What changed in this filing

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Item 1. Business

2021-02-22 compared with 2020-02-20 · 83 added, 36 removed, 116 unchanged (51% of the section changed)

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As of December 31, 2020, we owned interests in 90 operating and redevelopment properties totaling approximately 17.3 million square feet.

We also owned one development project under construction as of this date.

We also owned two development projects under construction as of this date.

Our retail operating portfolio was 91.2% leased to a diversified retail tenant base, with no single retail tenant accounting for more than 2.5% of our total annualized base rent.

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See Item 2, “Properties” for a list of our top 25 tenants by annualized base rent.

Impact of COVID-19

Since first being reported in December 2019, the novel strain of coronavirus (COVID-19) has spread globally.

In March 2020, the World Health Organization declared COVID-19 a pandemic, and subsequently, the United States declared a national emergency with respect to COVID-19.

The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business and how it impacts the Company's tenants and business partners.

Certain segments of retailers and the Company experienced disruption during 2020, and, going forward, the potential adverse effect of the COVID-19 pandemic, including possible resurgences and mutations, on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market, global economy, and financial markets, and the extent of such effects, will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

The following operating trends, combined with macroeconomic trends such as a global economic slowdown or recession, reduced consumer spending and increased unemployment, lead us to believe that our operating results will continue to be significantly affected by COVID-19:

• As of December 31, 2020, over 98% of our tenants have reopened.

However, many of these retailers are operating at a lower capacity than normal due to COVID-19.

Store closures or the inability to return to full capacity, particularly if for an extended period, increase the risk of business failures and lease defaults.

• As of February 11, 2021, we have collected approximately 95% of rent billings for the three months ended December 31, 2020 and 92% of rent billings for the period from April 1, 2020 through December 31, 2020.

• Many of our tenants have taken on additional debt as a result of COVID-19, including loans administered by the Small Business Administration.

To the extent this debt is not forgiven, the increased debt load may hamper their ability to continue to operate and to pay rent, which could cause the Company to realize decreased cash flow and increased vacancies at its properties.

Starting in March 2020 and continuing through January 2021, the Company received rent relief requests from a significant proportion of its tenants.

Some tenants have asserted various legal arguments that they allege relieve them of the obligation to pay rent during the pandemic;

the Company and its legal advisers generally disagree with these legal arguments.

The Company has evaluated and will continue to evaluate tenant requests for rent relief based on many factors, including the tenant's financial strength, the tenant's operating history, potential co-tenancy impacts, the tenant's contribution to the shopping center in which it operates, the Company's assessment of the tenant's long-term viability, the difficulty or ease with which the tenant could be replaced, and other factors.

As a result of this evaluation, the Company has agreed to defer rent for approximately 375 of its tenants subject to certain conditions.

The Company had deferred the collection of $6.1 million of rental income that remained outstanding as of December 31, 2020.

To the extent the Company agrees to defer rent or is otherwise unable to collect rent for certain periods, the Company will realize decreased cash flow, which could significantly decrease the cash available for the Company's operating and capital uses.

We have taken various steps to mitigate the impact of COVID-19 on our liquidity, including deferrals of certain planned capital expenditures for 2020.

In March 2020, we borrowed $300 million on the unsecured revolving credit facility (the "Credit Facility") as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic.

Subsequent to the initial borrowing, we have repaid the $300 million of borrowings.

As of December 31, 2020, we have approximately $43.6 million of cash on hand, $523.2 million of remaining availability under our Credit Facility (based on the unencumbered pool allocated thereto), and no debt maturities until 2022.

The effects of COVID-19 have triggered a global and domestic economic recession, and if the recession continues well beyond the lifting of government restrictions related to COVID-19, many of our tenants could face financial distress.

Historically, economic indicators such as GDP growth, consumer confidence and employment are correlated with demand for certain of our tenants’ products and services.

These conditions could increase the number of our tenants that are unable to meet their lease obligations to us and could limit the demand for our space from new tenants.

We expect the significance of the COVID-19 pandemic, including the extent of its effects on our business, financial performance and condition, operating results and cash flows and the economic slowdown, to be dictated by, among other things, the duration of the COVID-19 pandemic, including possible resurgences and mutations, the success of efforts to contain it, the success of efforts to find and distribute effective drugs or vaccines and the impact of actions taken in response.

These uncertainties make it difficult to predict operating results for our business for 2021.

Significant 2020 Activities

Even in the face of the COVID-19 pandemic, the Company continued to perform at a high level including as follows:

Operating Activities

We continued to drive strong operating results from our portfolio as follows:

Realized net loss attributable to common shareholders of $0.5 million , which included $37.7 million of impairment charges;

Generated Funds From Operations, as defined by NAREIT, of $131.4 million and Funds From Operations, as adjusted for a loss on debt extinguishment, of $143.0 million .

Same Property Net Operating Income ("Same Property NOI") increased by 2.2% in 2019 compared to 2018 primarily due to increases in rental rates and an improved tenant mix driven by strong anchor and shop leasing activity;

We executed new and renewal leases on 302 individual spaces for approximately 2.0 million square feet of retail space, achieving a blended cash rent spread of 9.2% and blended GAAP rent spread of 14.5% for comparable leases;

We opened 107 new tenant spaces totaling 657,000 square feet;

• The Company realized net loss attributable to common shareholders of $16.2 million;

• The Company generated Funds From Operations, as defined by NAREIT, of $108.7 million and Funds From Operations, as adjusted for severance charges, of $112.0 million;

• Same Property Net Operating Income ("Same Property NOI") decreased by 6.6% in 2020 compared to 2019 as a result of the impact of COVID-19;

• We executed new and renewal leases on 215 individual spaces for approximately 1.5 million square feet of retail space, achieving a blended cash leasing spread of 7.0% and blended GAAP leasing spread of 14.5% for comparable leases;

• Our operating portfolio annual base rent ("ABR") per square foot as of December 31, 2020 was $18.42, an increase of $0.59 (or 3.3%) from the end of the prior year.

Total retail leased percentage and was 96.1% as of December 31, 2019;

Small shop leased percentage was 92.5% as of December 31, 2019 , which was an all-time Company high.

Disposition Activities

Strengthening our balance sheet continues to be one of our top priorities.

In February 2019, we announced a plan, Project Focus, to market and sell up to $500 million in non-core assets as part of a program designed to improve the Company’s portfolio quality, reduce its leverage, and focus operations on markets where we believe the Company can gain scale and generate attractive risk-adjusted returns ("Project Focus").

This program was completed in October 2019.

Transaction highlights of Project Focus were the following:

Sold 23 non-core assets for a combined $544 million at a blended capitalization rate of approximately 8%.

Lowered leverage such that our ratio of net debt to EBITDA is 5.9x as of December 31, 2019.

Strengthened our liquidity profile as we have no debt maturing through 2021 and no balance on our unsecured revolving credit facility.

The Company's existing unsecured revolving credit facility can pay all debt maturities through 2025.

Increased ABR to $17.83 as the retail assets sold had an ABR of $14.66, which was significantly lower than our current operating portfolio.

Financing and Capital Raising Activities.

In 2019 , we were able to further improve our strong balance sheet, financial flexibility and liquidity to fund future growth.

We ended the year with approximately $614.8 million of combined cash and borrowing capacity on our unsecured revolving credit facility.

Financing and Capital Activities.

In 2020, we were able to utilize our strong balance sheet, financial flexibility and liquidity to handle the adversity and deliver strong results in the midst of the disruption caused by the COVID-19 pandemic.

The Company had the following key investment highlights:

• Acquired Eastgate Crossing in Chapel Hill, North Carolina for $65.5 million;

• Commenced construction on two development projects, consisting of approximately $12.6 million of capital commitments, that are anticipated to produce an average cash yield between 14.0% and 15.0%.

Through the COVID-19 pandemic, we paid $0.4495 in dividends in 2020 and were one of the few open-air peers to continuously pay a dividend.

We ended the year with approximately $566.9 million of combined cash and borrowing capacity on our Credit Facility.

We have no debt scheduled to mature through December 31, 2021, and a debt service coverage ratio of 2.9x as of December 31, 2020.

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We invest in properties with well-located real estate and strong demographics, and we use our leasing and management strategies to improve the long-term values and economic returns of our properties.

We believe that certain of our properties represent attractive opportunities for profitable renovation and expansion.

We believe that certain of our properties represent attractive opportunities for profitable redevelopment, renovation, and expansion.

We seek to implement our business objectives through the following strategies, each of which is more completely described in the sections that follow:

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Maintaining a strong balance sheet with flexibility to fund our operating and investment activities.

Funding sources include the public equity and debt markets, an existing revolving credit facility with zero outstanding, new secured debt, internally generated funds, proceeds from selling land and properties that no longer fit our strategy, and potential strategic joint ventures;

Funding sources include the public equity and debt markets, an existing revolving Credit Facility with $25 million outstanding, new secured debt, internally generated funds, proceeds from selling land and properties that no longer fit our strategy, and potential strategic joint ventures;

• Growth Strategy :

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Operating Strategy.

Our primary operating strategy is to maximize rental rates and occupancy levels by attracting and retaining a strong and diverse tenant base.

Most of our properties are located in regional and neighborhood trade areas with attractive demographics, which allows us to maximize occupancy and rental rates.

Our primary operating strategy is to maximize our rental rates, our returns on invested capital, and occupancy levels by attracting and retaining a strong and diverse tenant base.

Most of our properties are located in regional and neighborhood trade areas with attractive demographics, which allows us to maximize returns on invested capital, occupancy and rental rates.

We seek to implement our operating strategy by, among other things:

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• taking advantage of under-utilized land or existing square footage, reconfiguring properties for more profitable use, and adding ancillary income sources to existing facilities.

We successfully executed our operating strategy in 2019 in a number of ways, including Same Property NOI growth of 2.2% , a blended new and renewal cash leasing spread of 9.2% , an increase in our anchor leased percentage to 97.8% as of year-end, and an increase in our small shop leased percentage to 92.5% as of year-end.

We successfully executed our operating strategy in 2020 in a number of ways, as best evidenced in leading our peer group in rent collection rates, based upon publicly reported information by each peer as of February 19, 2021.

Additionally, our leasing process continues to perform at a high level as evidence by the execution of 215 new and renewal leases for approximately 1.5 million square feet.

We have placed significant emphasis on maintaining a strong and diverse retail tenant mix, which has resulted in no tenant accounting for more than 2.5% of our annualized base rent.

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Among these factors are the construction costs or purchase prices of properties to be developed or acquired, the estimated market value of our properties and the Company as a whole upon consummation of the financing, and the ability to generate durable cash flow to cover expected debt service.

Strengthening our balance sheet continues to be one of our top priorities.

In February 2019, the Company announced a plan to market and sell up to $500 million in non-core assets as part of a program designed to improve the Company’s portfolio quality, reduce its leverage, and focus operations on markets where the Company believes it can gain scale and generate attractive risk-adjusted returns.

The majority of the net proceeds were used to further strengthen our balance sheet.

Maintaining a strong balance sheet continues to be one of our top priorities.

We maintain an investment grade credit rating that we expect will continue to enable us to opportunistically access the public unsecured bond market and will allow us to lower our cost of capital and provide greater flexibility in managing the acquisition and disposition of assets in our operating portfolio.

We intend to continue implementing our financing and capital strategies in a number of ways, which may include one or more of the following actions:

prudently managing our balance sheet, including maintaining sufficient availability under our unsecured revolving credit facility so that we have additional capacity to fund our development and redevelopment projects and pay down maturing debt if refinancing that debt is not desired or practical;

• prudently managing our balance sheet, including maintaining sufficient availability under our Credit Facility so that we have additional capacity to fund our development and redevelopment projects and pay down maturing debt if refinancing that debt is not desired or practical;

• extending the scheduled maturity dates of and/or refinancing our near-term mortgage, construction and other indebtedness;

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• the price being offered for the property, the current and projected operating performance of the property, the tax consequences of the transaction, and other related factors;

opportunities for strengthening the tenant mix at our properties through the placement of anchor tenants such as value retailers, grocers, soft goods stores, theaters, or sporting goods retailers, as well as further enhancing a diverse tenant mix that includes restaurants, specialty shops, service retailers such as banks, dry cleaners and hair salons, and shoe and clothing retailers, some of which provide staple goods to the community and offer a high level of convenience;

• opportunities for strengthening the tenant mix at our properties through the placement of anchor tenants such as grocers, value retailers, pet supply stores, hardware stores, or sporting goods retailers, as well as further enhancing a diverse tenant mix that includes restaurants, specialty shops, and other essential retailers that provide staple goods to the community and offer a high level of convenience;

• the configuration of the property, including ease of access, availability of parking, visibility, and the demographics of the surrounding area;

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We and our properties are subject to a variety of federal, state, and local environmental, health, safety and similar laws, including:

Americans with Disabilities Act.

Americans with Disabilities Act and Other Regulations.

Our properties must comply with Title III of the Americans with Disabilities Act (the "ADA"), to the extent that such properties are public accommodations as defined by the ADA.

The ADA may require removal of

structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable.

The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable.

We believe our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA.

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The obligation to make readily accessible accommodations is an ongoing one, and we will continue to assess our properties and make alterations as appropriate in this respect.

In addition, our properties are subject to fire and safety regulations, building codes and other land use regulations.

Affordable Care Act.

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However, these lease provisions may not fully protect us in the event that a tenant becomes insolvent.

Finally, certain of our properties have contained asbestos-containing building materials, or ACBM, and other properties may have contained such materials based on the date of its construction.

Finally, certain of our properties have contained asbestos-containing building materials ("ACBM"), and other properties may have contained such materials based on the date of its construction.

Environmental laws require that ACBM be properly managed and maintained, and fines and penalties may be imposed on building owners or operators for failure to comply with these requirements.

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With environmental sustainability becoming a national priority, we have continued to demonstrate our strong commitment to be a responsible corporate citizen through resource reduction and employee training that have resulted in reductions of energy consumption, waste and improved maintenance cycles.

COVID-19 Regulations.

As discussed in this Annual Report on Form 10-K, during the COVID-19 pandemic, our properties and our tenants have been subject to public health regulations and control measures, including states of emergency, mandatory quarantines, "shelter in place" orders, border closures, restrictions on types of businesses that may continue to operate, "social distancing" guidelines and other travel and gathering restrictions and practices, that have significantly impacted our business, see page 11 of Item 1A.

"Risk Factors" for further information.

We carry comprehensive liability, fire, extended coverage, and rental loss insurance that covers all properties in our portfolio.

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Our telephone number is (317) 577-5600.

Human Capital

As of December 31, 2020, we had 113 full-time employees.

The majority of these employees were based at our Indianapolis, Indiana headquarters.

We believe our employees are the most important part of our business.

We are committed to providing a work environment that attracts, develops and retains high-performing individuals and that treats employees with dignity and respect.

When attracting, developing and retaining talent, we seek individuals who hold varied experiences and viewpoints and embody our core values to create an inclusive and diverse culture and workplace that allows each employee to do their best work and drive our collective success.

We focus on leadership development at every level of the organization.

We align employees’ goals with our overall strategic direction to create a clear link between individual efforts and the long-term success of the company and then provide effective feedback on their performance towards goals to ensure their growth.

We believe a commitment to our employees’ learning and development through training, educational opportunities and mentorship is critical to our ability to continue to innovate.

Through performance plans, talent recognition and individual development planning, along with reward packages, we advance our talent pool and create a sustainable and long-term enterprise.

We seek to foster a corporate culture where our many stakeholders, including our employees, engage in the topic of community development and collaborate to extend resources towards the advancement of this principle.

In furtherance of this commitment, we partner with and support local charitable organizations that we believe are contributing to the growth and development of the community.

In recent years, our employees have donated and coordinated substantial fundraising and have spent many hours volunteering to support a variety of charities with which we partner.

The health, safety and well-being of our employees are always top priorities, and we believe our actions in response to COVID-19 were appropriate and in accordance with state and local health and safety laws.

Among other things, we adopted remote working and flexible scheduling arrangements and implemented additional health and safety measures for employees working in our offices.

Environmental, Social and Governance Matters

The Company strives to be a responsible corporate citizen, and we recognize the importance that environmental, social, and governance ("ESG") initiatives play in our ability to generate long-term, sustainable returns.

To assist us in setting and meeting ESG goals, we have formed a cross-functional task force ("ESG Task Force") to review ESG issues that are important to investors and regularly report to the Board of Trustees on ESG efforts.

The ESG Task Force is led by our Chief Executive Officer and includes members from our asset management, employee experience, investor relations, marketing, internal audit, and legal groups.

In 2020, the ESG Task Force issued our ESG Policy and Corporate Citizenship Report, which we have published on our website.

The Company has undertaken multiple projects to make its operations more efficient and to reduce energy and water consumption, including installing LED lighting at various parking lots, solar panels at three properties, and electric-vehicle charging stations at six properties, and implementing smart meters and other initiatives aimed at water conservation, recycling and waste diversion at our properties.

Recent business initiatives encourage tenants to adopt green leases, also known as “high-performance” or “energy-aligned” leases, to equitably align the costs and benefits of energy and water efficiency investments for building owners and tenants, based on principles and best practices from the Green Lease Leaders Reference Guide by the Institute for Market Transformation and the U.S.

Department of Energy.

The Company also has partnered with One Tree Planted, a non-profit organization committed to reforestation, to plant new trees in 2020.

We also are evaluating potential actions that might reduce our carbon footprint or otherwise mitigate our environmental impact.

As described above, we are highly committed to our employees, and our policies are designed to promote fairness, equal opportunities, diversity, well-being and professional development within the Company.

Our corporate governance structure, led by our Board of Trustees, closely aligns our interests with those of our shareholders, as further described in our annual Proxy Statement.

Segment Reporting

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business