# Urban Edge Properties (UE) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Urban Edge Properties's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1611547/000161154722000012/ue-20211231.htm
Accession: 0001611547-22-000012
Filing date: 2022-02-16
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/UE/
All MD&A years: /company/UE/mda/
Next year: /company/UE/mda/fy2022/ (FY 2022)

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 in Part II, Item 8 of this Annual Report on Form 10-K.

This section of this Annual Report on Form 10-K generally discusses 2021 and 2020 items and provides a year-to-year comparison between 2021 and 2020. A discussion of 2019 items and year-to-year comparisons between 2020 and 2019 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, 2020.

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 Washington, D.C. to Boston corridor with a concentration on 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, 2021, Urban Edge owned approximately 96.2% 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, 2021, our portfolio was comprised of 68 shopping centers, five malls and two industrial parks totaling approximately 17.0 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 faced 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.

Throughout 2021, the widespread distribution of vaccines and reduction of restrictions boosted economic confidence and increased consumer spending, resulting in a strengthened existing retail tenant base and increase in demand for space. The Company reached record leasing volumes with 161 total new leases, renewals and options, totaling approximately 2 million square feet. Foot traffic at our properties returned to near pre-pandemic levels, which has increased sales volume for our tenants and we have collected 98% of base rents billed during the year, inclusive of rent deferrals granted as part of our COVID-19 tenant relief efforts.

2021 Highlights

Set forth below are highlights of our development and redevelopment projects, property acquisitions and dispositions, and leasing activities:

•Acquired Woodmore Towne Centre in December 2021 for a purchase price of $198.1 million, including transaction costs. The property, located in Glenarden, MD, sits on 83 acres including an adjacent 22-acre vacant land parcel and is anchored by top-tier national and regional tenants including grocers Wegmans and Costco;

•Acquired two industrial warehouses aggregating 275,000 sf, for a total purchase price of $56.1 million, including transaction costs. The two properties, located at 601 Murray Road and 151 Ridgedale Avenue, are adjacent to our existing 943,000 sf warehouse park in East Hanover, NJ;

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•Completed the sale of three properties, one property parcel and one ground lease and received proceeds of $37.3 million, net of selling costs, resulting in a $18.6 million net gain on sale of real estate;

•Terminated our remaining leases with Kmart and Sears at Bruckner Commons, The Outlets at Montehiedra, and Sunrise Mall for $20 million, effective October 15, 2021. Controlling these anchor spaces is a critical aspect of the plans we have under way to reposition and redevelop these spaces;

•Stabilized five redevelopment projects aggregating $29.3 million, two of which stabilized during the fourth quarter. The 102,000 sf CubeSmart self-storage facility developed on excess land at Tonnelle Commons reached 87% occupancy. Additionally, the build-out of Fun City was completed at our property in Salem, NH, which opened in November 2021;

•Activated six new redevelopment projects related to anchor leases executed during the year. These projects have an estimated cost of $102.2 million, of which $95.2 million remains to be funded as of December 31, 2021 and are expected to generate an approximate 8% unleveraged yield;

•Signed 57 new leases totaling 677,817 square feet, including 46 new leases on a same-space(1) basis totaling 431,386 square feet at an average rental rate of $21.15 per square foot on a GAAP basis and $19.43 per square foot on a cash basis, resulting in average rent spreads of 23.0% on a GAAP basis and 9.5% on a cash basis; and

•Renewed or extended 104 leases totaling 1,259,467 square feet, including 97 leases on a same-space(1) basis totaling 1,247,758 square feet at an average rental rate of $20.69 per square foot on a GAAP basis and $20.52 per square foot on a cash basis, generating average rent spreads of 10.9% on a GAAP basis and 3.5% on a cash basis.

2022 Outlook

We intend to create value and grow earnings, funds from operations, and cash flows by:

•Adding essential tenants to our properties and positioning our retail environments with quality grocers, premium healthcare operators and elevated food offerings;

•Leasing vacant spaces, proactively extending leases, managing 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;

•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;

•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 ongoing economic uncertainty. See Forward-Looking Statements in this Annual Report on Form 10-K.

(1) Same-space leases represent those leases signed on spaces for which there was a previous lease.

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Critical Accounting 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. The following accounting estimates are considered critical because they are particularly dependent on management’s judgment about matters that have a significant level of uncertainty at the time the accounting estimates are made, and changes to those estimates could have a material impact on our financial condition or operating results.

Revenue Recognition and Receivables - Estimating Collectibility

Rental revenue comprises revenue from fixed and variable lease payments, as designated within tenant operating leases. Components of this include contractual rents arising from tenant operating lease agreements, tenant expense reimbursements, and straight-line rental income. We evaluate the collectibility of amounts due from tenants and disputed enforceable charges on both a lease-by-lease and a portfolio-level basis, 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 Leases which are recorded as rental revenue deemed uncollectible and are included within the line items Rental revenue on our consolidated statements of income.

Management exercises judgement when evaluating the collectibility of these receivables and will look to both quantitative and qualitative factors. Such factors include tenants’ current credit status, either from third parties or using an internal risk assessment, payment history, amount of outstanding receivables, tenant sales performance, potential liquidity and current economic and sector specific trends. Tenant receivables, and receivables arising from the straight-lining of rents, are written-off directly when management deems the collectibility of substantially all future lease payments from a specific lease is not probable, at which point, the Company will begin recognizing revenue from such leases prospectively, based on actual cash received. This write-off effectively reduces cumulative non-cash rental income recognized from the straight-lining of rents since lease commencement. If the Company subsequently determines that it is probable it will collect substantially all of the lessee’s remaining lease payments under the lease term, the Company will reinstate the receivable balance, including those arising from the straight-lining of rents. Changes in our assessments of collectibility are recognized as adjustments to rental revenue in accordance with ASC 842.

These assessments are inherently sensitive as they are based on the judgement of management and information available at the time of evaluation. We routinely reassess the quantitative and qualitative factors used to derive these estimates and believe the methods and assumptions noted above to be reasonable in evaluating collectibility. We have not had any changes to the methods or assumptions used to evaluate collectibility. Although we routinely reassess these estimates, taking into consideration all information available and future projections, they are subject to uncertainty and have a direct impact on our net income. Actual results may differ from these estimates and can have a material impact on our operating results.

Real Estate - Estimates Related to Valuing Acquired Assets and Liabilities

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

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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.

Since the assessment of fair value and allocation of these amounts is made at the time of acquisition, they are subject to future changes in market conditions and tenants’ ability to continue operations and their exercise of options and renewals. In the case that these assumptions change materially, they could have a material impact on our results and financial statements. During 2021, we acquired three properties and utilized the above factors, including the use of a third-party, to allocate the purchase price of these properties among various assets and liabilities. Further information on these allocations can be found in Part II, Item 8, Note 4 of this Annual Report on Form 10-K. We have had no changes to our methods of fair value assessment and allocations during the year ended December 31, 2021.

Real Estate - Estimates Related to Impairments

Our properties are individually evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 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.

During the year ended December 31, 2021, we have had no changes to the methods or assumptions used in our analyses of fair value of our real estate assets and have not incurred any material impairment losses. We operate in a business that has significant investments in real estate and our estimates of valuation are subject to current market conditions and tenant operations, which drive future cash flows, and are beyond our control. As these factors can result in changes to our estimates and result in material impairment losses, this is deemed a critical accounting estimate.

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 were adopted in our current Form 10-K for the year ended December 31, 2021.

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.

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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, which 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. Vaccinations for the COVID-19 virus have been widely distributed among the general U.S. population, which has facilitated the loosening of restrictions previously mandated on our tenants identified as nonessential; however the potential emergence of vaccine-resistant variants of COVID-19 may trigger restrictions to be put back in place. Such restrictions may include mandatory business shut-downs, reduced business operations and social distancing requirements. The long-term consequences of the various restrictions taken during the pandemic on consumer behavior is currently unknown. Specifically, the revenue and sales volume for certain tenants identified as nonessential may decline significantly as demand for their services and products declines 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):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(Amounts in thousands)","2021","","2020"],["Net income","$","107,815","","","$","97,750"],["FFO applicable to diluted common shareholders(1)","180,270","","","156,326"],["NOI(2)","223,811","","","200,383"],["Same-property NOI(2)","196,005","","","171,453"]]
[[/GREPCENT_TABLE]]

(1) Refer to page 33 for a reconciliation to the nearest generally accepted accounting principles (“GAAP”) measure.

(2) Refer to page 32 for a reconciliation to the nearest GAAP measure.

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Comparison of the Year Ended December 31, 2021 to December 31, 2020

Net income for the year ended December 31, 2021 was $107.8 million, compared to net income of $97.8 million for the year ended December 31, 2020. 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, 2021 as compared to the same period of 2020:

[[GREPCENT_TABLE]]
[["","For the year Ended December 31,"],["(Amounts in thousands)","2021","","2020","","$ Change"],["Total revenue","$","425,082","","","$","330,095","","","$","94,987"],["Real estate taxes","63,844","","","60,049","","","$","3,795"],["Property operating expenses","68,531","","","56,126","","","12,405"],["General and administrative","39,152","","","48,682","","","(9,530)"],["Casualty and impairment loss, net","468","","","3,055","","","(2,587)"],["Gain on sale of real estate","18,648","","","39,775","","","(21,127)"],["Interest income","360","","","2,599","","","(2,239)"],["Interest and debt expense","57,938","","","71,015","","","(13,077)"],["Gain on extinguishment of debt","\u2014","","","34,908","","","(34,908)"],["Income tax (benefit) expense","1,139","","","(38,996)","","","40,135"]]
[[/GREPCENT_TABLE]]

Total revenue increased by $95.0 million to $425.1 million in the year ended December 31, 2021 from $330.1 million in the year ended December 31, 2020. The increase is primarily attributable to:

•$44.7 million accelerated amortization of below-market intangible liabilities in connection with the termination of our Kmart and Sears leases, effective October 15, 2021;

•$30.0 million decrease in rental revenue deemed uncollectible;

•$11.3 million increase in straight-line rent driven by write-offs of receivables arising from the straight-lining of rents for tenants put on cash basis during 2020 compared to a reinstatement of straight-line balances, net of write-offs, during 2021;

•$10.6 million increase as a result of property acquisitions net of dispositions; and

•$0.2 million increase in management and development fee income and tenant bankruptcy settlement income; offset by

•$1.8 million net decrease in property rentals and tenant reimbursements due to lease terminations and modifications, partially offset by rent commencements and contractual rent increases.

Real estate tax expense increased by $3.8 million to $63.8 million in the year ended December 31, 2021 from $60.0 million in the year ended December 31, 2020. The increase is primarily attributable to:

•$7.0 million increase as a result of property acquisitions net of dispositions; offset by

•$2.2 million decrease as a result of successful tax appeals and lowered assessments; and

•$1.0 million of real estate taxes capitalized in connection with redevelopment projects.

Property operating expenses increased by $12.4 million to $68.5 million in the year ended December 31, 2021 from $56.1 million in the year ended December 31, 2020. The increase is primarily attributable to:

•$6.7 million increase in common area maintenance expenses across the portfolio as a result of spend reductions and limited center hours due to COVID-19 interruptions during 2020; and

•$5.7 million increase as a result of property acquisitions net of dispositions.

General and administrative expenses decreased by $9.5 million to $39.2 million in the year ended December 31, 2021 from $48.7 million in the year ended December 31, 2020. The decrease is primarily attributable to:

•$7.2 million of executive transition costs including accelerated amortization of unvested equity awards recognized during 2020; and

•$5.4 million decrease in transaction costs related to the Puerto Rico legal entity restructuring and debt refinancing in 2020, offset by;

•$3.1 million increase in payroll, transaction, severance, and other expenses.

We recognized a casualty and impairment loss, net of $0.5 million, in the year ended December 31, 2021 attributable to real estate impairment charges recognized against the carrying value of one property and one ground lease, each of which were disposed of during the year. 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.

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We recognized a gain on sale of real estate of $18.6 million in the year ended December 31, 2021 due to the sale of three operating properties and one property parcel. 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.

Interest income decreased by $2.2 million to $0.4 million in the year ended December 31, 2021 from $2.6 million in the year ended December 31, 2020. The decrease is primarily attributable to a lower cash balance and a decrease in interest rates.

Interest and debt expense decreased by $13.1 million to $57.9 million in the year ended December 31, 2021 from $71.0 million in the year ended December 31, 2020. The decrease is primarily attributable to:

•$8.1 million decrease due to the troubled debt restructuring on our mortgage at Las Catalinas Mall in Puerto Rico in December 2020, subsequent to which we recognized interest payments as a reduction of the carrying value of the loan and not as interest expense;

•$2.0 million decrease due to the $250 million draw on the Company’s revolving credit agreement in March 2020, with the borrowings fully repaid in November 2020;

•$1.3 million increase in capitalized interest due to the activation of redevelopment projects during 2021;

•$0.9 million decrease in interest on variable-rate debt due to lower interest rates; and

•$0.8 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 of $1.1 million was recognized in the year ended December 31, 2021 compared to a $39.0 million tax benefit in the year ended December 31, 2020. The increase is primarily attributable to the tax impact of the mortgage refinancing and legal entity restructuring transactions related to our malls in Puerto Rico in 2020, 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.

Comparison of the Year Ended December 31, 2020 to December 31, 2019

Discussions of 2019 items and comparisons between the year ended December 31, 2020 and 2019, respectively, that are not included in this Report 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, 2020.

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.

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.

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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 66 properties for the years ended December 31, 2021 and 2020. 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 increased by $24.6 million, or 14.3%, for the year ended December 31, 2021 as compared to the year ended December 31, 2020. 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.

The following table reconciles net income to NOI and same-property NOI for the years ended December 31, 2021 and 2020.

[[GREPCENT_TABLE]]
[["","For the year ended December 31,"],["(Amounts in thousands)","2021","","2020"],["Net income","$","107,815","","","$","97,750"],["Management and development fee income from non-owned properties","(1,169)","","","(1,283)"],["Other expense","608","","","672"],["Depreciation and amortization","92,331","","","96,029"],["General and administrative expense","39,152","","","48,682"],["Real estate impairment loss","468","","","3,055"],["Gain on sale of real estate","(18,648)","","","(39,775)"],["Interest income","(360)","","","(2,599)"],["Interest and debt expense","57,938","","","71,015"],["Gain on extinguishment of debt","\u2014","","","(34,908)"],["Income tax (benefit) expense","1,139","","","(38,996)"],["Non-cash revenue and expenses","(55,463)","","","741"],["NOI","223,811","","","200,383"],["Adjustments:"],["Non-same property NOI and other(1)","(26,493)","","","(27,836)"],["Tenant bankruptcy settlement income and lease termination income","(1,313)","","","(1,094)"],["Same-property NOI","$","196,005","","","$","171,453"],["Adjustments:"],["NOI related to properties being redeveloped","20,915","","","18,621"],["Same-property NOI including properties in redevelopment","$","216,920","","","$","190,074"]]
[[/GREPCENT_TABLE]]

(1) Non-same property NOI includes NOI related to properties being redeveloped and properties acquired or disposed in the period. Amounts for 2021 include Sunrise Mall which generated a net loss of $3.0 million for the year ended December 31, 2021. These amounts reflect the total loss on the property and include the portion pertaining to the noncontrolling interest in Sunrise Mall.

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Funds From Operations

FFO applicable to diluted common shareholders for the year ended December 31, 2021 was $180.3 million compared to $156.3 million for the year ended December 31, 2020.

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.

The following table reflects the reconciliation of net income to FFO for the years ended December 31, 2021 and 2020.

[[GREPCENT_TABLE]]
[["","For the year ended December 31,"],["(Amounts in thousands)","2021","","2020"],["Net income","$","107,815","","","$","97,750"],["Less net (income) loss attributable to noncontrolling interests in:"],["Operating partnership","(4,296)","","","(4,160)"],["Consolidated subsidiaries","(833)","","","(1)"],["Net income attributable to common shareholders","102,686","","","93,589"],["Adjustments:"],["Rental property depreciation and amortization","91,468","","","95,297"],["Gain on sale of real estate","(18,648)","","","(39,775)"],["Real estate impairment loss","468","","","3,055"],["Limited partnership interests in operating partnership(1)","4,296","","","4,160"],["FFO applicable to diluted common shareholders","$","180,270","","","$","156,326"]]
[[/GREPCENT_TABLE]]

(1) Represents earnings allocated to Long-Term Incentive Plan (“LTIP”) and Operating Partnership (“OP”) unitholders for unissued common shares, which have been excluded for purposes of calculating earnings per diluted share for the periods presented because they are anti-dilutive.

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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. Our Board of Trustees declared a quarterly dividend of $0.15 per common share and OP unit for each of the four quarters in 2021, or an annual rate of $0.60. 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 depend 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.

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 provided us with a relatively consistent stream of cash flow that enables us to pay operating expenses, debt service and recurring capital expenditures. During the year ended December 31, 2020, the COVID-19 pandemic had an adverse impact on our short-term cash flow by affecting our tenants’ ability to pay rent, however, our collection rates have returned to pre-pandemic levels and we have collected 98% of base rents billed during the year ended December 31, 2021. Other sources of liquidity to fund cash requirements include proceeds from financings, equity offerings and asset sales. Additionally, we have a $600 million revolving credit agreement with certain financial institutions which has a maturity date of January 29, 2024 and includes two six-month extension options. See Note 6 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Our short-term cash requirements consist of normal recurring operating expenses, lease obligations, regular debt service requirements, 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, 2021, we had cash and cash equivalents, including restricted cash, of $219.8 million and no amounts drawn on our $600 million revolving credit agreement.

Summary of Cash Flows

Cash and cash equivalents, including restricted cash, was $219.8 million at December 31, 2021, compared to $419.3 million as of December 31, 2020, a decrease of $199.4 million.

Our cash flow activities are summarized as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(Amounts in thousands)","2021","","2020"],["Net cash provided by operating activities","$","135,273","","","$","112,822"],["Net cash used in investing activities","(311,160)","","","(98,460)"],["Net cash used in financing activities","(23,530)","","","(80,245)"]]
[[/GREPCENT_TABLE]]

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 and debt expense.

Net cash provided by operating activities for the year ended December 31, 2021 increased by $22.5 million as compared to December 31, 2020, due to the improved collection rates on property rentals and tenant expense reimbursements in 2021 and collection of previously billed and deferred amounts from 2020.

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, 2021, increased by $212.7 million compared to December 31, 2020 due to a (i) $128.3 million increase in cash used for acquisitions, (ii) $66.9 million increase in cash used for real estate development and capital improvements, and (iii) $17.5 million decrease in cash provided by the sale of properties and operating leases.

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The Company has 21 active development, redevelopment or anchor repositioning projects with total estimated costs of $218.7 million, of which $72.1 million has been incurred and $146.6 million remains to be funded as of December 31, 2021.

The following summarizes capital expenditures presented on a cash basis for the years ended December 31, 2021 and 2020:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Amounts in thousands)","","2021","","2020"],["Capital expenditures:"],["Development and redevelopment costs","","$","76,750","","","$","15,468"],["Capital improvements","","14,944","","","10,704"],["Tenant improvements and allowances","","3,683","","","2,350"],["Total capital expenditures","","$","95,377","","","$","28,522"]]
[[/GREPCENT_TABLE]]

Development and redevelopment costs includes $20 million incurred by the Company to terminate its three remaining leases with Kmart and Sears at Bruckner Commons, The Outlets at Montehiedra, and Sunrise Mall, effective October 15, 2021. Controlling these anchor spaces is a critical aspect of the plans the Company has under way to reposition and redevelop these spaces with uses that appeal to the respective communities where the properties are located.

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, 2021, decreased by $56.7 million from the year ended December 31, 2020 due to (i) $71.1 million decrease in debt repayments primarily related to the mortgage refinancing on our Puerto Rico property in 2020, (ii) $54.1 million of cash paid to repurchase common shares in 2020, (iii) $27.0 million increase in proceeds from borrowings under mortgage loans, (iv) $3.5 million decrease in cash used to issue debt, (v) $1.2 million decrease in tax withholdings on vested restricted stock, and (vi) $0.8 million increase in cash contributed by noncontrolling interests, offset by (vii) $101.0 million increase in distributions paid to partners due to the temporary suspension of dividends during 2020 and the declaration of a special dividend in the fourth quarter of 2020, paid in January 2021.

On May 5, 2021 we established an at-the-market equity program (the “ATM Program”), pursuant to which we may offer and sell common shares, par value $0.01 per share, with an aggregate gross sales price of up to $250 million. As of December 31, 2021, we have not issued any common shares under the ATM Program. Refer to Part II, Item 8 Equity and Noncontrolling Interest for more information related to this program.

Contractual Obligations

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, 2021:

[[GREPCENT_TABLE]]
[["","","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)","","$","1,981,997","","","$","155,249","","","$","602,943","","","$","345,191","","","$","878,614"],["Operating lease obligations(2)","","89,351","","","9,089","","","16,437","","","12,416","","","51,409"],["Finance lease obligations(2)","","6,859","","","109","","","218","","","233","","","6,299"],["","","$","2,078,207","","","$","164,447","","","$","619,598","","","$","357,840","","","$","936,322"]]
[[/GREPCENT_TABLE]]

(1) Includes interest and principal payments. Interest on variable rate debt is computed using rates in effect as of December 31, 2021. See Note 6 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information.

(2) See Note 8 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information.

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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.

We believe that cash flows from our current operations, cash on hand, our line of credit under our revolving credit agreement, the potential to refinance our loans and our general ability to access the capital markets will be sufficient to finance our operations and fund our obligations in both the short-term and long-term.