Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying audited consolidated financial statements and related notes thereto and Item 1A. “Risk Factors” appearing elsewhere in this Annual Report on Form 10-K. In this discussion, unless the context suggests otherwise, references to “our Company,” “we,” “us,” and “our” mean Kite Realty Group Trust and its direct and indirect subsidiaries, including Kite Realty Group, L.P.
Overview
In the following overview, we discuss, among other things, the status of our business and properties, the effect that current U.S. economic conditions are having on our retail tenants and us, and the current state of the financial markets and how it impacts our financing strategy.
Our Business and Properties
Kite Realty Group Trust is a publicly held REIT that, through its majority-owned subsidiary, Kite Realty Group, L.P., owns interests in various operating subsidiaries and joint ventures engaged in the ownership, operation, acquisition, development, and redevelopment of high-quality, open-air, grocery-anchored shopping centers and vibrant mixed-use assets that are primarily located in high-growth Sun Belt markets and select strategic gateway markets in the United States. Following our merger with RPAI in 2021, we became a top-five open-air shopping center REIT based upon market capitalization. We derive our revenue primarily from the collection of contractual rents and reimbursement payments from tenants under existing lease agreements at each of our properties. Therefore, our operating results depend materially on, among other things, the ability of our tenants to make required lease payments, the health and resilience of the U.S. retail sector, interest rate volatility, stability in the banking sector, job growth, the real estate market, and overall economic conditions.
As of December 31, 2024, we own interests in 179 operating retail properties totaling approximately 27.7 million square feet, excluding one operating retail property classified as held for sale as of December 31, 2024, and two office properties with 0.4 million square feet. Of the 179 operating retail properties, 10 contain an office component. We also own interests in two development projects under construction as of December 31, 2024 and an additional two properties with future redevelopment opportunities.
Inflation
Many of our leases contain provisions designed to mitigate the adverse impact of inflation, including stated rent increases and requirements for tenants to pay a share of operating expenses, including common area maintenance, real estate taxes, insurance, or other operating expenses related to the maintenance of our properties, with escalation clauses in certain leases. Over the past two years, we have made significant progress in executing leases that include higher fixed-rent bumps while also including CPI-based, anti-gouging protection for tenants. However, the stated rent increases or limits on such tenant’s obligation to pay its share of operating expenses could be lower than the increase in inflation at any given time. Inflation may also increase labor or other general and administrative expenses, which cannot be easily reduced.
Historically, economic indicators such as GDP growth, consumer confidence, and employment have been correlated with demand for certain of our tenants’ products and services. If an economic recession returns, it could, among other impacts, increase the number of our tenants that are unable to meet their lease obligations to us and limit the demand from new tenants for space in our properties.
Portfolio Update
Over the past two years, demand for open-air retail real estate has been strong due to the limited availability of desirable retail space and limited new construction over the previous 15 years. As a result, in 2024 we experienced our highest annual leasing activity in the Company’s history with approximately 5.0 million square feet of leasing volume. Open-air centers are thriving for a variety of reasons, including their ability to function as last-mile fulfillment centers and their convenient and affordable nature for retailers and consumers. This includes conveniently located and easily accessible parking fields, lower operating costs as compared to other retail formats, and essential anchors that drive daily trips. In addition, the Company’s property types are particularly suited for retailers’ current and evolving needs, including curbside pick-up and buying online and picking up in store (“BOPIS”), which we believe will benefit from tenant demand for additional space. The strength of the Company’s real estate is further evidenced by our continued strong cash leasing spreads and ABR for the retail portfolio of $21.15 per square foot as of December 31, 2024.
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In evaluating potential acquisition, development, and redevelopment opportunities, we look for strong sub-markets where average household income, educational attainment, population density, traffic counts, and daytime workforce populations are above the broader market average. We also focus on locations that are benefiting from current population migratory patterns, namely major cities in business-friendly states with no or relatively low income taxes and mild or temperate climates. In our largest sub-markets, household incomes are significantly higher, and state income taxes are relatively lower than the medians for the broader markets.
In addition to targeting sub-markets with strong consumer demographics, we focus on having the most desirable tenant mix at each shopping center. We have aggressively targeted and executed leases with prominent grocers, including Lidl, Aldi, Whole Foods, Trader Joe’s, Sprouts Farmers Market, and BJ’s Wholesale Club, expanding retailers such as Nordstrom Rack, Homesense, Ross Dress for Less, Burlington, Sierra, J.Crew Factory, and pOpshelf, service and restaurant retailers, and other retailers such as Ulta Beauty, REI, Five Below, L.L.Bean, and Total Wine & More. Additionally, we have identified cost-efficient ways to relocate, re-tenant, and renegotiate leases at several of our properties, which allows us to attract more suitable tenants.
Capital and Financing Activities
In 2024, we maintained a conservative balance sheet and ample liquidity to fund future growth. We ended 2024 with approximately $1.6 billion of combined cash and borrowing capacity on the Revolving Facility. In addition, as of December 31, 2024, we had $430.0 million of debt principal scheduled to mature through December 31, 2025, which we expect will be satisfied through a combination of proceeds from the Notes Due 2031 that were issued in August 2024, cash flows generated from operations, capital markets transactions, and borrowings on the Revolving Facility.
The three investment-grade credit ratings we maintain provide us with access to the unsecured public bond market, which we may continue to use in the future to finance acquisitions, repay maturing debt, and fix interest rates.
Results of Operations
As of December 31, 2024, we own interests in 179 operating retail properties, excluding one operating retail property classified as held for sale as of December 31, 2024, two office properties, two development projects that are currently under construction, and two additional properties with future redevelopment opportunities. The following table sets forth the total operating properties and development projects we own as of December 31, 2024, 2023 and 2022:
Number of Properties
2024 2023 2022
Operating retail properties (1)
179 180 183
Office properties 2 1 1
Active development and redevelopment projects 2 2 3
Future development and redevelopment opportunities 2 2 1
(1) Included within operating retail properties are 10, 10, and 11 properties that contain an office component as of December 31, 2024, 2023 and 2022, respectively.
The comparability of results of operations for the year ended December 31, 2024 is affected by our development, redevelopment, and operating property acquisition and disposition activities between 2022 through 2024. Therefore, we believe it is most useful to review the comparisons of our results of operations for these years (as set forth below under “Comparison of Operating Results for the Years Ended December 31, 2024 and 2023”) in conjunction with the discussion of our activities during those periods, which is set forth below.
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Acquisitions
The following operating properties were acquired during the years ended December 31, 2024, 2023 and 2022:
Property Name MSA Acquisition Date GLA
Pebble Marketplace Las Vegas February 16, 2022 85,796
MacArthur Crossing two-tenant building Dallas/Ft. Worth April 13, 2022 56,077
Palms Plaza Miami July 15, 2022 68,976
Prestonwood Place Dallas/Ft. Worth September 22, 2023 155,975
Parkside West Cobb Atlanta August 30, 2024 141,627
Dispositions
The following operating and other properties were sold during the years ended December 31, 2024, 2023 and 2022:
Property Name MSA Disposition Date GLA
Plaza Del Lago (1)
Chicago June 16, 2022 100,016
Lincoln Plaza – Lowe’s (2)
Worcester, MA October 27, 2022 —
Kingwood Commons Houston May 8, 2023 158,172
Pan Am Plaza & Garage Indianapolis June 8, 2023 —
Reisterstown Road Plaza Baltimore September 11, 2023 376,683
Eastside Dallas/Ft. Worth October 24, 2023 43,640
Ashland & Roosevelt Chicago May 31, 2024 104,176
(1) Plaza Del Lago also contains 8,800 square feet of residential space composed of 18 multifamily rental units.
(2) We sold the ground lease interest in one tenant at an existing multi-tenant operating retail property. The total number of properties in our portfolio was not affected by this transaction.
In addition, during the year ended December 31, 2024, the joint venture that owned Glendale Center Apartments, of which we have an 11.5% ownership interest, sold the 267-unit property to a third party. Glendale Center Apartments is adjacent to our Glendale Town Center operating retail property in the Indianapolis MSA.
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Development and Redevelopment Projects
The following properties were under active development or redevelopment at various times during the years ended December 31, 2024, 2023 and 2022 and removed from our operating portfolio:
Project Name MSA Transition to
Development or Redevelopment (1)
Transition to
Operating Portfolio GLA
Active Projects
The Corner – IN (2)
Indianapolis December 2015 Pending 24,000
One Loudoun Expansion (3)
Washington, D.C. September 2024 Pending 119,000
Future Opportunities
Hamilton Crossing Centre (2)(4)
Indianapolis June 2014 Pending 92,283
Edwards Multiplex – Ontario (2)
Los Angeles March 2023 Pending 124,614
Completed Projects
Eddy Street Commons – Phase III South Bend, IN September 2020 March 2022 18,600
Shoppes at Quarterfield Baltimore October 2021 June 2022 58,000
One Loudoun Downtown – Pads G&H
Residential
Washington, D.C. October 2021 June 2022 —
Circle East Baltimore October 2021 September 2022 82,000
One Loudoun Downtown – Pads G&H
Commercial
Washington, D.C. October 2021 December 2022 67,000
The Landing at Tradition – Phase II Port St. Lucie, FL September 2021 June 2023 39,900
Carillon MOB (5)
Washington, D.C. October 2021 December 2024 126,000
(1) Transition date represents the date the property was transferred from our operating portfolio into redevelopment status. For legacy RPAI projects, the transition date represents the later of the date of the closing of the merger (October 2021) and the date the project was transferred into redevelopment status.
(2) This property has been identified as a redevelopment property and is not included in the operating portfolio or the same property pool. The redevelopment projects at Hamilton Crossing Centre and The Corner – IN will include the creation of a mixed-use development.
(3) The property is comprised of the development project (which has been excluded from the Company’s same property pool due to the ongoing development) and the remaining retail operating portion of the property (which is included in the Company’s same property pool as of December 31, 2024).
(4) Approximately half of the Hamilton Crossing site was sold in January 2022 to Republic Airways Inc. In addition to the sale, the Company entered into a development and construction management agreement for the development of a corporate campus for Republic Airways. Phase I of the corporate campus was completed in 2023.
(5) This property is included in the office portfolio and is not included in the operating portfolio or the same property pool.
In addition, during the year ended December 31, 2024, the Company disposed of the first phase of a land parcel and the rights to develop 24 residential units at One Loudoun Expansion in the Washington, D. C. MSA. The Company is under contract to sell the remaining land and the rights to develop an additional 54 residential units, which are expected to close in phases through 2026.
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Comparison of Operating Results for the Years Ended December 31, 2024 and 2023
The following table reflects changes in the components of our consolidated statements of operations for the years ended December 31, 2024 and 2023 (in thousands) :
Year Ended December 31,
2024 2023 Change
Revenue:
Rental income $ 826,548 $ 810,146 $ 16,402
Other property-related revenue 10,631 8,492 2,139
Fee income 4,663 4,366 297
Total revenue 841,842 823,004 18,838
Expenses:
Property operating 113,601 107,958 5,643
Real estate taxes 103,893 102,426 1,467
General, administrative and other 52,558 56,142 (3,584)
Depreciation and amortization 393,335 426,361 (33,026)
Impairment charges 66,201 477 65,724
Total expenses 729,588 693,364 36,224
(Loss) gain on sales of operating properties, net (864) 22,601 (23,465)
Operating income 111,390 152,241 (40,851)
Other (expense) income:
Interest expense (125,691) (105,349) (20,342)
Income tax expense of taxable REIT subsidiary (139) (533) 394
Loss on extinguishment of debt (180) — (180)
Equity in (loss) earnings of unconsolidated subsidiaries (1,158) 33 (1,191)
Gain on sale of unconsolidated property, net 2,325 — 2,325
Other income, net 17,869 1,991 15,878
Net income 4,416 48,383 (43,967)
Net income attributable to noncontrolling interests (345) (885) 540
Net income attributable to common shareholders $ 4,071 $ 47,498 $ (43,427)
Property operating expense to total revenue ratio 13.5 % 13.1 %
Rental income (including tenant reimbursements) increased $16.4 million, or 2.0%, due to the following (in thousands) :
Net Change
Year Ended
December 31, 2023 to 2024
Properties or components of properties sold or held for sale during 2023 and/or 2024 $ (14,039)
Properties under redevelopment or acquired during 2023 and/or 2024 7,677
Properties fully operational during 2023 and 2024 and other 22,764
Total $ 16,402
The net increase of $22.8 million in rental income for properties that were fully operational during 2023 and 2024 is primarily due to increases in the following: (i) base minimum rent of $13.5 million due to changes via contractual rate increases and leasing spreads, (ii) tenant reimbursements of $11.1 million due to higher recoverable common area maintenance expenses, and (iii) ancillary income of $0.5 million. These variances were partially offset by an increase in bad debt expense of $1.3 million and decreases in lease termination income of $0.6 million and overage rent of $0.4 million. The occupancy of the fully operational properties decreased from 92.0% for 2023 to 91.6% for 2024.
We continued to experience strong leasing volumes in 2024 and generate higher base rent on new leases and renewals. The average base rents for new comparable leases signed in 2024 was $27.29 per square foot compared to average expiring base
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rents of $20.69 per square foot in that period. The average base rents for renewals signed in 2024 was $17.27 per square foot compared to average expiring base rents of $16.19 per square foot in that period. For the entire portfolio, the spread between leased and occupied square footage is approximately 240 basis points and represents approximately $27.3 million of NOI, the majority of which is expected to come online in 2025. In addition, the ABR per square foot of our operating retail portfolio continued to improve, as it increased to $21.15 per square foot as of December 31, 2024 from $20.70 per square foot as of December 31, 2023.
Other property-related revenue primarily consists of parking revenues, gains on the sale of land, and other miscellaneous activity. This revenue increased by $2.1 million primarily as a result of higher gains on sales of land of $2.7 million recognized during the year ended December 31, 2024, partially offset by decreases in miscellaneous income of $0.5 million and parking revenue of $0.1 million.
We recorded fee income of $4.7 million and $4.4 million during the years ended December 31, 2024 and 2023, respectively, from property management and development services provided to third parties and unconsolidated joint ventures. The increase in fee income is primarily related to development fees earned related to the development of a hotel on the Pan Am Plaza site during 2024, partially offset by a decrease in development fees earned related to the development of a corporate campus for Republic Airways at Hamilton Crossing Centre in 2024 due to the completion of Phase I of the corporate campus in 2023.
Property operating expenses increased $5.6 million, or 5.2%, due to the following (in thousands) :
Net Change
Year Ended
December 31, 2023 to 2024
Properties or components of properties sold or held for sale during 2023 and/or 2024 $ (3,407)
Properties under redevelopment or acquired during 2023 and/or 2024 838
Properties fully operational during 2023 and 2024 and other 8,212
Total $ 5,643
The net increase of $8.2 million in property operating expenses for properties that were fully operational during 2023 and 2024 is primarily due to increases in the following: (i) $4.8 million in insurance expenses, (ii) $2.5 million in landscaping and repairs and maintenance expenses, (iii) $0.8 million in non-recoverable operating expenses, the majority of which relates to vacancies caused by retailer bankruptcies, and (iv) $0.3 million in security expenses. These variances were partially offset by a decrease in utilities of $0.3 million. As a percentage of revenue, property operating expenses increased from 13.1% to 13.5% primarily due to an increase in expenses in 2024.
Real estate taxes increased $1.5 million, or 1.4%, due to the following (in thousands) :
Net Change
Year Ended
December 31, 2023 to 2024
Properties or components of properties sold or held for sale during 2023 and/or 2024 $ (1,880)
Properties under redevelopment or acquired during 2023 and/or 2024 732
Properties fully operational during 2023 and 2024 and other 2,615
Total $ 1,467
The net increase of $2.6 million in real estate taxes for properties that were fully operational during 2023 and 2024 is primarily due to higher real estate tax assessments at certain properties in the portfolio in 2024, most notably for certain of our Illinois and Indiana properties, and higher real estate tax consulting fees, partially offset by higher capitalized real estate tax expenses related to signed leases at certain properties in the portfolio in 2024. The majority of real estate tax expenses are recoverable from tenants and such recovery is reflected within “Rental income” in the accompanying consolidated statements of operations and comprehensive income.
General, administrative and other expenses decreased $3.6 million, or 6.4%, primarily due to lower compensation expenses and a decrease in consulting fees in 2024, partially offset by higher marketing expenses.
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Depreciation and amortization expense decreased $33.0 million, or 7.7%, due to the following (in thousands) :
Net Change
Year Ended
December 31, 2023 to 2024
Properties or components of properties sold or held for sale during 2023 and/or 2024 $ (11,135)
Properties under redevelopment or acquired during 2023 and/or 2024 4,831
Properties fully operational during 2023 and 2024 and other (26,722)
Total $ (33,026)
The net increase of $4.8 million in depreciation and amortization at properties under redevelopment or acquired during 2023 and/or 2024 is primarily due to the acquisitions of Prestonwood Place in September 2023 and Parkside West Cobb in August 2024 along with the reclassification of Edwards Multiplex – Ontario into redevelopment in March 2023 and depreciation and amortization recorded for Carillon medical office building through December 2024. The net decrease of $26.7 million in depreciation and amortization at properties that were fully operational during 2023 and 2024 is primarily due to the timing of placing assets in service and writing-off tenant-related assets as a result of tenant move-outs along with certain assets acquired in the October 2021 merger with RPAI that became fully depreciated during the year.
Based on a reduction in the expected future hold period (see Note 4 to the accompanying consolidated financial statements), we recorded a $66.2 million impairment charge during the year ended December 31, 2024 related to City Center, a retail operating property in the New York MSA that is classified as held for sale as of December 31, 2024. During the year ended December 31, 2023, we recorded a $0.5 million impairment charge on Eastside, a retail operating property in the Dallas/Ft. Worth MSA that was sold on October 24, 2023.
We recorded a net loss on sales of operating properties of $0.9 million for the year ended December 31, 2024 primarily on the sale of Ashland & Roosevelt, which loss was offset by the receipt of a $0.6 million escrow related to the sale of Reisterstown Road Plaza that previously closed on September 11, 2023. During the year ended December 31, 2023, we recorded a net gain on sales of operating properties of $22.6 million on the sale of Kingwood Commons, the undeveloped land and related parking garage at Pan Am Plaza, Reisterstown Road Plaza, and Eastside.
Interest expense increased $20.3 million, or 19.3%, primarily due to interest on the Notes Due 2034 and the Notes Due 2031, which were issued in 2024, partially offset by favorable interest rate swaps.
The $2.3 million gain on sale of unconsolidated property represents our share of the gain on the sale of Glendale Center Apartments recognized during the year ended December 31, 2024. No such gain was recorded during the year ended December 31, 2023.
Other income, net increased $15.9 million primarily due to interest income earned on the proceeds from the Notes Due 2034 and the Notes Due 2031, which were invested in short-term deposits at various points during the year ended December 31, 2024.
Management’s discussion of the financial condition, changes in financial condition and results of operations for the year ended December 31, 2023, with comparison to the year ended December 31, 2022, was included in 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, 2023.
Net Operating Income and Same Property Net Operating Income
We use property net operating income (“NOI”), a non-GAAP financial measure, to evaluate the performance of our properties. We define NOI as income from our real estate, including lease termination fees received from tenants, less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions and certain corporate-level expenses, including merger and acquisition costs. We believe that NOI is helpful to investors as a measure of our operating performance because it excludes various items included in net income that do not relate to or are not indicative of our operating performance, such as depreciation and amortization, interest expense, and impairment, if any.
We also use same property NOI (“Same Property NOI”), a non-GAAP financial measure, to evaluate the performance of our properties. Same Property NOI is net income excluding properties that have not been owned for the full periods presented. Same Property NOI also excludes (i) net gains from outlot sales, (ii) straight-line rent revenue, (iii) lease termination income in
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excess of lost rent, (iv) amortization of lease intangibles, and (v) significant prior period expense recoveries and adjustments, if any. When we receive payments in excess of any accounts receivable for terminating a lease, Same Property NOI will include such excess payments as monthly rent until the earlier of the expiration of 12 months or the start date of a replacement tenant. We believe that Same Property NOI is helpful to investors as a measure of our operating performance because it includes only the NOI of properties that have been owned for the full periods presented. We believe such presentation eliminates disparities in net income due to the acquisition or disposition of properties during the particular periods presented and thus provides a more consistent metric for the comparison of our properties. Same Property NOI includes the results of properties that have been owned for the entire current and prior year reporting periods.
NOI and Same Property NOI should not, however, be considered as an alternative to net income (calculated in accordance with GAAP) as an indicator of our financial performance. Our computation of NOI and Same Property NOI may differ from the methodology used by other REITs and, therefore, may not be comparable to such other REITs.
When evaluating the properties that are included in the Same Property Pool, we have established specific criteria for determining the inclusion of properties acquired or those recently under development. An acquired property is included in the Same Property Pool when there is a full quarter of operations in both years subsequent to the acquisition date. Development and redevelopment properties are included in the Same Property Pool four full quarters after the properties have been transferred to the operating portfolio. A redevelopment property is first excluded from the Same Property Pool when the execution of a redevelopment plan is likely, and we (a) begin recapturing space from tenants or (b) the contemplated plan significantly impacts the operations of the property.
For the year ended December 31, 2024, the Same Property Pool excludes the following:
• properties acquired or placed in service during 2023 and 2024;
• The Landing at Tradition – Phase II, which was reclassified from active redevelopment into our operating portfolio in June 2023;
• our active development and redevelopment projects at The Corner – IN and One Loudoun Expansion;
• Hamilton Crossing Centre and Edwards Multiplex – Ontario, which were reclassified from our operating portfolio into redevelopment in June 2014 and March 2023, respectively;
• properties sold or classified as held for sale during 2023 and 2024; and
• office properties, including Carillon medical office building, which was reclassified from active redevelopment into our office portfolio in December 2024.
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The following table presents Same Property NOI and a reconciliation to net income attributable to common shareholders for the years ended December 31, 2024 and 2023 (unaudited) (dollars in thousands) :
Year Ended December 31,
2024 2023 Change
Number of properties in Same Property Pool for the period (1)
177 177
Leased percentage at period end 95.0 % 94.2 %
Economic occupancy percentage at period end 92.5 % 91.3 %
Economic occupancy percentage (2)
91.6 % 92.0 %
Same Property NOI $ 578,823 $ 561,791 3.0 %
Reconciliation of Same Property NOI to most
directly comparable GAAP measure:
Net operating income – same properties $ 578,823 $ 561,791
Net operating income – non-same activity (3)
40,862 46,463
Total property NOI 619,685 608,254 1.9 %
Other income, net 21,235 5,857
General, administrative and other (52,558) (56,142)
Loss on extinguishment of debt (180) —
Impairment charges (66,201) (477)
Depreciation and amortization (393,335) (426,361)
Interest expense (125,691) (105,349)
(Loss) gain on sales of operating properties, net (864) 22,601
Gain on sale of unconsolidated property, net 2,325 —
Net income attributable to noncontrolling interests (345) (885)
Net income attributable to common shareholders $ 4,071 $ 47,498
(1) Same Property NOI excludes the following: (i) properties acquired or placed in service during 2023 and 2024; (ii) The Landing at Tradition – Phase II, which was reclassified from active redevelopment into our operating portfolio in June 2023; (iii) our active development and redevelopment projects at The Corner – IN and One Loudoun Expansion; (iv) Hamilton Crossing Centre and Edwards Multiplex – Ontario, which were reclassified from our operating portfolio into redevelopment in June 2014 and March 2023, respectively; (v) properties sold or classified as held for sale during 2023 and 2024; and (vi) office properties, including Carillon medical office building, which was reclassified from active redevelopment into our office portfolio in December 2024.
(2) Excludes leases that are signed but for which tenants have not yet commenced the payment of cash rent; calculated as a weighted average based on the timing of cash rent commencement and expiration during the period.
(3) Includes non-cash activity across the portfolio as well as NOI from properties not included in the Same Property Pool, including properties sold during both periods.
Our Same Property NOI increased 3.0% in 2024 compared to 2023 primarily due to contractual rent growth, higher base rent driven by positive new and renewal leasing spreads, and an increase in specialty leasing income from certain tenants, partially offset by higher bad debt expense.
Funds From Operations
Funds from Operations (“FFO”) is a widely used performance measure for real estate companies and is provided here as a supplemental measure of our operating performance. We calculate FFO, a non-GAAP financial measure, in accordance with the best practices described in the April 2002 National Policy Bulletin of the National Association of Real Estate Investment Trusts (“NAREIT”), as restated in 2018. The NAREIT white paper defines FFO as net income (calculated in accordance with GAAP), excluding (i) depreciation and amortization related to real estate, (ii) gains and losses from the sale of certain real estate assets, (iii) gains and losses from change in control, and (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.
Considering the nature of our business as a real estate owner and operator, the Company believes that FFO is helpful to investors in measuring our operational performance because it excludes various items included in net income that do not relate to or are not indicative of our operating performance, such as gains or losses from sales of depreciated property and
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depreciation and amortization, which can make periodic and peer analyses of operating performance more difficult. FFO (a) should not be considered as an alternative to net income (calculated in accordance with GAAP) for the purpose of measuring our financial performance, (b) is not an alternative to cash flows from operating activities (calculated in accordance with GAAP) as a measure of our liquidity, and (c) is not indicative of funds available to satisfy our cash needs, including our ability to make distributions. Our computation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do.
From time to time, the Company may report or provide guidance with respect to “FFO, as adjusted,” which removes the impact of certain non-recurring and non-operating transactions or other items the Company does not consider to be representative of its core operating results including, without limitation, (i) gains or losses associated with the early extinguishment of debt, (ii) gains or losses associated with litigation involving the Company that is not in the normal course of business, (iii) merger and acquisition costs, (iv) the impact on earnings from employee severance, (v) the excess of redemption value over carrying value of preferred stock redemption, and (vi) the impact of prior period bad debt or the collection of accounts receivable previously written off (“prior period collection impact”) due to the recovery from the COVID-19 pandemic, which are not otherwise adjusted in the Company’s calculation of FFO.
Core Funds From Operations (“Core FFO”) is a non-GAAP financial measure of operating performance that modifies FFO for certain non-cash transactions that result in recording income or expense and impact the Company’s period-over-period performance, including (i) amortization of deferred financing costs, (ii) non-cash compensation expense and other, (iii) straight-line rent related to minimum rent and common area maintenance, (iv) market rent amortization income, and (v) amortization of debt discounts, premiums and hedge instruments. The Company believes that Core FFO is useful to investors in evaluating the core cash flow-generating operations of the Company by adjusting for items that we do not consider to be part of our core business operations, allowing for comparison of core operating performance of the Company between periods. Core FFO should not be considered as an alternative to net income as an indicator of the Company’s performance or as an alternative to cash flow as a measure of liquidity or the Company’s ability to make distributions. The Company’s computation of Core FFO may differ from the methodology for calculating Core FFO used by other REITs, and therefore, may not be comparable to such other REITs.
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Our calculations of FFO and reconciliations to net income (loss), FFO, as adjusted, and Core FFO for the years ended December 31, 2024, 2023 and 2022 (unaudited) are as follows (dollars in thousands) :
Year Ended December 31,
2024 2023 2022
Net income (loss) $ 4,416 $ 48,383 $ (12,154)
Less: net income attributable to noncontrolling interests in properties (280) (257) (623)
Add/less: loss (gain) on sales of operating properties, net 864 (22,601) (27,069)
Less: gain on sale of unconsolidated property, net (2,325) — —
Add: impairment charges 66,201 477 —
Add: depreciation and amortization of consolidated and
unconsolidated entities, net of noncontrolling interests
394,847 427,335 471,086
FFO of the Operating Partnership (1)
463,723 453,337 431,240
Less: Limited Partners’ interests in FFO (7,889) (6,447) (5,395)
FFO attributable to common shareholders (1)
$ 455,834 $ 446,890 $ 425,845
FFO per share of the Operating Partnership – diluted $ 2.07 $ 2.03 $ 1.94
FFO of the Operating Partnership (1)
$ 463,723 $ 453,337 $ 431,240
Add: merger and acquisition costs — — 925
Less: prior period collection impact — — (2,556)
FFO, as adjusted, of the Operating Partnership $ 463,723 $ 453,337 $ 429,609
FFO, as adjusted, per share of the Operating Partnership – diluted $ 2.07 $ 2.03 $ 1.93
FFO, as adjusted, of the Operating Partnership (1)
$ 463,723 $ 453,337 $ 429,609
Add:
Amortization of deferred financing costs 4,650 3,609 3,163
Non-cash compensation expense and other 11,276 11,063 10,897
Less:
Straight-line rent – minimum rent and common area maintenance 12,085 11,820 16,660
Market rent amortization income 10,082 12,117 4,826
Amortization of debt discounts, premiums and hedge instruments 13,592 19,503 20,140
Core FFO of the Operating Partnership $ 443,890 $ 424,569 $ 402,043
Core FFO per share of the Operating Partnership – diluted $ 1.99 $ 1.90 $ 1.93
(1) “FFO of the Operating Partnership” measures 100% of the operating performance of the Operating Partnership’s real estate properties. “FFO attributable to common shareholders” reflects a reduction for the redeemable noncontrolling weighted average diluted interest in the Operating Partnership.
Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”)
We define EBITDA, a non-GAAP financial measure, as net income before interest expense, income tax expense of the TRSs, and depreciation and amortization. For informational purposes, we also provide Adjusted EBITDA, which we define as EBITDA less (i) EBITDA from unconsolidated entities, as adjusted, (ii) gains on sales of operating properties or impairment charges, (iii) merger and acquisition costs, (iv) other income and expense, (v) noncontrolling interest Adjusted EBITDA, and (vi) other non-recurring activity or items impacting comparability from period to period. Annualized Adjusted EBITDA is Adjusted EBITDA for the most recent quarter multiplied by four. Net Debt to Adjusted EBITDA is our share of net debt divided by Annualized Adjusted EBITDA. EBITDA, Adjusted EBITDA, Annualized Adjusted EBITDA, and Net Debt to Adjusted EBITDA, as calculated by us, are not comparable to EBITDA and EBITDA-related measures reported by other REITs that do not define EBITDA and EBITDA-related measures exactly as we do. EBITDA, Adjusted EBITDA, and Annualized Adjusted EBITDA do not represent cash generated from operating activities in accordance with GAAP and should not be considered alternatives to net income as an indicator of performance or as alternatives to cash flows from operating activities as an indicator of liquidity.
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Considering the nature of our business as a real estate owner and operator, we believe that EBITDA, Adjusted EBITDA, and the ratio of Net Debt to Adjusted EBITDA are helpful to investors in measuring our operational performance because they exclude various items included in net income that do not relate to or are not indicative of our operating performance, such as gains or losses from sales of depreciated property and depreciation and amortization, which can make periodic and peer analyses of operating performance more difficult. For informational purposes, we also provide Annualized Adjusted EBITDA, adjusted as described above. We believe this supplemental information provides a meaningful measure of our operating performance. We believe presenting EBITDA and the related measures in this manner allows investors and other interested parties to form a more meaningful assessment of our operating results.
The following table presents a reconciliation of our EBITDA, Adjusted EBITDA, and Annualized Adjusted EBITDA to net income (the most directly comparable GAAP measure) and a calculation of Net Debt to Adjusted EBITDA (in thousands) :
Three Months Ended
December 31, 2024
Net income $ 22,230
Depreciation and amortization 97,009
Interest expense 32,706
Income tax benefit of taxable REIT subsidiaries (186)
EBITDA 151,759
Unconsolidated EBITDA, as adjusted 1,134
Loss on extinguishment of debt 180
Other income and expense, net (5,618)
Noncontrolling interests (210)
Adjusted EBITDA 147,245
Annualized Adjusted EBITDA (1)
$ 588,980
Company share of Net Debt:
Mortgage and other indebtedness, net $ 3,226,930
Add: Company share of unconsolidated joint venture debt 44,569
Add: debt discounts, premiums and issuance costs, net 1,255
Less: Partner share of consolidated joint venture debt (2)
(9,801)
Company’s consolidated debt and share of unconsolidated debt 3,262,953
Less: cash, cash equivalents, restricted cash and short-term deposits (485,280)
Company share of Net Debt $ 2,777,673
Net Debt to Adjusted EBITDA 4.7x
(1) Represents Adjusted EBITDA for the three months ended December 31, 2024 (as shown in the table above) multiplied by four.
(2) Partner share of consolidated joint venture debt is calculated based upon the partner’s pro rata ownership of the joint venture, multiplied by the related secured debt balance.
Liquidity and Capital Resources
Overview
Our primary finance and capital strategy is to maintain a strong balance sheet with sufficient flexibility to fund our operating and investment activities in a cost-effective manner. We consider a number of factors when evaluating our level of indebtedness and making decisions regarding additional borrowings or equity offerings, including the interest or dividend rate, the maturity date and the Company’s debt maturity ladder, the impact of financial metrics such as overall Company leverage levels and coverage ratios, and the Company’s ability to generate cash flow to cover debt service. We continuously monitor the capital markets and may consider raising additional capital through the issuance of our common or preferred shares, unsecured debt securities, or other securities.
As of December 31, 2024, we had approximately $128.1 million in cash and cash equivalents on hand, $5.3 million in restricted cash and escrow deposits, $350.0 million in short-term deposits, and $1.1 billion of remaining availability under the Revolving Facility compared to $430.0 million of debt maturities due in 2025. During the year ended December 31, 2024, we completed (i) a public offering of the Notes Due 2034, the proceeds of which were used to satisfy all 2024 debt maturities and
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for general corporate purposes, and (ii) a public offering of the Notes Due 2031, the proceeds of which are currently invested in short-term deposits that will be used to repay the $350.0 million principal balance of the 4.00% senior unsecured notes due March 2025. We believe we will have adequate liquidity over the next 12 months and beyond to operate our business and meet our cash requirements.
We derive the majority of our revenue from tenants who lease space from us under existing lease agreements at each of our properties. Therefore, our ability to generate cash from operations is dependent upon the rents that we are able to charge and collect from our tenants. While we believe that the nature of the properties in which we typically invest—primarily neighborhood and community shopping centers—provides a relatively stable revenue flow, an economic downturn, instability in the banking sector, tenant bankruptcies, inflation, labor shortages, supply chain constraints, severe weather events, and/or increasing energy prices and interest rates, among other events, could adversely affect the ability of some of our tenants to meet their lease obligations.
Our Principal Capital Resources
For a discussion of cash generated from operations, see “Cash Flows” beginning on page 49. In addition to cash generated from operations, our other principal capital resources are discussed below.
Over the last several years, we have made substantial progress in enhancing our liquidity position and reducing our leverage and borrowing costs. We continue to focus on a balanced approach to growth and staggering debt maturities in order to retain our financial flexibility.
As of December 31, 2024, we had approximately $1.1 billion available under the Revolving Facility for future borrowings. We also had $478.1 million in cash, cash equivalents and short-term deposits as of December 31, 2024.
We were in compliance with all applicable financial covenants under the Revolving Facility, unsecured term loans and senior unsecured notes as of December 31, 2024.
On June 7, 2024, the Company filed with the SEC a new shelf registration statement on Form S-3, which is effective for a term of three years, relating to the offer and sale, from time to time, of an indeterminate amount of equity and debt securities. Equity securities may be offered and sold by the Parent Company, and the net proceeds of any such offerings would be contributed to the Operating Partnership in exchange for additional General Partner Units. Debt securities may be offered and sold by the Operating Partnership with the Operating Partnership receiving the proceeds. From time to time, we may issue securities under this shelf registration statement for general corporate purposes, which may include acquisitions of additional properties, repayment of outstanding indebtedness, capital expenditures, the expansion, redevelopment, and/or improvement of properties in our portfolio, working capital, and other general purposes.
In the future, we will continue to monitor the capital markets and may consider raising additional capital through the issuance of our common shares, preferred shares, or other securities. We may also raise capital by disposing of properties, land parcels, or other assets that are no longer core components of our growth strategy. The sales price may differ from our carrying value at the time of sale.
Our Principal Liquidity Needs
Short-Term Liquidity Needs
Near-Term Debt Maturities . As of December 31, 2024, we have no secured debt, excluding scheduled monthly principal payments, and $430.0 million of unsecured debt scheduled to mature in 2025. We believe we have sufficient liquidity to repay this obligation through a combination of proceeds from the Notes Due 2031, cash flows generated from operations, capital markets transactions, and borrowings on the Revolving Facility.
Other Short-Term Liquidity Needs. The requirements for qualifying as a REIT and for a tax deduction for some or all of the dividends paid to shareholders necessitate that we distribute at least 90% of our taxable income on an annual basis. Such requirements cause us to have substantial liquidity needs over both the short and long term. Our short-term liquidity needs consist primarily of funds necessary to pay operating expenses associated with our operating properties, scheduled interest and principal payments on our debt of approximately $140 million and $5.2 million, respectively, in 2025, expected dividend payments to our common shareholders and common unit holders, and recurring capital expenditures.
In February 2025, our Board of Trustees declared a cash distribution of $0.27 per common share and Common Unit for the first quarter of 2025, which is expected to be paid on April 16, 2025 to common shareholders and common unit holders of
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record as of April 9, 2025. Future distributions, if any, are at the discretion of the Board of Trustees, who will continue to evaluate our sources and uses of capital, liquidity position, operating fundamentals, maintenance of our REIT qualification, and other factors they may deem relevant. We believe we have sufficient liquidity to pay any dividend from available cash on hand and borrowings on the Revolving Facility.
Other short-term liquidity needs include expenditures for tenant improvements, external leasing commissions, and recurring capital expenditures. During the year ended December 31, 2024, we incurred $25.8 million for recurring capital expenditures on operating properties and $90.9 million for tenant improvements and external leasing commissions, which includes costs to re-lease anchor space at our operating properties related to tenants open and operating as of December 31, 2024 (excluding development and redevelopment properties). We currently anticipate incurring approximately $120 million of additional major tenant improvement costs related to executed leases for tenants not yet open at a number of our operating properties over the next 12 to 24 months. We believe we have the ability to fund these costs through cash flows from operations or borrowings on the Revolving Facility.
During the year ended December 31, 2024, we began development activities on the retail and office portions of the expansion project at One Loudoun Downtown (the “One Loudoun Expansion”), our mixed-use lifestyle center in the Washington, D.C. MSA. We also completed the major redevelopment construction activities at Carillon medical office building in 2023 and reclassified the property from active redevelopment into our office portfolio in December 2024. In addition to the One Loudoun Expansion, as of December 31, 2024, we had a development project under construction at The Corner – IN. Our share of the total estimated costs for the two active projects is approximately $112.9 million to $122.9 million, of which our share of the expected funding requirement is approximately $65.0 million to $75.0 million. As of December 31, 2024, we have not incurred any of these costs. We anticipate incurring the majority of the costs for these projects over the next 12 to 24 months and believe we have the ability to fund these projects through cash flows from operations or borrowings on the Revolving Facility.
Share Repurchase Program
In February 2021, our Board of Trustees approved a share repurchase program under which the Company may repurchase, from time to time, up to an aggregate of $150.0 million of its common shares. In April 2022, our Board of Trustees authorized a $150.0 million increase to the size of the share repurchase program, authorizing share repurchases up to a maximum of $300.0 million of its common shares (the “Share Repurchase Program”). The Company intends to fund any future repurchases under the Share Repurchase Program with available cash on hand or availability under the Revolving Facility, subject to any applicable restrictions. The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will depend upon prevailing market conditions, regulatory requirements, and other factors. In January 2025, the Company extended the Share Repurchase Program for an additional year to February 28, 2026, if not terminated or extended prior to that date. As of December 31, 2024, the Company has not repurchased any shares under the Share Repurchase Program.
Long-Term Liquidity Needs
Our long-term liquidity needs consist primarily of funds necessary to pay for any new development projects, redevelopment of existing properties, non-recurring capital expenditures, acquisitions of properties, payment of indebtedness at maturity, and obligations under ground leases.
Selective Acquisitions, Developments and Joint Ventures . We may selectively pursue the acquisition, development, and redevelopment of other properties, which would require additional capital. It is unlikely that we would have sufficient funds on hand to meet these long-term capital requirements; therefore, we would have to satisfy these needs through additional borrowings, sales of common or preferred shares, issuance of Operating Partnership units, cash generated through property dispositions, and/or participation in joint venture arrangements. We cannot be certain that we would have access to these sources of capital on satisfactory terms, if at all, to fund our long-term liquidity requirements. We evaluate all future opportunities against pre-established criteria, including, but not limited to, location, demographics, expected return, tenant credit quality, tenant relationships, and the amount of existing retail space. Our ability to access the capital markets will depend on a number of factors, including general capital market conditions.
Potential Debt Repurchases. We may, from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity, and other factors, seek to repurchase our senior unsecured notes maturing at various dates through March 2034 in open market transactions, by tender offer, or otherwise, as market conditions warrant.
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Commitments under Ground Leases. We are obligated under 12 ground leases for approximately 98 acres of land as of December 31, 2024. Most of these ground leases require fixed annual rent payments, and the expiration dates of the remaining initial terms of these ground leases range from 2025 to 2092. Assuming we exercise all available options to extend the terms of our ground leases, our ground leases will expire between 2045 and 2115.
Capital Expenditures on Consolidated Properties
The following table summarizes cash capital expenditures for our development and redevelopment projects and other capital expenditures for the year ended December 31, 2024 (in thousands) :
Year Ended
December 31, 2024
Active development and redevelopment projects $ 12,827
Recurring operating capital expenditures (primarily tenant improvements) and other 128,122
Total $ 140,949
We capitalize certain indirect costs, such as interest, payroll, and other general and administrative costs related to these development activities. If we had experienced a 10% reduction in development and redevelopment activities without a corresponding decrease in indirect project costs, we would have recorded additional expenses of $0.4 million for the year ended December 31, 2024.
Impact of Changes in Credit Ratings on Our Liquidity
We have received investment-grade corporate credit ratings from three nationally recognized credit rating agencies. During the year ended December 31, 2024, we received a credit rating upgrade with a stable outlook from two of the rating agencies and a positive credit rating outlook from the third rating agency.
In the future, these ratings could change based upon, among other things, the impact that prevailing economic conditions may have on our results of operations and financial condition. Credit rating reductions by one or more rating agencies could also adversely affect our access to funding sources, the cost and other terms of obtaining funding, as well as our overall financial condition, operating results and cash flow.
Cash Flows
As of December 31, 2024, we had cash, cash equivalents and restricted cash of $133.6 million. We may be subject to concentrations of credit risk with regard to our cash and cash equivalents. We place our cash and short-term investments with highly rated financial institutions. While we attempt to limit our exposure at any point in time, occasionally such cash and investments may temporarily exceed the Federal Deposit Insurance Corporation (“FDIC”) and the Securities Investor Protection Corporation (“SIPC”) insurance limits. We also maintain certain compensating balances in several financial institutions in support of borrowings from those institutions. Such compensating balances were not material to the accompanying consolidated balance sheets.
Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023
The following table summarizes our cash flow activities (in thousands) :
Year Ended December 31,
2024 2023 Change
Net cash provided by operating activities $ 419,028 $ 394,648 $ 24,380
Net cash used in investing activities (498,991) (81,731) (417,260)
Net cash provided by (used in) financing activities 172,085 (393,457) 565,542
Increase (decrease) in cash, cash equivalents and restricted cash 92,122 (80,540) 172,662
Cash, cash equivalents and restricted cash, at beginning of year 41,430 121,970
Cash, cash equivalents and restricted cash, at end of year $ 133,552 $ 41,430
Cash provided by operating activities was $419.0 million for the year ended December 31, 2024 and $394.6 million for the same period of 2023. The cash flows were positively impacted by an increase in net operating income and interest income received from the short-term certificates of deposit.
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Cash used in investing activities was $499.0 million for the year ended December 31, 2024 and $81.7 million for the same period of 2023. Highlights of significant cash sources and uses in investing activities are as follows:
• We invested $615.0 million of proceeds from the Notes Due 2034 and the Notes Due 2031 in short-term certificates of deposit in 2024 and received $265.0 million in principal upon maturity of the certificates of deposit that matured in June and July 2024;
• We acquired Parkside West Cobb in 2024 and made an acquisition deposit related to the purchase of Village Commons for $40.6 million compared to the acquisition of Prestonwood Place for $78.3 million in 2023;
• We received net proceeds of $43.6 million from the sale of Ashland & Roosevelt, six parcels of land, and the receipt of an escrow related to the disposition of Reisterstown Road Plaza in 2024 compared to net proceeds of $140.9 million from the sale of Kingwood Commons, the undeveloped land and related parking garage at Pan Am Plaza, Reisterstown Road Plaza, Eastside, and four parcels of land in 2023;
• Capital expenditures decreased by $1.6 million primarily related to the timing of capital projects along with a change in construction payables of $0.5 million in 2024;
• We contributed a total of $13.2 million to unconsolidated joint ventures in 2024 primarily related to our share of the repayment of the construction loan associated with the development of the Embassy Suites at the University of Notre Dame; and
• We received a $1.6 million distribution upon the joint venture’s disposition of Glendale Center Apartments, of which we own an 11.5% interest, to a third party in 2024.
Cash provided by financing activities was $172.1 million for the year ended December 31, 2024 compared to cash used in financing activities of $393.5 million for the same period of 2023. Highlights of significant cash sources and uses in financing activities are as follows:
• We received total proceeds of $693.0 million from the Notes Due 2034 and the Notes Due 2031 and borrowed $40.0 million on the Revolving Facility in 2024 compared to borrowings of $274.0 million on the Revolving Facility and proceeds of $95.1 million from the origination of a mortgage payable in 2023;
• We repaid the following in 2024: (i) $149.6 million principal balance of the 4.58% senior unsecured notes that matured on June 30, 2024, (ii) $120.0 million unsecured term loan that matured on July 17, 2024, (iii) $40.0 million of borrowings on the Revolving Facility, and (iv) $5.1 million of mortgages payable compared to the following repayments in 2023: (i) $274.0 million of borrowings on the Revolving Facility, (ii) $175.4 million of mortgages payable, and (iii) $95.0 million principal balance of the 4.23% senior unsecured notes that matured on September 10, 2023;
• We incurred $19.0 million in debt and equity issuance costs in 2024 primarily related to the restatement and extension of the Revolving Facility and the $250M Term Loan; and
• We made distributions to common shareholders and holders of common partnership interests in the Operating Partnership of $225.5 million in 2024 compared to distributions of $213.5 million in 2023.
Management’s discussion of the cash flows for the year ended December 31, 2022, with comparison to the year ended December 31, 2023, was included in 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, 2023.
Other Matters
Financial Instruments
We are exposed to capital market risk, such as changes in interest rates. In order to reduce the volatility related to interest rate risk, we may enter into interest rate hedging arrangements from time to time. We do not use derivative financial instruments for trading or speculative purposes.
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Obligations in Connection with Projects Under Construction
We are obligated under various completion guarantees with certain lenders and lease agreements with tenants to complete all or portions of a development project and tenant-specific space that are currently under construction. We believe we currently have sufficient financing in place to fund these projects and expect to do so primarily through free cash flow or borrowings on the Revolving Facility.
We provide repayment and completion guaranties on loans totaling $66.2 million associated with the development of The Corner mixed-use project in the Indianapolis MSA. As of December 31, 2024, the outstanding balance of the loans was $68.4 million, of which our share was $34.2 million.
Our share of estimated future costs for under construction and future developments and redevelopments is further discussed beginning on page 47 in the “Short- and Long-Term Liquidity Needs” sections.
Outstanding Indebtedness
The following table provides details on our consolidated indebtedness outstanding as of December 31, 2024 and 2023 (in thousands) :
December 31, 2024 December 31, 2023
Senior unsecured notes $ 2,205,000 $ 1,654,635
Senior exchangeable notes – fixed rate 175,000 175,000
Unsecured revolving line of credit — —
Unsecured term loans 700,000 820,000
Mortgages payable – fixed rate 133,585 136,306
Mortgages payable – variable rate 14,600 17,000
Debt discounts, premiums and issuance costs, net (1,255) 26,261
Mortgage and other indebtedness, net $ 3,226,930 $ 2,829,202
Consolidated indebtedness, including weighted average interest rates and weighted average maturities as of December 31, 2024, considering the impact of interest rate swaps, is summarized below (dollars in thousands) :
Amount
Outstanding Ratio Weighted Average
Interest Rate Weighted
Average Years
to Maturity
Fixed rate debt (1)
$ 3,058,585 95 % 4.08 % 4.3
Variable rate debt (2)
169,600 5 % 7.64 % 1.7
Debt discounts, premiums and issuance costs, net (1,255) N/A N/A N/A
Mortgage and other indebtedness, net $ 3,226,930 100 % 4.27 % 4.2
(1) Fixed rate debt includes the portion of variable rate debt that has been hedged by interest rate swaps. As of December 31, 2024, $700.0 million in variable rate debt is hedged to a fixed rate for a weighted average of 0.9 years.
(2) Variable rate debt includes the portion of fixed rate debt that has been hedged by interest rate swaps. As of December 31, 2024, $155.0 million in fixed rate debt is hedged to a floating rate for a weighted average of 0.7 years.
Mortgage indebtedness is collateralized by certain real estate properties and leases and is generally repaid in monthly installments of principal and interest with maturities over various terms through 2033.
The interest rate on our variable rate mortgage is based on SOFR plus 215 basis points as of December 31, 2024. The one-month SOFR interest rate was 4.33% as of December 31, 2024. Fixed interest rates on mortgages payable range from 3.75% to 5.73%.
Critical Accounting Estimates
Our significant accounting policies are more fully described in Note 2. “Summary of Significant Accounting Policies” to the accompanying consolidated financial statements. As disclosed in Note 2 , the preparation of financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. We believe that the following discussion addresses our most critical
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accounting policies, which are those that are most important to the compilation of our financial condition and results of operations and, in some cases, require management’s most difficult, subjective, or complex judgments.
Revenue Recognition
As a lessor of real estate assets, the Company retains substantially all of the risks and benefits of ownership and accounts for its leases as operating leases.
Contractual minimum base rent, percentage rent, and expense reimbursements from tenants for common area maintenance costs, insurance, and real estate taxes are our principal sources of revenue. Base minimum rents are recognized on a straight-line basis over the terms of the respective leases. Certain lease agreements contain provisions that provide for additional rents based on a tenant’s sales volume (contingent overage rent). Overage rent is recognized when tenants achieve the specified sales targets as defined in their lease agreements. If we determine that collectibility is probable, we recognize income from rentals based on the methodology described above. If we determine that collectibility is not probable, we recognize income only to the extent that cash has been received from the tenant. We have accounts receivable due from tenants and are subject to the risk of tenant defaults and bankruptcies, which may affect the collection of outstanding receivables. These receivables are reduced for credit loss, which is recognized as a reduction to rental income. We regularly evaluate the collectibility of these lease-related receivables by analyzing past-due account balances and consider such factors as the credit quality of the tenant, historical write-off experience, tenant creditworthiness, and current economic trends when evaluating the collectibility of rental income. Although we estimate uncollectible receivables and provide for them through charges against income, actual experience may differ from those estimates.
We recognize the sale of real estate when control transfers to the buyer. As part of our ongoing business strategy, we will, from time to time, sell properties, land parcels and outlots, some of which are ground-leased to tenants.
Valuation of Investment Properties
Management reviews our operating and development projects, land parcels, and intangible assets for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. This review for possible impairment requires certain assumptions, estimates, and significant judgment. Examples of situations considered to be impairment indicators for both operating properties and development projects include, but are not limited to:
• a substantial decline in or continued low occupancy rate or cash flow;
• expected significant declines in occupancy in the near future;
• continued difficulty in leasing space;
• a significant concentration of financially troubled tenants;
• a reduction in the anticipated holding period;
• a cost accumulation or delay in the project completion date significantly above and beyond the original development or redevelopment estimate;
• a significant decrease in the market price not in line with general market trends; and
• any other quantitative or qualitative events or factors deemed significant by the Company’s management or Board of Trustees.
Impairment losses for investment properties and intangible assets are measured when the undiscounted cash flows estimated to be generated by the investment properties during the expected holding period are less than the carrying amounts of those assets. The evaluation of impairment is subject to certain management assumptions, including projected net operating income, anticipated holding period, expected capital expenditures, and the capitalization rate used to estimate the property’s residual value. Impairment losses are recorded as the excess of the carrying value over the estimated fair value of the asset. Our impairment review for land and development properties assumes we have the intent and ability to complete the developments or projected uses for the land parcels. If we determine those plans will not be completed or our assumptions with respect to operating assets are not realized, an impairment loss may be appropriate.
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Depreciation may be accelerated for a redevelopment project, including partial demolition of existing structures, after the asset is assessed for impairment.
The Company classifies an operating property as held for sale only when the property is available for immediate sale in its present condition and for which management believes it is probable that a sale of the property will be completed within one year, among other factors. An operating property classified as held for sale is carried at the lower of cost or fair value less estimated costs to sell. Depreciation and amortization are suspended during the held-for-sale period.
Acquisition of Investment Properties
Real estate assets are recognized on our consolidated balance sheets at historical cost, less accumulated depreciation and amortization. Upon acquisition of real estate operating properties, we estimate the fair value of acquired identifiable tangible assets (consisting of land, buildings and improvements) and identified intangible assets and liabilities (consisting of above-market and below-market leases and in-place leases), assumed debt, and any noncontrolling interest in the acquiree at the date of acquisition based upon an evaluation of information and estimates available at the acquisition date. Based on these estimates, we record the estimated fair value to the applicable assets and liabilities. In making estimates of fair value, a number of sources are used, including information obtained as a result of pre-acquisition due diligence, marketing, and leasing activities. The estimates of fair value were determined to have primarily relied upon Level 2 and Level 3 inputs, as defined below.
Fair value is determined for tangible assets and intangible assets and liabilities, including:
• the fair value of the building on an as-if-vacant basis and the fair value of land determined either by comparable market data, real estate tax assessments, independent appraisals, or other relevant data;
• above-market and below-market in-place lease values for acquired properties, which are based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over the remaining non-cancelable term of the leases. Any below-market renewal options are also considered in the in-place lease values. The capitalized above-market and below-market lease values are amortized as a reduction of, or addition to, rental income over the term of the leases. Should a tenant vacate, terminate its lease, or otherwise notify us of its intent to do so, the unamortized portion of the lease intangibles would be charged or credited to income as applicable;
• the value of having a lease in place at the acquisition date. We use independent and internal sources for our estimates to determine the respective in-place lease values. Our estimates of value use methods similar to those used by independent appraisers. Factors we consider in our analysis include an estimate of costs to execute similar leases, including tenant improvements, leasing commissions, and foregone costs related to the reimbursement of property operating expenses, and fair market rent received during the estimated lease-up period as if the space was vacant. The value of in-place leases is amortized to depreciation and amortization expense over the remaining initial terms of the respective leases; and
• the fair value of any assumed financing that is determined to be above- or below-market terms. We use third-party and independent sources for our estimates to determine the respective fair value of each mortgage and other indebtedness, including related derivative instruments, assumed. The fair market value of each is amortized to interest expense over the remaining initial terms of the respective instruments.
We also consider whether there is any value to in-place leases that have a related customer relationship intangible value. Characteristics we consider in determining these values include the nature and extent of existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality, and expectations of lease renewals, among other factors. To date, we have not developed a tenant relationship that we consider to have a current intangible value.
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