Item 7. Management’s Discussion and Analysis
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis relates to the operations of the Company for the years ended December 31, 2020 and 2019 and its financial position as of December 31, 2020 and 2019. Discussion of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Annual Report can be found in " Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations " of our Annual Report on Form 10-K for the year ended December 31, 2019. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included in this Annual Report.
Executive Summary
InvenTrust Properties Corp. is a premier multi-tenant retail REIT that acquires, owns, leases, redevelops, and manages grocery-anchored neighborhood centers, and select power centers that often have a grocery component, in Sun Belt markets with favorable demographics. We seek to continue to execute our strategy to enhance our retail platform by further investing in grocery-anchored centers with essential retail in our current markets, while exhibiting focused and disciplined capital allocation.
Evaluation of Financial Condition and Operating Results
Historically, management has evaluated our financial condition and operating performance by focusing on the following financial and non-financial indicators, discussed in further detail herein:
• Modified Net Operating Income ("Modified NOI"), a supplemental non-GAAP measure;
• Funds From Operations ("FFO") Applicable to Common Shares and Dilutive Securities, a supplemental non-GAAP measure;
• Adjusted FFO ("AFFO") Applicable to Common Shares and Dilutive Securities, a supplemental non-GAAP measure;
• Cash flow from operations as determined in accordance with GAAP;
• Economic and physical occupancy and rental rates;
• Leasing activity and lease rollover;
• Operating expense levels and trends;
• General and administrative expense levels and trends;
• Debt maturities and leverage ratios; and
• Liquidity levels.
Impact of the COVID-19 Pandemic on the Company's Business and Financial Statements
The Company's business has been, and continues to be, disrupted by the COVID-19 pandemic. We continue to assess the impact of the COVID-19 pandemic on all aspects of our business, including the impact on our tenants and their ability to make future rental payments in a timely fashion or at all and the possible impairment in value of our investment properties. The spread of COVID-19 is having a significant impact on the global, national, regional and local economic conditions. At this time, we are unable to estimate the full extent of these disruptions going forward on our financial condition and results of operations due to the evolving nature of the situation and numerous uncertainties that exist. These uncertainties include the scope, severity and duration, and any resurgences of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the direct and indirect economic effects of the pandemic and containment measures, and the timing, length and nature of an economic recovery, among others.
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We have taken and will consider a number of measures to mitigate the impact of the COVID-19 pandemic on our business and financial condition, including the following:
• For general corporate purposes and to increase our financial flexibility in light of the COVID-19 pandemic, we drew $150.0 million on the Revolving Credit Agreement on March 27, 2020. On October 28, 2020, we paid down $100.0 million of this balance;
• We have implemented a work from home policy and have placed restrictions on air travel. Our existing focus on providing remote-work IT solutions for our employees has enabled our workforce to transition smoothly to working from home with minimal disruption to our core operations. We remain committed to the safety of our employees as they execute on our operational needs and provide support to our tenants;
• We delayed our publishing of an estimated share value from May 2020 to December 2020 as a result of the potential financial impact of the COVID-19 pandemic and the sharp drop in property transactions leading to limited visibility on property valuations; and
• On June 11, 2020, we announced that our Board voted to suspend the SRP and the DRP until further notice.
Tenant Assistance Efforts and Deferred Rental Payments
Through February 9, 2021, we received requests for assistance from approximately 62% of our tenants representing approximately 52% of our GLA. We continue to evaluate our tenants' requests and are negotiating the terms of potential lease amendments on an individual basis. We do not expect all tenant requests will result in amended agreements, nor do we intend to forgo our contractual rights under our lease agreements. There can be no assurance that all amendments will be consummated on the agreed-upon terms and/or if consummated, amounts due will be collected as required by terms of the agreement.
The status of our recurring tenant billings across our entire portfolio, including our proportionate share of the properties in our unconsolidated joint venture, is reflected in the following tables, which shows disaggregated gross rent billed in the second, third and fourth quarter as of December 31, 2020.
Disaggregation of Gross Rent Billed
Gross Rent Billed Collected Payment
Deferral Plan Estimated
Credit Loss Remaining
Accounts Receivable
Quarter end June 30, 2020 $ 52,495 $ 45,013 $ 3,244 $ 4,158 $ 80
Quarter end Sept. 30, 2020 $ 52,610 $ 49,423 $ 838 $ 1,966 $ 383
Quarter end Dec. 31, 2020 $ 52,961 $ 50,659 $ (1,166) $ 2,209 $ 1,259
Disaggregation of Gross Rent Billed
Gross Rent Billed Collected Payment
Deferral Plan Estimated
Credit Loss Remaining
Accounts Receivable
Quarter end June 30, 2020 100% 85.7% 6.2% 7.9% 0.2%
Quarter end Sept. 30, 2020 100% 94.0% 1.6% 3.7% 0.7%
Quarter end Dec. 31, 2020 100% 95.6% (2.2)% 4.2% 2.4%
During the year ended December 31, 2020, deferred rental payments of $1.9 million, including our proportionate share of our unconsolidated joint venture, became due and payable; the Company has collected $1.7 million as of December 31, 2020. During the year ended December 31, 2020, the Company had granted approximately $6.5 million, including our proportionate share of our unconsolidated joint venture, of rental payment deferrals, with contractual payment terms through the year ended December 31, 2023.
From January 1, 2021 through February 9, 2021, we collected unpaid gross rent billed of approximately $0.1 million from the quarter ended June 30, 2020, $0.02 million from the quarter ended September 30, 2020, and $1.2 million from the quarter ended December 31, 2020, including our proportionate share of the properties in our unconsolidated joint venture. As of February 9, 2021, approximately 95.6% of our January 2021 tenant billings across our entire portfolio, including our proportionate share of the properties in our unconsolidated joint venture, have been collected.
Current Strategy and Outlook
InvenTrust focuses on grocery-anchored neighborhood centers, and select power centers that often have a grocery component, in markets with favorable demographics, including above average growth in population, employment and income. We believe these conditions create favorable demand characteristics for grocery-anchored and necessity-based retail centers which will enable us to capitalize on potential future rent increases while enjoying sustained occupancy at our centers. Using these criteria,
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we have focused our strategy on 15 to 20 markets, including, but not limited to, the metropolitan areas of Atlanta, Austin, Charlotte, Dallas-Fort Worth-Arlington, Houston, the greater Los Angeles and San Diego areas, Miami, Orlando, Raleigh-Durham, San Antonio and Tampa.
Our portfolio of grocery-anchored centers is open and our grocery tenants are continuing to serve their communities during this crisis. These properties play a critical role in the communities they serve, often providing essential retail and services such as groceries and healthcare products and services. As of February 9, 2021, 100% of our properties were open for business and approximately 99% of our occupied GLA were permitted by state and local governments to be open and operating in some capacity.
Our strategically located regional field offices are within a two-hour drive of 90% of our properties which affords us the ability to respond to the needs and requests of our tenants as they maneuver through this crisis with the intent to minimize disruption. In an effort to assist our tenants during this time, we have launched portfolio-wide initiatives aimed at providing designated common areas for outdoor dining and increasing signage at a number of properties to improve traffic flow to ease online order pick up and contactless transactions. However, as a result of the COVID-19 pandemic: some of our tenants have not been able to make rent payments to us in a timely fashion or at all, it will take longer to collect rent from many of our tenants, and retailer bankruptcies, failures, and store closings are expected to increase, leading to an increase in vacancies at our properties.
We believe the continued refinement of our retail platform has positioned us for future success and will allow us to evaluate, and ultimately execute on, a potential strategic transaction to achieve liquidity for and provide a return of capital to our stockholders in the long term. However, we may be unable to execute on such a transaction on terms we would find attractive for our stockholders and our ability to do so will be influenced by external and macroeconomic factors including, among others, the effects and duration of the COVID-19 pandemic and any future resurgences, the timing and nature of any recovery from the COVID-19 pandemic, interest rate movements, local, regional, national and global economic performance, competitive factors, the impact of e-commerce on the retail industry, future retailer store closings, retailer consolidation, retailers reducing store size, retailer bankruptcies, and government policy changes. At this time, the COVID-19 pandemic and related uncertainties have delayed our process for exploring and executing upon a potential strategic transaction.
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Highlights for the year ended December 31, 2020
Acquisitions
During the year ended December 31, 2020, we continued to execute our strategy to enhance our platform with the acquisition of retail properties in our core markets.
Acquisition Date Property Metropolitan Area Center Type Gross Acquisition Price Square Feet
February 25, 2020 Trowbridge Crossing Atlanta, GA Neighborhood center $ 10,950 $ 62,600
March 10, 2020 Antoine Town Center (a) Houston, TX Neighborhood center 22,254 $ 110,500
November 6, 2020 Kroger at Eldridge Town Center (b) Houston, TX Community center 9,043 64,722
$ 42,247 $ 237,822
(a) This retail property was acquired from the Company's unconsolidated joint venture, as disclosed in "Note 6. Investment in Unconsolidated Entities" .
(b) The Kroger at Eldridge Town Center is combined for property count purposes with a retail property already owned.
Dispositions
During the year ended December 31, 2020, we disposed of the following:
Disposition Date Property Metropolitan Area Center Type Gross
Disposition Price Square Feet
February 10, 2020 University Oaks Shopping Center (a) Round Rock, TX Power center $ 527 N/A
February 12, 2020 Centerplace of Greeley (a) Greeley, CO Community center 123 N/A
May 1, 2020 Woodlake Crossing San Antonio, TX Power center 5,500 160,000
September 30, 2020 Eldridge Town Center (a) Houston, TX Community center 451 N/A
November 25, 2020 Antoine Town Center (b) Houston, TX Neighborhood center 800 1,610
December 31, 2020 Eldridge Town Center (a) Houston, TX Community center 1,055 N/A
$ 8,456 161,610
(a) The Company recognized gains on sale related to the completion of partial condemnations at these retail properties.
(b) The Company recognized a gain on sale related to the disposition of an outparcel at this retail property.
Revolving Credit Agreement
On December 21, 2018, we entered into an unsecured revolving credit agreement, which amended and restated our prior unsecured revolving credit agreement in its entirety, and provides for a $350.0 million unsecured revolving line of credit (the "Revolving Credit Agreement"). During the second quarter of 2020, we drew $150,000 on the revolving credit agreement at an interest rate of 2.01% reflecting 1-Month LIBOR plus 1.05%. We subsequently repaid $100,000 of that draw during the fourth quarter of 2020.
Provision for Asset Impairment
During the three months ended March 31, 2020, we identified one retail property that had a reduction in its expected holding period and recorded a provision for asset impairment of $9.0 million on the consolidated statement of operations and comprehensive (loss) income for the year ended December 31, 2020 as a result of the fair value being lower than the property's carrying value. Our fair value was based on an executed sales contract.
Provision for Asset Impairment on an Asset in an Unconsolidated Joint Venture
During the three months ended December 31, 2020, we identified one retail property within the IAGM joint venture that had a reduction in its expected holding period by the joint venture and recorded a provision for asset impairment of $11.0 million. Our share of this provision for asset impairment of $6.1 million on its consolidated statement of operations and comprehensive (loss) income as part of equity in (losses) earnings and (impairment), net, for the year ended December 31, 2020.
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Our Retail Portfolio
Our wholly-owned, consolidated and managed retail properties include grocery-anchored community and neighborhood centers and power centers, including those classified as necessity-based. As of December 31, 2020, we owned or had an interest in 65 retail properties with a GLA of approximately 10.8 million square feet, which includes 10 retail properties with a GLA of approximately 2.5 million square feet owned through the Company's 55% ownership interest in an unconsolidated joint venture, IAGM.
The following table summarizes our retail portfolio, on a wholly-owned, IAGM, and pro rata combined basis, as of December 31, 2020 and 2019.
Wholly-Owned
Retail Properties IAGM
Retail Properties Pro Rata Combined
Retail Portfolio
2020 2019 2020 2019 2020 2019
No. of properties 55 54 10 11 65 65
GLA (square feet) 8,392,572 8,311,521 2,470,193 2,580,414 9,751,178 9,730,748
Economic occupancy 94.8% 95.4% 87.4% 94.6% 93.8% 95.3%
ABR PSF $18.69 $18.79 $17.36 $17.42 $18.52 $18.60
Retail Portfolio Summary by Center Type
Our retail properties consist of community and neighborhood centers and power centers.
• Community and neighborhood centers are generally open-air and designed for tenants that offer a wide array of merchandise and services, including groceries, soft goods and convenience-oriented offerings. Our community centers contain large anchor stores and a significant presence of national retail tenants. Our neighborhood centers are generally smaller open-air centers with a grocery store anchor and/or drugstore and other small service-type retailers.
• Power centers are generally larger and consist of several anchors, such as discount department stores, off-price stores, specialty grocers and warehouse clubs. Typically, the number of specialty tenants is limited and most are national or regional in scope.
The following tables summarize our retail portfolio, by center type, as of December 31, 2020 and 2019.
Community and neighborhood centers
Wholly-Owned
Retail Properties IAGM
Retail Properties Pro Rata Combined
Retail Portfolio
2020 2019 2020 2019 2020 2019
No. of properties 44 42 5 6 49 48
GLA (square feet) 5,049,328 4,813,201 1,386,308 1,496,786 5,811,797 5,636,433
Economic occupancy 95.0% 95.6% 88.6% 94.8% 94.2% 95.5%
ABR PSF $19.77 $20.18 $17.21 $17.21 $19.45 $19.75
Power centers
Wholly-Owned
Retail Properties IAGM
Retail Properties Pro Rata Combined
Retail Portfolio
2020 2019 2020 2019 2020 2019
No. of properties 11 12 5 5 16 17
GLA (square feet) 3,343,244 3,498,320 1,083,885 1,083,628 3,939,381 4,094,315
Economic occupancy 94.5% 95.1% 86.0% 94.3% 93.2% 95.0%
ABR PSF $17.03 $16.84 $17.57 $17.77 $17.11 $16.96
Same-Property Retail Portfolio Summary
The following table summarizes the GLA, economic occupancy and ABR PSF of the properties included in our retail portfolio classified as same-property for the years ended December 31, 2020 and 2019. The properties classified as same-property were owned for the entirety of both periods presented.
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Wholly-Owned
Retail Properties IAGM
Retail Properties Pro Rata Combined
Retail Portfolio
2020 2019 2020 2019 2020 2019
No. of properties 46 46 10 10 56 56
GLA (square feet) 7,253,138 7,244,712 2,470,193 2,462,414 8,611,744 8,599,040
Economic occupancy 94.8% 96.5% 87.4% 94.2% 93.6% 96.1%
ABR PSF $18.52 $18.28 $17.36 $17.62 $18.35 $18.19
Leasing Activity
The following tables summarize the leasing activity for leases that were executed during the year ended December 31, 2020, compared with expiring or expired leases for the same or previous tenant for renewals and the same unit for new leases at our 65 retail properties. These tables do not include rent deferral lease amendments executed as a result of the impact of the COVID-19 pandemic.
Wholly-owned Retail Properties
In our wholly-owned retail portfolio, we had GLA totaling 714,498 square feet expiring during the year ended December 31, 2020, of which 587,138 square feet was re-leased. This achieved a retention rate of approximately 82.2%.
No. of Leases Executed
for the year ended
Dec. 31, 2020 GLA SF New Contractual Rent
($PSF)(b) Prior Contractual Rent
($PSF)(b) % Change over Prior Contract Rent (b) Weighted Average Lease Term
(Years) Tenant Improvement Allowance ($PSF) Lease Commissions ($PSF)
All tenants
Comparable Renewal
Leases (a) 116 516,048 $20.93 $20.15 3.9% 5.4 $0.56 $0.08
Comparable New Leases (a) 14 41,941 $24.79 $25.72 (3.6)% 8.8 $22.05 $8.58
Non-Comparable Renewal and New Leases 44 251,001 $16.21 N/A N/A 6.6 $15.95 $6.08
Total 174 808,990 $21.22 $20.57 3.2% 5.9 $6.45 $2.38
Anchor tenants (leases over 10,000 square feet)
Comparable Renewal Leases (a) 9 273,817 $11.30 $11.11 1.7% 5.3 $— $—
Comparable New Leases (a) 1 15,247 $14.25 $14.50 (1.7)% 10.4 $25.00 $8.76
Non-Comparable Renewal and New Leases 5 151,817 $8.14 N/A N/A 5.5 $9.84 $2.33
Total 15 440,881 $11.45 $11.29 1.4% 5.5 $4.25 $1.11
Non-anchor tenants (leases under 10,000 square feet)
Comparable Renewal Leases (a) 107 242,231 $31.81 $30.37 4.7% 5.4 $1.19 $0.17
Comparable New Leases (a) 13 26,694 $30.80 $32.12 (4.1)% 7.9 $20.37 $8.48
Non-Comparable Renewal and New Leases 39 99,184 $29.54 n/a N/A 8.3 $25.31 $11.81
Total 159 368,109 $31.71 $30.55 3.8% 6.4 $9.08 $3.91
(a) Comparable leases are leases that meet all of the following criteria: terms greater than one year, unit was vacant one year or less prior to occupancy, square footage of unit remains unchanged or within 10% of prior unit square footage, and has a rent structure consistent with the previous tenant.
(b) Non-comparable leases are not included in totals.
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IAGM Retail Properties
In our IAGM retail portfolio, we had GLA totaling 148,257 square feet expiring during the year ended December 31, 2020, of which 106,140 square feet was re-leased. This achieved a retention rate of approximately 71.6%.
No. of Leases Executed
for the year ended
Dec. 31, 2020 GLA SF New Contractual Rent
($PSF)(b) Prior Contractual Rent
($PSF)(b) % Change over Prior Contract Rent (b) Weighted Average Lease Term
(Years) Tenant Improvement Allowance ($PSF) Lease Commissions ($PSF)
All tenants
Comparable Renewal
Leases (a) 37 249,256 $16.96 $17.86 (5.0)% 4.8 $0.29 $0.06
Comparable New Leases (a) 2 4,892 $26.76 $26.61 0.6% 8.0 $20.00 $5.10
Non-Comparable Renewal and New Leases 17 76,336 $21.34 N/A N/A 9.3 $18.83 $6.52
Total 56 330,484 $17.15 $18.03 (4.9)% 5.9 $4.87 $1.63
Anchor tenants (leases over 10,000 square feet)
Comparable Renewal Leases (a) 7 165,806 $12.42 $13.57 (8.5)% 4.4 $— $—
Comparable New Leases (a) — — $— $— — — $— $—
Non-Comparable Renewal and New Leases 2 32,048 $14.21 N/A N/A 10.5 $3.12 $4.22
Total 9 197,854 $12.42 $13.57 (8.5)% 5.4 $0.51 $0.68
Non-anchor tenants (leases under 10,000 square feet)
Comparable Renewal Leases (a) 30 83,450 $25.97 $26.40 (1.6)% 5.5 $0.88 $0.19
Comparable New Leases (a) 2 4,892 $26.76 $26.61 0.6% 8.0 $20.00 $5.10
Non-Comparable Renewal and New Leases 15 44,288 $26.50 N/A N/A 8.4 $30.20 $8.19
Total 47 132,630 $26.00 $26.41 (1.6)% 6.5 $11.37 $3.04
(a) Comparable leases are leases that meet all of the following criteria: terms greater than one year, unit was vacant one year or less prior to occupancy, square footage of unit remains unchanged or within 10% of prior unit square footage, and has a rent structure consistent with the previous tenant.
(b) Non-comparable leases are not included in totals.
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Results of Operations
Comparison of results for the years ended December 31, 2020 and 2019
The following section describes and compares our consolidated results of operations for the years ended December 31, 2020 and 2019. We generate substantially all of our net income from property operations. Since January 1, 2019, we have acquired nine retail properties and disposed of 11 retail properties.
The following table presents the changes in our income for the years ended December 31, 2020 and 2019.
Year ended December 31, Composition of Total Decrease, net
2020 2019 Total
Decrease, net Acquisition Increase Disposition Decrease Same-Property
Increase
(Decrease)
Income
Lease income, net $ 192,957 $ 220,653 $ (27,696) $ 14,792 $ (29,868) $ (12,620)
Other property income 1,229 1,981 (752) 48 (850) 50
Other fee income 3,647 3,856 (209) — — (209)
Total income $ 197,833 $ 226,490 $ (28,657) $ 14,840 $ (30,718) $ (12,779)
Lease income, net, for the year ended December 31, 2020, decreased by $12.6 million on a same property basis when compared to the same period in 2019, primarily as a result of increased estimated credit losses of $6.0 million related to billed rent, increased estimated credit losses of $3.0 million related to straight-line rent receivable write-offs, increased rent abatements of $1.0 million, and net decreases in all other lease income of $2.2 million. We believe that the foregoing reductions in lease income, net were directly attributable to the effects of the COVID-19 pandemic on our tenants.
The following table presents the changes in our operating expenses for the years ended December 31, 2020 and 2019.
Year ended December 31, Composition of Total Decrease, net
2020 2019 Total
Decrease, net Acquisition Increase Disposition Decrease Same-Property
Decrease
Operating expenses
Depreciation and amortization $ 87,755 $ 97,429 $ (9,674) $ 7,657 $ (11,329) $ (6,002)
Property operating 27,909 31,944 (4,035) 2,100 (4,751) (1,384)
Real estate taxes 30,845 34,232 (3,387) 2,846 (4,952) (1,281)
General and administrative 33,141 35,361 (2,220) — — (2,220)
Total operating expenses $ 179,650 $ 198,966 $ (19,316) $ 12,603 $ (21,032) $ (10,887)
Depreciation and amortization, for the year ended December 31, 2020, decreased $6.0 million on a same property basis when compared to the same period in 2019 as a result of decreased in-place lease amortization of $3.0 million, decreased corporate IT software depreciation of $1.6 million, and decreased building, site, and tenant improvement depreciation of $1.4 million.
Property operating expenses, for the year ended December 31, 2020, decreased $1.4 million on a same property basis when compared to the same period in 2019 as a result of decreased landscaping, snow removal, and waste removal costs of $1.1 million and net decreases in all other property operating expenses of $0.3 million.
Real estate taxes, for the year ended December 31, 2020, decreased $1.3 million on a same property basis when compared to the same period in 2019 as a result of real estate tax refunds received.
General and administrative expenses for the year ended December 31, 2020, decreased $2.2 million, when compared to the same period in 2019, primarily as a result of decreased marketing and conference costs of $0.7 million, decreased stock administration and valuation costs of $0.3 million, decreased compensation and long-term incentive plan costs of $0.4 million, and net decreases in all other general and administrative expenses of $0.8 million. We believe that the foregoing reductions in general and administrative expenses were directly attributable to the effects of the COVID-19 pandemic.
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The following table presents the components of other (expense) income.
Year ended December 31,
2020 2019 Change, net
Other (expense) income
Interest expense, net $ (18,749) $ (22,717) $ 3,968
Loss on extinguishment of debt (2,543) (2,901) 358
Provision for asset impairment (9,002) (2,359) (6,643)
Gain on sale of investment properties, net 1,752 62,011 (60,259)
Equity in (losses) earnings and (impairment), net, of unconsolidated entities (3,141) 957 (4,098)
Other income and expense, net 3,326 1,384 1,942
Total other (expense) income, net $ (28,357) $ 36,375 $ (64,732)
Interest expense, net
Interest expense, net, consists of interest incurred on mortgages payable and our corporate credit facilities, interest incurred on other financing instruments, and amortization of loan fees.
Interest expense, net, for the year ended December 31, 2020 decreased $4.0 million when compared to the same period in 2019, primarily as a result of repaying total mortgages payable of $106.7 million across five retail properties since January 1, 2019, resulting in interest savings of $3.6 million. Although our corporate credit facilities increased $98.0 million from January 1, 2019, the higher principal balances were more than offset by the impact of declining 1-month LIBOR interest rates, resulting in the remaining decrease in interest expense of $0.4 million.
Loss on extinguishment of debt
During the year ended December 31, 2020, we recognized a loss of $2.5 million on the extinguishment of total mortgages payable of $26.3 million on two retail properties, primarily related to prepayment penalties. During the year ended December 31, 2019, we recognized a loss of $2.9 million on the extinguishment of total mortgages payable of $36.1 million on two retail properties, primarily related to prepayment penalties.
Provision for asset impairment
During the year ended December 31, 2020, we identified one retail property that had a reduction in its expected hold period. We recorded a provision for asset impairment of $9.0 million as a result of the executed sales contract price being lower than the property's carrying value. This property was sold on May 1, 2020.
During the year ended December 31, 2019, we identified one retail property that had a reduction in its expected hold period. We recorded a provision for asset impairment of $2.4 million as a result of the executed sales contract price being lower than the property's carrying value. This property was sold on September 25, 2019.
Gain on sale of investment properties, net
During the year ended December 31, 2020, we recognized a gain of $1.8 million on the sale of one retail property, partial sale of one retail property, and the completion of partial condemnations at three retail properties. During the year ended December 31, 2019, we recognized a gain of $62.0 million on the sale of ten retail properties.
Equity in (losses) earnings and (impairment), net, of unconsolidated entities
We recognized $3.1 million of equity in losses of unconsolidated entities for the year ended December 31, 2020 and $1.0 million of equity in earnings for the year ended December 31, 2019. The $4.0 million decrease is the result of decreased income from property operations after management fees of $0.6 million and increased provision for asset impairment of $5.3 million, which were partially offset by decreased interest expense of $1.9 million.
Other income and expense, net
Other income and expense, net, consists of interest earned on cash and cash equivalents, income tax benefits and expenses, and non-operating income and expenses.
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Under the federal legislation enacted on March 27, 2020, known as the CARES Act, certain limitations on the deductibility of net operating losses ("NOLs") enacted under prior federal tax legislation have been temporarily rolled back. In particular, the CARES Act permits businesses to carryback NOLs generated in taxable years beginning after December 31, 2017 and before January 1, 2021 to the previous five years and temporarily suspends, until taxable years beginning after December 31, 2020, the annual limit of 80% on the amount of taxable income that NOLs generated in taxable years beginning after December 31, 2017 may offset. As a result of the additional anticipated NOL carryback claims for our taxable REIT subsidiaries, tax benefits of $1.2 million have been recognized during the year ended December 31, 2020.
Net loss from discontinued operations
During the year ended December 31, 2019, we recognized $25.5 million relating to indemnity claims from the sale of our student housing business, which was sold in June 2016. On June 14, 2019, a final settlement for the claims was reached in the amount of $30.0 million, which we paid on June 24, 2019.
Net Operating Income
We evaluate the performance of our wholly-owned and consolidated retail properties based on Modified NOI, which excludes general and administrative expenses, depreciation and amortization, provision for asset impairment, other income and expense, net, gains (losses) from sales of properties, gains (losses) on extinguishment of debt, interest expense, net, equity in (losses) earnings and (impairment), net, from unconsolidated entities, lease termination income and expense, and GAAP rent adjustments (such as straight-line rent, above/below market lease amortization and amortization of lease incentives). We bifurcate Modified NOI into same-property Modified NOI and Modified NOI from other investment properties based on whether the underlying retail properties meet our same-property criteria.
We believe the supplemental non-GAAP financial measures of Modified NOI, same-property Modified NOI, and Modified NOI from other investment properties provide added comparability across periods when evaluating our financial condition and operating performance that is not readily apparent from "Operating income" or "Net income" in accordance with GAAP.
Comparison of same-property results for the years ended December 31, 2020 and 2019
A total of 46 wholly-owned retail properties met our same-property criteria for the years ended December 31, 2020 and 2019. The following table represents the reconciliation of net income, the most directly comparable GAAP measure, to Modified NOI and same-property Modified NOI for the years ended December 31, 2020 and 2019:
Year ended December 31,
2020 2019 Change, net
Net (loss) income $ (10,174) $ 38,399 $ (48,573)
Adjustments to reconcile to non-GAAP metrics:
Net loss from discontinued operations — 25,500 (25,500)
Other income and expense, net (3,326) (1,384) (1,942)
Equity in losses (earnings) and impairment, net, of unconsolidated entities 3,141 (957) 4,098
Interest expense, net 18,749 22,717 (3,968)
Loss on extinguishment of debt 2,543 2,901 (358)
Gain on sale of investment properties, net (1,752) (62,011) 60,259
Provision for asset impairment 9,002 2,359 6,643
Depreciation and amortization 87,755 97,429 (9,674)
General and administrative 33,141 35,361 (2,220)
Other fee income (3,647) (3,856) 209
Adjustments to Modified NOI (a) (7,249) (10,830) 3,581
Modified NOI 128,183 145,628 (17,445)
Modified NOI from other investment properties (17,707) (28,875) 11,168
Same-property Modified NOI $ 110,476 $ 116,753 $ (6,277)
(a) Adjustments to Modified NOI include termination fee income and expense and GAAP rent adjustments.
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Comparison of the components of same-property Modified NOI for the years ended December 31, 2020 and 2019:
Year ended December 31, Change
2020 2019 Variance
Lease income, net $ 159,042 $ 168,080 $ (9,038) (5.4)%
Other property income 1,157 1,109 48 4.3%
160,199 169,189 (8,990) (5.3)%
Property operating expenses 23,660 25,091 (1,431) (5.7)%
Real estate taxes 26,063 27,345 (1,282) (4.7)%
49,723 52,436 (2,713) (5.2)%
Same-property Modified NOI $ 110,476 $ 116,753 $ (6,277) (5.4)%
Same-property Modified NOI decreased by $6.3 million, or 5.4%, when comparing the year ended December 31, 2020, to the same period in 2019, and was primarily a result of:
• an increase in estimated credit losses of $6.0 million,
• an increase in rent abatements of $1.0 million,
• a decrease in recovery revenue of $2.0 million, and was offset by:
• a decrease in recoverable expenses of $2.4 million,
• a decrease in non-recoverable expenses of $0.3 million.
These fluctuations in Same-property Modified NOI were, in our judgment, attributable to the impact of the COVID-19
pandemic, primarily those attributing to increased estimated credit losses.
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Funds From Operations
The National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a widely accepted non-GAAP financial measure of operating performance known as Funds From Operations ("FFO"). Our FFO, based on the NAREIT definition, is net income (or loss) in accordance with GAAP, excluding gains (or losses) resulting from dispositions of properties, plus depreciation and amortization and impairment charges on depreciable real property. Adjustments for unconsolidated joint ventures are calculated to reflect our proportionate share of the joint venture's funds from operations on the same basis.
In calculating FFO, impairment charges of depreciable real estate assets are added back even though the impairment charge may represent a permanent decline in value due to the decreased operating performance of the applicable property. Furthermore, because gains and losses from sales of property are excluded from FFO, it is consistent and appropriate that impairments, which are often early recognition of losses on prospective sales of property, also be excluded. If evidence exists that a loss reflected in the investment of an unconsolidated entity is due to the impairment of depreciable real estate assets, our share of these impairments is added back to net income in the determination of FFO.
We believe FFO Applicable to Common Shares and Dilutive Securities, when considered with the financial statements determined in accordance with GAAP, is helpful to investors in understanding our performance because the historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative.
Adjusted Funds From Operations ("AFFO") is an additional supplemental non-GAAP financial measure of our operating performance. In particular, AFFO provides an additional measure to compare the operating performance of different REITs without having to account for certain remaining amortization assumptions within FFO and other unique revenue and expense items which are not pertinent to measuring a particular company's on-going operating performance. In that regard, we use AFFO as an input to our compensation plan to determine cash bonuses and measure the achievement of certain performance-based equity awards.
Our adjustments to FFO to arrive at AFFO include removing the impact of (i) amortization of debt premiums, discounts, and financing costs, (ii) amortization of above and below-market leases and lease inducements, (iii) depreciation and amortization of corporate assets, (iv) straight-line rent adjustments, (v) gains (or losses) resulting from debt extinguishments (vi) other nonoperating revenue and expense items which are not pertinent to measuring on-going operating performance, (vii) adjustments for unconsolidated joint ventures to reflect our share of the ventures' AFFO on the same basis. Our calculation of AFFO Applicable to Common Shares and Dilutive Securities is not reduced by any capital expenditures.
Other REITs may use alternative methodologies for calculating similarly titled measures, which may not be comparable to our definition and calculation of FFO Applicable to Common Shares and Dilutive Securities or AFFO Applicable to Common Shares and Dilutive Securities. Furthermore, FFO and AFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as alternatives to net income as an indication of our performance. FFO and AFFO should not be considered as alternatives to our cash flows from operating, investing, and financing activities. Nor should FFO and AFFO be considered as measures of liquidity, our ability to make cash distributions, or our ability to service our debt.
Prior to January 1, 2020, we reported a non-GAAP supplemental measure of operating performance, Modified Funds From Operations ("MFFO"). We discontinued the use of MFFO in favor of AFFO as we believe that it is a more meaningful supplemental non-GAAP financial measure of our operating performance than MFFO.
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FFO Applicable to Common Shares and Dilutive Securities and AFFO Applicable to Common Shares and Dilutive Securities is calculated as follows:
Year ended December 31,
2020 2019
Net (loss) income $ (10,174) $ 38,399
Depreciation and amortization related to investment properties 86,524 94,322
Provision for asset impairment 9,002 2,359
Gain on sale of investment properties, net (1,752) (62,011)
Provision for indemnification claims (a) — 25,500
Our share of IAGM's depreciation and amortization related to investment properties 8,967 11,074
Our share of IAGM's provision for asset impairment 6,059 794
Our share of IAGM's loss on sale of investment properties, net — 307
FFO Applicable to Common Shares and Dilutive Securities $ 98,626 $ 110,744
Loss on extinguishment of debt 2,543 2,901
Amortization of debt premiums, discounts and financing costs, net 1,826 1,706
Amortization of above and below-market leases and lease inducements, net (7,060) (6,148)
Depreciation and amortization related to corporate assets 1,231 3,107
Straight-line rent adjustment, net (2,590) (3,609)
Uncollectible straight-line rent 3,214 145
Non-operating income and expense, net (b) (1,557) (253)
Our share of IAGM's loss on extinguishment of debt 5 —
Our share of IAGM's amortization of financing costs 299 306
Our share of IAGM's amortization of above and below-market leases and lease inducements, net 302 201
Our share of IAGM's straight-line rent adjustment, net 376 (52)
Our share of IAGM's non-operating income and expense, net (b) (51) (90)
AFFO Applicable to Common Shares and Dilutive Securities $ 97,164 $ 108,958
Weighted average number of common shares outstanding - basic 719,882,476 728,620,309
Effect of unvested restricted shares (c) — 763,840
Weighted average number of common shares outstanding - diluted 719,882,476 729,384,149
Net (loss) income per common share, diluted $ (0.01) $ 0.05
Per share adjustments for FFO Applicable to Common Shares and Dilutive Securities 0.15 0.10
FFO Applicable to Common Shares and Dilutive Securities per share $ 0.14 $ 0.15
Per share adjustments for AFFO Applicable to Common Shares and Dilutive Securities (0.01) —
AFFO Applicable to Common Shares and Dilutive Securities per share $ 0.13 $ 0.15
(a) The provision for indemnification claims of $25.5 million recognized during the year ended December 31, 2019, was an adjustment to the gain on disposition of our discontinued operation (student housing business). We exclude disposition gains and losses from FFO.
(b) Non-operating income and expense, net, includes other non-operating revenue and expense items which are not pertinent to measuring ongoing operating performance, such as termination fee expense, miscellaneous income, and settlement income.
(c) For purposes of calculating non-GAAP per share metrics, the same denominator is used as that which would be used in calculating earnings per share under GAAP. For the year ended December 31, 2020, the effects of unvested restricted shares have been excluded from the denominator in the diluted net loss per share calculations under GAAP as they were antidilutive.
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Critical Accounting Policies and Estimates
General
The accompanying consolidated financial statements have been prepared in accordance with GAAP, which require management 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates, judgments and assumptions are required in a number of areas, including, but not limited to, evaluating the impairment of long-lived assets, allocating the purchase price of acquired retail properties, determining the fair value of debt and evaluating the collectability of accounts receivable. We base these estimates, judgments and assumptions on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
Variable Interest Entities
We evaluate our investments in LLCs and LPs to determine whether each such entity may be a VIE. The accounting standards related to the consolidation of VIEs require qualitative assessments to determine whether we are the primary beneficiary. Determination of the primary beneficiary is based on whether we have (i) power to direct significant activities of the VIE and (ii) an obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. We consolidate a VIE if we are deemed to be the primary beneficiary. The equity method of accounting is applied to entities in which we are not the primary beneficiary, or the entity is not a VIE and we do not have control, but can exercise influence over the entity with respect to its operations and major decisions. As of December 31, 2020 and 2019, the Company had no VIEs.
Revenue Recognition
Lease Income
Fixed consideration, generally consisting of minimum lease payments, is recognized on a straight-line basis over the term of each lease. The cumulative difference between fixed consideration recognized on a straight-line basis and the cash payments due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rents receivable on the consolidated balance sheets.
We commence revenue recognition on leases when the lessee takes possession of, or controls the physical use of, the leased asset, unless the lessee is constructing improvements for which we are deemed to be the owner for accounting purposes. If we are deemed the owner for accounting purposes, the leased asset is the finished space and revenue recognition commences when the lessee takes possession of it, typically when the improvements are substantially complete. Alternatively, if the lessee is deemed to be the owner of the improvements for accounting purposes, then the leased asset is the unimproved space, and any tenant improvement allowances funded under the lease are treated as lease incentives which reduce lease income recognized over the lease term, and we commence revenue recognition when the lessee takes possession of the unimproved space.
The determination of who owns the tenant improvements, for accounting purposes, is based on contractual rights and subject to judgment. In making that judgment, no one factor is determinative. We routinely consider:
• whether the lease stipulates how and on what a tenant improvement allowance may be spent;
• whether the tenant is required to provide evidence supporting the cost of improvements prior to reimbursement;
• whether the tenant or landlord retains legal title to the improvements;
• the uniqueness of the improvements;
• the expected economic life of the tenant improvements relative to the length of the lease; and
• who constructs or directs the construction of the improvements.
Credit Losses
We review the collectability of amounts due from our tenants on a regular basis. We regularly evaluate the collectability of these lease-related receivables by analyzing past due account balances and consider such facts as the credit quality of our customer, historical write-off experience, tenant credit-worthiness and current economic trends.
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If collection is not probable, regardless of whether we have entered into an amendment to provide the tenant with COVID-19 related rent relief, the lease payments will be accounted for on a cash basis, and revenue will be recorded as cash is received. If reassessed, and the collection of substantially all of the lease payments from the tenant becomes probable, the accrual basis of revenue recognition is reestablished.
The provision for estimated credit losses resulting from changes in the expected collectability of lease payments, including variable payments, is recognized as a direct adjustment to lease income on the consolidated statements of operations and comprehensive (loss) income, and a direct write-off of the operating lease receivables, including straight-line rent receivable, on the consolidated balance sheets.
Sale of Real Estate
We derecognize real estate and recognize a gain or loss when a contract exists and control of the property has transferred to the buyer. Control of the property, including controlling financial interest, is generally considered to transfer upon closing through transfer of the legal title and possession of the property, at which point we recognize a gain or loss equal to the difference between the transaction price and the carrying amount of the property.
Acquisition of Real Estate
We evaluate the inputs, processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statements of operations and comprehensive income. If an acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and amortized over the useful life of the acquired assets. Generally, acquisition of real estate qualifies as an asset acquisition.
We allocate the purchase price of real estate to land, building, other building improvements, tenant improvements, intangible assets and liabilities (such as the value of above- and below-market leases, in-place leases and origination costs associated with in-place leases). The values of above- and below-market leases are recorded as intangible assets, net, and intangible liabilities, net, respectively, on the consolidated balance sheets, and are amortized as either a decrease (in the case of above-market leases) or an increase (in the case of below-market leases) to lease income over the remaining term of the associated tenant lease. The values, if any, associated with in-place leases are recorded in intangible assets, net on the consolidated balance sheets and are amortized to depreciation and amortization expense on the consolidated statements of operations and comprehensive (loss) income over the remaining lease term.
The difference between the contractual rental rates and our estimate of market rental rates is measured over a period equal to the remaining non-cancelable term of the leases plus the term of any below-market renewal options. For the amortization period, the remaining term of leases with renewal options at terms below market reflect the assumed exercise of such below-market renewal options, if reasonably assured.
If a tenant vacates its space prior to the contractual expiration of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible asset or liability is written off. Tenant improvements are depreciated and origination costs are amortized over the remaining term of the lease or charged against earnings if the lease is terminated prior to its contractual expiration date.
We perform, with the assistance of a third-party valuation specialist, the following procedures for assets acquired:
• Estimate the value of the property "as if vacant" as of the acquisition date;
• Allocate the value of the property among land, building, and other building improvements and determine the associated useful life for each;
• Calculate the value and associated life of above- and below-market leases on a tenant-by-tenant basis. The difference between the contractual rental rates and our estimate of market rental rates is measured over a period equal to the remaining term of the leases (using a discount rate which reflects the risks associated with the leases acquired, including geographical location, size of leased area, tenant profile and credit risk);
• Estimate the fair value of the tenant improvements, legal costs and leasing commissions incurred to obtain the leases and calculate the associated useful life for each;
• Estimate the fair value of assumed debt, if any; and
• Estimate the intangible value of the in-place leases based on lease execution costs of similar leases as well as lost rent payments during an assumed lease-up period and their associated useful lives on a tenant-by-tenant basis.
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Impairment of Long Lived Assets
We assess the carrying values of the long-lived tangible and intangible assets whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable, such as a reduction in the expected holding period of a property. If it is determined that the carrying value is not recoverable because the expected undiscounted cash flows do not exceed that carrying value, we record an impairment loss to the extent that the carrying value exceeds the estimated fair value. The valuation and possible subsequent impairment of investment properties is a significant estimate that can and does change based on our continuous process of analyzing each property's economic condition at a point in time and reviewing assumptions about uncertain inherent factors, including observable inputs such as contractual revenues and unobservable inputs such as forecasted revenues and expenses, estimated net disposition proceeds, and discount rate. These unobservable inputs are based on market conditions and the property's expected growth rates.
However, assumptions and estimates about future cash flows and capitalization rates are complex and subjective. Changes in economic and operating conditions and in our ultimate investment intent that occur subsequent to the impairment analyses could impact these assumptions and result in additional impairment of the investment properties.
Periodically, we assesses whether there are any indicators that the carrying value of our investments in unconsolidated entities may be other-than-temporarily impaired. To the extent other-than-temporary impairment has occurred, the loss is measured as the excess of the carrying value of the investment over the estimated fair value of the investment. The estimated fair value of the investment is generally derived from the cash flows generated from the investee's underlying real property investments.
Real Estate Capitalization and Depreciation
Real estate is reflected at cost less accumulated depreciation within investment property on the consolidated balance sheets. Repairs and maintenance costs are expensed as incurred.
Depreciation expense is computed using the straight-line method. A range of estimated useful lives of 15-30 years is used for buildings and other improvements, and a range of 5-20 years is used for furniture, fixtures and equipment. Finance lease asset amortization is computed using the straight-line method over the lease term and included in depreciation and amortization on the consolidated statements of operations and comprehensive (loss) income.
Tenant improvements not of use to subsequent tenants are amortized on a straight-line basis over the lesser of the life of the tenant improvement or the lease term and is included in depreciation and amortization on the consolidated statements of operations and comprehensive (loss) income.
Direct and indirect costs that are clearly related to the construction and improvements of investment properties are capitalized. Costs incurred for interest, property taxes and insurance are capitalized during periods in which activities necessary to prepare the property for its intended use are in progress.
Income Taxes
We qualify and have elected to be taxed as a REIT under the Code for federal income tax purposes commencing with the tax year ended December 31, 2005. Since we qualify for taxation as a REIT, we generally are not subject to federal income tax on taxable income that is distributed to stockholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its REIT taxable income (subject to certain adjustments) to its stockholders. If we fail to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, we will be subject to federal and state income tax on our taxable income at regular corporate tax rates. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income, property or net worth and federal income and excise taxes on our undistributed income.
From time to time, we may elect to treat certain of our consolidated subsidiaries as TRSs pursuant to the Code. Among other activities, TRSs may participate in non-real estate related activities and/or perform non-customary services for tenants and are subject to federal and state income tax at regular corporate tax rates. During 2020, the Company either revoked the TRS elections or dissolved the legal entities for any of its consolidated subsidiaries that were elected as TRSs.
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Liquidity and Capital Resources
Development, Re-development, Capital Expenditures and Leasing Activities
The following table summarizes capital resources used through development and re-development, capital expenditures, and leasing activities at our retail properties owned during the year ended December 31, 2020. These costs are classified as cash used in capital expenditures and tenant improvements and investment in development and re-development projects on the consolidated statements of cash flows for the year ended December 31, 2020.
Development and
Re-development Capital Expenditures Leasing Total
Direct costs $ 1,417 (a) $ 3,499 $ 7,597 (c) $ 12,513
Indirect costs 691 (b) 1,903 — 2,594
Total $ 2,108 $ 5,402 $ 7,597 $ 15,107
(a) Direct development and re-development costs relate to construction of buildings at our retail properties.
(b) Indirect development and re-development costs relate to capitalized interest, real estate taxes, insurance and payroll attributed to improvements at our retail properties.
(c) Direct leasing costs relate to improvements to a tenant space that are either paid directly by or reimbursed to the tenants.
Short-Term Liquidity and Capital Resources
On a short-term basis, our principal uses for funds are to pay our operating and corporate expenses, interest and principal on our indebtedness, property capital expenditures, and to make distributions to our stockholders.
At this time, we do not expect the COVID-19 pandemic to impact our ability to meet our short-term liquidity requirements. However, our ability to maintain adequate liquidity for our operations in the future is dependent upon a number of factors, including our revenue, macroeconomic conditions, the length and severity of business disruptions caused by the COVID-19 pandemic, our ability to contain costs, including capital expenditures, and to collect rents and other receivables, and various other factors, many of which are beyond our control. We will continue to monitor our liquidity position and may seek to raise funds through debt or equity financing in the future to fund operations, significant investments or acquisitions that are consistent with our strategy. Our ability to raise these funds may also be diminished by the impact of the COVID-19 pandemic on the capital markets.
Long-Term Liquidity and Capital Resources
Our objectives are to maximize revenue generated by our retail platform, to further enhance the value of our retail properties to produce attractive current yield and long-term returns for our stockholders, and to generate sustainable and predictable cash flow from our operations to distribute to our stockholders.
Any future determination to pay distributions will be at the discretion of our Board and will depend on our financial condition, capital requirements, restrictions contained in current or future financing instruments, and such other factors as our Board deems relevant. In December 2020, our Board approved an increase to our annual distribution rate effective for the quarterly distribution paid in April 2021. The Board will continue to evaluate our distribution rate and, if it deems appropriate, adjust the distribution to take into account the ongoing effects of the COVID-19 pandemic and our operating and capital needs. See "Part I, Item 1A.Risk Factors - There is no assurance that we will be able to continue paying cash distributions or that distributions will increase over time."
Our primary sources and uses of capital are as follows:
Sources
• Operating cash flows from our real estate investments;
• Distributions from our joint venture investment;
• Proceeds from sales of properties;
• Proceeds from mortgage loan borrowings on properties;
• Proceeds from corporate borrowings; and
• Interest earned on cash and cash equivalents.
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Uses
• To pay our operating expenses;
• To make distributions to our stockholders;
• To service or pay down our debt;
• To invest in properties;
• To fund development, re-development, maintenance and capital expenditures or leasing investments; and
• To fund other general corporate uses.
We may, from time to time, seek to acquire additional amounts of our outstanding equity through cash purchases or exchanges for other securities. Such purchases or exchanges, if any, will depend on our liquidity requirements, contractual restrictions, and other factors, and may be material.
Summary of Cash Flows
Year ended December 31, Decrease
2020 2019
Cash provided by operating activities $ 94,155 $ 106,008 $ (11,853)
Cash used in investing activities (49,060) (41,797) (7,263)
Cash used in financing activities (82,073) (68,316) (13,757)
Decrease in cash, cash equivalents, and restricted cash (36,978) (4,105) (32,873)
Cash, cash equivalents, and restricted cash at beginning of year 260,748 264,853 (4,105)
Cash, cash equivalents, and restricted cash at end of year $ 223,770 $ 260,748 $ (36,978)
Cash provided by operating activities of $94.2 million and $106.0 million for the years ended December 31, 2020 and 2019, respectively, was generated primarily from income from property operations and operating distributions from IAGM. Cash provided by operating activities decreased $11.9 million when comparing the year ended December 31, 2020, to the same period in 2019 primarily as a result of reduced lease income partially offset by reduced operating expenses, both principally due to the impact of the COVID-19 pandemic and the disposition of 11 retail properties since January 1, 2019, which was partially offset by the acquisition of nine retail properties since January 1, 2019.
Cash used in investing activities of $49.1 million for the year ended December 31, 2020, was primarily the result of:
• $41.4 million for acquisitions of investment properties,
• $12.9 million for capital expenditures and tenant improvements,
• $2.2 million for investment in development projects,
• $1.4 million for lease commissions and other leasing costs, and was partially offset by cash provided of
• $8.0 million from net proceeds received from the sale of investment properties, and
• $0.8 million from cash inflows from other investing activities.
Cash used in investing activities of $41.8 million for the year ended December 31, 2019, was primarily the result of:
• $359.1 million for acquisitions of investment properties,
• $17.8 million for capital expenditures and tenant improvements,
• $7.1 million for investment in development projects,
• $5.6 million for lease commissions and other leasing cost,
• $30.0 million to settle the UHC claims as described in " Note 12. Commitments and Contingencies " of the consolidated financial statements, and was partially offset by cash provided of
• $346.7 million from net proceeds received from the sale of investment properties,
• $30.0 million received from the sale of an unconsolidated entity, and
• $1.1 million from cash inflows from other investing activities.
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Cash used in financing activities of $82.1 million for the year ended December 31, 2020, was primarily the result of:
• $171.4 million for pay-offs of debt, debt prepayment penalties, principal payments of mortgage debt, and payment of loan fees and other deposits,
• $5.2 million for the repurchase of common stock under our share repurchase plan,
• $54.2 million to pay distributions,
• $1.1 million for the payment of tax withholding for share-based compensation,
• $0.2 million for the payment of finance lease liabilities, and was partially offset by cash provided of
• $150.0 million from proceeds received from our unsecured revolving credit agreements. $100.0 million of that draw was repaid during the fourth quarter of 2020 and is included in the pay-off of debt described above.
Cash used in financing activities of $68.3 million for the year ended December 31, 2019, was primarily the result of:
• $111.0 million for pay-offs of debt, debt prepayment penalties, principal payments of mortgage debt, and payment of loan fees and other deposits,
• $20.4 million for the repurchase of common stock under our share repurchase plan,
• $53.3 million to pay distributions,
• $1.4 million for the payment of tax withholding for share-based compensation,
• $0.2 million for the payment of finance lease liabilities, and was partially offset by cash provided of
• $118.0 million from proceeds from debt related to the Term Loan Agreement.
We consider all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements with a maturity of three months or less, at the date of purchase, to be cash equivalents. We maintain our cash and cash equivalents at major financial institutions. The combined account balances at one or more institutions generally exceed the FDIC insurance coverage. The Company periodically assesses the credit risk associated with these financial institutions. As a result, there is what we believe to be insignificant credit risk related to amounts on deposit in excess of FDIC insurance coverage.
Acquisitions and Dispositions of Real Estate Investments
In 2020, we acquired two retail properties and the underlying real estate of a grocery tenant adjacent to an existing retail property. In 2019, we acquired seven retail properties and a building and two retail parcels adjacent to three existing retail properties. These acquisitions were funded with available cash and disposition proceeds. During the years ended December 31, 2020 and 2019, we invested net cash of approximately $41.4 million and $359.1 million, respectively, for these acquisitions.
In 2020, we disposed of one retail property, completed a partial sale of one retail property, and completed partial condemnations at three retail properties for an aggregate gross disposition price of $8.5 million. In 2019, we disposed of ten retail properties for an aggregate gross disposition price of $357.8 million.
Distributions
During the year ended December 31, 2020, we declared cash distributions to our stockholders totaling $54.6 million and paid cash distributions of $54.2 million.
As we execute on our retail strategy, the Board evaluated and expects to continue to evaluate our distribution rate on a periodic basis. See " Part I. Item 1. Business - Current Strategy and Outlook " for more information regarding our retail strategy. The following table presents a historical summary of distributions declared, paid and reinvested.
Year ended December 31,
2020 2019 2018 2017 2016
Distributions declared $ 54,604 $ 53,473 $ 53,782 $ 53,758 $ 83,633
Distributions paid $ 54,214 $ 53,250 $ 54,194 $ 53,358 $ 98,606
Distributions reinvested $ 185 $ 50 $ — $ — $ —
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Suspension of Second Amended and Restated Share Repurchase Program and the Amended and Restated Distribution Reinvestment Plan
On November 1, 2019, we adopted the SRP, authorizing redemption of the Company's shares of common stock, subject to certain conditions and limitations, to provide limited liquidity to qualifying stockholders. During the year ended December 31, 2020, 2,136,119 shares were repurchased in connection with the SRP at a price per share of $2.355. During the year ended December 31, 2019, 8,517,605 shares were repurchased in connection with the SRP at a price per share of $2.355.
On November 1, 2019, we began offering shares of our common stock to our existing stockholders pursuant to the DRP. During the year ended December 31, 2020 we sold a total of 79,040 shares in connection with the DRP at a price per share of $2.355.
On June 11, 2020, in light of the impact of the COVID-19 pandemic, we announced that our Board voted to suspend the SRP and the DRP, effective July 11, 2020.
Borrowings
Mortgages Payable, Maturities
The following table shows the scheduled maturities for the Company's mortgages payable as of December 31, 2020, for each of the next five years and thereafter:
Scheduled maturities by year: As of December 31, 2020
2021 $ —
2022 22,834
2023 40,097
2024 15,700
2025 28,630
Thereafter —
Total $ 107,261
Credit Agreements, Maturities
As of December 31, 2020, we had a total of $50.0 million outstanding under our revolving credit facility at an interest rate of 1.19%.
The following table shows the Company's outstanding borrowings under its unsecured term loans as of December 31, 2020.
Principal Balance Interest Rate Maturity Date
$250.0 million 5 year - swapped to fixed rate (a) $ 100,000 2.6795% December 21, 2023
$250.0 million 5 year - swapped to fixed rate (a) 100,000 2.6795% December 21, 2023
$250.0 million 5 year - variable rate (b) 50,000 1.3548% December 21, 2023
$150.0 million 5.5 year - swapped to fixed rate (a) 50,000 2.6915% June 21, 2024
$150.0 million 5.5 year - swapped to fixed rate (a) 50,000 2.6990% June 21, 2024
$150.0 million 5.5 year - variable rate (b) 50,000 1.3548% June 21, 2024
Total unsecured term loans $ 400,000
(a) A s of December 31, 2020, the Company has 4 interest rate swap agreements, of which 2 each have a notional amount of $100.0 million, an effective date of December 2, 2019, a termination date of December 21, 2023, and achieve a fixed interest rate of 2.68%. The other 2 interest rate swap agreements each have a notional amount of $50.0 million, an effective date of December 2, 2019, a termination date of June 21, 2024, and achieve fixed interest rates of 2.69% and 2.70%.
(b) Interest rate reflects 1-Month LIBOR plus 1.20% effective December 2, 2019.
Off Balance Sheet Arrangements
The Company does not have off balance sheet arrangements other than its joint venture, IAGM, as disclosed in " Part IV. Item 8. Note 6. Investment in Unconsolidated Entities."
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Contractual Obligations
We have obligations related to our mortgage loans, term loan, and revolving credit facility as described in "Note 8. Debt" in the consolidated financial statements. The unconsolidated joint venture in which we have an investment has third party mortgage debt of $244.0 million at December 31, 2020, as described in "Note 6. Investment in Unconsolidated Entities" in the consolidated financial statements. It is anticipated that our unconsolidated entity will be able to repay or refinance all of its debt on a timely basis.
The following table presents, on a consolidated basis, obligations and commitments to make future payments under debt obligations and lease agreements. It excludes third-party debt associated with our unconsolidated joint venture and debt discounts that are not future cash obligations as of December 31, 2020.
Payments due by year ending December 31,
2021 2022 2023 2024 2025 Thereafter Total
Long term debt:
Fixed rate debt, principal (a) $ — $ 22,834 $ 240,097 $ 115,700 $ 28,630 $ — $ 407,261
Variable rate debt, principal — 50,000 50,000 50,000 — — 150,000
Interest 14,496 13,877 11,365 3,070 744 — 43,552
Total long term debt 14,496 86,711 301,462 168,770 29,374 — 600,813
Operating lease obligations (b) 547 522 536 550 53 — 2,208
Finance lease obligations (c) 408 279 21 — — — 708
Grand total $ 15,451 $ 87,512 $ 302,019 $ 169,320 $ 29,427 $ — $ 603,729
(a) Includes $300.0 million of variable rate unsecured term loan debt that has been swapped to a fixed rate as of December 31, 2020.
(b) Includes leases on corporate office spaces.
(c) Includes contracts for property improvements which have been deemed to contain finance leases.
Inflation
A number of our leases contain provisions designed to partially mitigate any adverse impact of inflation. With respect to current economic conditions and governmental fiscal policy, inflation may become a greater risk. Our leases typically require the tenant to pay its share of operating expenses, including common area maintenance, real estate taxes and insurance. By sharing these costs with our tenants, we may reduce our exposure to increases in costs and operating expenses resulting from inflation. A portion of our leases also include clauses enabling us to receive percentage rents based on a tenant's gross sales above predetermined levels or escalation clauses which are typically related to increases in the Consumer Price Index or similar inflation indices. Furthermore, many of our leases are for terms of 10 years or less, allowing us to seek to adjust rents upon renewal.