |||||||
| Per share adjustments for FFO available to common shareholders and dilutive securities | — | 0.27 | |||||||||
| FFO available to common shareholders and dilutive securities per share, diluted | $ | 0.19 | $ | 0.25 | |||||||
| Per share adjustments for Operating FFO available to common shareholders and dilutive securities | — | 0.01 | |||||||||
| Operating FFO available to common shareholders and dilutive securities per share, diluted | $ | 0.19 | $ | 0.26 | |||||||
(1)Amounts noted are included in Earnings from unconsolidated joint ventures.
(2)The total noncontrolling interest reflects OP Units convertible on a one-to-one basis into common shares. The Company's net income for the three months ended March 31, 2021 (largely driven by gain on sale of real estate), resulted in an income allocation to OP Units which drove an OP Unit ratio of $0.21 (based on 1,909 weighted average OP Units outstanding). In instances when the OP Unit ratio exceeds basic FFO, the OP Units are considered anti-dilutive, and as a result are not included in the calculation of fully diluted FFO and Operating FFO for the three months ended March 31, 2021.
(3)7.25% Series D Cumulative Convertible Perpetual Preferred Shares of Beneficial Interest, $0.01 par value per share paid annual dividends of $6.7 million and are currently convertible into approximately 7.0 million common shares. They are dilutive only when earnings or FFO exceed approximately $0.24 per diluted share per quarter and $0.96 per diluted share per year. The conversion ratio is subject to adjustment based upon a number of factors, and such adjustment could affect the dilutive impact of the Series D convertible preferred shares on FFO and earnings per share in future periods. In instances when the Preferred Share ratio exceeds basic FFO, the Preferred Shares are considered anti-dilutive, and as a result are not included in the calculation of fully diluted FFO and Operating FFO for the three months ended March 31, 2021.
(4)For 2020, costs associated with a terminated acquisition and a terminated disposition.
(5)Amounts noted are included in General and administrative expense.
(6)Amounts noted are included in Other income (expense), net.
(7)The denominator to calculate diluted earnings (loss) per share includes weighted average common shares and restricted stock only for the three months ended March 31, 2021 and includes weighted average common shares only for the three months ended March 31, 2020.
Page 40
NOI, Same Property NOI and NOI from Other Investments
NOI consists of (i) rental income and other property income, before straight-line rental income, amortization of lease inducements, amortization of acquired above and below market lease intangibles and lease termination fees less (ii) real estate taxes and all recoverable and non-recoverable operating expenses other than straight-line ground rent expense, in each case, including our share of these items from our R2G Venture LLC and RGMZ Venture REIT LLC unconsolidated joint ventures.
NOI, Same Property NOI and NOI from Other Investments are supplemental non-GAAP financial measures of real estate companies' operating performance. Same Property NOI is considered by management to be a relevant performance measure of our operations because it includes only the NOI of comparable operating properties for the reporting period. Same Property NOI for the three months ended March 31, 2021 and 2020 represents NOI from the Company's same property portfolio consisting of 42 consolidated operating properties and our 51.5% pro-rata share of five properties owned by our R2G Venture LLC unconsolidated joint venture and 100% of the 12 properties owned by our RGMZ Venture REIT LLC unconsolidated joint venture (excludes one property that is part of our Rivertowne Square multi-tenant property where activities have started in preparation for redevelopment). All properties included in Same Property NOI were either acquired or placed in service and stabilized prior to January 1, 2020. We present Same Property NOI primarily to show the percentage change in our NOI from period to period across a consistent pool of properties. The properties contributed to RGMZ Venture REIT LLC had previously been parts of larger shopping centers that we own. Accordingly, 100.0% of the NOI from these properties is included in our results for periods on or prior to March 4, 2021 and, for these prior periods, we had not separately allocated expenses attributable to the larger shopping centers between these properties and the remainder of these shopping centers. As a result, in order to help ensure the comparability of our Same Property NOI for the periods presented, we are continuing to include 100.0% of the NOI from these properties in our Same Property NOI following their contribution even though our pro rata share following March 4, 2021 is only 6.4%. Same Property NOI excludes properties under redevelopment or where activities have started in preparation for redevelopment. A property is designated as a redevelopment when planned improvements significantly impact the property. NOI from Other Investments for the three months ended March 31, 2021 and 2020 represents NOI primarily from (i) Webster Place and Rivertowne Square where the Company has begun activities in anticipation of future redevelopment, (ii) certain property related employee compensation, benefits, and travel expense and (iii) noncomparable operating income and expense adjustments. Non-RPT NOI from RGMZ Venture REIT LLC represents 93.6% of the properties contributed to RGMZ Venture REIT LLC after March 4, 2021, which is our partners’ share of RGMZ Venture REIT LLC.
NOI, Same Property NOI and NOI from Other Investments should not be considered alternatives to net income in accordance with GAAP or as measures of liquidity. Our method of calculating these measures may differ from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
The following is a summary of our properties for the periods noted with consistent classification in the prior period for presentation of Same Property NOI:
| Three Months Ended March 31, | ||||||||||||||
| Property Designation | 2021 | 2020 | ||||||||||||
| Same-property | 47 | 47 | ||||||||||||
| Acquisitions | — | — | ||||||||||||
Redevelopment (1) | 2 | 2 | ||||||||||||
| Total properties | 49 | 49 | ||||||||||||
(1)Includes the following properties: Rivertowne Square and Webster Place. The entire property indicated for each period is completely excluded from Same Property NOI.
Page 41
The following is a reconciliation of our net income available to common shareholders to Same Property NOI:
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in thousands) | |||||||||||
| Net income (loss) available to common shareholders | $ | 15,235 | $ | (1,341) | |||||||
| Adjustments to reconcile to Same Property NOI: | |||||||||||
| Preferred share dividends | 1,675 | 1,675 | |||||||||
| Net income attributable to noncontrolling interest | 398 | 8 | |||||||||
| Income tax provision | 88 | 31 | |||||||||
| Interest expense | 9,406 | 9,401 | |||||||||
| Earnings from unconsolidated joint ventures | (801) | (256) | |||||||||
| Gain on sale of real estate | (19,003) | — | |||||||||
| Insured expenses, net | — | 60 | |||||||||
| Other expense (income), net | 107 | (353) | |||||||||
| Management and other fee income | (316) | (351) | |||||||||
| Depreciation and amortization | 18,379 | 20,848 | |||||||||
| Transaction costs | — | 174 | |||||||||
| General and administrative expenses | 7,370 | 6,222 | |||||||||
Pro-rata share of NOI from R2G Venture LLC (1) | 2,031 | 2,232 | |||||||||
Pro-rata share of NOI from RGMZ Venture REIT LLC (2) | 10 | — | |||||||||
| Lease termination fees | (24) | (141) | |||||||||
| Amortization of lease inducements | 211 | 137 | |||||||||
| Amortization of acquired above and below market lease intangibles | (737) | (1,095) | |||||||||
| Straight-line ground rent expense | 77 | 77 | |||||||||
| Straight-line rental income | (396) | (301) | |||||||||
| NOI | 33,710 | 37,027 | |||||||||
| NOI from Other Investments | 874 | 927 | |||||||||
Non-RPT NOI from RGMZ Venture REIT LLC (3) | 144 | — | |||||||||
| Same Property NOI | $ | 34,728 | $ | 37,954 | |||||||
| Period-end Occupancy | 91.0 | % | 93.5 | % | |||||||
(1)Represents 51.5% of the NOI from the five properties contributed to R2G Venture LLC for all periods presented.
(2)Represents 6.4% of the NOI from the properties contributed to RGMZ Venture REIT LLC after March 4, 2021.
(3)Represents 93.6% of the NOI from the properties contributed to RGMZ Venture REIT LLC after March 4, 2021.
Page 42
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have exposure to interest rate risk on our variable rate debt obligations. Based on market conditions, we may manage our exposure to interest rate risk by entering into interest rate swap agreements to hedge our variable rate debt. We are not subject to any foreign currency exchange rate risk or commodity price risk, or other material rate or price risks. Based on our variable rate debt, interest rates and interest rate swap agreements in effect at March 31, 2021, we do not believe that a 100 basis point change in interest rates would impact our future earnings and cash flows. We believe that a 100 basis point increase in interest rates would decrease the fair value of our total outstanding debt by approximately $25.0 million at March 31, 2021.
We had derivative instruments outstanding with an aggregate notional amount of $385.0 million as of March 31, 2021. The agreements provided for swapping one-month LIBOR to fixed interest rates ranging from 1.26% to 1.77% and had expirations ranging from 2021 to 2027. The following table sets forth information as of March 31, 2021 concerning our long-term debt obligations, including principal cash flows by scheduled amortization payment and scheduled maturity, weighted average interest rates of maturing amounts and fair market value:
| 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed-rate debt | $ | 38,884 | $ | 52,397 | $ | 129,388 | $ | 125,879 | $ | 182,431 | $ | 400,651 | $ | 929,630 | $ | 948,642 | ||||||||||||||||||||||||||||||||||
| Average interest rate | 3.8 | % | 5.7 | % | 3.5 | % | 3.7 | % | 3.7 | % | 3.8 | % | 3.8 | % | 2.9 | % | ||||||||||||||||||||||||||||||||||
| Variable-rate debt | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
| Average interest rate | — | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % | ||||||||||||||||||||||||||||||||||
We estimated the fair value of our fixed rate mortgages using a discounted cash flow analysis, based on borrowing rates for similar types of borrowing arrangements with the same remaining maturity. Considerable judgment is required to develop estimated fair values of financial instruments. The table incorporates only those exposures that exist at March 31, 2021 and does not consider those exposures or positions which could arise after that date or firm commitments as of such date. Therefore, the information presented therein has limited predictive value. Our actual interest rate fluctuations will depend on the exposures that arise during the period and on market interest rates at that time.
In July 2017, the Financial Conduct Authority, the authority that regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In November 2020, the ICE Benchmark Administration, the administrator of LIBOR, announced plans to consult on ceasing publications of LIBOR on December 31, 2021 for only the one week and two week LIBOR tenors, and on June 30, 2023 for all other LIBOR tenors. The Alternative Reference Rates Committee (ARRC) has proposed that the Secured Overnight Financing Rate (SOFR) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. There is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases in benchmark rates, or financing costs to borrowers. We have material contracts that are indexed to USD-LIBOR, and we are monitoring this activity and evaluating the related risks.
Page 43
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (“Exchange Act”), such as this report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the designed control objectives, and therefore management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
We carried out an assessment as of March 31, 2021 of the effectiveness of the design and operation of our disclosure controls and procedures. This assessment was done under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on such evaluation, our management, including our Chief Executive Officer and Chief Financial Officer concluded that such disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2021.
Changes in Internal Control Over Financial Reporting
During the quarter ended March 31, 2021, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Page 44
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in certain litigation arising in the ordinary course of business. We do not believe that any of this litigation will have a material effect on our consolidated financial statements. There are no material pending governmental proceedings.
Item 1A. Risk Factors
Except to the extent updated below or to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such factors (including, without limitation, the matters discussed in Part I, "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations"), there have been no material changes to our risk factors during the three months ended March 31, 2021 compared to those risk factors presented in Part I, "Item IA. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2020.
Page 45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Common share repurchases during the quarterly period ended March 31, 2021 were as follows:
| Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| January 1, 2021 to January 31, 2021 | 13,278 | $ | 8.65 | — | — | |||||||||||||||||||||
| February 1, 2021 to February, 2021 | 371 | 10.90 | — | — | ||||||||||||||||||||||
| March 1, 2021 to March 31, 2021 | 59,138 | 11.00 | — | — | ||||||||||||||||||||||
| Total | 72,787 | $ | 10.57 | — | — | |||||||||||||||||||||
During the quarterly period ended March 31, 2021, we withheld 72,787 shares from employees to satisfy estimated statutory income tax obligations related to vesting of restricted share awards. The value of the common shares withheld was based on the closing price of our common shares on the applicable vesting date.
Page 46
Item 6. Exhibits
| Exhibit No. | Description | ||||
| 31.1* | |||||
| 31.2* | |||||
| 32.1* | |||||
| 32.2* | |||||
101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | ||||
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||||
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||||
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | ||||
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||||
104* | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*). | ||||
___________________________
* Filed herewith
** Management contract or compensatory plan or arrangement
Page 47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| RPT REALTY | |||||
| Date: May 6, 2021 | By: /s/ BRIAN L. HARPER Brian L. Harper President and Chief Executive Officer (Principal Executive Officer) | ||||
| Date: May 6, 2021 | By: /s/ MICHAEL P. FITZMAURICE Michael P. Fitzmaurice Chief Financial Officer (Principal Financial Officer) | ||||
| Date: May 6, 2021 | By: /s/ RAYMOND J. MERK Raymond J. Merk Chief Accounting Officer (Principal Accounting Officer) | ||||
Page 48