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 consolidated financial statements and notes thereto included Part II, Item 8 of this Annual Report on Form 10-K.
This section of this Annual Report on Form 10-K generally discusses 2020 and 2019 items and provides a year-to-year comparison between 2020 and 2019. A discussion of 2018 items and year-to-year comparisons between 2019 and 2018 are not included in this Annual Report on Form 10-K but can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Executive Overview
Our Company
Urban Edge Properties (“UE”, “Urban Edge”, or the “Company”) (NYSE: UE) is a Maryland real estate investment trust that manages, develops, redevelops, and acquires retail real estate, primarily in the New York metropolitan area. Urban Edge Properties LP (“UELP” or the “Operating Partnership”) is a Delaware limited partnership formed to serve as UE’s majority-owned partnership subsidiary and to own, through affiliates, all of our real estate properties and other assets. Unless the context otherwise requires, references to “we”, “us” and “our” refer to Urban Edge Properties and UELP and their consolidated entities/subsidiaries.
The Operating Partnership’s capital includes general and common limited partnership interests in the operating partnership (“OP Units”). As of December 31, 2020, Urban Edge owned approximately 96.1% of the outstanding common OP Units with the remaining limited OP Units held by members of management, Urban Edge’s Board of Trustees and contributors of property interests acquired. Urban Edge serves as the sole general partner of the Operating Partnership. The third party unitholders have limited rights over the Operating Partnership such that they do not have characteristics of a controlling financial interest. As such, the Operating Partnership is considered a variable interest entity (“VIE”), and the Company is the primary beneficiary that consolidates it. The Company’s only investment is the Operating Partnership. The VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and the Company’s partnership interest is considered a majority voting interest.
As of December 31, 2020, our portfolio was comprised of 72 shopping centers, five malls and two industrial parks totaling approximately 16.3 million square feet.
COVID-19 Pandemic
On January 30, 2020, the spread of the COVID-19 outbreak was declared a Public Health Emergency of International Concern by the World Health Organization ("WHO"). On March 11, 2020, the WHO characterized the COVID-19 outbreak as a global pandemic. Early in the pandemic, the tri-state area of Connecticut, New York and New Jersey, enforced preventive measures including mandatory business closures for non-essential businesses and quarantines or “shelter-in-place” requirements. Given our geographic concentration in the Northeast, many of our tenants have faced and continue to face adverse financial consequences from reduced business operations and social distancing requirements as a result of the COVID-19 pandemic.
The Company’s results for 2020 were negatively impacted by tenant fallout from COVID-driven bankruptcies, uncollected or disputed rents from impacted tenants, and from abatements granted to tenants facing financial hardships due to the pandemic. For the year ended December 31, 2020, the Company reported:
• a decline in same-property net operating income (“NOI”) (1) of 14.2% compared to the year ended December 31, 2019, which was negatively impacted by $30.8 million of rental revenue deemed uncollectible and uncollected balances from cash basis tenants; and
• a decline of same-property portfolio occupancy (2) to 91.8% from 92.9% as of December 31, 2019, which includes the negative impact of 110 basis points resulting from the bankruptcy of Century 21 at Bergen Town Center.
As of December 31, 2020, substantially all of our tenants are now open for business at a reduced capacity. As of February 12, 2021, we have executed or approved approximately 112 rent deferrals with an aggregate deferral amount of $8.2 million, many of which have resulted in value creation from eliminating use restrictions and co-tenancy clauses, reducing no-build areas and increasing lease term. The Company may enter into additional agreements providing rent relief but expects the vast majority of any such agreements will relate to uncollected 2020 rent as most tenants have resumed paying rent on schedule. The Company collected approximately 91% of billed rents and recoveries for the fourth quarter, 87% for the third quarter and 79% for the second quarter as of February 12, 2021.
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The Company’s response to COVID-19
The Company has been proactive in its approach to the pandemic with a focus on supporting our employees, tenants and the communities in which we operate, maintaining the strength of our operations and balance sheet and growing our business despite the challenging environment. Key initiatives that the Company has pursued and continues to support include:
Initiatives to support our tenants and communities
• Assembled a cross-functional tenant support team to conduct individual tenant outreach to understand each tenant’s financial and operational position, and disseminate information to our local and regional operators on federal and state assistance programs.
• Collaborated with tenants regarding safety guidelines, social distancing, protective equipment and sanitizing solutions so they could continually operate their businesses in accordance with local regulations.
• Developed a dedicated COVID-19 page on our website to provide resources to our tenant community.
• Mobilized a task force to work closely with local municipal leaders to address the immediate needs of those living in the neighborhoods served by our properties. These efforts included donation of personal protective equipment and meals to low-income communities, an orphanage in Puerto Rico, hospitals and food pantries.
• Raised funds from employees and the community in support of a number of hospitals, local food organizations and other entities, such as the Hackensack Hospital COVID-19 Relief Fund, the RAP4Bronx initiative, and the Hogar Cuna San Cristobal Orphanage.
Initiatives to bolster our operations and grow our business
• Executed five new large anchor (>30,000 sf) leases, including three grocers, totaling approximately 330,000 sf which will generate approximately $7 million in gross rents;
• Assisted tenants by creating short term cash flow solutions while creatively enhancing the long-term viability and optionality of our portfolio;
• Reduced operating costs appropriately in response to a decrease in foot traffic to minimize tenant maintenance charges;
• Reevaluated the timing and amount of our redevelopment capital spend in response to COVID-19 while progressing those projects with appropriate risk-return profiles; and
• Implemented a curbside pick-up program at certain properties facilitating touchless transactions, designated dedicated parking spots for curbside merchandise pickup for use by all tenants and their customers.
Initiatives to enhance our liquidity and reinforce the strength of our balance sheet
• Amended our $600 million revolving credit facility on June 3, 2020, which among other things, modified certain definitions and the measurement period for certain financial covenants.
• Borrowed $250 million under our $600 million revolving credit facility in March 2020 as a precautionary measure to increase the Company's cash position and facilitate financial flexibility in light of the various uncertainties resulting from COVID-19. This balance was fully repaid in November 2020 and $600 million r emains available as of December 31, 2020.
• Refinanced our $119 million commercial mortgage-backed securities (“CMBS”) mortgage on The Outlets at Montehiedra with a new $82 million 10-year fixed rate mortgage. Lowered the interest rate on the $83 million senior note from 5.33% to 5.00%. The previous $30 million junior note including accrued interest of $5 million was forgiven.
• Modified our $129 million mortgage loan bearing interest at 4.43% on Las Catalinas Mall in Puerto Rico to include a discounted payoff option to repay the loan at a value of $72.5 million, a $56.5 million reduction to the balance at closing, beginning in August 2023 through the extended maturity date of February 2026 and converted the mortgage from an amortizing 4.43% loan to interest-only payments at a reduced interest pay rate until returning to 4.43% in 2024 and thereafter.
• Suspended our quarterly dividend for the second and third quarters of 2020 and declared a special cash dividend of $0.46 per common share in December 2020. The special dividend was based on the Company’s 2020 expected taxable income which includes the tax impacts associated with the Las Catalinas Mall debt modification and the debt forgiveness and refinancing of the mortgage loan on The Outlets at Montehiedra.
• Launched a share repurchase program and repurchased 5.9 million shares of our stock at a weighted average share price of $9.22 amounting to $54.1 million.
• Utilized certain tax provisions under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and the Consolidated Appropriations Act, 2021, legislation to reduce taxable income and other tax obligations.
• Ended the year with cash and cash equivalents, including restricted cash, of $419.3 million and debt, net of cash, to total market capitalization of 37%.
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Initiatives to protect and support our employees
• Instituted a work from home policy shortly after the outbreak of the pandemic that allowed employees to work remotely while staying connected with their colleagues.
• Adopted numerous safety protocols and practices consistent with federal, state and local guidelines at both our corporate offices and shopping centers.
• Offered additional medical and mental health resources tailored to the circumstances of the pandemic.
• Mobilized the equipment and technology necessary to ensure no disruption to our internal processes, service to our tenants or execution of our operations in a remote working environment.
• Monitored and incorporated the recommendations of health authorities and mandates of federal, state and local governments to safeguard the protection, safety, health and well-being of our employees, tenants and stakeholders.
2020 Highlights
Set forth below are highlights of our development and redevelopment projects, property acquisitions and dispositions and leasing activities:
• Acquired Sunrise Mall in Massapequa, NY for $29.7 million on December 31, 2020, a 1.2 million sf mall with significant redevelopment opportunity given its scale and in-place zoning that provides for industrial and other uses. In addition, we acquired three other assets, at an aggregate purchase price of $165.5 million and 243,000 sf, comprising two assets located in the Midwood neighborhood of Brooklyn, NY and one asset adjacent to our existing property, Bergen Town Center;
• Completed the sale of three properties and received proceeds of $58.1 million, net of selling costs, resulting in a $39.8 million net gain on sale of real estate.
• Completed one development project with total estimated gross costs of $3.9 million at Garfield Commons in Garfield, NJ, where 18,000 sf of shops were added;
• Identified approximately 10 additional development and redevelopment projects expected to be completed over the next several years;
• Signed 26 new leases totaling 430,752 square feet, including 16 new leases on a same-space (3) basis totaling 249,812 square feet at an average rental rate of $20.69 per square foot on a GAAP basis and $19.49 per square foot on a cash basis, and resulting in average rent spreads of 30.9% on a GAAP basis and 17.5% on a cash basis; and
• Renewed or extended 67 leases totaling 909,968 square feet, all on a same-space basis, at an average rental rate of $20.06 per square foot on a GAAP basis and $19.67 per square foot on a cash basis and, generating average rent spreads of 8.8% on a GAAP basis and 1.9% on a cash basis.
2021 Outlook
We expect to grow earnings, funds from operations, and cash flows by:
• leasing vacant spaces, proactively extending leases, processing the exercise of tenant options and, when possible, replacing underperforming tenants with operators that can pay higher rents and positively impact our properties;
• expediting the delivery of space to tenants and the collection of rents from executed leases that have not yet commenced;
• restoring rent collections to achieve collection rates similar to those prior to the pandemic;
• generating additional income from our existing assets by redeveloping underutilized existing space, developing new space and pad sites, repositioning anchors, and incorporating non-retail uses such as industrial, self-storage, office and other uses; and
• acquiring assets that meet our investment criteria.
There can be no assurance that we will be able to execute on our growth strategy, especially given the economic uncertainty caused by the COVID-19 pandemic. See Forward-Looking Statements in this Annual Report on Form 10-K.
(1) Refer to page 35 for a reconciliation to the nearest GAAP measure.
(2) Information provided on a same-property basis excludes properties under development, redevelopment or that involve anchor repositioning where a substantial portion of the gross leasable area is taken out of service and also excludes properties acquired or sold during the periods being compared and totals 71 properties for the years ended December 31, 2020 and December 31, 2019.
(3) Same-space leases represent those leases signed on spaces for which there was a previous lease.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, referred to as “GAAP”, requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and revenue and expenses. These estimates are prepared using management’s best judgment, after considering past and current events and economic conditions. In addition, certain information relied upon by management in preparing such estimates includes internally generated financial and operating information, external market information, when available, and when necessary, information obtained from consultations with third party experts. Actual results could differ from these estimates. A discussion of possible risks which may affect these estimates is included in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. Management considers an accounting estimate to be critical if changes in the estimate could have a material impact on our consolidated results of operations or financial condition.
Our significant accounting policies are more fully described in Note 3 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K; however, the most critical accounting policies, which involve the use of estimates and assumptions as to future uncertainties and, therefore, may result in actual amounts that differ from estimates, are as follows:
Real Estate — The nature of our business as an owner, redeveloper and operator of retail shopping centers means that we invest significant amounts of capital into our properties. Depreciation, amortization and maintenance costs relating to our properties constitute substantial costs for us as well as the industry as a whole. Real estate is capitalized and depreciated on a straight-line basis in accordance with GAAP and consistent with industry standards based on our best estimates of the assets’ physical and economic useful lives which range from one to 40 years. We periodically review the estimated lives of our assets and implement changes, as necessary, to these estimates. These assessments have a direct impact on our net income. Real estate is carried at cost, net of accumulated depreciation and amortization. Expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred. Significant renovations that improve or extend the useful lives of assets are capitalized.
Real estate undergoing redevelopment activities is also carried at cost but no depreciation is recognized. All property operating expenses directly associated with and attributable to the redevelopment, including interest, are capitalized to the extent the capitalized costs of the property do not exceed the estimated fair value of the property when completed. If the cost of the redeveloped property, including the net book value of the existing property, exceeds the estimated fair value of redeveloped property, the excess is charged to impairment expense. The capitalization period begins when redevelopment activities are underway and ends when the project is substantially complete. Generally, a redevelopment is considered substantially completed and ready for its intended use upon completion of tenant improvements, but no later than one year from completion of major construction activity. We make judgments as to the time period over which to capitalize such costs and these assumptions have a direct impact on net income because capitalized costs are not subtracted in calculating net income.
Upon the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, identified intangibles, such as acquired above and below-market leases, acquired in-place leases and tenant relationships) and acquired liabilities. We assess fair value based on estimated cash flow projections utilizing appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known trends, and market/economic conditions. Based on these estimates, we allocate the purchase price to the applicable assets and liabilities based on their relative fair values at date of acquisition.
In allocating the purchase price to identified intangible assets and liabilities of an acquired property, the value of above-market and below-market leases is estimated based on the present value of the difference between the contractual amounts, including fixed rate below-market renewal options, to be paid pursuant to the in-place leases and our estimate of the market lease rates and other lease provisions for comparable leases measured over a period equal to the estimated remaining term of the lease. Tenant related intangibles and improvements are amortized on a straight-line basis over the related lease term, including any bargain renewal options. We amortize identified intangibles that have finite lives over the period they are expected to contribute directly or indirectly to the future cash flows of the property or business acquired. We consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and include such renewal options in the calculation of in-place leases. If the value of below-market lease intangibles includes renewal option periods, we include such renewal periods in the amortization period utilized. If a lease terminates prior to its stated expiration, all unamortized amounts relating to that lease are written off.
Our properties are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Such events and changes include macroeconomic conditions, including those caused by global
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pandemics, like the recent coronavirus pandemic (“COVID-19” or the “COVID-19 pandemic”), which resulted in property operational disruption. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis taking into account the appropriate capitalization rate in determining a future terminal value. An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value. Estimated fair value may be based on discounted future cash flows utilizing appropriate discount and capitalization rates and, in addition to available market information, third-party appraisals, broker selling estimates or sale agreements under negotiation. Impairment analyses are based on our current plans, intended holding periods and available market information at the time the analyses are prepared. If our estimates of the projected future cash flows change based on uncertain market conditions, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements. The carrying value of a property may also be individually reassessed in the event a casualty occurs at that property. Casualty events may include property damage from a natural disaster or fire. When such an event occurs, management estimates the net book value of assets damaged over the property’s total gross leasable area and adjusts the property’s carrying value to reflect the damages. Estimates are subjective and may change if additional damage is later assessed or if future cash flows are revised.
Revenue Recognition — We have the following revenue sources and revenue recognition policies:
• Rental revenue for fiscal periods prior to January 1, 2019: Rental revenue comprises revenue from property rentals and tenant expense reimbursements, as designated within tenant operating leases in accordance with ASC 840 Leases .
◦ Property Rentals: We generate revenue from minimum lease payments from tenant operating leases. These rents are recognized over the noncancelable terms of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements under the leases in accordance with ASC 840. We satisfy our performance obligations over time, under the noncancelable lease term, commencing when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. In addition, in circumstances where we provide a lease incentive to tenants, we recognize the incentive as a reduction of rental revenue on a straight-line basis over the remaining term of the lease. The underlying leased asset remains on our consolidated balance sheet and continues to depreciate. In addition to minimum lease payments, certain rental income derived from our tenant leases is contingent and dependent on percentage rent. Percentage rents are earned by the Company in the event the tenant's gross sales exceed certain amounts.
◦ Tenant expense reimbursements: In accordance with ASC 840, revenue arises from tenant leases, which provide for the recovery of all or a portion of the operating expenses, real estate taxes and capital improvements of the respective property. This revenue is accrued in the period the expenses are incurred.
• Rental revenue for fiscal periods beginning on or after January 1, 2019: Rental revenue comprises revenue from fixed and variable lease payments, as designated within tenant operating leases in accordance with ASC 842 Leases, as described further in our Leases accounting policy in Note 3 to the audited consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
◦ Rental revenue deemed uncollectible: We evaluate the collectibility of amounts due from tenants and disputed enforceable charges on both a lease-by-lease and a portfolio-level, which result from the inability of tenants to make required payments under their operating lease agreements. We recognize changes in the collectibility assessment of these operating leases as adjustments to rental revenue in accordance with ASC 842.
• Management and development fees: We generate management and development fee income from contractual property management agreements with third parties. This revenue is recognized as the services are transferred in accordance with ASC 606 Revenue from Contracts with Customers .
• Other Income: Other income is generated in connection with certain services provided to tenants for which we earn a fee. This revenue is recognized as the services are transferred in accordance with ASC 606.
Recent Accounting Pronouncements
On January 11, 2021, the SEC issued Final Rule Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information. This rule, which became effective on February 10, 2021, adopts amendments to modernize, simplify and enhance certain financial disclosure requirements in Regulation S-K. Specifically, the amendments eliminate the requirement for Selected Financial Data, streamline the requirement to disclose Supplementary Financial Information, and amend Management’s Discussion & Analysis of Financial Condition and Results of Operations (‘‘MD&A’’). We early adopted the amendments to two items resulting in the elimination of Item 301, Selected Financial Data, and the omission of Item 302(a), Supplementary Financial Information. The amendments to Item 303(a)(b) MD&A will be adopted in our Form 10-K for the year ending December 31, 2021.
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See Note 3 to the audited consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information regarding recent accounting pronouncements that may affect us. Additionally, see Note 7 to the audited consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information regarding recent amendments to the Internal Revenue Code.
Results of Operations
We derive substantially all of our revenue from rents received from tenants under existing leases on each of our properties. This revenue includes fixed base rents, recoveries of expenses that we have incurred and that we pass through to the individual tenants and percentage rents that are based on specified percentages of tenants’ revenue, in each case as provided in the respective leases.
Our primary cash expenditures consist of our property operating and capital costs, general and administrative expenses, and interest and debt expense. Property operating expenses include: real estate taxes, repairs and maintenance, management expenses, insurance and utilities; general and administrative expenses include payroll, professional fees, information technology, office expenses and other administrative expenses; and interest and debt expense primarily consists of interest on our mortgage debt. In addition, we incur substantial non-cash charges for depreciation and amortization on our properties. We also capitalize certain expenses, such as taxes, interest and salaries related to properties under development or redevelopment until the property is ready for its intended use.
Our consolidated results of operations often are not comparable from period to period due to the impact of property acquisitions, dispositions, developments, redevelopments and changes in accounting policies. The results of operations of any acquired properties are included in our financial statements as of the date of acquisition. Our results of operations are affected by national, regional and local economic conditions, as well as macroeconomic conditions, which are at times subject to volatility and uncertainty. The current COVID-19 pandemic has increased volatility and uncertainty and has created significant economic disruption in many markets. The duration of measures taken to contain the pandemic, including mandatory business shut-downs, reduced business operations and social distancing is unknown as is the long-term consequence of such measures on consumer behavior. Specifically, the revenue and sales volume for our tenants identified as nonessential may decline significantly as demand for their services and products changes in the near term and potentially longer term. We are actively managing our business to respond to the ongoing economic and social impact and uncertainty relating to the COVID-19 pandemic; however, our future near term and potentially longer term results of operations may be significantly adversely affected. See “Pandemic-Related Contingencies” under Liquidity and Capital Resources and “Item 1A. Risk Factors” for more information.
The following provides an overview of our key non-GAAP measures based on our consolidated results of operations (refer to NOI, same-property NOI and Funds From Operations applicable to diluted common shareholders (“FFO”) described later in this section):
Year Ended December 31,
(Amounts in thousands) 2020 2019
Net income $ 97,750 $ 116,197
FFO applicable to diluted common shareholders (1)
156,326 167,123
NOI (2)
200,383 234,288
Same-property NOI (2)
186,059 216,836
(1) Refer to page 36 for a reconciliation to the nearest generally accepted accounting principles (“GAAP”) measure.
(2) Refer to page 35 for a reconciliation to the nearest GAAP measure.
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Comparison of the Year Ended December 31, 2020 to December 31, 2019
Net income for the year ended December 31, 2020 was $97.8 million, compared to net income of $116.2 million for the year ended December 31, 2019. The following table summarizes certain line items from our consolidated statements of income that we believe are important in understanding our operations and/or those items which significantly changed in the year ended December 31, 2020 as compared to the same period of 2019:
For the year Ended December 31,
(Amounts in thousands) 2020 2019 $ Change
Total revenue $ 330,095 $ 387,649 $ (57,554)
Property operating expenses 56,126 64,062 (7,936)
General and administrative 48,682 38,220 10,462
Casualty and impairment loss, net 3,055 12,738 (9,683)
Gain on sale of real estate 39,775 68,632 (28,857)
Interest income 2,599 9,774 (7,175)
Interest and debt expense 71,015 66,639 4,376
Gain on extinguishment of debt 34,908 — 34,908
Income tax (benefit) expense (38,996) 1,287 (40,283)
Total revenue decreased by $57.6 million to $330.1 million in the year ended December 31, 2020 from $387.6 million in the year ended December 31, 2019. The decrease is primarily attributable to:
• $26.5 million increase in rental revenue deemed uncollectible;
• $12.0 million increase in write-offs of receivables arising from the straight-lining of rents in connection to leases with rental revenue being recognized on a cash basis;
• $5.7 million decrease in write-offs of below-market lease intangible liabilities related to recaptured leases;
• $5.7 million decrease in tenant reimbursement income due to lower common area maintenance expenses;
• $3.8 million net decrease in property rentals due to lease terminations and modifications, partially offset by rent commencements and contractual rent increases;
• $2.9 million decrease as a result of property dispositions net of acquisitions; and
• $1.0 million decrease in management and development fee income and tenant bankruptcy settlement income.
Property operating expenses decreased by $7.9 million to $56.1 million in the year ended December 31, 2020 from $64.1 million in the year ended December 31, 2019. The decrease is primarily attributable to:
• $5.9 million decrease in common area maintenance expenses primarily related to reduced operating costs due to temporary tenant closures in connection with COVID-19;
• $1.1 million net decrease in accrued environmental remediation and compliance expenses; and
• $0.9 million decrease as a result of property dispositions net of acquisitions.
General and administrative expenses increased by $10.5 million to $48.7 million in the year ended December 31, 2020 from $38.2 million in the year ended December 31, 2019. The increase is primarily attributable to:
• $6.8 million net increase in executive transition costs including accelerated amortization of unvested equity awards; and
• $5.0 million net increase in transaction, severance and other expenses, partially offset by
• $1.3 million net decrease in share-based compensation expense due to vesting of prior period awards.
We recognized a casualty and impairment loss, net of $3.1 million, in the year ended December 31, 2020 attributable to a real estate impairment charge recognized against the carrying value of one property.
We recognized a casualty and impairment loss, net of $12.7 million, in the year ended December 31, 2019 attributable to:
• $26.3 million of real estate impairment charges recognized against the carrying values of four properties, partially offset by
• $13.6 million from insurance settlements for Hurricane Maria at our two malls in Puerto Rico and for tornado damage at our shopping center in Wilkes-Barre, PA.
We recognized a gain on sale of real estate of $39.8 million in the year ended December 31, 2020 due to the sale of three operating properties. We recognized a gain on sale of real estate of $68.6 million in the year ended December 31, 2019 due to the sale of eight operating properties.
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Interest income decreased by $7.2 million to $2.6 million in the year ended December 31, 2020 from $9.8 million in the year ended December 31, 2019. The decrease is primarily attributable to a decrease in interest rates.
Interest and debt expense increased by $4.4 million to $71.0 million in the year ended December 31, 2020 from $66.6 million in the year ended December 31, 2019. The increase is primarily attributable to:
• $2.5 million incremental interest in connection with the temporary default of our mortgage at Las Catalinas Mall in Puerto Rico from April 2020 until the loan was modified in December 2020;
• $2.4 million of interest resulting from the $250 million draw on the Company’s revolving credit agreement in March 2020, with the borrowings fully repaid in November 2020;
• $2.3 million of interest due to the assumption of mortgage debt in connection with the acquisition of Kingswood Center in Brooklyn, NY in February 2020; and
• $0.7 million decrease in interest capitalized due to the completion of development projects and lower capital spending during the year, partially offset by
• $2.8 million decrease in interest on variable-rate debt due to lower interest rates; and
• $0.7 million decrease as a result of the refinancing of the mortgage secured by The Outlets at Montehiedra in June 2020.
We recognized a gain on extinguishment of debt of $34.9 million in the year ended December 31, 2020 as a result of the refinancing of the mortgage secured by The Outlets at Montehiedra, consisting of the forgiveness of the $30 million junior loan plus accrued interest of $5.4 million, offset by the write-off of $0.4 million of unamortized deferred financing fees and $0.1 million of transaction costs.
Income tax expense decreased by $40.3 million due to an income tax benefit of $39.0 million recognized in the year ended December 31, 2020 compared to $1.3 million of expense in the year ended December 31, 2019. The decrease is primarily attributable to the tax impact of the mortgage refinancing and legal entity restructuring transactions related to our malls in Puerto Rico, partially offset by state and local income tax expense resulting from tax strategies implemented to limit the impact from the cancellation of debt at the Outlets at Montehiedra on the Company’s U.S. federal taxable income and the tax impact of the insurance settlement received in 2019 related to Hurricane Maria.
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Comparison of the Year Ended December 31, 2019 to December 31, 2018
Net income for the year ended December 31, 2019 was $116.2 million, compared to net income of $117.0 million for the year ended December 31, 2018. The following table summarizes certain line items from our consolidated statements of income that we believe are important in understanding our operations and/or those items which significantly changed in the year ended December 31, 2019 due to changes in accounting policies as compared to the same period of 2018:
For the year Ended December 31,
(Amounts in thousands) 2019 2018 $ Change
Total revenue $ 387,649 $ 414,160 $ (26,511)
Property operating expenses 64,062 78,360 (14,298)
General and administrative 38,220 34,984 3,236
Lease expense 14,466 11,448 3,018
Total revenue decreased by $26.5 million to $387.6 million in the year ended December 31, 2019 from $414.2 million in the year ended December 31, 2018. The decrease is primarily attributable to:
• $15.4 million decrease in amortization of below-market lease intangible liabilities due to lower write-offs in 2019 related to recaptured leases;
• $12.3 million as a result of dispositions, net of acquisitions; and
• $1.4 million due to rental revenue deemed uncollectible recognized against rental income in 2019 in accordance with the new lease accounting standard, effective January 1, 2019, as compared to being included in property operating expenses in 2018, partially offset by
• $1.0 million increase in property rentals due to rent commencements, lease modifications and contractual rent increases;
• $1.0 million increase due to rent abatements in 2018, recognized at our two malls in Puerto Rico and at our property in Wilkes-Barre, PA as a result of natural disasters; and
• $0.6 million increase in third-party management and development fee income due to higher leasing commissions.
Property operating expenses decreased by $14.3 million to $64.1 million in the year ended December 31, 2019 from $78.4 million in the year ended December 31, 2018. The decrease is primarily attributable to:
• $15.5 million of lease termination payments to acquire the Toys “R” Us leases at Bruckner Commons in the Bronx, NY and Hudson Mall in Jersey City, NJ in 2018;
• $4.1 million due to rental revenue deemed uncollectible recognized in property operating expenses in 2018 versus rental revenue in 2019; and
• $1.5 million decrease as a result of dispositions, net of acquisitions, partially offset by
• $3.3 million increase in common area maintenance projects and repair costs for vacant spaces;
• $2.7 million of common area maintenance expenses recognized on a gross basis at tenant-maintained centers in accordance with the new lease accounting standard; and
• $0.8 million increase in accrued environmental remediation costs.
General and administrative expenses increased by $3.2 million to $38.2 million in the year ended December 31, 2019 from $35.0 million in the year ended December 31, 2018. The increase is primarily attributable to:
• $3.4 million increase in share-based compensation expense due to additional equity awards granted; and
• $1.7 million increase in professional fees for consulting, recruitment and legal services, partially offset by
• $1.0 million decrease due to the recognition of office rent within lease expense in accordance with the lease accounting standard, effective January 1, 2019; and
• $0.9 million net decrease in executive transition costs, severance and other expenses.
Lease expense increased by $3.0 million to $14.5 million in the year ended December 31, 2019 from $11.4 million in the year ended December 31, 2018. The increase is primarily attributable to the recognition of office rent and common area maintenance and real estate taxes associated with ground or building leases within lease expense in accordance with the new lease accounting standard, effective January 1, 2019.
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Non-GAAP Financial Measures
We use NOI internally to make investment and capital allocation decisions and to compare the unlevered performance of our properties to our peers. Further, we believe NOI is useful to investors as a performance measure because, when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition and disposition activity on an unleveraged basis, providing perspective not immediately apparent from net income. The most directly comparable GAAP financial measure to NOI is net income. NOI excludes certain components from net income in order to provide results that are more closely related to a property’s results of operations. We calculate NOI by adjusting net income to add back depreciation and amortization expense, general and administrative expenses, casualty and real estate impairment losses, interest and debt expense, income tax expense and non-cash lease expense, and deduct management and development fee income from non-owned properties, gains on sale of real estate, interest income, non-cash rental income resulting from the straight-lining of rents and amortization of acquired below market leases net of above market leases. NOI should not be considered a substitute for net income and may not be comparable to similarly titled measures employed by others. The Company has historically defined this metric as "Cash NOI." There have been no changes to the calculation of this metric. However, the Company has decided to refer to this metric as "NOI" instead of "Cash NOI" to further clarify that, consistent with the definition of this metric, the revenue and expenses reflected in this metric include some accrued amounts and are not limited to amounts for which the Company actually received or made cash payments during the applicable period.
We calculate same-property NOI using net income as defined by GAAP reflecting only those income and expense items that are reflected in NOI (as described above) and excluding properties that were under development, redevelopment or that involve anchor repositioning where a substantial portion of the gross leasable area is taken out of service, and also excluding properties acquired or sold during the periods being compared. We also exclude for the following items in calculating same-property NOI: lease termination fees, bankruptcy settlement income, and income and expenses that we do not believe are representative of ongoing operating results, if any. As such, same-property NOI assists in eliminating disparities in net income due to the development, redevelopment, acquisition or disposition of properties during the periods presented, and thus provides a more consistent performance measure for the comparison of the operating performance of the Company’s properties, which the Company believes to be useful to investors. Same-property NOI should not be considered a substitute for net income and may not be comparable to similarly titled measures employed by others. The Company has historically defined this metric as "same-property Cash NOI." There have been no changes to the calculation of this metric.
Throughout this section, we have provided certain information on a “same-property” basis which includes the results of operations that were owned and operated for the entirety of the reporting periods being compared, which total 71 properties for the years ended December 31, 2020 and 2019 . Information provided on a same-property basis excludes properties that were under development, redevelopment or that involve anchor repositioning where a substantial portion of the gross leasable area is taken out of service and also excludes properties acquired or sold during the periods being compared. While there is judgment surrounding changes in designations, a property is removed from the same-property pool when a property is considered to be a redevelopment property because it is undergoing significant renovation or retenanting pursuant to a formal plan and is expected to have a significant impact on property operating income based on the retenanting that is occurring. A development or redevelopment property is moved back to the same-property pool once a substantial portion of the NOI growth expected from the development or redevelopment is reflected in both the current and comparable prior year period, generally one year after at least 80% of the expected NOI from the project is realized on a cash basis. Acquisitions are moved into the same-property pool once we have owned the property for the entirety of the comparable periods and the property is not under significant development or redevelopment.
Same-property NOI decreased by $30.8 million, or (14.2)%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019. Same-property NOI results for the year ended December 31, 2020 were negatively impacted by rental revenue deemed uncollectible primarily due to the COVID-19 pandemic.
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The following table reconciles net income to NOI and same-property NOI for the years ended December 31, 2020 and 2019.
For the year ended December 31,
(Amounts in thousands) 2020 2019
Net income $ 97,750 $ 116,197
Management and development fee income from non-owned properties (1,283) (1,900)
Other expense 672 1,065
Depreciation and amortization 96,029 94,116
General and administrative expense 48,682 38,220
Casualty and impairment loss, net (1)
3,055 12,738
Gain on sale of real estate (39,775) (68,632)
Gain on sale of lease — (1,849)
Interest income (2,599) (9,774)
Interest and debt expense 71,015 66,639
Gain on extinguishment of debt (34,908) —
Income tax (benefit) expense (38,996) 1,287
Non-cash (revenue) expense 741 (13,819)
NOI (2)
200,383 234,288
Adjustments:
Non-same property NOI (3)
(13,230) (17,166)
Tenant bankruptcy settlement income and lease termination income (1,094) (1,643)
Environmental remediation costs — 1,357
Same-property NOI $ 186,059 $ 216,836
Adjustments:
NOI related to properties being redeveloped 4,059 4,593
Same-property NOI including properties in redevelopment $ 190,118 $ 221,429
(1) The year ended December 31, 2020 reflects an impairment loss recognized at one property. The year ended December 31, 2019 reflects real estate impairment losses at four properties, offset by insurance proceeds for Hurricane Maria at our two malls in Puerto Rico and for tornado damage at our shopping center in Wilkes-Barre, PA.
(2) The Company has historically defined this metric as “Cash NOI.” There have been no changes to the calculation.
(3) Non-same property NOI includes NOI related to properties being redeveloped and properties acquired or disposed in the period.
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Funds From Operations
FFO applicable to diluted common shareholders for the year ended December 31, 2020 was $156.3 million compared to $167.1 million for the year ended December 31, 2019.
We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (‘‘Nareit’’) definition. Nareit defines FFO as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable real estate and land when connected to the main business of a REIT, impairments on depreciable real estate or land related to a REIT's main business, and rental property depreciation and amortization expense. We believe FFO is a meaningful non-GAAP financial measure useful in comparing our levered operating performance from period to period both internally and among our peers because this non-GAAP measure excludes net gains on sales of depreciable real estate, real estate impairment losses, rental property depreciation and amortization expense which implicitly assumes that the value of real estate diminishes predictably over time rather than fluctuating based on market conditions. We believe the presentation of comparable period operating results generated from FFO provides useful information to investors because the definition excludes items included in net income that do not relate to, or are not, indicative of our operating and financial performance, such as depreciation and amortization related to real estate, and items which can make periodic and peer analyses of operating and financial performance more difficult, such as gains (or losses) from sales of depreciable real estate and land when connected to the main business of a REIT and impairments on depreciable real estate or land related to a REIT's main business. FFO does not represent cash flows from operating activities in accordance with GAAP, should not be considered an alternative to net income as an indication of our performance, and is not indicative of cash flow as a measure of liquidity or our ability to make cash distributions. FFO may not be comparable to similarly titled measures employed by others.
For the year ended December 31,
(Amounts in thousands) 2020 2019
Net income $ 97,750 $ 116,197
Less net (income) loss attributable to noncontrolling interests in:
Operating partnership (4,160) (6,699)
Consolidated subsidiaries (1) 25
Net income attributable to common shareholders 93,589 109,523
Adjustments:
Rental property depreciation and amortization 95,297 93,212
Gain on sale of real estate (39,775) (68,632)
Real estate impairment loss 3,055 26,321
Limited partnership interests in operating partnership (1)
4,160 6,699
FFO applicable to diluted common shareholders $ 156,326 $ 167,123
(1) Represents earnings allocated to Long-Term Incentive Plan (“LTIP”) and OP unitholders for unissued common shares which have been excluded for purposes of calculating earnings per diluted share for the periods presented.
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Liquidity and Capital Resources
Due to the nature of our business, the cash generated from operations is primarily paid to our shareholders and unitholders of the Operating Partnership in the form of distributions. Our status as a REIT requires that we generally distribute at least 90% of our REIT’s ordinary taxable income each year. Historically, we have paid regular cash dividends; however, the timing, declaration, amount and payment of distributions to shareholders and unitholders of the Operating Partnership fall within the discretion of our Board of Trustees. Our Board of Trustees’ decisions regarding the payment of dividends depends on many factors, such as maintaining our REIT status, our financial condition, earnings, capital requirements, debt service obligations, limitations under our financing arrangements, industry practice, legal requirements, regulatory constraints, and other factors. O ur Board of Trustees declared a quarterly dividend of $0.22 per common share and OP unit for the first quarter of 2020. As a result of COVID-19 and the uncertainties it generated, the Company temporarily suspended quarterly dividend distributions for the second and third quarters of 2020 and declared a special cash dividend of $0.46 per common share in December 2020. The special dividend was based on the Company’s 2020 expected taxable income which includes the tax impacts associated with the Las Catalinas Mall debt modification and the debt forgiveness and refinancing of the mortgage loan on The Outlets at Montehiedra. The Company’s Board of Trustees will continue to monitor the Company’s financial performance and economic outlook and, for 2021, intends to reinstate the dividend at a rate based on projected taxable income for the year, which is expected to result in a quarterly dividend of $0.15 per common share, with any such future dividend is subject to approval of the Board of Trustees.
Property rental income is our primary source of cash flow and is dependent on a number of factors, including our occupancy level and rental rates, as well as our tenants’ ability to pay rent. Our properties have historically prov ided us with a relatively consistent stream of cash flow that enables us to pay operating expenses, debt service and recurring capital expenditures. As discussed herein, COVID-19 had an adverse impact on our short-term cash flow as a significant number of our tenants did not pay rent that was due in the year ended December 31, 2020 and could have a significant longer term adverse impact on our cash flow and financial condition. As of February 12, 2021, the Company collected 93% of rental revenue for the fourth quarter of 2020, up from 89% and 81% for the third and second quarter of 2020, respectively. Other sources of liquidity to fund cash requirements include proceeds from financings, equity offerings and asset sales.
Our short-term cash requirements consist of normal recurring operating expenses, lease obligations, regular debt service requirements, recurring expenditures (general & administrative expenses), expenditures related to leasing activity and distributions to shareholders and unitholders of the Operating Partnership. Our long-term capital requirements consist primarily of maturities under our long-term debt agreements, development and redevelopment costs and potential acquisitions.
At December 31, 2020, we had cash and cash equivalents, including restricted cash, of $419.3 million and no amounts drawn on our $600 million revolving credit agreement, which matures on January 29, 2024.
T he Company continues to monitor the COVID-19 pandemic and its impact on our overall liquidity position and outlook. The ultimate impact that COVID-19 may have on our operational and financial performance over the next 12 months is currently uncertain and will depend on many factors, including without limitation, its magnitude and duration and the adverse financial impact on our tenants from reduced business operations and social distancing requirements, which may impact tenants’ ability to generate sales at sufficient levels to cover operating costs such as rent. In light of the various uncertainties resulting from the COVID-19 pandemic, the Company borrowed $250 million under its existing $600 million revolving credit agreement in March 2020 as a precautionary measure to increase the Company's cash position and facilitate financial flexibility. The borrowings on the revolving credit facility were fully repaid in November 2020. Our ability to utilize amounts available under our revolving credit facility in the future will depend on our continued compliance with the applicable financial covenants and other terms of our revolving credit agreement, which may be impacted by tenant store closures and failure of tenants to pay rent. We have no debt scheduled to mature until 2022. We currently believe that cash on hand, available revolving credit and general ability to access the capital markets, should be sufficient to finance our operations and fund our debt service requirements and capital expenditures over the next 12 months.
On March 27, 2020 and December 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and the Consolidated Appropriations Act, 2021, respectively, each containing substantial tax-and-spending package intended to provide additional economic stimulus to address the impact of the COVID-19 pandemic. The Company has not applied for or received any loans authorized under this legislation; however, the Company may avail itself of certain tax provisions within the legislation that may be used to reduce taxable income or other tax obligations.
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Summary of Cash Flows
Cash and cash equivalents including restricted cash was $419.3 million at December 31, 2020, compared to $485.1 million as of December 31, 2019, a decrease of $65.9 million.
Our cash flow activities are summarized as follows:
Year Ended December 31,
(Amounts in thousands) 2020 2019 2018
Net cash provided by operating activities $ 112,822 $ 156,400 $ 137,040
Net cash used in investing activities (98,460) (2,521) (64,803)
Net cash used in financing activities (80,245) (126,265) (115,556)
Operating Activities
Net cash provided by operating activities primarily consists of cash inflows from rental revenue and cash outflows for property operating expenses, general and administrative expenses and interest expense.
Net cash provided by operating activities for the year ended December 31, 2020, decreased by $43.6 million as of December 31, 2019, due to the timing and deferral of cash receipts and payments by tenants impacted by the COVID-19 pandemic, including the impact of recovery income.
Investing Activities
Net cash flow used in investing activities is impacted by the timing and extent of our real estate development, capital improvements, and acquisition and disposition activities during the period.
Net cash used in investing activities for the year ended December 31, 2020, increased by $95.9 million compared to December 31, 2019 due to a (i) $77.0 million increase in cash used for acquisitions, (ii) $62.1 million decrease in cash provided by the sale of properties, (iii) $12.7 million of insurance proceeds received for physical property damages in the year ended December 31, 2019 and (iv) $6.9 million of cash received for the sale of an operating lease in 2019, partially offset by (v) $62.8 million decrease in cash used for real estate development and capital improvements at existing properties.
Financing Activities
Net cash flow used in financing activities is impacted by the timing and extent of issuances of debt and equity securities, distributions paid to common shareholders and unitholders of the Operating Partnership as well as principal and other payments associated with our outstanding indebtedness.
Net cash used in financing activities for the year ended December 31, 2020, decreased by $46.0 million from the year ended December 31, 2019 due to (i) $83.9 million decrease in distributions paid to partners due to the temporary suspension of dividends during 2020, (ii) $6.5 million of net proceeds from borrowings under mortgage loans, (iii) $6.0 million of cash paid to redeem units in 2019, (iv) $5.4 million of cash contributed by noncontrolling interests in 2020, partially offset by (v) $54.1 million of cash paid to repurchase common shares in 2020 (vi) $0.8 million increase in cash used to issue debt and (vii) $0.8 million increase in tax withholdings on vested restricted stock.
Financing Activities and Contractual Obligations
Below is a summary of our outstanding debt and weighted average interest rate as of December 31, 2020.
(Amounts in thousands) Principal balance at December 31, 2020 Weighted Average Interest Rate at December 31, 2020
Mortgages payable:
Fixed rate debt $ 1,428,026 4.16%
Variable rate debt (1)
169,371 1.90%
Total mortgages payable 1,597,397 3.92%
Unamortized debt issuance costs (9,865)
Total mortgages payable, net of unamortized debt issuance costs $ 1,587,532
(1) As of December 31, 2020, $80.4 million of our variable rate debt bears interest at one month LIBOR plus 190 bps and $89.0 million bears interest at one month LIBOR plus 160 bps.
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The net carrying amount of real estate collateralizing the above indebtedness amounted to approximately $1.3 billion as of December 31, 2020. Our mortgage loans contain covenants that limit our ability to incur additional indebtedness on these properties and in certain circumstances, require lender approval of tenant leases, certain redevelopment projects and/or yield maintenance upon repayment prior to maturity. As of December 31, 2020, we were in compliance with all debt covenants.
On January 15, 2015, we entered into a $500 million Revolving Credit Agreement (the “Agreement”) with certain financial institutions. On March 7, 2017, we amended and extended the Agreement. The amendment increased the credit facility size by $100 million to $600 million and extended the maturity date to March 7, 2021 with two six-month extension options. On July 29, 2019, we entered into a second amendment to the Agreement to extend the maturity date to January 29, 2024 with two six-month extension options. Company borrowings under the Agreement are subject to interest at LIBOR plus 1.05% to 1.50% and an annual facility fee of 15 to 30 basis points. Both the spread over LIBOR and the facility fee are based on our current leverage ratio and are subject to increase if our leverage ratio increases above predefined thresholds. The Agreement contains customary financial covenants including a maximum leverage ratio of 60% and a minimum fixed charge coverage ratio of 1.5x. No amounts had been drawn under the Agreement as of December 31, 2020.
On June 3, 2020, we entered into a third amendment to the Agreement. The third amendment, among other things, modifies certain definitions and the measurement period for certain financial covenants to a trailing four-quarter period instead of the most recent quarter period annualized. Under the Agreement, our financial covenants are generally measured using operating results of a trailing four-quarter period from the prior trailing four-quarter period, including the maximum leverage ratio, which measures our asset value based on net operating income, as defined in the Agreement. Net operating income is defined, in part, based on rents and other revenues received in the ordinary course of business from our properties. We currently believe that with our cash on hand, we will have sufficient resources to finance our operations and fund our debt service requirements and capital expenditures for at least the next twelve months.
In the event that LIBOR is discontinued, the interest rates for our debt following such event will be based on either alternate base rates or agreed upon replacement rates. Such an event would not affect our ability to borrow or maintain already outstanding borrowings, although it could result in higher interest rates.
We have contractual obligations related to our mortgage loans described further in Note 6 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. In addition, we have contractual obligations for certain properties that are subject to long-term ground and building leases where a third party owns and has leased the underlying land to us. We also have non-cancelable operating leases pertaining to office space from which we conduct our business. Below is a summary of our contractual obligations as of December 31, 2020:
Commitments Due by Period
(Amounts in thousands) Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years
Contractual cash obligations
Long-term debt obligations (1)
$ 1,895,499 $ 67,836 $ 548,872 $ 275,208 $ 1,003,583
Operating lease obligations 105,428 9,363 17,084 15,099 63,882
Finance lease obligations 6,968 109 218 218 6,423
$ 2,007,895 $ 77,308 $ 566,174 $ 290,525 $ 1,073,888
(1) Includes interest and principal payments. Interest on variable rate debt is computed using rates in effect as of December 31, 2020.
Additional contractual obligations that have been excluded from this table are as follows:
• Obligations related to construction and development contracts, since amounts are not fixed or determinable. Such contracts will generally be due over the next two years;
• Obligations related to maintenance contracts, since these contracts typically can be canceled upon 30 to 60 days’ notice without penalty;
• Obligations related to employment contracts with certain executive officers, since all agreements are subject to cancellation by either the Company or the executive without cause upon notice; and
• Recorded debt premiums or discounts that are not obligations.
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Capital Expenditures
The following summarizes capital expenditures presented on a cash basis for the years ended December 31, 2020 and 2019:
Year Ended December 31,
(Amounts in thousands) 2020 2019
Capital expenditures:
Development and redevelopment costs (1)
$ 15,468 $ 72,331
Capital improvements 10,704 14,252
Tenant improvements and allowances 2,350 4,718
Total capital expenditures $ 28,522 $ 91,301
(1) Amounts for the year ended December 31, 2019 have been reclassified to conform with current period presentation.
As of December 31, 2020, we had approximately $132.4 million of active redevelopment, development and anchor repositioning projects at various stages of completion, an increase of $66.8 million from $65.6 million of projects as of December 31, 2019. We have advanced these projects and incurred $10.1 million of additional spend since December 31, 2019. We anticipate that these projects will require an additional $86.6 million to complete, which we expect to occur over the next six to eighteen months depending on any restrictions on construction activity. We expect to fund these projects using cash on hand, proceeds from dispositions, or from secured debt.
Commitments and Contingencies
Legal Matters
There are various legal actions against us in the ordinary course of business. In our opinion, after consultation with legal counsel, the outcome of such matters will not have a material adverse effect on our financial condition, results of operations or cash flows.
Insurance
The Company maintains numerous insurance policies including for general liability, property, pollution, acts of terrorism, trustees’ and officers’, cyber, workers’ compensation and automobile-related liabilities. However, all such policies are subject to terms, conditions, exclusions, deductibles and sub-limits, amount other limiting factors. For example, the Company’s terrorism insurance excludes coverage for nuclear, biological, chemical or radiological terrorism events as defined by the Terrorism Risk Insurance Program Reauthorization Act.
The Company’s primary and excess insurance policies providing coverage for pollution related losses have an aggregate limit of $50 million and provide remediation and business interruption coverage for pollution incidents, which pursuant to our policies expressly include the presence and dispersal of viruses. On December 23, 2020, the Company initiated litigation in New Jersey state court, Bergen County, under these policies to recover uncollected rents and other amounts resulting from the COVID-19 virus.
Insurance premiums are typically charged directly to each of the properties but not all of the cost of such premiums are recovered. The Company is responsible for deductibles, losses in excess of insurance coverage, and the portion of premiums not reimbursable by tenants at our properties, which could be material.
We continue to monitor the state of the insurance market and the scope and costs of available coverage. We cannot anticipate what coverage will be available on commercially reasonable terms in the future and expect premiums across most coverage lines to increase in light of recent events. The incurrence of uninsured losses, costs or uncovered premiums could materially and adversely affect our business, results of operations and financial condition.
Certain of our loans and other agreements contain customary covenants requiring the maintenance of insurance coverage. Although we believe that we currently have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. If lenders or other counterparties insist on greater coverage than we are able to obtain, such requirement could materially and adversely affect our ability to finance our properties and expand our portfolio.
Hurricane-Related Charges
On September 20, 2017, Hurricane Maria damaged our two properties in Puerto Rico. During the year ended December 31, 2018, the Company received $1.5 million in casualty insurance proceeds, which were partially offset by $0.3 million of hurricane-related costs, resulting in net casualty gains of $1.2 million included in casualty and impairment loss, net on the accompanying consolidated statements of income. During the year ended December 31, 2018, the Company recognized $0.3 million of business interruption losses, comprised of $0.7 million of rent abatements due to tenants that had not reopened since
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the hurricane, recorded as a reduction of rental revenue, offset by a $0.4 million reversal within property operating expenses to account for doubtful accounts for payments received from tenants on rents previously reserved.
In June 2019, the Company finalized its insurance recovery related to Hurricane Maria with its carrier in the amount of $14.3 million, of which $3.3 million was previously received, subject to deductibles of $2.3 million. We recognized a $8.7 million casualty gain during the year ended December 31, 2019 as a result of the remaining insurance proceeds from the settlement agreement for our two malls in Puerto Rico.
Environmental Matters
Each of our properties has been subjected to varying degrees of environmental assessment at various times. Based on these assessments, we have accrued costs of $1.8 million and $2.7 million on our consolidated balance sheets as of December 31, 2020 and December 31, 2019, respectively, for remediation costs for environmental contamination at certain properties. While this accrual reflects third-party estimates of the potential costs of remediation at these properties, there can be no assurance that the actual costs will not exceed these amounts. During the years ended December 31, 2019 and 2018, the Company recognized $1.4 million and $0.6 million, respectively, of environmental remediation costs included in property operating expenses on the consolidated statements of income. Although we are not aware of any other material environmental contamination, there can be no assurance that the identification of new areas of contamination, changes in the extent or known scope of contamination, the discovery of additional sites, or changes in cleanup requirements would not result in significant costs to us.
Pandemic-Related Contingencies
During 2020, many of our tenants faced adverse financial consequences from reduced business operations and social distancing requirements resulting from the COVID-19 pandemic. As of December 31, 2020, substantially all of our portfolio's gross leasable area was open for business and the Company collected approximately 91% of rental revenue for the fourth quarter, 87% for the third quarter and 79% for the second quarter. Throughout 2020, the Company granted rent concessions and other lease-related relief, such as rent deferrals, to certain impacted tenants, and anticipates granting further rent concessions or other relief going forward. We valuate rent relief requests on a case-by-case basis and not all requests are granted. Rent relief, deferral or abatements and tenant defaults on lease obligations, such as repayment of deferred rent may have a negative impact on our rental revenue and net income. As of February 12, 2021, we have executed or approved approximately 112 rent deferrals for an aggregate deferral amount of $8.2 million.
The following table sets forth information as of December 31, 2020 regarding the collection status of quarterly billings since April 2020:
(in thousands) Three Months Ended June 30, 2020 Three Months Ended September 30, 2020 Three Months Ended December 30, 2020
Tenant Type Tenant Billings % Collected Tenant Billings % Collected Tenant Billings % Collected
National $ 65,787 85 % $ 68,390 90 % $ 63,809 94 %
Regional 9,460 63 % 9,858 79 % 9,286 89 %
Mom and pop 6,872 62 % 7,009 73 % 6,575 76 %
Local franchise 5,556 64 % 5,549 74 % 5,181 76 %
Temporary 1,717 50 % 1,137 99 % 1,642 78 %
Total portfolio $ 89,392 79 % $ 91,943 87 % $ 86,493 91 %
The Company is closely monitoring changes in the collectibility assessment of its tenant receivables as a result of certain tenants suffering adverse financial consequences due to the COVID-19 pandemic. During the year ended December 31, 2020, rental revenue deemed uncollectible of $27.9 million was classified as a reduction to rental revenue based on our assessment of the probability of collecting substantially all of the remaining rents for certain tenants. Additionally, during the year ended December 31, 2020 we recognized write-offs of $12.0 million related to receivables arising from the straight-lining of rents as a result of tenants impacted by the COVID-19 pandemic.
We experienced a decline in our percentage rent earned throughout 2020 as a result of reduced sales volumes from temporary store closures and changes in consumer behavior. Percentage rents totaled $2.4 million and $4.0 million for the years ended December 31, 2020 and December 31, 2019, respectively and approximated 1% of total revenue for the years ended December 31, 2020 and 2019, respectively.
The Company is not currently aware of any other loss contingencies related to the COVID-19 pandemic that would require recognition at this time, with the exception of abatements already discussed with tenants or deferred rents that may not be collected.
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Bankruptcies
Although our rental revenue is supported by long-term leases, leases may be rejected in a bankruptcy proceeding and the related tenant stores may permanently vacate prior to lease expiration. In the event a tenant with a significant number of leases or square footage in our shopping centers files for bankruptcy and rejects its leases with us, we could experience a reduction in our revenues. We monitor the operating performance and rent collections of all tenants in our shopping centers, especially those tenants in arrears or operating retail formats that are experiencing significant changes in competition, business practice, or store closings in other locations.
Given the economic environment brought upon by COVID-19, certain tenants experienced liquidity or financial hardships and filed for Chapter 11 bankruptcy protection during the year ended December 31, 2020. Although some of these tenants intend to exit the Chapter 11 bankruptcy process and resume operations, the outcomes of such proceedings are unknown and the Company is currently exploring leasing alternatives for these spaces. We anticipate tenant bankruptcies may continue to increase in the future depending on the length and severity of the COVID-19 pandemic.
Century 21 filed for Chapter 11 bankruptcy protection on September 10, 2020. Prior to bankruptcy, the Company had one lease with Century 21 in Paramus, NJ comprising approximately 157,000 sf, which generated $4.4 million in annual rental revenue. In connection with the bankruptcy, the Company recognized a write-off of $2.5 million of receivables arising from the straight-lining of rents, and recognized $2.1 million as rental revenue deemed uncollectible (classified within rental revenue) for the year ended December 31, 2020. The Company closed and vacated the store in December 2020.
Inflation and Economic Condition Considerations
Most of our leases contain provisions designed to partially mitigate the impact of inflation. Although inflation has been low in recent periods and has had a minimal impact on the performance of our shopping centers, it is very possible that inflation will increase in future years. Most of our leases require tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation, although some larger tenants have capped the amount of these operating expenses they are responsible for under the lease.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of December 31, 2020 or December 31, 2019.
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