FEDERAL REALTY INVESTMENT TRUST 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission on February 10, 2022. Forward-Looking Statements Certain statements in this section or elsewhere in this report may be deemed “forward-looking statements”. See “Item 1A. Risk Factors” in this report for important information regarding these forward-looking statements and certain risk and uncertainties that may affect us. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing in “Item 8. Financial Statements and Supplementary Data” of this report. Overview Federal Realty Investment Trust (the "Parent Company" or the "Trust") is an equity real estate investment trust ("REIT"). Federal Realty OP LP (the "Operating Partnership") is the entity through which the Trust conducts substantially all of its operations and owns substantially all of its assets. The Trust owns 100% of the limited liability company interest of, is sole member of, and exercises exclusive control over Federal Realty GP LLC (the "General Partner"), which in turn, is the sole general partner of the Operating Partnership. Unless stated otherwise or the context otherwise requires, "we," "our," and "us" means the Trust and its business and operations conducted through its directly and indirectly owned subsidiaries, including the Operating Partnership. The Parent Company specializes in the ownership, management, and redevelopment of high quality retail and mixed-use properties located primarily in communities where we believe demand exceeds supply, in strategically selected metropolitan markets in the Northeast and Mid-Atlantic regions of the United States, California, and South Florida. As of December 31, 2022, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 103 predominantly retail real estate projects comprising approximately 25.8 million square feet. In total, the real estate projects were 94.5% leased and 92.8% occupied at December 31, 2022. We have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our dividends per common share for 55 consecutive years. Impacts of COVID-19 Pandemic and General Economic Conditions Given the ongoing workforce shortages, global supply chain bottlenecks and shortages, and high inflation, we continue to monitor and address risks related to the COVID-19 pandemic and the general state of the economy. While improving, our cash flow and results of operations in the year ended December 31, 2022 continued to be negatively impacted largely due to vacancy levels remaining above historical levels. Although virtually all of our leases required the tenants to pay rent even while they were not operating, we entered into numerous agreements to abate, defer, and/or restructure tenant rent payments for varying periods of time, all with the objective of collecting as much cash as reasonably possible and maintaining occupancy to the maximum extent. We believe those actions positioned many of our tenants to be able to return to payment of contractual rent as soon as possible after the initial impacts from the pandemic started to subside. During 2022, we have continued to see improvements in overall cash collections from tenants with collection rates nearing pre-pandemic levels. We have also taken multiple steps over the past two years to strengthen our financial position, maximize liquidity, and to provide maximum flexibility during these uncertain times, including maintaining levels of cash in excess of the cash balances we have historically maintained. On October 5, 2022, we amended our revolving credit facility increasing the borrowing capacity from $1.0 billion to $1.25 billion and extending the maturity date to April 5, 2027, plus two six-month extensions at our option. Additionally, we have an option (subject to bank approval) to increase the credit facility through an accordion feature to $1.75 billion. We also amended our unsecured term loan borrowing an additional $300.0 million. As of December 31, 2022, there is no outstanding balance on our $1.25 billion revolving credit facility, and we have cash and cash equivalents of $85.6 million. Additional discussion of the impact of current economic conditions and the COVID-19 pandemic on our results and long-term operations can be found throughout Item 7 and Item 1A . Risk Factors. 31 Table of Contents Corporate Responsibility We actively endeavor to operate and develop our properties in a sustainable, responsible, and effective manner with the objective being to drive long-term growth and aid in value creation for our shareholders, tenants, employees, and local communities. We have aligned our program and efforts with the United Nations Sustainable Development Goals, as described in our ESG Policy and our 2021 Corporate Responsibility Report, which are provided only for informational purposes on our website and not incorporated by reference herein. Our development activities have been heavily focused on owning, developing and operating properties that are certified under the U.S. Green Building Council’s® (“USGBC”) Leadership in Energy and Environmental Design™ (LEED®) rating system which serves as a third-party verification that a building or community was designed and built to mitigate its environmental footprint. We currently have 19 LEED certified buildings and our Pike & Rose project has achieved LEED for Neighborhood Development Stage 3 Gold certification. The COVID-19 pandemic has also increased our focus on owning, developing and operating healthier buildings. To that end, our new corporate headquarters space at our 909 Rose Avenue building has earned a Fitwel certification developed by the U.S. Centers for Disease Control and Prevention (CDC) together with the General Services Administration (GSA). This certification assesses a building’s impact on seven distinct categories related to overall health and well-being. We are also committed to implementing sustainable business practices at our operating properties that focus on energy efficiency, water conservation and waste minimization and have established greenhouse gas (GHG) emissions reduction targets in accordance with the Science-Based Targets initiative as well as energy reduction targets. To achieve these targets, we are actively addressing energy efficiency projects on site such as upgrading to LED lighting, procuring green energy, reducing electric consumption, and increasing our onsite solar generation capacity. We have installed on-site solar systems at 25 of our properties with a capacity of 14 MW with more projects actively in progress. We also installed electric vehicle car charging stations in numerous properties throughout our portfolio. We currently have over 300 charging stations in operation with more under construction. We also understand that we face risks presented by climate change and are working to evaluate our risk exposure. In our 2021 Sustainability report, we provided a disclosure pursuant to the Task Force on Climate Related Financial Disclosure and we intend to provide that disclosure annually. We are also highly committed to our employees and fostering a work environment that promotes growth, development and personal well-being. Our four core values are accountability, excellence, innovation and integrity and we seek to attract and retain talented professionals who embrace those values. All of our efforts with respect to corporate responsibility are overseen by our Board of Trustees. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, referred to as “GAAP”, requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenues and expenses. These estimates are prepared using management’s best judgment, after considering past and current events and economic conditions. In addition, information relied upon by management in preparing such estimates includes internally generated financial and operating information, external market information, when available, and when necessary, information obtained from consultations with third party experts. Actual results could differ from these estimates. A discussion of possible risks which may affect these estimates is included in “Item 1A. Risk Factors” of this report. Management considers an accounting estimate to be critical if changes in the estimate could have a material impact on our consolidated results of operations or financial condition. Our significant accounting policies are more fully described in Note 2 to the consolidated financial statements; however, the most critical accounting policies, which are most important to the portrayal of our financial condition and results of operations, and involve the use of complex estimates and significant assumptions as to future uncertainties and, therefore, may result in actual amounts that differ from estimates, are as follows: 32 Table of Contents Collectibility of Lease Income Our leases with our tenants are classified as operating leases. When collection of substantially all lease payments during the lease term is considered probable, the lease qualifies for accrual accounting. When collection of substantially all lease payments during the lease term is not considered probable, total lease revenue is limited to the lesser of revenue recognized under accrual accounting or cash received. Determining the probability of collection of substantially all lease payments during a lease term requires significant judgment. This determination is impacted by numerous factors including our assessment of the tenant’s credit worthiness, economic conditions, tenant sales productivity in that location, historical experience with the tenant and tenants operating in the same industry, future prospects for the tenant and the industry in which it operates, and the length of the lease term. If leases currently classified as probable are subsequently reclassified as not probable, any outstanding lease receivables (including straight-line rent receivables) would be written-off with a corresponding decrease in rental income. For example, in the event that our collectibility determinations were not accurate and we were required to write off additional receivables equaling 1% of rental income, our rental income and net income would decrease by $10.7 million. If leases currently classified as not probable are subsequently changed to probable, any lease receivables (including straight-line rent receivables) are re-instated with a corresponding increase to rental income. Our collection of rents has continued to improve, including collecting rents related to prior periods. As a result, our collectibility related adjustments for the year ended December 31, 2022 resulted in an increase to rental income of $4.1 million, as compared to a $24.0 million decrease to rental income during the year ended December 31, 2021, which reflected lower levels of cash collections and elevated levels of rent abatements and disputes directly related to COVID-19. As of December 31, 2022 and 2021, the revenue from approximately 31% and 34% of our tenants (based on total commercial leases), respectively, is being recognized on a cash basis. As of December 31, 2022 and 2021, our straight-line rent receivables balance was $126.6 million and $110.7 million, respectively, and is included in "accounts and notes receivable, net" on our consolidated balance sheet. As of December 31, 2022, we executed rent deferral agreements related to the COVID-19 pandemic representing approximately $48 million of rent. We have subsequently collected approximately $35 million of those amounts previously deferred. Other revenue recognition policies When we enter into a transaction to sell a property or a portion of a property, we evaluate the recognition of the sale under ASC 610-20, "Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets." In accordance with ASC 610-20, we apply the guidance in ASC 606, "Revenue from Contracts with Customers," to determine whether and when control transfers and how to measure the associated gain or loss. We determine the transaction price based on the consideration we expect to receive. Variable consideration is included in the transaction price to the extent it is probable that a significant reversal of a gain recognized will not occur. We analyze the risk of a significant gain reversal and if necessary limit the amount of variable consideration recognized in order to mitigate this risk. The estimation of variable consideration requires us to make assumptions and apply significant judgment. The existence and amount of variable consideration can vary significantly among transactions. Historically, our property sales have had variable consideration of less than 1% of total expected consideration; however, we had one transaction in 2019 where the variable consideration was approximately $45.5 million. Real Estate Acquisitions Upon acquisition of operating real estate properties, we estimate the fair value of assets and liabilities acquired including land, building, improvements, leasing costs, intangibles such as acquired leases, assumed debt, and current assets and liabilities, if any. Based on these estimates, we allocate the purchase price to the applicable assets and liabilities. We utilize methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. The value allocated to acquired leases is amortized over the related lease term and reflected as rental income in the statement of operations. We consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and include such renewal options in the calculation of in-place lease value when we consider these to be bargain renewal options. If the value of below market lease intangibles includes renewal option periods, we include such renewal periods in the amortization period utilized. If a tenant vacates its space prior to contractual termination of its lease, the unamortized balance of any acquired lease value is written off to rental income. During 2022, we acquired properties included in our consolidated financial statements with a total purchase price of $443.1 million. $1.9 million, or less than 1% of the total purchase price was allocated to above market lease assets and $38.7 million, or 9% was allocated to below market lease liabilities. If the amounts allocated in 2022 to below market lease liabilities and building assets were each reduced by 5% of the total purchase price, annual below market lease liability amortization increasing rental income would decrease by approximately $2.1 million (using the weighted average life of below market liabilities at each respective acquired property) and annual depreciation expense would decrease by approximately $0.6 million (using a depreciable life of 35 years). 33 Table of Contents Long-Lived Assets and Impairment There are estimates and assumptions made by management in preparing the consolidated financial statements for which the actual results will be determined over long periods of time. This includes the recoverability of long-lived assets, including our properties that have been acquired or redeveloped and our investment in certain joint ventures. Management’s evaluation of impairment includes review for possible indicators of impairment as well as, in certain circumstances, undiscounted and discounted cash flow analysis. Since most of our investments in real estate are wholly-owned or controlled assets which are held for use, a property with impairment indicators is first tested for impairment by comparing the undiscounted cash flows, taking into account the anticipated hold period, including residual value, to the current net book value of the property. If the undiscounted cash flows are less than the net book value, the property is written down to expected fair value. The calculation of both discounted and undiscounted cash flows requires management to make estimates of future cash flows including revenues, operating expenses, required maintenance and development expenditures, market conditions, demand for space by tenants and rental rates over long periods. Because our properties typically have a long life, the assumptions used to estimate the future recoverability of book value requires significant management judgment. We are also required to estimate the anticipated hold period. A change in the expected holding period from a long term hold to a short term would cause a significant change in the undiscounted cash flows and could result in an impairment charge. Actual results could be significantly different from the estimates. These estimates have a direct impact on net income, because recording an impairment charge results in a negative adjustment to net income. Recently Adopted and Recently Issued Accounting Pronouncements See Note 2 to the consolidated financial statements. 2022 Acquisitions, Dispositions, and Other Transactions During the year ended December 31, 2022, we acquired the following properties: Date Acquired Property City/State Gross Leasable Area (GLA) Gross Value (in square feet) (in millions) April 20, 2022 & July 27, 2022 Kingstowne Towne Center Kingstowne, Virginia 410,000 $ 200.0 (1) July 18, 2022 Hilton Village (office building) Scottsdale, Arizona 212,000 $ 53.6 (2) July 27, 2022 The Shops at Pembroke Gardens Pembroke Pines, Florida 391,000 $ 180.5 (3) November 18, 2022 Hoboken (301 Washington St.) Hoboken, New Jersey N/A $ 9.0 (4) (1) Approximately $11.3 million and $0.3 million of net assets were allocated to other assets for "acquired lease costs" and "above market leases," respectively, and $20.2 million of net assets acquired were allocated to other liabilities for "below market leases." (2) This building is adjacent to, and will be operated as part of our Hilton Village property. The land is controlled under a long-term ground lease that expires on September 30, 2075, for which we have recorded a $6.5 million "operating lease right of use asset" (net of a $0.8 million above market liability) and a $7.3 million "operating lease liability." Approximately $8.9 million of net assets acquired were allocated to other assets for "acquired lease costs" and $0.1 million of net assets acquired were allocated to other liabilities for "below market leases." (3) Approximately $16.3 million and $1.6 million of net assets acquired were allocated to other assets for "acquired lease costs" and "above market leases," respectively, and $18.4 million of net assets acquired were allocated to other liabilities for "below market leases." (4) This property, that we own a 90% ownership interest in, was acquired through our Hoboken joint venture, and is in the beginning stages of redevelopment. On October 6, 2022, we acquired a 47.5% net interest in an unconsolidated joint venture that owns two shopping centers for a combined price of $58.9 million. On the date of acquisition, the properties had combined mortgage debt of $76.1 million, of which, our share is approximately $36.2 million. Approximately $8.0 million and $2.0 million of net assets acquired were allocated to other assets for "acquired lease costs" and "above market leases," respectively, and $17.1 million of net assets acquired were allocated to other liabilities for "below market leases." Additional information on the properties is listed below: 34 Table of Contents Property City/State Gross Leasable Area (GLA) Purchase Price (our share) (in square feet) (in millions) Chandler Festival Chandler, Arizona 355,000 $ 40.8 Chandler Gateway Chandler, Arizona 262,000 $ 18.1 During the year ended December 31, 2022, we sold two residential properties (one included an adjacent retail pad), one retail property, one parcel of land, and one portion of a property for sales prices totaling $136.2 million, resulting in net gains totaling approximately $84.1 million. Other Transactions On July 13, 2022, we acquired the 21.8% redeemable noncontrolling interest in the partnership that owns our Plaza El Segundo shopping center for $23.6 million, bringing our ownership interest to 100%. On August 25, 2022, we entered into a tenancy in common ("TIC") agreement with our partner in the partnership that owned Escondido Promenade. As a result, the Company owns a 77.7% TIC interest, and our former partner owns the remaining 22.3% interest. While the Company controlled and consolidated Escondido Promenade under the previous partnership arrangement, control is shared under the TIC agreement. The transaction is considered a transfer of our previous controlling partner interest in exchange for a non-controlling TIC interest. Accordingly, we deconsolidated the entity and recorded our TIC interest at fair value as an equity method investment. We recognized a $70.4 million "gain on deconsolidation of VIE" on our consolidated statements of operations, which is the difference between the net carrying value of the deconsolidated entity and the fair value of our TIC interest. As of August 25, 2022, the fair value of our investment in the entity was $110.0 million, and is included in "investment in partnerships" on our consolidated balance sheet as of December 31, 2022. As a part of this transaction, we made a $3.5 million loan to our co-owner, which is included in "accounts and notes receivable, net" on our consolidated balance sheet at December 31, 2022. In addition, we entered into a purchase option agreement to acquire the TIC interest from our co-owner, which was secured through an option payment of $1.5 million, and allows us to exercise our option at any time between February 1, 2023 and March 15, 2023. 2022 Significant Debt and Equity Transactions On February 14, 2022, we replaced our existing at-the-market (“ATM”) equity program with a new ATM equity program in which we may from time to time offer and sell common shares having an aggregate offering price of up to $500.0 million. Our ATM equity program also allows shares to be sold through forward sales contracts. We intend to use the net proceeds from ATM equity program issuances to fund potential acquisition opportunities, fund our development and redevelopment pipeline, repay indebtedness and/or for general corporate purposes. During 2022, we settled the remaining forward sales agreements entered into during 2021 by issuing 2,203,655 common shares for net proceeds of $259.4 million, and consequently, we have no outstanding open forward sales agreements as of December 31, 2022. For the year ended December 31, 2022, we issued 430,473 common shares at a weighted average price per share of $111.49 for net cash proceeds of $47.4 million including paying $0.5 million in commissions and $0.1 million in additional offering expenses related to the sales of these common shares. As of December 31, 2022, we had the capacity to issue up to $452.0 million in common shares under our ATM equity program. On June 29, 2022, we repaid the $16.1 million mortgage loan on one of the buildings at our Hoboken property, at par. On October 5, 2022, we amended our revolving credit facility, increasing the borrowing capacity from $1.0 billion to $1.25 billion, extending the maturity date to April 5, 2027, plus two six-month extension options, transitioning the interest rate provisions from LIBOR to the secured overnight financing rate ("SOFR"), and adjusting the spread for SOFR based loans. Our SOFR based loans bear interest at Daily Simple SOFR or Term SOFR as defined in the credit agreement plus 0.10% plus a spread, based on our credit rating. The current spread is 77.5 basis points. In addition, we have an option (subject to bank approval) to increase the credit facility through an accordion feature to $1.75 billion. On October 5, 2022, we also amended our unsecured term loan and borrowed an additional $300.0 million, bringing the total outstanding to $600.0 million. The term loan amendment also transitioned the interest rate provisions from LIBOR to SOFR. This SOFR based loan bears interest at Term SOFR as defined in the agreement, plus 0.10%, plus an 85 basis point spread, based on our current credit rating. The net proceeds from the term loan were used to repay the $267.0 million outstanding balance on the revolving credit facility and for general corporate purposes. 35 Table of Contents 2023 Acquisition On January 31, 2023, we acquired the 180,000 square foot portion of Huntington Square shopping center that was not previously owned, as well as the fee interest in the land underneath the portion of the shopping center which we control under a long-term ground lease for $35.5 million. Capitalized Costs Certain external and internal costs directly related to the development, redevelopment and leasing of real estate, including pre-construction costs, real estate taxes, insurance, and construction costs and salaries and related costs of personnel directly involved, are capitalized. We capitalized external and internal costs related to both development and redevelopment activities of $278 million and $11 million, respectively, for 2022 and $356 million and $10 million, respectively, for 2021. We capitalized external and internal costs related to other property improvements of $111 million and $4 million, respectively, for 2022 and $64 million and $4 million, respectively, for 2021. We capitalized external and internal costs related to leasing activities of $18 million and $4 million, respectively, for 2022 and $19 million and $3 million, respectively, for 2021. The amount of capitalized internal costs for salaries and related benefits for development and redevelopment activities, other property improvements, and leasing activities were $10 million, $3 million, and $4 million, respectively, for 2022 and $10 million, $3 million, and $3 million, respectively, for 2021. Total capitalized costs were $425 million for 2022 and $456 million for 2021, respectively. Corporate Reorganization In January 2022, we completed a reorganization into an umbrella partnership real estate investment trust, or "UPREIT." For additional information on our UPREIT reorganization, please see our Current Reports on Form 8-K filed with the SEC on January 3, 2022 and January 5, 2022, as well our 2021 Annual Report on Form 10-K filed on February 10, 2022. Immediately following the reorganization, the Parent Company had the same consolidated assets and liabilities as Federal Realty Investment Trust immediately before the reorganization. The Parent Company exercises exclusive control over the General Partner and does not have assets or liabilities other than its investment in the Operating Partnership. As a result, the UPREIT reorganization represented a merger of entities under common control in accordance with accounting principles generally accepted in the United States ("GAAP"). Accordingly, the accompanying consolidated financial statements including the notes thereto, are presented as if the UPREIT reorganization had occurred at the earliest period presented. Outlook Our long-term growth strategy is focused on growth in earnings, funds from operations, and cash flows primarily through a combination of the following: • growth in our comparable property portfolio, • growth in our portfolio from property redevelopments and expansions, and • expansion of our portfolio through property acquisitions. While the general economic effects of the elevated levels of inflation, rising interest rates, and the COVID-19 pandemic are impacting us in the short-term, our long-term focus has not changed. Our comparable property growth is primarily driven by increases in rental rates on new leases and lease renewals, changes in portfolio occupancy, and the redevelopment of those assets. Over the long-term, the infill nature and strong demographics of our properties provide a strategic advantage allowing us to maintain relatively high occupancy and generally increase rental rates. We believe the locations and nature of our centers and diverse tenant base partially mitigates any potential negative changes in the economic environment. However, any significant reduction in our tenants' abilities to pay base rent, percentage rent or other charges, will adversely affect our financial condition and results of operations. We seek to maintain a mix of strong national, regional, and local retailers. At December 31, 2022, no single tenant accounted for more than 2.8% of annualized base rent. The effects of the current economic conditions, the COVID-19 pandemic, and inflation continue to negatively impact our business with the largest current impacts being lower occupancy, supply chain disruptions, and higher interest costs. At December 31, 2022, our commercial space is 92.8% occupied, which is below historical levels largely due to tenant failures as a result of the pandemic. This lower occupancy will adversely impact our results until we can release the space and then commences paying rent, as well as limit future vacancies. We are, however, experiencing strong demand for our commercial space as evidenced by the 2.0 million square feet of comparable space leasing we've completed in 2022, and the 1.7% spread between our leased rate of 94.5% and our occupied rate of 92.8%. Our percentage of contractual rent actually collected has continued to increase since the low point in April 2020, including some tenants paying past due amounts. We continue to see impacts of overall supply chain disruptions affecting the broader economy, including significantly longer lead times, limited availability, and increased costs for certain construction and other materials that support our development and redevelopment activities. If disruptions continue to worsen, they could result in extended timeframes and/or increased costs for completion of our projects and tenant build-outs, which could delay the commencement of rent payments under new leases. Similarly, if our 36 Table of Contents tenants experience significant disruptions in supply chains supporting their own products, or staffing issues due to labor shortages, their ability to pay rent may be adversely affected. We continue to monitor these macroeconomic developments and are working with our tenants and our vendors to limit the overall impact to our business. The duration and severity of the economic impact from the current economic environment and the COVID-19 pandemic will depend on future developments, which are highly uncertain and cannot be predicted, however , we seek to position the Trust to continue to participate in the resulting economic recovery. We continue to have several development projects in process being delivered as follows: • Phase III of Assembly Row includes 277,000 square feet of office space, 56,000 square feet of retail space, and 500 residential units. As of December 31, 2022, Phase III is substantially complete, with expected final costs between $475 million and $485 million. • Phase III at Pike & Rose includes a 212,000 square foot office building (which includes 7,000 square feet of ground floor retail space and approximately 45,000 square feet is our new corporate headquarters). As of December 31, 2022, Phase III is substantially complete, with final estimated costs between $130 million and $135 million. • Phase IV at Pike & Rose is a 276,000 square foot office building (which includes 10,000 square feet of ground floor retail space). Approximately 157,000 square feet of the office space is pre-leased to two tenants. The building is expected to cost between $185 million and $200 million, and begin delivering in late 2023. • The first phase of construction on Santana West includes an eight story 376,000 square foot office building, which is expected to cost between $300 million and $315 million. • Throughout the portfolio, we currently have redevelopment projects underway with a projected total cost of approximately $228 million that we expect to stabilize over the next several years. The above includes our best estimates based on information currently known, however, the completion of construction, final costs, and the timing of leasing and openings may be further impacted by the current environment including the duration and severity of the economic impacts of COVID-19, supply chain disruptions, broader economic conditions, and inflation. The development of future phases of Assembly Row, Pike & Rose and Santana Row will be pursued opportunistically based on, among other things, market conditions, tenant demand, and our evaluation of whether those phases will generate an appropriate financial return. We continue to review acquisition opportunities that complement our portfolio and provide long-term growth opportunities. Initially, some of our acquisitions do not contribute significantly to earnings growth; however, we believe they provide long-term re-leasing growth, redevelopment opportunities, and other strategic opportunities. Any growth from acquisitions is contingent on our ability to find properties that meet our qualitative standards at prices that meet our financial hurdles. Changes in interest rates may affect our success in achieving earnings growth through acquisitions by affecting both the price that must be paid to acquire a property, as well as our ability to economically finance the property acquisition. Generally, our acquisitions are initially financed by available cash and/or borrowings under our revolving credit facility which may be repaid later with funds raised through the issuance of new equity or new long-term debt. We may also finance our acquisitions through the issuance of common shares, preferred shares, or units in the Operating Partnership, as well as through assumed mortgages and property sales. At December 31, 2022, the leasable square feet in our properties was 94.5% leased and 92.8% occupied. The leased rate is higher than the occupied rate due to leased spaces that are being redeveloped or improved or that are awaiting permits and, therefore, are not yet ready to be occupied. Our occupancy and leased rates are subject to variability over time due to factors including acquisitions, the timing of the start and stabilization of our redevelopment projects, lease expirations and tenant closings and bankruptcies. Comparable Properties Throughout this section, we have provided certain information on a “comparable property” basis. Information provided on a comparable property basis includes the results of properties that we owned and operated for the entirety of both periods being compared except for properties that are currently under development or are being repositioned for significant redevelopment and investment. For the year ended December 31, 2022 and the comparison of 2022 and 2021, all or a portion of 91 properties, were considered comparable properties and seven were considered non-comparable properties. For the year ended December 31, 2022, one property was moved from comparable properties to non-comparable properties, one property was moved from non-comparable properties to comparable properties, three properties were removed from comparable properties, as they were sold, and one property was removed from comparable properties, as it was deconsolidated, compared to the designations as of December 31, 2021. While there is judgment surrounding changes in designations, we typically move non-comparable properties to comparable properties once they have stabilized, which is typically considered 90% physical 37 Table of Contents occupancy or when the growth expected from the redevelopment has been included in the comparable periods. We typically remove properties from comparable properties when the repositioning of the asset has commenced and has or is expected to have a significant impact to property operating income within the calendar year. Acquisitions are moved to comparable properties once we have owned the property for the entirety of comparable periods and the property is not under development or being repositioned for significant redevelopment and investment. Comparable property information replaces our previous same center designations. 38 Table of Contents YEAR ENDED DECEMBER 31, 2022 COMPARED TO YEAR ENDED DECEMBER 31, 2021 Change 2022 2021 Dollars % (Dollar amounts in thousands) Rental income $ 1,073,292 $ 948,842 $ 124,450 13.1 % Mortgage interest income 1,086 2,382 (1,296) (54.4) % Total property revenue 1,074,378 951,224 123,154 12.9 % Rental expenses 228,958 198,121 30,837 15.6 % Real estate taxes 127,824 118,496 9,328 7.9 % Total property expenses 356,782 316,617 40,165 12.7 % Property operating income (1) 717,596 634,607 82,989 13.1 % General and administrative expense (52,636) (49,856) (2,780) 5.6 % Depreciation and amortization (302,409) (279,976) (22,433) 8.0 % Gain on deconsolidation of VIE 70,374 — 70,374 100.0 % Gain on sale of real estate and change in control of interest 93,483 89,950 3,533 3.9 % Operating income 526,408 394,725 131,683 33.4 % Other interest income 1,072 809 263 32.5 % Interest expense (136,989) (127,698) (9,291) 7.3 % Income from partnerships 5,170 1,245 3,925 315.3 % Total other, net (130,747) (125,644) (5,103) 4.1 % Net income 395,661 269,081 126,580 47.0 % Net income attributable to noncontrolling interests (10,170) (7,583) (2,587) 34.1 % Net income attributable to the Trust $ 385,491 $ 261,498 $ 123,993 47.4 % (1) Property operating income is a non-GAAP measure that consists of rental income and mortgage interest income, less rental expenses and real estate taxes. This measure is used internally to evaluate the performance of property operations to the previous period and we consider it be a significant measure. We believe that property operating income is useful to investors in measuring the operating performance of our property portfolio because the definition excludes various items included in operating income that do not relate to, or are not indicative of, the operating performance of our properties, such as general and administrative expenses and depreciation and amortization, and allows us to isolate disparities in operating income caused by acquisitions, dispositions, and stabilization of properties. Property operating income may, therefore, provide a more consistent metric for comparing the operating performance of our real estate between periods. Property operating income should not be considered an alternative measure of operating results or cash flow from operations as determined in accordance with GAAP. The reconciliation of operating income to property operating income for 2022 and 2021 is as follows: 2022 2021 (in thousands) Operating income $ 526,408 $ 394,725 General and administrative 52,636 49,856 Depreciation and amortization 302,409 279,976 Gain on deconsolidation of VIE (70,374) — Gain on sale of real estate and change in control of interest (93,483) (89,950) Property operating income $ 717,596 $ 634,607 Property Revenues Total property revenue increased $123.2 million, or 12.9%, to $1.1 billion in 2022 compared to $951.2 million in 2021. The percentage occupied at our shopping centers was 92.8% at December 31, 2022 compared to 91.1% at December 31, 2021. The most significant driver of the increase in property revenues is the ongoing recovery from the initial impacts of COVID-19 39 Table of Contents during 2022, as compared to 2021, when COVID-19 related restrictions were still in effect for a portion of the year. Changes in the components of property revenue are discussed below. Rental Income Rental income consists primarily of minimum rent, cost reimbursements from tenants and percentage rent, and is net of collectibility related adjustments. Rental income increased $124.5 million, or 13.1%, to $1.1 billion in 2022 compared to $948.8 million in 2021 due primarily to the following: • an increase of $39.8 million from 2021 and 2022 acquisitions, • an increase of $36.3 million from comparable properties primarily related to higher percentage rent, parking income, and specialty leasing of $10.7 million primarily the result of the gradual lifting of COVID-19 closures and restrictions during 2021, higher rental rates of $9.9 million, higher average occupancy of approximately $8.3 million, a $5.7 million increase in CAM recoveries on higher CAM costs, and a $3.2 million increase in tenant recoveries, partially offset by lower net termination fees and legal fee income of $2.5 million, • an increase of $30.6 million from non-comparable properties primarily driven by the opening of Phase III at Assembly Row in 2021, redevelopment related occupancy increases at CocoWalk, and the 2021 and 2022 openings at the Phase III office building at Pike & Rose, partially offset by redevelopment related occupancy decreases at Huntington Shopping Center, • a $28.0 million decrease in collectibility related impacts across all properties primarily due to higher collection rates and lower rent abatements in 2022 as tenants continue to recover from the initial impacts of COVID-19, and • an increase of $4.2 million from improving demand at our Pike & Rose hotel, partially offset by • a decrease of $11.4 million from property sales. Mortgage Interest Income Mortgage interest income decreased $1.3 million, or 54.4%, to $1.1 million in 2022 compared to $2.4 million in 2021 primarily due to the repayment of $31.1 million of mortgage notes receivable in May 2021. Property Expenses Total property expenses increased $40.2 million, or 12.7%, to $356.8 million in 2022 compared to $316.6 million in 2021. Changes in the components of property expenses are discussed below. Rental Expenses Rental expenses increased $30.8 million, or 15.6%, to $229.0 million in 2022 compared to $198.1 million in 2021. This increase is primarily due to the following: • an increase of $12.2 million from comparable properties due primarily to higher repairs and maintenance costs, utilities, and management fees, as 2021 had lower costs as a result of COVID-19 impacts, as well as inflationary impacts in 2022 and higher insurance costs, • an increase of $7.7 million from 2021 and 2022 acquisitions, • an increase of $6.9 million from non-comparable properties due primarily to the 2021 openings of Phase III at Assembly Row, the Phase III office building at Pike & Rose, and CocoWalk, as well as increased costs associated with the redevelopment of Huntington Shopping Center, and • an increase of $5.3 million from higher operating costs at our Pike & Rose hotel largely due to lifting of COVID-19 restrictions, partially offset by • a decrease of $1.5 million from our property sales. As a result of the changes in rental income and rental expenses as discussed above, rental expenses as a percentage of rental income increased to 21.3% for the year ended December 31, 2022 from 20.9% for the year ended December 31, 2021. Real Estate Taxes Real estate tax expense increased $9.3 million, or 7.9% to $127.8 million in 2022 compared to $118.5 million in 2021 due primarily to the following: 40 Table of Contents • an increase of $5.6 million from 2021 and 2022 acquisitions, • an increase of $2.6 million from non-comparable properties due primarily to the opening of Phase III at Assembly Row, and • an increase of $2.1 million from comparable properties primarily due to a true-up in 2021 of prior year supplemental taxes at one of our properties and higher assessments, partially offset by • a decrease of $0.8 million from our property sales. Property Operating Income Property operating income increased $83.0 million, or 13.1%, to $717.6 million in 2022 compared to $634.6 million in 2021. This increase is primarily driven by the ongoing recovery from the initial impacts of COVID-19, which resulted in lower collectibility related adjustments and higher percentage rent, specialty leasing, and parking income, compared to 2021 during which COVID-19 related restrictions were gradually being lifted. Also contributing to the increase were property acquisitions, higher occupancy and rental rates at comparable properties, and the opening of Phase III at Assembly Row in 2021, partially offset by property sales. Other Operating General and Administrative Expense General and administrative expense increased $2.8 million, or 5.6%, to $52.6 million in 2022 from $49.9 million in 2021. This increase is due primarily to higher personnel related costs. Depreciation and Amortization Depreciation and amortization expense increased $22.4 million, or 8.0%, to $302.4 million in 2022 from $280.0 million in 2021. This increase is due primarily to property acquisitions, the openings of Phase III at Assembly Row, the Phase III office building at Pike & Rose, and CocoWalk, partially offset by the net impact of accelerated depreciation related to 2021 and 2022 redevelopment activities and 2021 property sales. Gain on Deconsolidation of VIE The $70.4 million gain on deconsolidation of VIE for the year ended December 31, 2022 is the result of the deconsolidation of Escondido Promenade in connection with the execution of the related August 25, 2022 TIC agreement (see Note 3 for additional information). Gain on Sale of Real Estate and Change in Control of Interest The $93.5 million gain on sale of real estate for the year ended December 31, 2022 is due primarily to a net gain of $84.1 million from the sale of two residential properties (including an adjacent retail pad), one retail property, and one parcel of land (see Note 3 for additional information), and a $9.3 million gain related to the reduction of our liability for estimated condemnation and transaction costs associated with the sale under threat of condemnation in December 2019 at San Antonio Center (see Note 7 for additional information). The $90.0 million gain on sale of real estate for the year ended December 31, 2021 is due to the sale of two properties and portions of three properties, as well as the $2.1 million gain relating to the acquisition of the previously unconsolidated Pike & Rose hotel joint venture (see Note 3 to the consolidated financial statements for additional information). Operating Income Operating income increased $131.7 million, or 33.4%, to $526.4 million in 2022 compared to $394.7 million in 2021. This increase is primarily due to the gain on the deconsolidation of a VIE, and the ongoing recovery from the impacts of COVID-19 restrictions, which resulted in lower collectibility related adjustments and higher percentage rent, specialty leasing, and parking income, compared to 2021 during which COVID-19 related restrictions were gradually being lifted. Also contributing to the increase were property acquisitions, higher occupancy and rental rates at comparable properties, and the opening of Phase III at Assembly Row in 2021, partially offset by property sales and higher personnel related costs. 41 Table of Contents Other Interest Expense Interest expense increased $9.3 million, or 7.3%, to $137.0 million in 2022 compared to $127.7 million in 2021. This increase is due primarily to the following: • an increase of $5.6 million due to a higher overall weighted average borrowing rate, and • a decrease of $4.0 million in capitalized interest, partially offset by • a decrease of $0.2 million due to lower weighted average borrowings. Gross interest costs were $155.7 million and $150.3 million in 2022 and 2021, respectively. Capitalized interest was $18.7 million and $22.6 million in 2022 and 2021, respectively. Income from Partnerships Income from partnerships increased $3.9 million or 315.3% to $5.2 million in 2022 compared to $1.2 million in 2021. This increase is due primarily to improved operating results at our Assembly Row hotel joint venture and our restaurant joint ventures, largely the result of the easing of COVID-19 closures and restrictions and the forgiveness of certain loans for some of our restaurants joint ventures and at our Assembly Row hotel joint venture. Net income attributable to noncontrolling interests Net income attributable to noncontrolling interests increased $2.6 million, or 34.1%, to $10.2 million in 2022 compared to $7.6 million in 2021. The increase is primarily due to 2021 acquisitions and higher income at our properties with third party partners. Discussions of year-to-year comparisons between 2021 and 2020 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission on February 10, 2022. Liquidity and Capital Resources Due to the nature of our business and strategy, we typically generate significant amounts of cash from operations which is largely paid to our common and preferred shareholders in the form of dividends because as a REIT, the Trust is generally required to make annual distributions to shareholders of at least 90% of our taxable income (cash dividends paid in 2022 were approximately $349.0 million). Remaining cash flow from operations after dividend payments is used to fund recurring and non-recurring capital projects (such as tenant improvements and redevelopments), and regular debt service requirements (including debt service relating to additional or replacement debt, as well as scheduled debt maturities). We maintain a $1.25 billion revolving credit facility to fund short term cash flow needs and also look to the public and private debt and equity markets, joint venture relationships, and property dispositions to fund capital expenditures on a long-term basis. During 2022, we have continued to see improvements in overall cash collections from tenants with collection rates nearing pre-pandemic levels. We have also taken multiple steps over the past two years to strengthen our financial position, maximize liquidity, and to provide maximum flexibility during these uncertain times. On October 5, 2022, we amended our revolving credit facility increasing the borrowing capacity from $1.0 billion to $1.25 billion and extending the maturity date to April 5, 2027, plus two six-month extensions at our option. Additionally, we have an option (subject to bank approval) to increase the credit facility through an accordion feature to $1.75 billion. We also amended our unsecured term loan, borrowing an additional $300.0 million. As of December 31, 2022, there is no balance outstanding on our $1.25 billion unsecured revolving credit facility and we had cash and cash equivalents of $85.6 million. For the year ended 2022, the weighted average amount of borrowings outstanding on our revolving credit facility was $80.3 million, and the weighted average interest rate, before amortization of debt fees, was 3.2%. We also have the capacity to issue up to $452.0 million in common shares under the ATM program. We have $275.0 million of debt maturing in 2023. Our overall capital requirements during 2023 will be impacted by the overall economic environment including impacts of inflation, supply chain issues, and a potential recession, as well as acquisition opportunities and the level and general timing of our redevelopment and development activities. We currently have development and redevelopment projects in various stages of construction with remaining costs of $274 million. We expect to incur the majority of those costs in the next two years. We expect overall capital costs to be at levels consistent with 2022 or slightly reduced as we complete current redevelopment 42 Table of Contents projects, prepare vacant space for new tenants, and complete the current phase and start on the next phase of our larger mixed use development projects. We believe cash flow from operations, the cash on our balance sheet, and our $1.25 billion revolving credit facility will allow us to continue to operate our business in the short-term. Given our ability to access the capital markets, we also expect debt or equity to be available to us, although newly issued debt would likely be at higher interest rates than we currently have outstanding. We also have the ability to delay the timing of certain development and redevelopment projects as well as limit future acquisitions, reduce our operating expenditures, or re-evaluate our dividend policy. We expect these sources of liquidity and opportunities for operating flexibility to allow us to meet our financial obligations over the long term. While we have seen significant improvements from the initial negative impacts of the COVID-19 pandemic, it, along with the overall state of the economy continues to affect our overall business, and we expect it will continue to negatively impact our business in the short term. However, we intend to operate with and to maintain our long term commitment to a conservative capital structure that will allow us to maintain strong debt service coverage and fixed-charge coverage ratios as part of our commitment to investment-grade debt ratings. Summary of Cash Flows Year Ended December 31, 2022 2021 (In thousands) Net cash provided by operating activities $ 516,769 $ 471,352 Net cash used in investing activities (785,998) (660,118) Net cash provided by (used in) financing activities 190,414 (452,967) Decrease in cash and cash equivalents (78,815) (641,733) Cash, cash equivalents, and restricted cash, beginning of year 175,163 816,896 Cash, cash equivalents, and restricted cash, end of year $ 96,348 $ 175,163 Net cash provided by operating activities increased $45.4 million to $516.8 million during 2022 from $471.4 million during 2021. The increase was primarily attributable to higher net income before non-cash items and gains on sale of real estate, partially offset by the timing of collections of real estate tax reconciliation billings during 2021 and the timing of payments. Net cash used in investing activities increased $125.9 million to $786.0 million during 2022 from $660.1 million during 2021. The increase was primarily attributable to: • a $72.0 million increase in acquisition of real estate primarily due to 2022 property acquisitions (see Note 3 to the consolidated financial statements for additional information), as compared to 2021 property acquisitions, • the $31.1 million payoff of two mortgage notes receivable in May 2021, • a $20.0 million increase in investment in partnerships, resulting from the 2022 acquisition of a 47.5% net interest in an unconsolidated joint venture that owns two shopping centers (see Note 3 to the consolidated financial statements for additional information), and • $18.0 million for net costs paid in 2022 relating to the partial sale under threat of condemnation at San Antonio Center in 2019, partially offset by • a $23.8 million decrease in net capital expenditures. Net cash used in financing activities decreased $643.4 million to $190.4 million provided during 2022 from $453.0 million used during 2021. The decrease was primarily attributable to: • $298.6 million in net proceeds from our unsecured term loan in October 2022, • a $258.2 million decrease in repayment of mortgages, finance leases, and notes payable primarily due to the $16.1 million mortgage loan repayment on one of the buildings at our Hoboken property in June 2022, as compared to the $140.9 million net repayments of four mortgage loans in 2021, the $100.0 million partial repayment of our $400.0 term loan which was amended in April 2021, and the $31.5 million repayment of the mortgage loan related to the Pike & Rose hotel in January 2021, and • $134.3 million increase in net proceeds from the issuance of common shares under our ATM equity program for net proceeds of $306.8 million and $172.7 million, respectively, during 2022 and 2021, 43 Table of Contents partially offset by, • a $27.6 million increase in distributions to and redemptions of noncontrolling interests primarily related to our acquisition of the redeemable noncontrolling interest in the partnership that owns the Plaza El Segundo shopping center for $23.6 million, and • an $11.6 million increase in dividends paid to shareholders due to an increase in the common share dividend rate and an increase in the number of common shares outstanding. Cash Requirements The following table provides a summary of material cash requirements comprising our fixed, noncancelable obligations as of December 31, 2022: Cash Requirements by Period Total Next Twelve Months Greater than Twelve Months (In thousands) Fixed and variable rate debt (principal only) (1) $ 4,344,474 $ 278,893 4,065,581 Fixed and variable rate debt - our share of unconsolidated real estate partnerships (principal only)(2) 64,183 20,248 43,935 Lease obligations (minimum rental payments) (3)(4) 358,276 65,488 292,788 Redevelopments/capital expenditure contracts 262,081 244,096 17,985 Real estate commitments (5) 11,091 — 11,091 Total estimated cash requirements $ 5,040,105 $ 608,725 $ 4,431,380 _____________________ (1) The weighted average interest rate on our fixed and variable rate debt is 3.7% as of December 31, 2022. (2) The weighted average interest rate on the fixed and variable rate debt related to our unconsolidated real estate partnerships is 4.05% as of December 31, 2022. (3) This includes minimum rental payments related to both finance and operating leases. (4) Lease obligations in the next twelve months include the $55 million fixed purchase price option for Mercer Mall as discussed in Note 7 to the consolidated financial statements. (5) This includes the liability related to the sale under threat of condemnation at San Antonio Center as further discussed in Note 7 to the consolidated financial statements. In addition to the amounts set forth in the table above and other liquidity requirements previously discussed, the following potential commitments exist: (a) Under the terms of the Congressional Plaza partnership agreement, a minority partner has the right to require us and the other minority partner to purchase its 26.63% interest in Congressional Plaza at the interest’s then-current fair market value. If the other minority partner defaults in their obligation, we must purchase the full interest. Based on management’s current estimate of fair market value as of December 31, 2022, our estimated liability upon exercise of the put option would range from approximately $62 million to $65 million. (b) Under the terms of various other partnership agreements, the partners have the right to exchange their operating partnership units for cash or the same number of our common shares, at our option. As of December 31, 2022, a total of 644,554 downREIT operating partnership units are outstanding. (c) The other member in The Grove at Shrewsbury and Brook 35 has the right to require us to purchase all of its approximately 4.1% interest in The Grove at Shrewsbury and approximately 6.5% interest in Brook 35 at the interests' then-current fair market value. Based on management's current estimate of fair market value as of December 31, 2022, our estimated maximum liability upon exercise of the put option would range from $6 million to $7 million. (d) Effective September 18, 2023, the other member in Hoboken has the right to require us to purchase all of its 10% ownership interest at the interest's then-current fair market value. Based on management's current estimate of fair market value as of December 31, 2022, our estimated maximum liability upon exercise of the put option would range from $8 million to $9 million. (e) Effective June 14, 2026, the other member in Camelback Colonnade and Hilton Village has the right to require us to purchase all of its 2.0% ownership interest at the interest's then-current fair market value. Based on management's current 44 Table of Contents estimate of fair value as of December 31, 2022, our estimated maximum liability upon exercise of the put option would range from $4 million to $5 million. (f) Effective October 6, 2027, the other member in the partnership that owns equity method investments in Chandler Festival and Chandler Gateway has the right to require us to purchase its 2.5% net ownership interest. Based on management's current estimate of fair value as of December 31, 2022, our estimated maximum liability upon exercise of the put option would range from $1 million and $2 million. (g) Effective June 1, 2029, the other member in Grossmont Center has the right to require us to purchase all of its 40.0% ownership interest at the interest's then-current fair market value. Based on management's current estimate of fair value as of December 31, 2022, our estimated maximum liability upon exercise of the put option would range from $68 million to $73 million. (h) At December 31, 2022, we had letters of credit outstanding of approximately $6.7 million. Off-Balance Sheet Arrangements At December 31, 2022, we have four real estate related equity method investments with total debt outstanding of $154.1 million, of which our share is $63.8 million. Our investment in these ventures at December 31, 2022 was $34.0 million. Other than the items disclosed in the Cash Requirements table, we have no off-balance sheet arrangements as of December 31, 2022 that are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements, or capital resources. 45 Table of Contents Debt Financing Arrangements The following is a summary of our total debt outstanding as of December 31, 2022: Description of Debt Original Debt Issued Principal Balance as of December 31, 2022 Stated Interest Rate as of December 31, 2022 Maturity Date (Dollars in thousands) Mortgages payable Secured fixed rate Azalea Acquired $ 40,000 3.73 % November 1, 2025 Bell Gardens Acquired 11,835 4.06 % August 1, 2026 Plaza El Segundo 125,000 125,000 3.83 % June 5, 2027 The Grove at Shrewsbury (East) 43,600 43,600 3.77 % September 1, 2027 Brook 35 11,500 11,500 4.65 % July 1, 2029 Hoboken (24 Buildings) (1) 56,450 55,060 LIBOR + 1.95% December 15, 2029 Various Hoboken (14 Buildings) Acquired 30,876 Various (2) Various through 2029 Chelsea Acquired 4,446 5.36 % January 15, 2031 Subtotal 322,317 Net unamortized debt issuance costs and premium (1,702) Total mortgages payable, net 320,615 Notes payable Term Loan (3)(5) 600,000 600,000 SOFR + 0.85% April 16, 2024 Revolving credit facility (3)(4)(5) 1,250,000 — SOFR + 0.775% April 5, 2027 Various 7,239 2,957 Various (6) Various through 2059 Subtotal 602,957 Net unamortized debt issuance costs (1,880) Total notes payable, net 601,077 Senior notes and debentures Unsecured fixed rate 2.75% notes 275,000 275,000 2.75 % June 1, 2023 3.95% notes 600,000 600,000 3.95 % January 15, 2024 1.25% notes 400,000 400,000 1.25 % February 15, 2026 7.48% debentures 50,000 29,200 7.48 % August 15, 2026 3.25% notes 475,000 475,000 3.25 % July 15, 2027 6.82% medium term notes 40,000 40,000 6.82 % August 1, 2027 3.20% notes 400,000 400,000 3.20 % June 15, 2029 3.50% notes 400,000 400,000 3.50 % June 1, 2030 4.50% notes 550,000 550,000 4.50 % December 1, 2044 3.625% notes 250,000 250,000 3.625 % August 1, 2046 Subtotal 3,419,200 Net unamortized debt issuance costs and premium (11,499) Total senior notes and debentures, net 3,407,701 Total debt, net $ 4,329,393 _____________________ (1) On November 26, 2019, we entered into two interest rate swap agreements that fix the interest rate on the mortgage loan at 3.67%. (2) The interest rates on these mortgages range from 3.91% to 5.00%. (3) Our revolving credit facility SOFR loans bear interest at Daily Simple SOFR or Term SOFR as defined in the credit agreement and our term loan bears interest at Term SOFR, plus 0.10%, plus a spread, based on our current credit rating. (4) The maximum amount drawn under our revolving credit facility during 2022 was $330.0 million and the weighted average effective interest rate on borrowings under our revolving credit facility, before amortization of debt fees, was 3.2%. (5) The Operating Partnership is the obligor under our revolving credit facility, term loan, and senior notes and debentures. (6) The interest rates on these notes payable range from 3.00% to 11.31%. 46 Table of Contents Our revolving credit facility, unsecured term loan, and other debt agreements include financial and other covenants that may limit our operating activities in the future. As of December 31, 2022, we were in compliance with all financial and other covenants related to our revolving credit facility, term loan, and senior notes. Additionally, we were in compliance with all of the financial and other covenants that could trigger a loan default on our mortgage loans. If we were to breach any of these financial and other covenants and did not cure the breach within an applicable cure period, our lenders could require us to repay the debt immediately and, if the debt is secured, could immediately begin proceedings to take possession of the property securing the loan. Many of our debt arrangements, including our public notes and our revolving credit facility, are cross-defaulted, which means that the lenders under those debt arrangements can put us in default and require immediate repayment of their debt if we breach and fail to cure a default under certain of our other debt obligations. As a result, any default under our debt covenants could have an adverse effect on our financial condition, our results of operations, our ability to meet our obligations and the market value of our shares. Our organizational documents do not limit the level or amount of debt that we may incur. The following is a summary of our scheduled principal repayments as of December 31, 2022: Unsecured Secured Total (In thousands) 2023 $ 275,755 $ 3,138 $ 278,893 2024 1,200,671 (1) 3,299 1,203,970 2025 418 47,630 48,048 2026 429,276 26,240 455,516 2027 515,037 (2) 178,278 693,315 Thereafter 1,601,000 63,732 1,664,732 $ 4,022,157 $ 322,317 $ 4,344,474 (3) _____________________ (1) Our $600.0 million term loan matures on April 16, 2024, plus two one-year extensions, at our option. (2) Our $1.25 billion revolving credit facility matures on April 5, 2027, plus two six-month extensions, at our option. As of December 31, 2022, there was no outstanding balance under this credit facility. (3) The total debt maturities differ from the total reported on the consolidated balance sheet due to the unamortized net debt issuance costs and premium/discount on mortgage loans, notes payable, and senior notes as of December 31, 2022. Interest Rate Hedging We may use derivative instruments to manage exposure to variable interest rate risk. We generally enter into interest rate swaps to manage our exposure to variable interest rate risk and treasury locks to manage the risk of interest rates rising prior to the issuance of debt. We enter into derivative instruments that qualify as cash flow hedges and do not enter into derivative instruments for speculative purposes. Interest rate swaps associated with cash flow hedges are recorded at fair value on a recurring basis. Effectiveness of cash flow hedges is assessed both at inception and on an ongoing basis. The effective portion of changes in fair value of the interest rate swaps associated with cash flow hedges is recorded in other comprehensive income (loss) which is included in "accumulated other comprehensive loss" on the balance sheet and statement of shareholders' equity. Cash flow hedges become ineffective if critical terms of the hedging instrument and the debt instrument do not perfectly match such as notional amounts, settlement dates, reset dates, calculation period and LIBOR rate. In addition, the default risk of the counterparty is evaluated by monitoring the credit worthiness of the counterparty which includes reviewing debt ratings and financial performance. If a cash flow hedge is deemed ineffective, the ineffective portion of changes in fair value of the interest rate swaps associated with cash flow hedges is recognized in earnings in the period affected. As of December 31, 2022, we have two interest rate swap agreements that effectively fix the interest rate on a mortgage payable associated with our Hoboken portfolio at 3.67%. Our Assembly Row hotel joint venture is also a party to two interest rate swap agreements that effectively fix their debt at 5.206%. All swaps were designated and qualify as cash flow hedges. Hedge ineffectiveness has not impacted our earnings in 2022, 2021 and 2020. REIT Qualification 47 Table of Contents We intend to maintain our qualification as a REIT under Section 856(c) of the Code. As a REIT, we generally will not be subject to corporate federal income taxes on income we distribute to our shareholders as long as we satisfy certain technical requirements of the Code, including the requirement to distribute at least 90% of our taxable income to our shareholders. Funds From Operations Funds from operations (“FFO”) is a supplemental non-GAAP financial measure of real estate companies’ operating performance. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as follows: net income, computed in accordance with U.S. GAAP, plus real estate related depreciation and amortization, and excluding gains and losses on the sale of real estate or changes in control, net of tax, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. We compute FFO in accordance with the NAREIT definition, and we have historically reported our FFO available for common shareholders in addition to our net income and net cash provided by operating activities. It should be noted that FFO: • does not represent cash flows from operating activities in accordance with GAAP (which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income); • should not be considered an alternative to net income as an indication of our performance; and • is not necessarily indicative of cash flow as a measure of liquidity or ability to fund cash needs, including the payment of dividends. We consider FFO available for common shareholders a meaningful, additional measure of operating performance primarily because it excludes the assumption that the value of the real estate assets diminishes predictably over time, as implied by the historical cost convention of GAAP and the recording of depreciation. We use FFO primarily as one of several means of assessing our operating performance in comparison with other REITs. Comparison of our presentation of FFO to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs. An increase or decrease in FFO available for common shareholders does not necessarily result in an increase or decrease in aggregate distributions because our Board of Trustees is not required to increase distributions on a quarterly basis. However, we must distribute at least 90% of our annual taxable income to remain qualified as a REIT. Therefore, a significant increase in FFO will generally require an increase in distributions to shareholders although not necessarily on a proportionate basis. The reconciliation of net income to FFO available for common shareholders is as follows: Year Ended December 31, 2022 2021 2020 (In thousands, except per share data) Net income $ 395,661 $ 269,081 $ 135,888 Net income attributable to noncontrolling interests (10,170) (7,583) (4,182) Gain on deconsolidation of a VIE (70,374) — — Gain on sale of real estate and change in control of interests, net (93,483) (89,892) (91,922) Impairment charge, net — — 50,728 Depreciation and amortization of real estate assets 266,741 243,711 228,850 Amortization of initial direct costs of leases 27,268 26,051 20,415 Funds from operations 515,643 441,368 339,777 Dividends on preferred shares (1) (7,500) (8,042) (8,042) Income attributable to operating partnership units 2,810 2,998 3,151 Income attributable to unvested shares (1,797) (1,581) (1,037) Funds from operations available for common shareholders (2) $ 509,156 $ 434,743 $ 333,849 Weighted average number of common shares, diluted (1)(2)(3) 80,603 78,072 76,261 Funds from operations available for common shareholders, per diluted share (2) $ 6.32 $ 5.57 $ 4.38 _____________________ 48 Table of Contents (1) For the year ended December 31, 2022, dividends on our Series 1 preferred stock were not deducted in the calculation of FFO available to common shareholders, as the related shares were dilutive and included in "weighted average common shares, diluted." (2) For the year ended December 31, 2020, FFO available for common shareholders includes an $11.2 million charge related to early extinguishment of debt. If this charge was excluded, our FFO available for common shareholders for 2020 would have been $345.0 million, and FFO available for common shareholders, per diluted share would have been $4.52. (3) The weighted average common shares used to compute FFO per diluted common share includes downREIT operating partnership units that were excluded from the computation of diluted EPS. Conversion of these operating partnership units is dilutive in the computation of FFO per diluted common share but is anti-dilutive for the computation of diluted EPS for 2021 and 2020.