Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2018
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from_____ to_____
Commission File Number: 001-36160 (Brixmor Property Group)
Commission File Number: 333-201464-01 (Brixmor Operating Partnership LP)
Brixmor Property Group Inc.
Brixmor Operating Partnership LP
(Exact Name of Registrant as Specified in Its Charter)
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| | |
Maryland (Brixmor Property Group Inc.) | | 45-2433192 |
Delaware (Brixmor Operating Partnership LP) | | 80-0831163 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
450 Lexington Avenue, New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
212-869-3000
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Brixmor Property Group Inc. Yes þ No ☐ Brixmor Operating Partnership LP Yes þ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Brixmor Property Group Inc. Yes þ No ☐ Brixmor Operating Partnership LP Yes þ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Brixmor Property Group Inc. | | | Brixmor Operating Partnership LP |
Large accelerated filer | þ | Non-accelerated filer | ☐ | | | Large accelerated filer | ☐ | Non-accelerated filer | þ |
Smaller reporting company | ☐ | Accelerated filer | ☐ | | | Smaller reporting company | ☐ | Accelerated filer | ☐ |
Emerging growth company | ☐ | | | | | Emerging growth company | ☐ | | |
(Do not check if a smaller reporting company) |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Brixmor Property Group Inc. ☐ Brixmor Operating Partnership LP ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Brixmor Property Group Inc. Yes ☐ No þ Brixmor Operating Partnership LP Yes ☐ No þ
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
As of July 1, 2018, Brixmor Property Group Inc. had 302,627,414 shares of common stock outstanding.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2018 of Brixmor Property Group Inc. and Brixmor Operating Partnership LP. Unless stated otherwise or the context otherwise requires, references to the “Parent Company” or “BPG” mean Brixmor Property Group Inc. and its consolidated subsidiaries; and references to the “Operating Partnership” mean Brixmor Operating Partnership LP and its consolidated subsidiaries. Unless the context otherwise requires, the terms the “Company,” “Brixmor,” “we,” “our” and “us” mean the Parent Company and the Operating Partnership, collectively.
The Parent Company is a real estate investment trust (“REIT”) that owns 100% of the common stock of BPG Subsidiary Inc. (“BPG Sub”), which, in turn, is the sole owner of Brixmor OP GP LLC (the “General Partner”), the sole general partner of the Operating Partnership. As of June 30, 2018, the Parent Company beneficially owned, through its direct and indirect interest in BPG Sub and the General Partner, 100% of the outstanding partnership common units of interest (the “OP Units”) in the Operating Partnership.
The Company believes combining the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into this single report:
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• | Enhances investors’ understanding of the Parent Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business; |
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• | Eliminates duplicative disclosure and provides a more streamlined and readable presentation; and |
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• | Creates time and cost efficiencies through the preparation of one combined report instead of two separate reports. |
Management operates the Parent Company and the Operating Partnership as one business. The management of the Parent Company consists of the same individuals as the management of the Operating Partnership, who are officers of both the Parent Company and the Operating Partnership.
We believe it is important to understand the few differences between the Parent Company and the Operating Partnership in the context of how the Parent Company and the Operating Partnership operate as a consolidated company. The Parent Company is a REIT, whose only material asset is its indirect interest in the Operating Partnership. As a result, the Parent Company does not conduct business itself other than issuing public equity from time to time. The Parent Company does not incur any material indebtedness. The Operating Partnership holds substantially all of our assets. Except for net proceeds from public equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for OP Units, the Operating Partnership generates all remaining capital required by the Company’s business. Sources of this capital include the Operating Partnership’s operations and its direct or indirect incurrence of indebtedness.
Stockholders’ equity, partners’ capital, and non-controlling interests are the primary areas of difference between the unaudited condensed consolidated financial statements of the Parent Company and those of the Operating Partnership. The Operating Partnership’s capital currently includes OP Units owned by the Parent Company through BPG Sub and the General Partner and has in the past and may in the future include OP Units owned by third parties. OP Units owned by third parties, if any, are accounted for in partners’ capital in the Operating Partnership’s financial statements and outside of stockholders’ equity in non-controlling interests in the Parent Company’s financial statements.
In order to highlight the differences between the Parent Company and the Operating Partnership, there are sections in this report that separately discuss the Parent Company and the Operating Partnership, including separate financial statements (but combined footnotes), separate controls and procedures sections, separate certification of periodic report under Section 302 of the Sarbanes-Oxley Act of 2002 and separate certification pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. In the sections that combine disclosure for the Parent Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company.
The Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have material assets other than its indirect investment in the Operating Partnership. Therefore, while stockholders’ equity, partners’ capital and non-controlling interests may differ as discussed above, the assets and liabilities of the Parent Company and the Operating Partnership are materially the same on their respective financial statements.
TABLE OF CONTENTS
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Item No. | | Page |
Part I - FINANCIAL INFORMATION |
1. | Financial Statements | |
| Brixmor Property Group Inc. (unaudited) | |
| Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 | |
| Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017 | |
| Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017 | |
| Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2018 and 2017 | |
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 | |
| Brixmor Operating Partnership LP (unaudited) | |
| Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 | |
| Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017 | |
| Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017 | |
| Condensed Consolidated Statements of Changes in Capital for the Three and Six Months Ended June 30, 2018 and 2017 | |
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 | |
| Brixmor Property Group Inc. and Brixmor Operating Partnership LP (unaudited) | |
| Notes to Condensed Consolidated Financial Statements | |
2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
3. | Quantitative and Qualitative Disclosures about Market Risk | |
4. | Controls and Procedures | |
Part II - OTHER INFORMATION |
1. | Legal Proceedings | |
1A. | Risk Factors | |
2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
3. | Defaults Upon Senior Securities | |
4. | Mine Safety Disclosures | |
5. | Other Information | |
6. | Exhibits | |
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “targets” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in our Form 10-K for the year ended December 31, 2017, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), which are accessible on the SEC’s website at http://www.sec.gov. These factors include (1) changes in national, regional or local economic climates; (2) local market conditions, including an oversupply of space in, or a reduction in demand for, properties similar to those in our Portfolio; (3) changes in market rental rates; (4) changes in the regional demographics of our properties; (5) competition from other available properties and the attractiveness of properties in our Portfolio to our tenants; (6) the financial stability of tenants, including the ability of tenants to pay rent and expense reimbursements; (7) in the case of percentage rents, the sales volume of our tenants; and (8) litigation and governmental investigations discussed under the heading “Legal Matters” in Note 13 – Commitments and Contingencies to our unaudited Condensed Consolidated Financial Statements in this report. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. The forward-looking statements speak only as of the date of this report, and we expressly disclaim any obligation or undertaking to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except to the extent otherwise required by law.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(Unaudited, in thousands, except share information) |
| June 30, 2018 | | December 31, 2017 |
Assets | | | |
Real estate | | | |
Land | $ | 1,928,473 |
| | $ | 1,984,309 |
|
Buildings and improvements | 8,727,106 |
| | 8,937,182 |
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| 10,655,579 |
| | 10,921,491 |
|
Accumulated depreciation and amortization | (2,402,498 | ) | | (2,361,070 | ) |
Real estate, net | 8,253,081 |
| | 8,560,421 |
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| | | |
Cash and cash equivalents | 53,418 |
| | 56,938 |
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Restricted cash | 48,206 |
| | 53,839 |
|
Marketable securities | 31,226 |
| | 28,006 |
|
Receivables, net of allowance for doubtful accounts of $17,426 and $17,205 | 219,992 |
| | 232,111 |
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Deferred charges and prepaid expenses, net | 147,321 |
| | 147,508 |
|
Other assets | 97,303 |
| | 75,103 |
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Total assets | $ | 8,850,547 |
| | $ | 9,153,926 |
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| | | |
| | | |
Liabilities | | | |
Debt obligations, net | $ | 5,483,354 |
| | $ | 5,676,238 |
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Accounts payable, accrued expenses and other liabilities | 510,222 |
| | 569,340 |
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Total liabilities | 5,993,576 |
| | 6,245,578 |
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Commitments and contingencies (Note 13) |
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Equity | | | |
Common stock, $0.01 par value; authorized 3,000,000,000 shares; 305,117,724 and 304,947,144 shares issued and 302,627,414 and 304,620,186 shares outstanding | 3,026 |
| | 3,046 |
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Additional paid-in capital | 3,300,636 |
| | 3,330,466 |
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Accumulated other comprehensive income | 28,363 |
| | 24,211 |
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Distributions in excess of net income | (475,054 | ) | | (449,375 | ) |
Total equity | 2,856,971 |
| | 2,908,348 |
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Total liabilities and equity | $ | 8,850,547 |
| | $ | 9,153,926 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
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BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(Unaudited, in thousands, except per share data) |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Revenues | | | | | | | |
Rental income | $ | 243,987 |
| | $ | 253,777 |
| | $ | 487,332 |
| | $ | 503,398 |
|
Expense reimbursements | 67,363 |
| | 67,039 |
| | 138,241 |
| | 140,229 |
|
Other revenues | 1,680 |
| | 2,002 |
| | 4,632 |
| | 4,997 |
|
Total revenues | 313,030 |
| | 322,818 |
| | 630,205 |
| | 648,624 |
|
| | | | | | | |
Operating expenses | | | | | | | |
Operating costs | 33,881 |
| | 33,025 |
| | 69,371 |
| | 70,450 |
|
Real estate taxes | 44,947 |
| | 44,064 |
| | 90,672 |
| | 90,531 |
|
Depreciation and amortization | 91,334 |
| | 96,870 |
| | 181,717 |
| | 190,801 |
|
Provision for doubtful accounts | 949 |
| | 1,757 |
| | 3,364 |
| | 2,807 |
|
Impairment of real estate assets | 11,927 |
| | 10,632 |
| | 27,829 |
| | 16,318 |
|
General and administrative | 21,320 |
| | 23,248 |
| | 43,746 |
| | 44,205 |
|
Total operating expenses | 204,358 |
| | 209,596 |
| | 416,699 |
| | 415,112 |
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| | | | | | | |
Other income (expense) | | | | | | | |
Dividends and interest | 104 |
| | 85 |
| | 200 |
| | 158 |
|
Interest expense | (55,200 | ) | | (57,443 | ) | | (110,371 | ) | | (113,174 | ) |
Gain on sale of real estate assets | 28,262 |
| | 20,173 |
| | 39,710 |
| | 28,978 |
|
Loss on extinguishment of debt, net | (291 | ) | | (78 | ) | | (423 | ) | | (1,340 | ) |
Other | (1,185 | ) | | (684 | ) | | (1,238 | ) | | (1,391 | ) |
Total other expense | (28,310 | ) | | (37,947 | ) | | (72,122 | ) | | (86,769 | ) |
| | | | | | | |
Income before equity in income of unconsolidated joint venture | 80,362 |
| | 75,275 |
| | 141,384 |
| | 146,743 |
|
Equity in income of unconsolidated joint venture | — |
| | 163 |
| | — |
| | 350 |
|
| | | | | | | |
Net income | 80,362 |
| | 75,438 |
| | 141,384 |
| | 147,093 |
|
Net income attributable to non-controlling interests | — |
| | — |
| | — |
| | (76 | ) |
| | | | | | | |
Net income attributable to Brixmor Property Group Inc. | 80,362 |
| | 75,438 |
| | 141,384 |
| | 147,017 |
|
Preferred stock dividends | — |
| | (39 | ) | | — |
| | (39 | ) |
| | | | | | | |
Net income attributable to common stockholders | $ | 80,362 |
| | $ | 75,399 |
| | $ | 141,384 |
| | $ | 146,978 |
|
Per common share: | | | | | | | |
Net income attributable to common stockholders: | | | | | | | |
Basic | $ | 0.27 |
| | $ | 0.25 |
| | $ | 0.47 |
| | $ | 0.48 |
|
Diluted | $ | 0.26 |
| | $ | 0.25 |
| | $ | 0.47 |
| | $ | 0.48 |
|
Weighted average shares: | | | | | | | |
Basic | 302,776 |
| | 304,914 |
| | 303,468 |
| | 304,743 |
|
Diluted | 302,934 |
| | 305,115 |
| | 303,614 |
| | 305,125 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
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BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
(Unaudited, in thousands) |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Net income | $ | 80,362 |
| | $ | 75,438 |
| | $ | 141,384 |
| | $ | 147,093 |
|
Other comprehensive income (loss) | | | | | | | |
Change in unrealized gain (loss) on interest rate swaps, net (Note 6) | (581 | ) | | (3,091 | ) | | 4,192 |
| | (472 | ) |
Change in unrealized gain (loss) on marketable securities | 46 |
| | (21 | ) | | (40 | ) | | (20 | ) |
Total other comprehensive income (loss) | (535 | ) | | (3,112 | ) | | 4,152 |
| | (492 | ) |
Comprehensive income | 79,827 |
| | 72,326 |
| | 145,536 |
| | 146,601 |
|
Comprehensive income attributable to non-controlling interests | — |
| | — |
| | — |
| | (76 | ) |
Comprehensive income attributable to common stockholders | $ | 79,827 |
| | $ | 72,326 |
| | $ | 145,536 |
| | $ | 146,525 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
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BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
(Unaudited, in thousands, except per share data)
|
| Common Stock | | | | | | | | | | |
| Number | | Amount | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income | | Distributions in Excess of Net Income | | Non-controlling Interests | | Total |
Beginning balance, January 1, 2017 | 304,343 |
| | $ | 3,043 |
| | $ | 3,324,874 |
| | $ | 21,519 |
| | $ | (426,552 | ) | | $ | 4,276 |
| | $ | 2,927,160 |
|
Common stock dividends ($0.52 per common share) | — |
| | — |
| | — |
| | — |
| | (159,037 | ) | | — |
| | (159,037 | ) |
Equity based compensation expense | — |
| | — |
| | 4,971 |
| | — |
| | — |
| | 3 |
| | 4,974 |
|
Preferred stock dividends | — |
| | — |
| | — |
| | — |
| | (641 | ) | | (648 | ) | | (1,289 | ) |
Other comprehensive loss | — |
| | — |
| | — |
| | (492 | ) | | — |
| | — |
| | (492 | ) |
Issuance of common stock and OP Units | 190 |
| | 6 |
| | — |
| | — |
| | — |
| | (6 | ) | | — |
|
Conversion of OP Units into common stock | 403 |
| | — |
| | 3,701 |
| | — |
| | — |
| | (3,701 | ) | | — |
|
Share-based awards retained for taxes | — |
| | — |
| | (2,661 | ) | | — |
| | — |
| | — |
| | (2,661 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 147,017 |
| | 76 |
| | 147,093 |
|
Ending balance, June 30, 2017 | 304,936 |
| | $ | 3,049 |
| | $ | 3,330,885 |
| | $ | 21,027 |
| | $ | (439,213 | ) | | $ | — |
| | $ | 2,915,748 |
|
| | | | | | | | | | | | | |
Beginning balance, January 1, 2018 | 304,620 |
| | $ | 3,046 |
| | $ | 3,330,466 |
| | $ | 24,211 |
| | $ | (449,375 | ) | | $ | — |
| | $ | 2,908,348 |
|
Common stock dividends ($0.55 per common share) | — |
| | — |
| | — |
| | — |
| | (167,063 | ) | | — |
| | (167,063 | ) |
Equity based compensation expense | — |
| | — |
| | 5,268 |
| | — |
| | — |
| | — |
| | 5,268 |
|
Other comprehensive income | — |
| | — |
| | — |
| | 4,152 |
| | — |
| | — |
| | 4,152 |
|
Issuance of common stock and OP Units | 170 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | 2 |
|
Repurchases of common stock | (2,163 | ) | | (22 | ) | | (33,243 | ) | | — |
| | — |
| | — |
| | (33,265 | ) |
Share-based awards retained for taxes | — |
| | — |
| | (1,855 | ) | | — |
| | — |
| | — |
| | (1,855 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 141,384 |
| | — |
| | 141,384 |
|
Ending balance, June 30, 2018 | 302,627 |
| | $ | 3,026 |
| | $ | 3,300,636 |
| | $ | 28,363 |
| | $ | (475,054 | ) | | $ | — |
| | $ | 2,856,971 |
|
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
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BRIXMOR PROPERTY GROUP INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited, in thousands) |
| Six Months Ended June 30, |
| 2018 | | 2017 |
Operating activities: | | | |
Net income | $ | 141,384 |
| | $ | 147,093 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 181,717 |
| | 190,801 |
|
Debt premium and discount amortization | (1,878 | ) | | (3,148 | ) |
Deferred financing cost amortization | 3,313 |
| | 3,574 |
|
Above- and below-market lease intangible amortization | (14,822 | ) | | (15,369 | ) |
Provisions for impairment | 27,829 |
| | 16,318 |
|
Gain on disposition of operating properties | (39,710 | ) | | (28,978 | ) |
Equity based compensation | 5,268 |
| | 4,974 |
|
Other | 1,821 |
| | 946 |
|
Loss on extinguishment of debt, net | 423 |
| | 1,340 |
|
Changes in operating assets and liabilities: | | | |
Receivables | 8,697 |
| | (13,928 | ) |
Deferred charges and prepaid expenses | (15,054 | ) | | (21,975 | ) |
Other assets | 3,643 |
| | (542 | ) |
Accounts payable, accrued expenses and other liabilities | (22,278 | ) | | 1,088 |
|
Net cash provided by operating activities | 280,353 |
| | 282,194 |
|
| | | |
Investing activities: | | | |
Improvements to and investments in real estate assets | (120,638 | ) | | (74,899 | ) |
Acquisitions of real estate assets | (7,453 | ) | | (111,790 | ) |
Proceeds from sales of real estate assets | 239,404 |
| | 107,090 |
|
Purchase of marketable securities | (16,524 | ) | | (12,975 | ) |
Proceeds from sale of marketable securities | 13,197 |
| | 13,715 |
|
Net cash provided by (used in) investing activities | 107,986 |
| | (78,859 | ) |
| | | |
Financing activities: | | | |
Repayment of secured debt obligations | (9,356 | ) | | (294,697 | ) |
Repayment of borrowings under unsecured revolving credit facility | (35,000 | ) | | (508,000 | ) |
Proceeds from borrowings under unsecured revolving credit facility | 35,000 |
| | 386,000 |
|
Proceeds from unsecured notes | — |
| | 893,916 |
|
Repayment of borrowings under unsecured term loan | (185,000 | ) | | (490,000 | ) |
Deferred financing costs | (440 | ) | | (7,925 | ) |
Distributions to common stockholders | (167,576 | ) | | (158,803 | ) |
Distributions to non-controlling interests | — |
| | (1,390 | ) |
Repurchases of common shares | (33,265 | ) | | — |
|
Repurchases of common shares in conjunction with equity award plans | (1,855 | ) | | (2,661 | ) |
Net cash used in financing activities | (397,492 | ) | | (183,560 | ) |
| | | |
Net change in cash, cash equivalents and restricted cash | (9,153 | ) | | 19,775 |
|
Cash, cash equivalents and restricted cash at beginning of period | 110,777 |
| | 102,869 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 101,624 |
| | $ | 122,644 |
|
| | | |
Reconciliation to consolidated balance sheets | | | |
Cash and cash equivalents | $ | 53,418 |
| | $ | 54,479 |
|
Restricted cash | 48,206 |
| | 68,165 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 101,624 |
| | $ | 122,644 |
|
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest, net of amount capitalized of $1,169 and $1,696 | $ | 109,453 |
| | $ | 111,101 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(Unaudited, in thousands, except unit information) |
| June 30, 2018 | | December 31, 2017 |
Assets | | | |
Real estate | | | |
Land | $ | 1,928,473 |
| | $ | 1,984,309 |
|
Buildings and improvements | 8,727,106 |
| | 8,937,182 |
|
| 10,655,579 |
| | 10,921,491 |
|
Accumulated depreciation and amortization | (2,402,498 | ) | | (2,361,070 | ) |
Real estate, net | 8,253,081 |
| | 8,560,421 |
|
| | | |
Cash and cash equivalents | 53,390 |
| | 56,908 |
|
Restricted cash | 48,206 |
| | 53,839 |
|
Marketable securities | 31,007 |
| | 27,787 |
|
Receivables, net of allowance for doubtful accounts of $17,426 and $17,205 | 219,992 |
| | 232,111 |
|
Deferred charges and prepaid expenses, net | 147,321 |
| | 147,508 |
|
Other assets | 97,303 |
| | 75,103 |
|
Total assets | $ | 8,850,300 |
| | $ | 9,153,677 |
|
| | | |
| | | |
Liabilities | | | |
Debt obligations, net | $ | 5,483,354 |
| | $ | 5,676,238 |
|
Accounts payable, accrued expenses and other liabilities | 510,222 |
| | 569,340 |
|
Total liabilities | 5,993,576 |
| | 6,245,578 |
|
| | | |
Commitments and contingencies (Note 13) |
|
| |
|
|
| | | |
Capital | | | |
Partnership common units; 305,117,724 and 304,947,144 units issued and 302,627,414 and 304,620,186 units outstanding | 2,828,346 |
| | 2,883,875 |
|
Accumulated other comprehensive income | 28,378 |
| | 24,224 |
|
Total capital | 2,856,724 |
| | 2,908,099 |
|
Total liabilities and capital | $ | 8,850,300 |
| | $ | 9,153,677 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | | | | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(Unaudited, in thousands, except per share data) |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Revenues | | | | | | | |
Rental income | $ | 243,987 |
| | $ | 253,777 |
| | $ | 487,332 |
| | $ | 503,398 |
|
Expense reimbursements | 67,363 |
| | 67,039 |
| | 138,241 |
| | 140,229 |
|
Other revenues | 1,680 |
| | 2,002 |
| | 4,632 |
| | 4,997 |
|
Total revenues | 313,030 |
| | 322,818 |
| | 630,205 |
| | 648,624 |
|
| | | | | | | |
Operating expenses | | | | | | | |
Operating costs | 33,881 |
| | 33,025 |
| | 69,371 |
| | 70,450 |
|
Real estate taxes | 44,947 |
| | 44,064 |
| | 90,672 |
| | 90,531 |
|
Depreciation and amortization | 91,334 |
| | 96,870 |
| | 181,717 |
| | 190,801 |
|
Provision for doubtful accounts | 949 |
| | 1,757 |
| | 3,364 |
| | 2,807 |
|
Impairment of real estate assets | 11,927 |
| | 10,632 |
| | 27,829 |
| | 16,318 |
|
General and administrative | 21,320 |
| | 23,248 |
| | 43,746 |
| | 44,205 |
|
Total operating expenses | 204,358 |
| | 209,596 |
| | 416,699 |
| | 415,112 |
|
| | | | | | | |
Other income (expense) | | | | | | | |
Dividends and interest | 104 |
| | 85 |
| | 200 |
| | 158 |
|
Interest expense | (55,200 | ) | | (57,443 | ) | | (110,371 | ) | | (113,174 | ) |
Gain on sale of real estate assets | 28,262 |
| | 20,173 |
| | 39,710 |
| | 28,978 |
|
Loss on extinguishment of debt, net | (291 | ) | | (78 | ) | | (423 | ) | | (1,340 | ) |
Other | (1,185 | ) | | (684 | ) | | (1,238 | ) | | (1,391 | ) |
Total other expense | (28,310 | ) | | (37,947 | ) | | (72,122 | ) | | (86,769 | ) |
| | | | | | | |
Income before equity in income of unconsolidated joint venture | 80,362 |
| | 75,275 |
| | 141,384 |
| | 146,743 |
|
Equity in income of unconsolidated joint venture | — |
| | 163 |
| | — |
| | 350 |
|
| | | | | | | |
Net income attributable to Brixmor Operating Partnership LP | $ | 80,362 |
| | $ | 75,438 |
| | $ | 141,384 |
| | $ | 147,093 |
|
| | | | | | | |
Per common unit: | | | | | | | |
Net income attributable to partnership common units: | | | | | | | |
Basic | $ | 0.27 |
| | $ | 0.25 |
| | $ | 0.47 |
| | $ | 0.48 |
|
Diluted | $ | 0.26 |
| | $ | 0.25 |
| | $ | 0.47 |
| | $ | 0.48 |
|
Weighted average number of partnership common units: | | | | | | | |
Basic | 302,776 |
| | 304,914 |
| | 303,468 |
| | 304,900 |
|
Diluted | 302,934 |
| | 305,115 |
| | 303,614 |
| | 305,125 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | | | | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
(Unaudited, in thousands) |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Net income attributable to Brixmor Operating Partnership LP | $ | 80,362 |
| | $ | 75,438 |
| | $ | 141,384 |
| | $ | 147,093 |
|
Other comprehensive income (loss) | | | | | | | |
Change in unrealized gain (loss) on interest rate swaps, net (Note 6) | (581 | ) | | (3,091 | ) | | 4,192 |
| | (472 | ) |
Change in unrealized gain (loss) on marketable securities | 47 |
| | (22 | ) | | (38 | ) | | (20 | ) |
Total other comprehensive income (loss) | (534 | ) | | (3,113 | ) | | 4,154 |
| | (492 | ) |
Comprehensive income attributable to Brixmor Operating Partnership LP | $ | 79,828 |
| | $ | 72,325 |
| | $ | 145,538 |
| | $ | 146,601 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
|
(Unaudited, in thousands)
|
| | | | | |
| Partnership Common Units | | Accumulated Other Comprehensive Income | | Total |
Beginning balance, January 1, 2017 | $ | 2,905,378 |
| | $ | 21,531 |
| | $ | 2,926,909 |
|
Distributions to partners | (160,326 | ) | | — |
| | (160,326 | ) |
Equity based compensation expense | 4,974 |
| | — |
| | 4,974 |
|
Other comprehensive loss | — |
| | (492 | ) | | (492 | ) |
Share-based awards retained for taxes | (2,661 | ) | | — |
| | (2,661 | ) |
Net income attributable to Brixmor Operating Partnership LP | 147,093 |
| | — |
| | 147,093 |
|
Ending balance, June 30, 2017 | $ | 2,894,458 |
| | $ | 21,039 |
| | $ | 2,915,497 |
|
| | | | | |
Beginning balance, January 1, 2018 | $ | 2,883,875 |
| | $ | 24,224 |
| | $ | 2,908,099 |
|
Distributions to partners | (167,063 | ) | | — |
| | (167,063 | ) |
Equity based compensation expense | 5,268 |
| | — |
| | 5,268 |
|
Other comprehensive income | — |
| | 4,154 |
| | 4,154 |
|
Issuance of OP Units | 2 |
| | — |
| | 2 |
|
Repurchases of OP Units | (33,265 | ) | | — |
| | (33,265 | ) |
Share-based awards retained for taxes | (1,855 | ) | | — |
| | (1,855 | ) |
Net income attributable to Brixmor Operating Partnership LP | 141,384 |
| | — |
| | 141,384 |
|
Ending balance, June 30, 2018 | $ | 2,828,346 |
| | $ | 28,378 |
| | $ | 2,856,724 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
| | | | | | | |
BRIXMOR OPERATING PARTNERSHIP LP AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited, in thousands) |
| Six Months Ended June 30, |
| 2018 | | 2017 |
Operating activities: | | | |
Net income attributable to Brixmor Operating Partnership LP | $ | 141,384 |
| | $ | 147,093 |
|
Adjustments to reconcile net income attributable to Brixmor Operating Partnership LP to net cash provided by operating activities: | | | |
Depreciation and amortization | 181,717 |
| | 190,801 |
|
Debt premium and discount amortization | (1,878 | ) | | (3,148 | ) |
Deferred financing cost amortization | 3,313 |
| | 3,574 |
|
Above- and below-market lease intangible amortization | (14,822 | ) | | (15,369 | ) |
Provisions for impairment | 27,829 |
| | 16,318 |
|
Gain on disposition of operating properties | (39,710 | ) | | (28,978 | ) |
Equity based compensation | 5,268 |
| | 4,974 |
|
Other | 1,821 |
| | 946 |
|
Loss on extinguishment of debt, net | 423 |
| | 1,340 |
|
Changes in operating assets and liabilities: | | | |
Receivables | 8,697 |
| | (13,928 | ) |
Deferred charges and prepaid expenses | (15,054 | ) | | (21,975 | ) |
Other assets | 3,643 |
| | (542 | ) |
Accounts payable, accrued expenses and other liabilities | (22,278 | ) | | 1,088 |
|
Net cash provided by operating activities | 280,353 |
| | 282,194 |
|
| | | |
Investing activities: | | | |
Improvements to and investments in real estate assets | (120,638 | ) | | (74,899 | ) |
Acquisitions of real estate assets | (7,453 | ) | | (111,790 | ) |
Proceeds from sales of real estate assets | 239,404 |
| | 107,090 |
|
Purchase of marketable securities | (16,524 | ) | | (12,973 | ) |
Proceeds from sale of marketable securities | 13,197 |
| | 13,715 |
|
Net cash provided by (used in) investing activities | 107,986 |
| | (78,857 | ) |
| | | |
Financing activities: | | | |
Repayment of secured debt obligations | (9,356 | ) | | (294,697 | ) |
Repayment of borrowings under unsecured revolving credit facility | (35,000 | ) | | (508,000 | ) |
Proceeds from borrowings under unsecured revolving credit facility | 35,000 |
| | 386,000 |
|
Proceeds from unsecured notes | — |
| | 893,916 |
|
Repayment of borrowings under unsecured term loan | (185,000 | ) | | (490,000 | ) |
Deferred financing costs | (440 | ) | | (7,925 | ) |
Partner distributions | (202,694 | ) | | (162,853 | ) |
Net cash used in financing activities | (397,490 | ) | | (183,559 | ) |
| | | |
Net change in cash, cash equivalents and restricted cash | (9,151 | ) | | 19,778 |
|
Cash, cash equivalents and restricted cash at beginning of period | 110,747 |
| | 102,835 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 101,596 |
| | $ | 122,613 |
|
| | | |
Reconciliation to consolidated balance sheets | | | |
Cash and cash equivalents | $ | 53,390 |
| | $ | 54,448 |
|
Restricted cash | 48,206 |
| | 68,165 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 101,596 |
| | $ | 122,613 |
|
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest, net of amount capitalized of $1,169 and $1,696 | $ | 109,453 |
| | $ | 111,101 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
BRIXMOR PROPERTY GROUP INC. AND BRIXMOR OPERATING PARTNERSHIP LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands, unless otherwise stated)
1. Nature of Business and Financial Statement Presentation
Description of Business
Brixmor Property Group Inc. and subsidiaries (collectively, the “Parent Company”) is an internally-managed real estate investment trust (“REIT”). Brixmor Operating Partnership LP and subsidiaries (collectively, the “Operating Partnership”) is the entity through which the Parent Company conducts substantially all of its operations and owns substantially all of its assets. The Parent Company owns 100% of the common stock of BPG Subsidiary Inc. (“BPG Sub”), which, in turn, is the sole member of Brixmor OP GP LLC (the “General Partner”), the sole general partner of the Operating Partnership. The Parent Company engages in the ownership, management, leasing, acquisition, disposition and redevelopment of retail shopping centers through the Operating Partnership, and has no other substantial assets or liabilities other than through its investment in the Operating Partnership. The Parent Company, the Operating Partnership and their controlled subsidiaries on a consolidated basis (collectively the “Company” or “Brixmor”) believes it owns and operates one of the largest open air retail portfolios by gross leasable area (“GLA”) in the United States (“U.S.”), comprised primarily of community and neighborhood shopping centers. As of June 30, 2018, the Company’s portfolio was comprised of 471 shopping centers totaling approximately 80 million square feet of gross leasable area (the “Portfolio”). In addition, the Company has one land parcel currently under development. The Company’s high quality national Portfolio is primarily located within established trade areas in the top 50 Metropolitan Statistical Areas, and our shopping centers are primarily anchored by non-discretionary and value-oriented retailers, as well as consumer-oriented service providers.
The Company does not distinguish its principal business or group its operations on a geographical basis for purposes of measuring performance. Accordingly, the Company has a single reportable segment for disclosure purposes in accordance with U.S. generally accepted accounting principles (“GAAP”).
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the unaudited Condensed Consolidated Financial Statements for the periods presented have been included. The operating results for the periods presented are not necessarily indicative of the results that may be expected for a full fiscal year. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2017 and accompanying notes included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 12, 2018.
Certain prior period balances in the accompanying unaudited Condensed Consolidated Statements of Cash Flows have been reclassified to conform to the current period presentation for the adoption of Accounting Standards Update (“ASU”) 2016-15, “Statement of Cash Flows (Topic 230).”
Principles of Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Parent Company, the Operating Partnership, each of their wholly owned subsidiaries and all other entities in which they have a controlling financial interest. The portions of consolidated entities not owned by the Parent Company and the Operating Partnership are presented as non-controlling interests as of and during the periods presented. All intercompany transactions have been eliminated.
Income Taxes
The Parent Company has elected to qualify as a REIT in accordance with the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, the Parent Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute to its stockholders at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. It is management’s intention to adhere to these requirements and maintain the Parent Company’s REIT status.
As a REIT, the Parent Company generally will not be subject to U.S. federal income tax, provided that distributions to its stockholders equal at least the amount of its REIT taxable income as defined under the Code. The Parent Company conducts substantially all of its operations through the Operating Partnership which is organized as a limited partnership and treated as a pass-through entity for U.S. federal tax purposes. Therefore, U.S. federal income taxes on the Company's taxable income do not materially impact the unaudited Condensed Consolidated Financial Statements of the Company.
If the Parent Company fails to qualify as a REIT in any taxable year, it will be subject to U.S. federal taxes at regular corporate rates (including any applicable alternative minimum tax for tax years beginning before December 31, 2017) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Parent Company qualifies for taxation as a REIT, the Company is subject to certain state and local taxes on its income and property, and to U.S. federal income and excise taxes on its undistributed taxable income.
The Company has elected to treat certain of its subsidiaries as taxable REIT subsidiaries (“TRS”), and the Company may in the future elect to treat newly formed and/or existing subsidiaries as TRSs. A TRS may participate in non-real estate-related activities and/or perform non-customary services for tenants and are subject to certain limitations under the Code. A TRS is subject to U.S. federal and state income taxes. Income taxes related to the Company’s TRSs do not materially impact the unaudited Condensed Consolidated Financial Statements of the Company.
The Company has considered the tax positions taken for the open tax years and has concluded that no provision for income taxes related to uncertain tax positions is required in the Company’s unaudited Condensed Consolidated Financial Statements as of June 30, 2018 and December 31, 2017. Open tax years generally range from 2014 through 2017, but may vary by jurisdiction and issue.
New Accounting Pronouncements
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815).” ASU 2017-12 amends guidance to more closely align the results of cash flow and fair value hedge accounting with risk management activities through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. ASU 2017-12 was early adopted by the Company on January 1, 2018. The Company determined that these changes did not have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.
In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718).” ASU 2017-09 clarifies guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The standard became effective for the Company on January 1, 2018. The Company determined that these changes did not have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.
In February 2017, the FASB issued ASU 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance.” ASU 2017-05 focuses on recognizing gains and losses from the transfer of nonfinancial assets with noncustomers. It provides guidance as to the definition of an “in substance nonfinancial asset,” and provides guidance for sales of real estate, including partial sales. The standard became effective for the Company on January 1, 2018 in conjunction with ASU 2014-09 and the Company applied the same transition method as ASU 2014-09. The Company did not record any cumulative adjustment in connection with the adoption of the new pronouncement. The Company determined that these changes did not have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230).” ASU 2016-15 provides classification guidance for certain cash receipts and cash payments including payment of debt extinguishment costs, settlement of zero-coupon debt instruments, insurance claim payments and distributions from equity method investees. The standard became effective for the Company on January 1, 2018. The Company determined that these changes did not have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis
over the term of the lease. A lessee is also required to recognize a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The pronouncement requires a modified retrospective method of adoption and is effective on January 1, 2019, with early adoption permitted. The Company will continue to evaluate the effect the adoption of ASU 2016-02 will have on the unaudited Condensed Consolidated Financial Statements of the Company. However, the Company currently believes that the adoption of ASU 2016-02 will not have a material impact for operating leases where it is a lessor and will continue to record revenues from rental properties for its operating leases on a straight-line basis. However, for leases where the Company is a lessee, primarily for the Company’s ground leases and administrative office leases, the Company will be required to record a lease liability and a right of use asset on its unaudited Condensed Consolidated Balance Sheets at fair value upon adoption. In addition, direct internal leasing overhead costs will continue to be capitalized, however, indirect internal leasing overhead costs previously capitalized will be expensed under ASU 2016-02.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 contains a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance in ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts are within the scope of other standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The pronouncement allows either a full or modified retrospective method of adoption. The standard became effective for the Company on January 1, 2018 and the Company elected the modified retrospective approach of adoption, which requires a cumulative adjustment as of the date of the adoption, if applicable. The Company did not record any such cumulative adjustment in connection with the adoption of the new pronouncement. Substantially all of the Company’s tenant-related revenue is recognized pursuant to lease agreements and is out of the scope of ASU 2014-09 and falls instead under ASU 2016-02, which is discussed above and will not be effective until January 1, 2019. As a result, the Company determined that ASU 2014-09 did not have a material impact on the process for, timing of, and presentation and disclosure of revenue recognition from contracts with tenants and other customers.
Any other recently issued accounting standards or pronouncements not disclosed above have been excluded as they either are not relevant to the Company, or they are not expected to have a material effect on the unaudited Condensed Consolidated Financial Statements of the Company.
2. Acquisition of Real Estate
During the six months ended June 30, 2018, the Company acquired the following assets, in separate transactions:
|
| | | | | | | | | | | |
Description(1) | | Location | | Month Acquired | | GLA | | Aggregate Purchase Price |
Land adjacent to Arborland Center | | Ann Arbor, MI | | Jun-18 | | N/A |
| | $ | 5,554 |
|
Outparcel adjacent to Lehigh Shopping Center | | Bethlehem, PA | | Jun-18 | | 12,739 |
| | 1,899 |
|
| | | | | | 12,739 |
|
| $ | 7,453 |
|
| |
(1) | No debt was assumed related to any of the listed acquisitions. |
During the six months ended June 30, 2017, the Company acquired the following assets, in separate transactions:
|
| | | | | | | | | | | |
Description(1) | | Location | | Month Acquired | | GLA | | Aggregate Purchase Price |
Outparcel building adjacent to Annex of Arlington | | Arlington Heights, IL | | Feb-17 | | 5,760 |
| | $ | 1,006 |
|
Outparcel adjacent to Northeast Plaza | | Atlanta, GA | | Feb-17 | | N/A |
| | 1,537 |
|
Arborland Center | | Ann Arbor, MI | | Mar-17 | | 403,536 |
| | 102,268 |
|
Building adjacent to Preston Park | | Plano, TX | | Apr-17 | | 31,080 |
| | 4,015 |
|
Outparcel building adjacent to Cobblestone Village | | St. Augustine, FL | | May-17 | | 4,403 |
| | 1,306 |
|
Outparcel adjacent to Wynnewood Village | | Dallas, TX | | May-17 | | N/A |
| | 1,658 |
|
| | | | | | 444,779 |
| | $ | 111,790 |
|
| |
(1) | No debt was assumed related to any of the listed acquisitions. |
The aggregate purchase price of the assets acquired during the six months ended June 30, 2018 and 2017, respectively, has been allocated as follows:
|
| | | | | | | | | |
| | | Six Months Ended June 30, |
Assets | 2018 | | 2017 |
| Land | $ | 5,554 |
| | $ | 19,240 |
|
| Buildings | 1,431 |
| | 75,286 |
|
| Building and tenant improvements | 238 |
| | 9,177 |
|
| Above-market leases(1) | — |
| | 2,381 |
|
| In-place leases(2) | 304 |
| | 8,608 |
|
Total assets | 7,527 |
| | 114,692 |
|
| | | | | |
Liabilities | | | |
| Below-market leases(3) | 74 |
| | 2,902 |
|
| Other liabilities | — |
| | — |
|
Total liabilities | 74 |
| | 2,902 |
|
Net assets acquired | $ | 7,453 |
| | $ | 111,790 |
|
| |
(1) | The weighted average amortization period at the time of acquisition for above-market leases related to assets acquired during the six months ended June 30, 2017 was 5.0 years. |
| |
(2) | The weighted average amortization period at the time of acquisition for in-place leases related to assets acquired during the six months ended June 30, 2018 and 2017 was 4.8 years and 6.6 years, respectively. |
| |
(3) | The weighted average amortization period at the time of acquisition for below-market leases related to assets acquired during the six months ended June 30, 2018 and 2017 was 4.8 years and 16.7 years, respectively. |
During the three and six months ended June 30, 2018, the Company incurred transaction costs of $0.3 million, of which $0.1 million was capitalized and included in Buildings and tenant improvements on the Company's unaudited Condensed Consolidated Balance Sheets and $0.2 million was expensed and included in Other on the Company’s unaudited Condensed Consolidated Statements of Operations. During the three and six months ended June 30, 2017, the Company incurred transaction costs of $0.1 million and $0.4 million, respectively, which were capitalized and included in Buildings and tenant improvements on the Company’s unaudited Condensed Consolidated Balance Sheets.
3. Dispositions and Assets Held for Sale
During the three months ended June 30, 2018, the Company disposed of nine shopping centers and one partial shopping center for net proceeds of $134.7 million resulting in a gain of $27.8 million and impairment of $0.7 million. During the six months ended June 30, 2018, the Company disposed of 15 shopping centers, one partial shopping center and one outparcel for net proceeds of $238.9 million resulting in a gain of $39.2 million and impairment of $12.9 million. The Company had six properties held for sale as of June 30, 2018 with an aggregate carrying value of $51.5 million. In addition, during the three and six months ended June 30, 2018, the Company received net proceeds of $0.5 million from previously disposed assets resulting in a gain of $0.5 million.
During the three months ended June 30, 2017, the Company disposed of three shopping centers and two outparcel buildings for net proceeds of $73.0 million resulting in a gain of $20.2 million. During the six months ended June 30, 2017, the Company disposed of six shopping centers and two outparcel buildings for net proceeds of $107.1 million resulting in a gain of $29.0 million. The Company had one property held for sale as of June 30, 2017 with a carrying value of $17.1 million.
There were no discontinued operations for the three and six months ended June 30, 2018 and 2017 as none of the dispositions represented a strategic shift in the Company’s business that would qualify as discontinued operations.
4. Real Estate
The Company’s components of Real estate, net consisted of the following:
|
| | | | | | | |
| June 30, 2018 | | December 31, 2017 |
Land | $ | 1,928,473 |
| | $ | 1,984,309 |
|
Buildings and improvements: | | | |
Buildings and tenant improvements(1) | 7,989,715 |
| | 8,145,085 |
|
Lease intangibles(2) | 737,391 |
| | 792,097 |
|
| 10,655,579 |
| | 10,921,491 |
|
Accumulated depreciation and amortization(3) | (2,402,498 | ) | | (2,361,070 | ) |
Total | $ | 8,253,081 |
| | $ | 8,560,421 |
|
| |
(1) | As of June 30, 2018 and December 31, 2017, Buildings and tenant improvements included accrued amounts of $22.1 million and $22.8 million, respectively, related to construction in progress, net of any anticipated insurance proceeds. |
| |
(2) | As of June 30, 2018 and December 31, 2017, Lease intangibles consisted of $665.4 million and $715.1 million, respectively, of in-place leases and $72.0 million and $77.0 million, respectively, of above-market leases. These intangible assets are amortized over the term of each related lease. |
| |
(3) | As of June 30, 2018 and December 31, 2017, Accumulated depreciation and amortization included $603.9 million and $629.1 million, respectively, of accumulated amortization related to Lease intangibles. |
In addition, as of June 30, 2018 and December 31, 2017, the Company had intangible liabilities relating to below-market leases of $426.2 million and $463.3 million, respectively, and accumulated accretion of $274.7 million and $281.5 million, respectively. These intangible liabilities are included in Accounts payable, accrued expenses and other liabilities in the Company’s unaudited Condensed Consolidated Balance Sheets. These intangible assets are accreted over the term of each related lease.
Below-market lease accretion income, net of above-market lease amortization expense for the three months ended June 30, 2018 and 2017 was $8.0 million and $7.6 million, respectively. Below-market lease accretion income, net of above-market lease amortization expense for the six months ended June 30, 2018 and 2017 was $14.8 million and $15.4 million, respectively. These amounts are included in Rental income in the Company’s unaudited Condensed Consolidated Statements of Operations. Amortization expense associated with in-place lease value for the three months ended June 30, 2018 and 2017 was $9.9 million and $13.4 million, respectively. Amortization expense associated with in-place lease value for the six months ended June 30, 2018 and 2017 was $19.2 million and $25.5 million, respectively. These amounts are included in Depreciation and amortization in the Company’s unaudited Condensed Consolidated Statements of Operations. The Company’s estimated below-market lease accretion income, net of above-market lease amortization expense, and in-place lease amortization expense for the next five years are as follows:
|
| | | | | | | | |
Year ending December 31, | | Below-market lease accretion (income), net of above-market lease amortization | | In-place lease amortization expense |
2018 (remaining six months) | | $ | (11,025 | ) | | $ | 15,535 |
|
2019 | | (19,345 | ) | | 25,812 |
|
2020 | | (15,739 | ) | | 19,076 |
|
2021 | | (12,948 | ) | | 13,639 |
|
2022 | | (10,737 | ) | | 10,163 |
|
5. Impairments
On a periodic basis, management assesses whether there are any indicators, including changes in property operating performance, anticipated holding period and/or general market conditions, that the value of the Company’s real estate
assets (including any related intangible assets or liabilities) may be impaired. If management determines that the carrying value of a real estate asset is impaired, a loss is recognized for the excess of its carrying amount over its fair value.
The Company recognized the following impairments during the three months ended June 30, 2018:
|
| | | | | | | | | |
Three Months Ended June 30, 2018 |
Property Name(1) | | Location | | GLA | | Impairment Charge |
County Line Plaza | | Jackson, MS | | 221,127 |
| | $ | 10,181 |
|
Roundtree Place(2) | | Ypsilanti, MI | | 246,620 |
| | 545 |
|
Parcel at Elk Grove Town Center | | Elk Grove Village, IL | | 72,385 |
| | 519 |
|
Dover Park Plaza | | Yardville, NJ | | 56,638 |
| | 438 |
|
Southland Shopping Plaza(2) | | Toledo, OH | | 285,278 |
| | 135 |
|
Mount Carmel Plaza | | Glenside, PA | | 14,504 |
| | 109 |
|
| | | | 896,552 |
| | $ | 11,927 |
|
| |
(1) | The Company recognized impairment charges based upon a change in the estimated hold period of these properties in connection with the Company’s capital recycling program. |
| |
(2) | The Company disposed of this property during the three months ended June 30, 2018. |
The Company recognized the following impairments during the six months ended June 30, 2018:
|
| | | | | | | | | |
Six Months Ended June 30, 2018 |
Property Name(1) | | Location | | GLA | | Impairment Charge |
County Line Plaza | | Jackson, MS | | 221,127 |
| | $ | 10,181 |
|
Southland Shopping Plaza(2) | | Toledo, OH | | 285,278 |
| | 7,077 |
|
Roundtree Place(2) | | Ypsilanti, MI | | 246,620 |
| | 4,317 |
|
Skyway Plaza | | St. Petersburg, FL | | 110,799 |
| | 3,639 |
|
Pensacola Square(2) | | Pensacola, FL | | 142,767 |
| | 1,345 |
|
Parcel at Elk Grove Town Center | | Elk Grove Village, IL | | 72,385 |
| | 519 |
|
Dover Park Plaza | | Yardville, NJ | | 56,638 |
| | 438 |
|
Crossroads Centre(2) | | Fairview Heights, IL | | 242,752 |
| | 204 |
|
Mount Carmel Plaza | | Glenside, PA | | 14,504 |
| | 109 |
|
| | | | 1,392,870 |
| | $ | 27,829 |
|
| |
(1) | The Company recognized impairment charges based upon a change in the estimated hold period of these properties in connection with the Company’s capital recycling program. |
| |
(2) | The Company disposed of this property during the six months ended June 30, 2018. |
The Company recognized the following impairments during the three months ended June 30, 2017:
|
| | | | | | | | | |
Three Months Ended June 30, 2017 |
Property Name(1) | | Location | | GLA | | Impairment Charge |
The Manchester Collection | | Manchester, CT | | 342,247 |
| | $ | 9,026 |
|
Renaissance Center East(2) | | Las Vegas, NV | | 144,216 |
| | 1,606 |
|
| | | | 486,463 |
| | $ | 10,632 |
|
| | | | | | |
| |
(1) | The Company recognized impairment charges based upon a change in the estimated hold period of these properties in connection with the Company’s capital recycling program. |
| |
(2) | The Company disposed of this property during the year ended December 31, 2017. |
The Company recognized the following impairments during the six months ended June 30, 2017:
|
| | | | | | | | | |
Six Months Ended June 30, 2017 |
Property Name(1) | | Location | | GLA | | Impairment Charge |
The Manchester Collection | | Manchester, CT | | 342,247 |
| | $ | 9,026 |
|
The Plaza at Salmon Run | | Watertown, NY | | 68,761 |
| | 3,486 |
|
Smith’s | | Socorro, NM | | 48,000 |
| | 2,200 |
|
Renaissance Center East(2) | | Las Vegas, NV | | 144,216 |
| | 1,606 |
|
| | | | 603,224 |
| | $ | 16,318 |
|
| | | | | | |
| |
(1) | The Company recognized impairment charges based upon a change in the estimated hold period of these properties in connection with the Company’s capital recycling program. |
| |
(2) | The Company disposed of this property during the year ended December 31, 2017. |
The Company can provide no assurance that material impairment charges with respect to its Portfolio will not occur in future periods. See Note 3 for additional information regarding impairment charges taken in connection with the Company’s dispositions. See Note 8 for additional information regarding the fair value of operating properties which have been impaired.
6. Financial Instruments – Derivatives and Hedging
The Company’s use of derivative instruments is limited to the utilization of interest rate agreements or other instruments to manage interest rate risk exposures and not for speculative purposes. In certain situations, the Company may enter into derivative financial instruments such as interest rate swap and interest rate cap agreements that result in the receipt and/or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements.
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchanging the underlying notional amount. The Company utilizes interest rate swaps to partially hedge the cash flows associated with variable LIBOR based interest rate debt. During the three and six months ended June 30, 2018, the Company did not enter into any new interest rate swap agreements.
Detail on the Company’s interest rate derivatives designated as cash flow hedges outstanding as of June 30, 2018 and December 31, 2017 is as follows:
|
| | | | | | | | | | | | |
| | Number of Instruments | | Notional Amount |
| | June 30, 2018 | | December 31, 2017 | | June 30, 2018 | | December 31, 2017 |
Interest Rate Swaps | | 9 | | 9 | | $ | 1,400,000 |
| | $ | 1,400,000 |
|
The Company has elected to present its interest rate derivatives on its unaudited Condensed Consolidated Balance Sheets on a gross basis as interest rate swap assets and interest rate swap liabilities. Detail on the Company’s fair value of interest rate derivatives on a gross and net basis as of June 30, 2018 and December 31, 2017, respectively, is as follows:
|
| | | | | | | | |
| | Fair Value of Derivative Instruments |
Interest rate swaps classified as: | | June 30, 2018 | | December 31, 2017 |
Gross derivative assets | | $ | 28,612 |
| | $ | 24,420 |
|
Gross derivative liabilities | | — |
| | — |
|
Net derivative assets | | $ | 28,612 |
| | $ | 24,420 |
|
The gross derivative assets are included in Other assets and the gross derivative liabilities are included in Accounts payable, accrued expenses and other liabilities on the Company’s unaudited Condensed Consolidated Balance Sheets. All of the Company’s outstanding interest rate swap agreements for the periods presented were designated as cash flow hedges of interest rate risk. The fair value of the Company’s interest rate derivatives is determined using market standard
valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. These inputs are classified as Level 2 of the fair value hierarchy. The effective portion of changes in the fair value of derivatives designated as cash flow hedges is recognized in other comprehensive income (“OCI”) and is reclassified into earnings as interest expense in the period that the hedged forecasted transaction affects earnings.
The effective portion of the Company’s interest rate swaps that was recognized in the Company’s unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017 is as follows:
|
| | | | | | | | | | | | | | | | |
Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps) | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Change in unrealized gain (loss) on interest rate swaps | | $ | 3,001 |
| | $ | (2,821 | ) | | $ | 10,235 |
| | $ | (664 | ) |
Amortization (accretion) of interest rate swaps to interest expense | | (3,582 | ) | | (270 | ) | | (6,043 | ) | | 192 |
|
Change in unrealized gain (loss) on interest rate swaps, net | | $ | (581 | ) | | $ | (3,091 | ) | | $ | 4,192 |
| | $ | (472 | ) |
The Company estimates that $11.2 million will be reclassified from accumulated other comprehensive income as a decrease to interest expense over the next twelve months. No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company’s cash flow hedges during the three and six months ended June 30, 2018 and 2017.
Non-Designated (Mark-to Market) Hedges of Interest Rate Risk
The Company does not use derivatives for trading or speculative purposes. As of June 30, 2018 and December 31, 2017, the Company did not have any non-designated hedges.
Credit-risk-related Contingent Features
The Company has agreements with its derivative counterparties that contain a provision whereby if the Company defaults on certain of its indebtedness and the indebtedness has been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. If the Company were to breach any of the contractual provisions of the derivative contracts, it would be required to settle its obligations under the agreements at their termination value including accrued interest.
7. Debt Obligations
As of June 30, 2018 and December 31, 2017, the Company had the following indebtedness outstanding:
|
| | | | | | | | | | | | |
| | Carrying Value as of | | | | |
| | June 30, 2018 | | December 31,
2017 | | Stated Interest Rate(1) | | Scheduled Maturity Date |
Secured loans | | | | | | | | |
Secured loans(2)(3) | | $ | 893,361 |
| | $ | 902,717 |
| | 4.40% – 6.50% | | 2020 – 2024 |
Net unamortized premium | | 12,472 |
| | 15,321 |
| | | | |
Net unamortized debt issuance costs | | (73 | ) | | (93 | ) | | | | |
Total secured loans, net | | 905,760 |
| | 917,945 |
| | | | |
| | | | | | | | |
Notes payable | | | | | | | | |
Unsecured notes(4) | | 3,218,453 |
| | 3,218,453 |
| | 3.25% – 7.97% | | 2022 – 2029 |
Net unamortized discount | | (12,523 | ) | | (13,485 | ) | | | | |
Net unamortized debt issuance costs | | (20,844 | ) | | (22,476 | ) | | | | |
Total notes payable, net | | 3,185,086 |
| | 3,182,492 |
| | | | |
| | | | | | | | |
Unsecured Credit Facility and term loans | | | | | | | | |
Unsecured $600 Million Term Loan(5) | | 600,000 |
| | 600,000 |
| | 3.40% | | 2019 |
Unsecured Credit Facility(6) | | 500,000 |
| | 685,000 |
| | 3.35% | | 2021 |
Unsecured $300 Million Term Loan(7) | | 300,000 |
| | 300,000 |
| | 3.88% | | 2024 |
Net unamortized debt issuance costs | | (7,492 | ) | | (9,199 | ) | | | | |
Total Unsecured Credit Facility and term loans | | 1,392,508 |
| | 1,575,801 |
| | | | |
| | | | | | | | |
Total debt obligations, net | | $ | 5,483,354 |
| | $ | 5,676,238 |
| | | | |
| |
(1) | The stated interest rates are as of June 30, 2018 and do not include the impact of the Company’s interest rate swap agreements (described below). |
| |
(2) | The Company’s secured loans are collateralized by certain properties and the equity interests of certain subsidiaries. These properties had a carrying value as of June 30, 2018 of approximately $1.5 billion. |
| |
(3) | The weighted average stated interest rate on the Company’s secured loans was 6.16% as of June 30, 2018. |
| |
(4) | The weighted average stated interest rate on the Company’s unsecured notes was 3.81% as of June 30, 2018. |
| |
(5) | Effective November 1, 2016, the Company has in place two interest rate swap agreements that convert the variable interest rate on $200.0 million of the Company’s $600 million term loan agreement, as amended July 25, 2016, (the “$600 Million Term Loan”) to a fixed, combined interest rate of 0.82% (plus a spread of 140 bps) through July 31, 2018, and three interest rate swap agreements that convert the variable interest rate on $400.0 million of the $600 Million Term Loan to a fixed, combined interest rate of 0.88% (plus a spread of 140 bps) through March 18, 2019. |
| |
(6) | Effective November 1, 2016, the Company has in place 3 interest rate swap agreements that convert the variable interest rate on a $500.0 million term loan under the Company’s senior unsecured credit facility agreement, as amended July 25, 2016, (the “Unsecured Credit Facility”) to a fixed, combined interest rate of 1.11% (plus a spread of 135 bps) through July 30, 2021. |
| |
(7) | Effective July 28, 2017, the Company has in place one interest rate swap agreement that converts the variable interest rate on the Company's $300 million term loan agreement, as entered into July 28, 2017, (the "$300 Million Term Loan") to a fixed, combined interest rate of 0.82% (plus a spread of 190 bps) through July 31, 2018. |
2018 Debt Transactions
During the six months ended June 30, 2018, the Company repaid a total of $185.0 million of unsecured term loan debt under the Company’s Unsecured Credit Facility and a $0.2 million secured loan. These repayments were funded primarily with disposition proceeds. During the six months ended June 30, 2018, the Company recognized a $0.4 million loss on extinguishment of debt, net as a result of debt transactions, which includes $0.3 million related to the release of certain properties from the collateral pool of a secured loan in conjunction with a $97.0 million prepayment during the year ended December 31, 2017.
Pursuant to the terms of the Company’s unsecured debt agreements, the Company among other things is subject to maintenance of various financial covenants. The Company was in compliance with these covenants as of June 30, 2018.
Debt Maturities
As of June 30, 2018 and December 31, 2017, the Company had accrued interest of $35.4 million and $35.9 million outstanding, respectively. As of June 30, 2018, scheduled amortization and maturities of the Company’s outstanding debt obligations were as follows:
|
| | | | |
Year ending December 31, | | |
2018 (remaining six months) | | $ | 8,762 |
|
2019 | | 618,679 |
|
2020 | | 672,695 |
|
2021 | | 686,225 |
|
2022 | | 500,000 |
|
Thereafter | | 3,025,453 |
|
Total debt maturities | | 5,511,814 |
|
Net unamortized premiums and discounts | | (51 | ) |
Net unamortized debt issuance costs | | (28,409 | ) |
Total debt obligations, net | | $ | 5,483,354 |
|
8. Fair Value Disclosures
All financial instruments of the Company are reflected in the accompanying unaudited Condensed Consolidated Balance Sheets at amounts which, in management’s judgment, reasonably approximate their fair values, except those instruments listed below:
|
| | | | | | | | | | | | | | | | |
| | | June 30, 2018 | | December 31, 2017 |
| | | Carrying Amounts | | Fair Value | | Carrying Amounts | | Fair Value |
| |
| | Secured loans | $ | 905,760 |
| | $ | 934,976 |
| | $ | 917,945 |
| | $ | 963,702 |
|
| | Notes payable | 3,185,086 |
| | 3,122,331 |
| | 3,182,492 |
| | 3,224,877 |
|
| | Unsecured Credit Facility and term loans | 1,392,508 |
| | 1,400,961 |
| | 1,575,801 |
| | 1,586,206 |
|
| | Total debt obligations, net | $ | 5,483,354 |
| | $ | 5,458,268 |
| | $ | 5,676,238 |
| | $ | 5,774,785 |
|
| | | | | | | | | |
As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy is included in GAAP that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs that are classified within Level 3 of the hierarchy).
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The valuation methodology used to estimate the fair value of the Company’s debt obligations is based on a discounted cash flow analysis, with assumptions that include credit spreads, estimated property values, loan amounts and maturity dates. Based on these inputs, the Company has determined that the valuations of its debt obligations are classified within Level 3 of the fair value hierarchy. Such fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition.
Recurring Fair Value
The Company’s marketable securities and interest rate derivatives are measured and recognized at fair value on a recurring basis. The valuations of the Company’s marketable securities are based primarily on publicly traded market values in active markets and are classified within Level 1 or 2 of the fair value hierarchy. See Note 6 for fair value information regarding the Company’s interest rate derivatives.
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured and recognized at fair value on a recurring basis:
|
| | | | | | | | | | | | | | | |
| Fair Value Measurements as of June 30, 2018 |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Marketable securities(1) | $ | 31,226 |
| | $ | 5,979 |
| | $ | 25,247 |
| | $ | — |
|
Interest rate derivatives | $ | 28,612 |
| | $ | — |
| | $ | 28,612 |
| | $ | — |
|
| | | | | | | |
| Fair Value Measurements as of December 31, 2017 |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | | | | | | | |
Marketable securities(1) | $ | 28,006 |
| | $ | 725 |
| | $ | 27,281 |
| | $ | — |
|
Interest rate derivatives | $ | 24,420 |
| | $ | — |
| | $ | 24,420 |
| | $ | — |
|
| |
(1) | As of June 30, 2018 and December 31, 2017, marketable securities included $0.2 million of net unrealized losses. As of June 30, 2018, the contractual maturities of the Company’s marketable securities are within the next five years. |
Non-Recurring Fair Value
On a non-recurring basis, the Company evaluates the carrying value of its properties when events or changes in circumstances indicate that the carrying value may not be recoverable. Fair value is determined by purchase price offers, market comparable data, third party appraisals or by discounted cash flow analysis. The cash flows utilized in such analyses are comprised of unobservable inputs which include forecasted rental revenue and expenses based upon market conditions and future expectations. Capitalization rates and discount rates utilized in these models are based upon unobservable rates that we believe to be within a reasonable range of current market rates for the respective properties. Based on these inputs, the Company has determined that the valuations of these properties are classified within Level 3 of the fair value hierarchy.
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a non-recurring basis. The table includes information related to properties that were remeasured to fair value as a result of impairment testing during the six months ended June 30, 2018 and during the year ended December 31, 2017, excluding the properties sold prior to June 30, 2018 and December 31, 2017, respectively:
|
| | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of June 30, 2018 | | |
| Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Impairment of Real Estate Assets |
|