Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Pending Merger with Equity One, Inc.

On November 14, 2016, Regency Centers Corporation entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Equity One, Inc. (“Equity One”), pursuant to which, subject to the satisfaction or waiver of certain conditions, Equity One will merge with and into the Regency Centers Corporation, with Regency Centers Corporation being the surviving corporation (the “Merger”). The combined company will retain the Regency name and continue to trade under the ticker symbol “REG” on the New York Stock Exchange (the “NYSE”).

On the terms and subject to the conditions set forth in the Merger Agreement, which has been unanimously approved by the boards of directors of Regency Centers Corporation and Equity One, at the effective time of the Merger (the “Effective Time”), each share of the common stock, par value $0.01 per share, of Equity One issued and outstanding immediately prior to the Effective Time (other than shares of Equity One owned directly by Equity One or the Regency Centers Corporation and in each case not held on behalf of third parties) will be converted into the right to receive 0.45 of a newly issued share of the common stock of Regency Centers Corporation.

The closing of the Merger is subject to certain conditions, including the requisite approvals from the stockholders of each of Regency Centers Corporation and Equity One (which approvals were received at special meetings of the stockholders of each company held on February 24, 2017), the receipt of certain tax opinions by Regency Centers Corporation and Equity One, and other customary closing conditions. The Merger is expected to close on March 1, 2017. However, the Company cannot predict with certainty when, or if, the Merger will be completed because completion of the Merger is subject to conditions beyond the control of the Company.

For more information about the Merger, the Merger Agreement and related agreements, see Note 16 of the Notes to the Consolidated Financial Statements in Item 8 herein.

Executing on our Strategy

During 2016, we executed on our strategic objectives to further solidify Regency’s position as a leader among shopping center REITs:

Sustain average annual 3% same property NOI growth from a high-quality, growing portfolio of thriving community and neighborhood shopping centers.

We earn revenues and generate cash flow by leasing space in our shopping centers to grocery stores, major retail anchors, restaurants, side-shop retailers, and service providers, as well as ground leasing or selling out-parcels to these same types of tenants. We experience growth in revenues by increasing occupancy and rental rates in our existing shopping centers, by acquiring and developing new shopping centers, and by redeveloping shopping centers within our portfolio. Noteworthy milestones and achievements during 2016 include:

•	We achieved pro-rata same property NOI growth, excluding termination fees, of 3.5%.

•	Pro-rata same property percent leased remained high at 96.2% at December 31, 2016.

•	We grew rental rates 11.3% on comparable spaces for new and renewal leases.

•	We acquired three operating properties for a gross purchase price of $333.8 million.

Develop new, high quality shopping centers and redevelop existing centers at attractive returns on investment from a disciplined development program.

We capitalize on our development capabilities, market presence, and anchor relationships by investing in new developments and redevelopments of existing centers.

•	During 2016, we started $221.4 million of development and redevelopment projects, net of partner funding requirements, with a weighted average projected return of 7.8% upon completion.

•	At December 31, 2016, we have six ground-up developments in process, with total expected net development costs of $209.3 million, net of partner funding requirements, and have $97.7 million of net costs to complete. These developments are projected to return 7.4% on capital upon completion and are currently 78.6% leased.

•	We also have 15 redevelopments of existing centers in process with total expected net redevelopment costs of $88.4 million, with $59.3 million of costs to complete, and projected incremental returns ranging from 7.0% - 10.0% upon completion.

Cost-effectively enhance our balance sheet to reduce our cost of capital, provide financial flexibility and weather economic downturns.

We fund acquisitions and development activities from various capital sources including operating cash flows, the sale of operating properties that no longer meet our investment standards, equity offerings, new debt financing, and capital from our co-investment partners.

•	At December 31, 2016, our net debt-to-core EBITDA ratio on a pro-rata basis for the trailing twelve months was 4.4x versus 5.2x at December 31, 2015. We had $13.3 million of cash and $779.2 million available on our line of credit.

•	In June 2016, we settled 1.85 million of the 3.1 million shares of the forward equity offering resulting in net proceeds of $137.5 million, which were used to partially repay the line of credit balance.

•	In July 2016, we amended our existing Term Loan, which increased the facility size by $100.0 million to $265.0 million, extended the maturity date to January 5, 2022 and fixed the interest rate at 2.0%.

•	In July 2016, we issued 5.0 million shares of common stock resulting in net proceeds of $400.1 million, used to (i) repay in full our $300.0 million 5.875% Senior Unsecured Notes due June 2017 ("$300 million note"), including a make-whole payment, (ii) settle the forward interest rate swaps, and (iii) fund investment activities and general corporate purposes.

•	In January 2017, we completed a combined $650 million public offering of two tranches of senior unsecured notes:

•

$350.0 million of 3.6% notes due February 1, 2027, which priced at 99.741%. The Company intends to use the net proceeds in connection with the consummation of the previously announced pending merger with Equity One, Inc., including (i) to repay approximately $285.0 million in aggregate principal amount of debt of Equity One, and any related interest, fees and expenses and (ii) to pay transaction expenses related to the pending merger with Equity One. In the event that the merger agreement is not consummated, we will be required to redeem these notes then outstanding at a redemption price equal to 101% of the principal amount to be redeemed plus accrued and unpaid interest, if any.

•	$300.0 million of 4.4% notes due February 1, 2047, which priced at 99.110%. The Company used a portion of the net proceeds to redeem all of the outstanding shares of its 6.625% Series 6 preferred shares on February 16, 2017 and intends to use the balance to fund investment activities and for general corporate purposes.

Leasing Activity and Significant Tenants

We believe our high-quality, grocery anchored shopping centers located in densely populated, desirable infill trade areas create attractive spaces for retail tenants. Improvements in the economy, combined with historically low levels of new supply and robust tenant demand, allow us to focus on merchandising of our centers to ensure the right mix of operators and unique retailers, which draws more retail customers to our centers.

Pro-rata Occupancy

For the purpose of the following disclosures of occupancy and leasing activity, "anchor space" is considered space greater than or equal to 10,000 SF and "shop space" is less than 10,000 SF. The following table summarizes pro-rata occupancy rates of our combined Consolidated and Unconsolidated shopping center portfolio:

		December 31, 2016		December 31, 2015
% Leased – Operating (1)		96.0%		95.9%
Anchor space		97.8%		98.5%
Shop space		93.1%		91.7%

(1) Excludes properties in development.

The decline in anchor percent leased is due, in part, to the bankruptcy of Sports Authority and its rejection of two leases at our shopping centers. See additional discussion below about bankruptcies.

Pro-rata Leasing Activity

The following table summarizes leasing activity, including Regency's pro-rata share of activity within the portfolio of our co-investment partnerships:

Year ended December 31, 2016
		Leasing Transactions (1)		SF (in thousands)		Base Rent PSF (2)				Tenant Improvements PSF (2)				Leasing Commissions PSF (2)
Anchor Leases
New		22		729		$	16.99			$	7.95			$	2.42
Renewal		84		1,610		$	14.00			$	0.50			$	0.54
Total Anchor Leases (1)		106		2,339		$	14.94			$	2.83			$	1.13
Shop Space
New		443		774		$	30.56			$	12.29			$	14.01
Renewal		987		1,502		$	31.16			$	1.26			$	3.87
Total Shop Space Leases (1)		1,430		2,276		$	30.95			$	5.01			$	7.32
Total Leases		1,536		4,615		$	22.84			$	3.90			$	4.18

Year ended December 31, 2015
		Leasing Transactions (1)		SF (in thousands)		Base Rent PSF (2)				Tenant Improvements PSF (2)				Leasing Commissions PSF (2)
Anchor Leases
New		15		295		$	13.81			$	5.28			$	5.14
Renewal		48		972		$	11.96			$	0.01			$	1.08
Total Anchor Leases (1)		63		1,267		$	12.39			$	1.24			$	2.03
Shop Space
New		445		724		$	30.67			$	10.35			$	13.53
Renewal		950		1,497		$	30.33			$	0.64			$	3.92
Total Shop Space Leases (1)		1,395		2,221		$	30.44			$	3.81			$	7.06
Total Leases		1,458		3,488		$	23.88			$	2.87			$	5.23

(1) Number of leasing transactions reported at 100%; all other statistics reported at pro-rata share.

(2) Totals for base rent, tenant improvements, and leasing commissions reflect the weighted average PSF.

Total average base rent signed on our shop space leases of $30.95 increased in 2016 compared to 2015 and exceeds the average annual base rent of all shop space leases due to expire during the next twelve months of $28.39 PSF by 9%.

Significant Tenants and Concentrations of Risk

We seek to reduce our operating and leasing risks through geographic diversification and by avoiding dependence on any single property, market, or tenant. The following table summarizes our four most significant tenants, based on their percentage of annualized base rent, each of which is a grocery tenant:

		December 31, 2016
Grocery Anchor		Number of Stores (1)		Percentage of Company- owned GLA (2)		Percentage of Annualized Base Rent (2)
Kroger		59		9.3%		4.7%
Publix		41		5.7%		3.1%
Albertsons/Safeway		48		4.7%		2.7%
Whole Foods		21		2.5%		2.5%

(1) Includes stores owned by grocery anchors that are attached to our centers.

(2) Includes Regency's pro-rata share of Unconsolidated Properties and excludes those owned by anchors.

Bankruptcies and Credit Concerns

Our management team devotes significant time to researching and monitoring consumer preferences, customer shopping behaviors, alternative retail methods accessible via the Internet, and demographics in order to anticipate the challenges and opportunities impacting the retail industry. We closely monitor the operating performance and rent collections of the tenants in our shopping centers, but also those retailers experiencing significant changes to their business models as a result of reduced customer traffic in their stores and increased competition from Internet sales. Retailers who are unable to withstand these and other business pressures, such as operating and financing their business, may approach us to modify their lease agreement or file bankruptcy. Although base rent is supported by long-term lease contracts, tenants who file bankruptcy generally have the legal right to reject any or all of their leases and close related stores. In the event that a tenant with a significant number of leases in our shopping centers files bankruptcy and cancels its leases, we could experience a significant reduction in our revenues. Currently, no tenant represents more than 5% of our annual base rent on a pro-rata basis. Also, as a result of our research and findings, we may reduce new leasing, suspend leasing, or curtail the allowance for the construction of leasehold improvements within a certain retail category or to a specific retailer in order to reduce our risk from bankruptcies and store closings.

During March 2016, Sports Authority filed for Chapter 11 bankruptcy protection, at which time we had three leases in our portfolio. One of those leases has been assumed by another retailer and the remaining two have been rejected and the stores closed. Those two rejected leases represented $2.1 million, or 0.4%, of total annualized base rent on a pro-rata basis; however, we have since executed leases to re-tenant these spaces.

During 2016, Sears Holdings announced that it planned to accelerate the closing of a number of stores. Sears continues to report significant declines in operating revenues and performance, and its ability to continue operating stores in our shopping centers is uncertain. We have five Sears or Kmart leases in our portfolio, which currently represent $3.1 million, or 0.6%, of total annualized base rent on a pro-rata basis. None of the announced store closures, as of this filing, are within our shopping centers. However, we are currently working to opportunistically re-tenant the spaces as the lease terms permit.

Results from Operations

Comparison of the years ended December 31, 2016 and 2015:

Our total revenues increased as summarized in the following table:

(in thousands)		2016				2015			Change
Minimum rent		$	444,305			415,155			29,150
Percentage rent		4,128				3,750			378
Recoveries from tenants		127,677				116,120			11,557
Other income		12,934				9,175			3,759
Management, transaction, and other fees		25,327				25,563			(236	)
Total revenues		$	614,371			569,763			44,608

Minimum rent increased as follows:

•	$11.9 million increase from rent commencing at development properties;

•	$15.3 million increase from new acquisitions of operating properties; and

•	$7.9 million increase at same properties, reflecting a $9.7 million increase from redevelopments and rental rate growth on new and renewal leases, offset by a $1.8 million charge to straight line rent primarily attributable to expected early terminations;

•	reduced by $5.9 million from the sale of operating properties.

Recoveries from tenants represent reimbursements to us for tenants' pro-rata share of the operating, maintenance, and real estate tax expenses that we incur to operate our shopping centers. Recoveries from tenants increased as follows:

•	$3.9 million increase from rent commencing at development properties;

•	$4.2 million increase from new acquisitions of operating properties; and

•	$5.6 million increase from same properties associated with higher recoverable costs;

•	reduced by $2.1 million from the sale of operating properties.

Other income, which consists of incidental income earned at our centers, increased $3.8 million as follows:

•	$2.3 million in same properties primarily as a result of lease termination and easement fees; and

•	$1.5 million in parking income related to the acquisition of Market Common Clarendon.

Changes in our operating expenses are summarized in the following table:

(in thousands)		2016				2015			Change
Depreciation and amortization		$	162,327			146,829			15,498
Operating and maintenance		95,022				82,978			12,044
General and administrative		65,327				65,600			(273	)
Real estate taxes		66,395				61,855			4,540
Other operating expenses		14,081				7,836			6,245
Total operating expenses		$	403,152			365,098			38,054

Depreciation and amortization costs increased as follows:

•	$4.8 million increase as we began depreciating costs at development properties where tenant spaces were completed and became available for occupancy;

•	$8.8 million increase from new acquisitions of operating properties; and

•	$5.8 million increase at same properties, attributable to recent capital improvements and redevelopments;

•	reduced by $3.9 million from the sale of operating properties and other corporate asset disposals.

Operating and maintenance costs increased as follows:

•	$2.6 million increase from operations commencing at development properties;

•	$6.2 million increase from new acquisitions of operating properties; and

•	$4.8 million increase at same properties primarily attributable to recoverable costs;

•	reduced by $1.6 million from the sale of operating properties.

Real estate taxes increased as follows:

•	$1.6 million increase from development properties where capitalization ceased as tenant spaces became available for occupancy;

•	$2.8 million increase from new acquisitions of operating properties; and

•	$1.4 million increase at same properties from increased tax assessments;

•	reduced by $1.3 million from sold properties.

Other operating expenses increased $6.2 million primarily due to costs incurred from 2016 acquisition activities, including costs associated with the announced pending merger of Equity One, Inc.

The following table presents the components of other expense (income):

(in thousands)		2016				2015			Change
Interest expense, net
Interest on notes payable		$	81,330			98,485			(17,155	)
Interest on unsecured credit facilities		5,635				3,566			2,069
Capitalized interest		(3,481		)		(6,739	)		3,258
Hedge expense		8,408				8,900			(492	)
Interest income		(1,180		)		(1,590	)		410
Interest expense, net		90,712				102,622			(11,910	)
Provision for impairment		4,200				—			4,200
Early extinguishment of debt		14,240				8,239			6,001
Net investment income		(1,672		)		(625	)		(1,047	)
Loss on derivative instruments		40,586				—			40,586
Total other expense (income)		$	148,066			110,236			37,830

The $11.9 million decrease in total interest expense is due to:

•	$17.2 million decrease in interest on notes payable due to lower interest rates from refinancing and deleveraging activities during 2016 and the early redemption of our $300 million notes in August 2016; offset by

•	$2.1 million increase in interest on unsecured credit facilities related to higher average balances on our Line and a $100 million increase on our Term Loan during 2016; and

•	$3.3 million increase due to lower interest capitalization on our development and redevelopment projects based on the status and cumulative spend on the projects in process.

During 2016, we recognized $4.2 million of impairment losses on two operating properties and two land parcels. One of the operating properties and both land parcels have since been sold. We did not recognize any impairments during 2015.

We redeemed all of our outstanding $400 million notes in two tranches occurring in 2016 and 2015. During 2016, we recognized a $14.2 million charge when redeeming the $300 million notes. During 2015, we early redeemed $100 million of those same notes, which included an $8.2 million make-whole premium charge.

Net investment income increased $1.0 million, driven by realized and unrealized gains on investments held within the non-qualified deferred compensation plan during 2016.

We recognized a $40.6 million charge to settle $220 million of forward starting interest rate swaps related to new debt previously expected to be issued in 2017. As a result of our July 2016 equity offering and the early redemption of the $300 million notes in August 2016, the Company believed that the issuance of new fixed rate debt within the remaining period of the forward starting swaps was probable to no longer occur. Accordingly, we ceased hedge accounting and reclassified the $40.6 million paid to settle the forward starting swaps from Accumulated other comprehensive loss to earnings.

Our equity in income of investments in real estate partnerships increased as follows:

(in thousands)		Regency's Ownership		2016				2015			Change
GRI - Regency, LLC (GRIR)		40.00%		$	29,791			18,148			11,643
Columbia Regency Retail Partners, LLC (Columbia I)		20.00%		4,180				(278	)		4,458
Columbia Regency Partners II, LLC (Columbia II)		20.00%		3,240				755			2,485
Cameron Village, LLC (Cameron)		30.00%		695				643			52
RegCal, LLC (RegCal)		25.00%		1,080				576			504
US Regency Retail I, LLC (USAA)		20.01%		1,180				807			373
Other investments in real estate partnerships		50.00%		16,352				1,857			14,495
Total equity in income of investments in real estate partnerships				$	56,518			22,508			34,010

The $34.0 million increase in our equity in income in investments in real estate partnerships is largely attributed to (i) our share of gains on the sale of real estate within our GRIR, Columbia I, Columbia II, and Other investments in real estate partnerships; (ii) interest expense savings within GRIR resulting from decreased debt balances and refinancing activity at lower interest rates; and (iii) and a decrease in depreciation expense within GRIR from fully depreciated land improvement assets.

The following represents the remaining components that comprise net income attributable to the common stockholders and unit holders:

(in thousands)		2016				2015			Change
Income from operations		$	119,671			116,937			2,734
Gain on sale of real estate, net of tax		47,321				35,606			11,715
Income attributable to noncontrolling interests		(2,070		)		(2,487	)		417
Preferred stock dividends		(21,062		)		(21,062	)		—
Net income attributable to common stockholders		$	143,860			128,994			14,866
Net income attributable to exchangeable operating partnership units		257				240			17
Net income attributable to common unit holders		$	144,117			129,234			14,883

During 2016, we sold eleven operating properties and sixteen land parcels resulting in gains of $47.3 million, compared to gains of $35.6 million from the sale of five operating properties and two land parcels during 2015.

Comparison of the years ended December 31, 2015 and 2014:

Our total revenues increased as summarized in the following table:

(in thousands)		2015				2014			Change
Minimum rent		$	415,155			390,697			24,458
Percentage rent		3,750				3,488			262
Recoveries from tenants		116,120				108,434			7,686
Other income		9,175				11,184			(2,009	)
Management, transaction, and other fees		25,563				24,095			1,468
Total revenues		$	569,763			537,898			31,865

Minimum rent increased as follows:

•	$5.0 million increase from new acquisitions of operating properties;

•	$9.8 million increase from rent commencing at development properties; and

•	$15.7 million increase at same properties, with $6.7 million relating to redevelopment properties, and $9.0 million relating to higher rental rates and rent paying occupancy growth;

•	reduced by $6.0 million from the sale of operating properties.

Recoveries from tenants represent reimbursements to us for tenants' pro-rata share of the operating, maintenance, and

real estate tax expenses that we incur to operate our shopping centers. Recoveries from tenants increased as follows:

•	$1.2 million increase from new acquisitions of operating properties;

•	$1.5 million increase from rent commencing at development properties; and,

•	$5.9 million increase from same properties associated with rent paying occupancy improvements and higher recoverable costs;

•	reduced by $890,000 from the sale of operating properties.

Other income, which consists of incidental income earned at our centers, decreased primarily as a result of a lower level of settlement and lease termination income earned in 2015.

We earn fees, at market-based rates, for asset management, property management, leasing, acquisition, and financing services that we provided to our co-investment partnerships and third parties as follows:

(in thousands)		2015				2014			Change
Asset management fees		$	6,416			6,013			403
Property management fees		13,123				13,020			103
Leasing commissions and other fees		6,024				5,062			962
Total management, transaction, and other fees		$	25,563			24,095			1,468

Asset and property management fees increased due to higher property values and revenues in our co-investment partnerships. Leasing commissions and other fees increased during 2015 due to the higher average rents on leasing transactions.

Changes in our operating expenses are summarized in the following table:

(in thousands)		2015				2014			Change
Depreciation and amortization		$	146,829			147,791			(962	)
Operating and maintenance		82,978				77,788			5,190
General and administrative		65,600				60,242			5,358
Real estate taxes		61,855				59,031			2,824
Other operating expenses		7,836				8,496			(660	)
Total operating expenses		$	365,098			353,348			11,750

Depreciation and amortization decreased as follows:

•	$2.9 million decrease from the sale of operating properties;

•	$1.9 million increase primarily from operations beginning at development properties and the acquisition of operating properties.

Operating and maintenance costs increased as follows:

•	$1.6 million increase from operations commencing at development properties;

•	$2.1 million increase from new acquisitions of operating properties;

•	$2.9 million increase at same properties attributable to an increase in recoverable costs;

•	reduced by $1.4 million from the sale of operating properties.

General and administrative expenses increased as follows:

•	$3.9 million of higher compensation costs primarily related to executive management changes during 2015;

•	$2.3 million of lower development overhead capitalization based on fewer new development and redevelopment projects started in 2015;

•	reduced by $1.1 million from the decrease in the value of participant obligations within the deferred compensation plan.

Real estate taxes increased as follows:

•	$690,000 increase from new acquisitions of operating properties;

•	$510,000 increase from development properties where capitalization ceased as tenant spaces became available for occupancy; and,

•	$2.0 million increase at same properties from increased tax assessments;

•	reduced by approximately $360,000 from the sale of operating properties.

The following table presents the components of other expense (income):

(in thousands)		2015				2014			Change
Interest expense, net
Interest on notes payable		98,485				104,938			(6,453	)
Interest on unsecured credit facilities		3,566				3,539			27
Capitalized interest		(6,739		)		(7,142	)		403
Hedge expense		8,900				9,366			(466	)
Interest income		(1,590		)		(1,210	)		(380	)
Interest expense, net		102,622				109,491			(6,869	)
Provision for impairment		—				1,257			(1,257	)
Early extinguishment of debt		8,239				18			8,221
Net investment income		(625		)		(9,449	)		8,824
Gain on remeasurement of investment in real estate partnership		—				(18,271	)		18,271
Total other expense (income)		$	110,236			83,046			27,190

The $6.9 million decrease in interest expense, net is mainly due to lower interest rates from refinancing our long-term debt during 2014 and 2015 and lower outstanding balances on notes payable.

We had no impairment losses during 2015. However, during the year ended December 31, 2014, we recognized a $1.1 million loss on the disposal of one operating property and one land parcel and a $175,000 impairment on two parcels of land held.

During November 2015, we incurred an $8.2 million charge from a make-whole premium on our $100.0 million early redemption of the $400.0 million outstanding 5.875% senior unsecured notes that are due in 2017.

Net investment income decreased $8.8 million, largely driven by an $8.1 million gain realized on the sale of available-for-sale securities in 2014 and a $1.1 million decrease in the fair value of plan assets in the non-qualified deferred compensation plan during 2015, which is consistent with the change in plan liabilities included in general and administrative expenses above.

During the year ended December 31, 2014, we acquired the remaining 50% interest and gained control of a previously unconsolidated investment in a real estate partnership that owns a single operating property. As the operating property constitutes a business, acquisition of control was accounted for as a step acquisition, and the net assets acquired were recognized at fair value. The gain of $18.3 million was recognized as the difference between the fair value and carrying value of the Company's previously held equity interest, using an income approach to measure fair value.

Our equity in income of investments in real estate partnerships increased (decreased) as follows:

(in thousands)		Regency's Ownership		2015				2014			Change
GRI - Regency, LLC (GRIR)		40.00%		$	18,148			13,727			4,421
Columbia Regency Retail Partners, LLC (Columbia I)		20.00%		(278		)		1,431			(1,709	)
Columbia Regency Partners II, LLC (Columbia II)		20.00%		755				233			522
Cameron Village, LLC (Cameron)		30.00%		643				1,008			(365	)
RegCal, LLC (RegCal)		25.00%		576				966			(390	)
US Regency Retail I, LLC (USAA)		20.01%		807				567			240
Other investments in real estate partnerships		50.00%		1,857				13,338			(11,481	)
Total equity in income of investments in real estate partnerships				$	22,508			31,270			(8,762	)

The $8.8 million net decrease is largely attributed to:

GRIR: $4.4 million increase driven by:

•	$1.3 million increase in base rent from occupancy and rental rate growth,

•	$1.8 million decrease in depreciation due to higher depreciation expense in 2014 relating to redevelopment activity,

•	Reduced interest expense approximately $800,000 by paying off or refinancing property debt at better rates in 2014 and 2015.

Columbia I: $1.8 million decrease from impairment loss upon the sale of one operating property during 2015;

Columbia II: $424,000 increase due to impairment losses recognized upon the sale of two properties during 2014; and

Other investments in real estate partnerships: $11.4 million decrease within our other investment partnerships driven by the $10.9 million gains on the sale of two land parcels and two operating properties during 2014.

The following represents the remaining components that comprise net income attributable to the common stockholders and unit holders:

(in thousands)		2015				2014			Change
Income from operations		$	116,937			132,774			(15,837	)
Income tax (benefit) of taxable REIT subsidiary		—				(996	)		996
Gain on sale of real estate, net of tax		35,606				55,077			(19,471	)
Income attributable to noncontrolling interests		(2,487		)		(1,457	)		(1,030	)
Preferred stock dividends		(21,062		)		(21,062	)		—
Net income attributable to common stockholders		$	128,994			166,328			(37,334	)
Net income attributable to exchangeable operating partnership units		240				319			(79	)
Net income attributable to common unit holders		$	129,234			166,647			(37,413	)

A $1.0 million tax benefit was recognized in 2014 upon the receipt of a state tax refund from amending our prior tax returns.

We recognized $35.6 million of gains on the sale of real estate, net of taxes, in 2015 attributable to the sale of five operating properties and two land parcels as compared to $55.1 million of gains on the sale of real estate, net of taxes, in 2014 attributable to the sale of eleven operating properties and six land parcels.

Income attributable to noncontrolling interests increased $1.0 million due to to the 2014 acquisition of a portfolio held within a consolidated partnership, coupled with new operating activity from a development beginning operations, and a recent redevelopment completion within our consolidated partnerships.

Supplemental Earnings Information

We use certain non-GAAP performance measures, in addition to the required GAAP presentations, as we believe these measures improve the understanding of the Company's operating results. We manage our entire real estate portfolio without regard to ownership structure, although certain decisions impacting properties owned through partnerships require partner approval. Therefore, we believe presenting our pro-rata share of operating results regardless of ownership structure, along with other non-GAAP measures, may assist in comparing the Company's operating results to other REITs'. We continually evaluate the usefulness, relevance, limitations, and calculation of our reported non-GAAP performance measures to determine how best to provide relevant information to the public, and thus such reported measures could change.

Pro-Rata Same Property NOI:

Our pro-rata same property NOI, excluding termination fees, grew from the following major components:

(in thousands)		2016				2015			Change
Base rent		$	486,776			473,468			13,308
Percentage rent		5,213				4,943			270
Recovery revenue		144,383				142,189			2,194
Other income		11,243				7,758			3,485
Operating expenses		178,117				176,326			1,791
Pro-rata same property NOI (1)		$	469,498			452,032			17,466
Less: Termination fees		1,224				(319	)		1,543
Pro-rata same property NOI excluding termination fees		$	468,274			452,351			15,923
Same property NOI growth									3.5	%

(1) See the end of the Supplemental Earnings Information section for a reconciliation to the nearest GAAP measure.

Base rent increased $13.3 million, driven by increases at redevelopments and increases in rental rate growth on new and renewal leases and contractual rent steps in our existing leases, with occupancy remaining flat.

Recovery revenue increased $2.2 million, as a result of increases in recoverable costs, as noted below.

Other income increased $3.5 million, as a result of lease termination fees, easement sales, and settlements in 2016.

Operating expenses increased $1.8 million, due to higher recoverable costs.

Same Property Rollforward:

Our same property pool includes the following property count, pro-rata GLA, and changes therein:

	2016					2015
(GLA in thousands)	Property Count		GLA			Property Count		GLA
Beginning same property count	300		26,508			298		25,526
Acquired properties owned for entirety of comparable periods	6		443			4		427
Developments that reached completion by beginning of earliest comparable period presented	2		342			3		790
Disposed properties	(19	)	(933	)		(5	)	(260	)
SF adjustments (1)	—		32			—		25
Ending same property count	289		26,392			300		26,508

(1) SF adjustments arise from remeasurements or redevelopments.

NAREIT FFO and Core FFO:

Our reconciliation of net income attributable to common stock and unit holders to NAREIT FFO and Core FFO is as follows:

(in thousands, except share information)		2016			2015
Reconciliation of Net income to NAREIT FFO
Net income attributable to common stockholders	$	143,860			128,994
Adjustments to reconcile to NAREIT FFO: (1)
Depreciation and amortization (excluding FF&E)		193,451			182,103
Provision for impairment to operating properties		3,159			1,820
Gain on sale of operating properties, net of tax		(63,426	)		(36,642	)
Exchangeable partnership units		257			240
NAREIT FFO attributable to common stock and unit holders	$	277,301			276,515
Reconciliation of NAREIT FFO to Core FFO
NAREIT FFO attributable to common stock and unit holders	$	277,301			276,515
Adjustments to reconcile to Core FFO: (1)
Acquisition pursuit and closing costs		2,007			1,734
Development pursuit costs		1,503			675
Merger related costs		6,539			—
Gain on sale of land		(8,769	)		(73	)
Provision for impairment to land		580			—
Loss on derivative instruments and hedge ineffectiveness		40,589			5
Early extinguishment of debt		14,207			8,239
Change in executive management		—			2,193
Dividends from investments		—			(416	)
Core FFO attributable to common stockholders	$	333,957			288,872

(1) Includes Regency's pro-rata share of unconsolidated investment partnerships, net of pro-rata share attributable to noncontrolling interests.

Reconciliation of Same Property NOI to Nearest GAAP Measure:

Our reconciliation of property revenues and property expenses to Same Property NOI, on a pro-rata basis, is as follows:

		2016										2015
(in thousands)		Same Property				Other (1)			Total			Same Property			Other (1)			Total
Income from operations		$	271,588			(151,917	)		119,671			235,125			(118,188	)		116,937
Less:
Management, transaction, and other fees		—				25,327			25,327			—			25,563			25,563
Other (2)		5,130				11,014			16,144			8,063			8,126			16,189
Plus:
Depreciation and amortization		140,848				21,479			162,327			135,075			11,754			146,829
General and administrative		—				65,327			65,327			—			65,600			65,600
Other operating expense, excluding provision for doubtful accounts		1,395				10,981			12,376			597			4,875			5,472
Other expense (income)		29,560				118,506			148,066			28,424			81,812			110,236
Equity in income (loss) of investments in real estate excluded from NOI (3)		31,237				2,715			33,952			60,874			6,298			67,172
Pro-rata NOI		$	469,498			30,750			500,248			452,032			18,462			470,494

(1) Includes revenues and expenses attributable to non-same property, sold property, development property, and corporate activities.

(2) Includes straight-line rental income, net of reserves, above and below market rent amortization, other fees, and noncontrolling interest.

(3) Includes non-NOI expenses incurred at our unconsolidated real estate partnerships, including those separated out above for our consolidated properties.

Liquidity and Capital Resources

General

We use cash flows generated from operating, investing, and financing activities to strengthen our balance sheet and reduce risk, finance our development and redevelopment projects, fund our targeted investments, and maintain financial flexibility. We continuously monitor the capital markets and evaluate our ability to issue new debt or equity to repay maturing debt or fund our capital commitments

Our Parent Company has no capital commitments other than its guarantees of the commitments of our Operating Partnership. The Parent Company will from time to time access the capital markets for the purpose of issuing new equity and will simultaneously contribute all of the offering proceeds to the Operating Partnership in exchange for additional partnership units. All debt is issued by our Operating Partnership or by our co-investment partnerships. Based upon our available sources of capital, our current credit ratings, and the number of high quality, unencumbered properties we own, we believe our available capital resources are sufficient to meet our expected capital needs. In addition to its $13.3 million of cash, the Company has the following additional sources of capital available:

(in thousands)		December 31, 2016
ATM equity program (see note 8)
Original offering amount		$	200,000
Available capacity		$	70,800
Forward Equity Offering
Original offering amount		$	233,300
Available equity offering to settle (1)		$	94,063
Line of Credit (the "Line") (see note 6)
Total commitment amount		$	800,000
Available capacity (2)		$	779,200
Maturity (3)		May 13, 2019
(1) We have 1.25 million shares to settle prior to June 23, 2017 at an offering price of $75.25 per share before any underwriting discount and offering expenses.
(2) Net of letters of credit.
(3) The Company has the option to extend the maturity for two additional six-month periods.

We operate our business such that we expect net cash flow from operating activities will provide the necessary funds to pay our distributions to our common and preferred stock and unit holders, which were $222.4 million and $202.8 million for the years ended December 31, 2016 and 2015, respectively. Our dividend distribution policy is set by our Board of Directors, who monitors our financial position. Our Board of Directors recently declared a common stock dividend of $0.51 per share, payable on March 1, 2017. Future dividends will be declared at the discretion of our Board of Directors and will be subject to capital requirements and availability. We plan to continue paying an aggregate amount of distributions to our stock and unit holders that, at a minimum, meet the requirements to continue qualifying as a REIT for federal income tax purposes.

During the next twelve months, we estimate that we will require approximately $240.2 million of cash, including $149.9 million to complete in-process developments and redevelopments, $86.3 million to repay maturing debt, and $4.0 million to fund our pro-rata share of estimated capital contributions to our co-investment partnerships for repayment of maturing debt. If we start new developments, redevelop additional shopping centers, or commit to new acquisitions, our cash requirements will increase. If we refinance maturing debt, our cash requirements will decrease. To meet our cash requirements, we may utilize cash generated from operations, proceeds from the sale of real estate, available borrowings from our Line, and when the capital markets are favorable, proceeds from the sale of equity and the issuance of new long-term debt. These estimated needs reflect Regency's needs as a stand-alone entity and is not meant to reflect or give effect to the pending merger with Equity One.

We endeavor to maintain a high percentage of unencumbered assets. As of December 31, 2016, 83.0% of our wholly-owned real estate assets were unencumbered. Such assets allow us to access the secured and unsecured debt markets and to

maintain availability on the Line. Our coverage ratio, including our pro-rata share of our partnerships, was 3.3 and 2.8 times for the trailing four quarters ended December 31, 2016 and December 31, 2015, respectively. We define our coverage ratio as earnings before interest, taxes, investment transaction profits net of deal costs, depreciation and amortization (“Core EBITDA”) divided by the sum of the gross interest and scheduled mortgage principal paid to our lenders plus dividends paid to our preferred stockholders.

Our Line, Term Loan, and unsecured loans require that we remain in compliance with various covenants, which are

described in note 6 to the Consolidated Financial Statements. We are in compliance with these covenants at December 31, 2016 and expect to remain in compliance.

Subsequent Events

Subsequent to December 31, 2016, the Company priced a public offering of two tranches of senior unsecured notes:

•

$350.0 million of 3.6% notes due February 1, 2027, which priced at 99.741%. The Company intends to use the net proceeds in connection with the consummation of the previously announced pending merger with Equity One, Inc., including (i) to repay approximately $285.0 million in aggregate principal amount of debt of Equity One, and any related interest, fees and expenses and (ii) to pay transaction expenses related to the pending merger with Equity One. In the event that the merger agreement is not consummated, we will be required to redeem these notes then outstanding at a redemption price equal to 101% of the principal amount to be redeemed plus accrued and unpaid interest, if any.

•	$300.0 million of 4.4% notes due February 1, 2047, which priced at 99.110%. The Company used a portion of the net proceeds to redeem all of the outstanding shares of its 6.625% Series 6 preferred shares on February 16, 2017 and intends to use the balance to fund investment activities and for general corporate purposes.

In connection with the pending Merger, the Company has commitments to (i) amend its Line by increasing the borrowing capacity to $1.0 billion and (ii) enter a new $300.0 million term loan facility. Both of these transactions are contingent upon the consummation of the Merger and are scheduled to close simultaneously with the Merger. The Company plans to use the proceeds from the new term loan to repay existing term loans held by Equity One. The additional line capacity will accommodate the Company's increased property operations and development / redevelopment programs from the Merger.

Summary of Cash Flow Activity

The following table summarizes net cash flows related to operating, investing, and financing activities of the Company:

(in thousands)		2016				2015			Change
Net cash provided by operating activities		$	289,376			275,637			13,739
Net cash used in investing activities		(409,671		)		(139,346	)		(270,325	)
Net cash provided by (used in) financing activities		96,695				(213,211	)		309,906
Net decrease in cash and cash equivalents		(23,600		)		(76,920	)		53,320
Total cash and cash equivalents		$	13,256			36,856			(23,600	)

Net cash provided by operating activities:

Net cash provided by operating activities increased by $13.7 million due to:

•	$32.4 million increase in cash from operating income;

•	$3.7 million increase in operating cash flow distributions received from our unconsolidated real estate partnerships as several redevelopment projects were completed and began generating operating cash flows; and,

•	$11.0 million net increase in cash due to timing of cash receipts and payments related to operating activities; offset by

•

$40.6 million and $7.3 million paid during 2016 and 2015, respectively, to settle forward starting interest rate swaps put in place to hedge changes in interest rates on expected issuance of ten year fixed rate debt. The $40.6 million paid in 2016 was recognized through net income since the previously forecasted debt transaction was probable to no longer occur. The $7.3 million paid in 2015 was recognized in Other comprehensive income and is being reclassified to earnings over the period of the ten year debt issued in 2015.

Net cash used in investing activities:

Net cash used in investing activities increased by $270.3 million as follows:

(in thousands)		2016				2015			Change
Cash flows from investing activities:
Acquisition of operating real estate		$	(333,220	)		(42,983	)		(290,237	)
Advance deposits paid on acquisition of operating real estate		(750		)		(2,250	)		1,500
Real estate development and capital improvements		(234,598		)		(205,103	)		(29,495	)
Proceeds from sale of real estate investments		135,269				108,822			26,447
Collection of notes receivable		—				1,719			(1,719	)
Investments in real estate partnerships		(37,879		)		(20,054	)		(17,825	)
Distributions received from investments in real estate partnerships		58,810				23,801			35,009
Dividends on investment securities		330				243			87
Acquisition of securities		(55,223		)		(31,941	)		(23,282	)
Proceeds from sale of securities		57,590				28,400			29,190
Net cash used in investing activities		$	(409,671	)		(139,346	)		(270,325	)

Significant investing and divesting activities included:

•	We acquired three shopping centers, with 569,000 SF of GLA in 2016, compared to one shopping center with 180,000 SF of GLA during 2015.

•	We invested $29.5 million more in 2016 than 2015 on real estate development and capital improvements, as further detailed in a table below.

•	We received proceeds of $135.3 million from the sale of eleven shopping centers and sixteen land parcels in 2016, compared to $108.8 million for five shopping centers and two land parcels in 2015.

•	We invested $17.8 million more in our unconsolidated partnerships during 2016 than 2015 due to the acquisition of an operating property in 2016. Contributions were made each year to fund our share of maturing mortgage debt and redevelopment activities.

•

Distributions received from our unconsolidated partnerships include return of capital from sales or financing proceeds. The $58.8 million received in 2016 includes proceeds from the sales of ten shopping centers with co-investment partners. Distributions in 2015 include $12.8 million of proceeds from the sale of one shopping center with a co-investment partner and $11.0 million of financing proceeds.

•

Acquisition of securities and proceeds from sale of securities pertain to equity and debt securities held by our captive insurance company and our deferred compensation plan. The majority of our investing activity during 2016 relates to reallocation of plan assets. During 2015, we invested $7.9 million of funds held in our captive insurance subsidiary in available-for-sale marketable securities. Our insurance subsidiary is required to maintain statutory minimum capital and surplus, and therefore, access to these securities may be limited.

We plan to continue developing and redeveloping shopping centers for long-term investment purposes. We deployed capital of $234.6 million for the development, redevelopment, and improvement of our real estate properties as comprised of the following:

(in thousands)		2016				2015			Change
Capital expenditures:
Land acquisitions for development / redevelopment		$	26,938			5,135			21,803
Building and tenant improvements		32,941				30,103			2,838
Redevelopment costs		51,226				50,933			293
Development costs		107,300				100,111			7,189
Capitalized interest		3,482				6,740			(3,258	)
Capitalized direct compensation		12,711				12,081			630
Real estate development and capital improvements		$	234,598			205,103			29,495

•	During 2016 we acquired four land parcels for new development projects as compared to two in 2015.

•	Building and tenant improvements increased $2.8 million during the year ended December 31, 2016 primarily related to timing of capital projects.

•	Redevelopment expenditures were slightly higher during 2016 due to the timing, magnitude, and number of projects currently in process. We intend to continuously improve our portfolio of shopping centers through redevelopment which can include adjacent land acquisition, existing building expansion, new out-parcel

building construction, and tenant improvement costs. The size and scope of each redevelopment project

varies with each redevelopment plan.

•	The $7.2 million increase in our development project expenditures was due to the size of and progress on developments. See the table below for a detail of current and recently completed development projects.

•	Interest is capitalized on our development and redevelopment projects and is based on cumulative actual

development costs expended. We cease interest capitalization when the property is no longer being

developed or is available for occupancy upon substantial completion of tenant improvements, but in no event

would we capitalize interest on the project beyond 12 months after the anchor opens for business. Capitalized

interest decreased in 2016 as compared to 2015 as our development or redevelopment projects neared

substantial completion and we commenced fewer new projects during the first half of 2016.

•	We have a staff of employees who directly support our development and redevelopment program. Internal

compensation costs directly attributable to these activities are capitalized as part of each project. Changes in

the level of future development and redevelopment activity could adversely impact results of operations by

reducing the amount of internal costs for development and redevelopment projects that may be capitalized. A

10% reduction in development and redevelopment activity without a corresponding reduction in the

compensation costs directly related to our development and redevelopment activities could result in an

additional charge to net income of $1.4 million per year.

The following table summarizes our development projects:

December 31, 2016
(in thousands, except cost PSF)
Property Name		Market		Start Date		Estimated/Actual Anchor Opens		Estimated Net Development Costs (1)				% of Costs Incurred (1)			GLA			Cost PSF GLA (1)
Willow Oaks Crossing		Charlotte, NC		Q2-14		Dec-15		$	13,996			99	%		69			203
Northgate Marketplace Ph II		Medford, OR		Q4-15		Oct-16		40,700				91	%		177			230
Market at Springwoods Village (2)		Houston, TX		Q1-16		May-17		28,192				50	%		89			317
The Village at Tustin Legacy		Los Angeles, CA		Q3-16		Oct-17		37,822				50	%		112			338
Chimney Rock Crossing		New York, NY		Q4-16		May-18		71,175				27	%		218			326
The Village at Riverstone		Houston, TX		Q4-16		Aug-18		30,638				42	%		165			186
								$	222,523			52	%		830			$	268

(1) Includes leasing costs, and is net of tenant reimbursements.

(2) Estimated Net Development Costs are reported at full project cost. Our ownership interest in this consolidated property is 53%.

The following table summarizes our completed development projects:

December 31, 2016
(in thousands, except cost PSF)
Property Name		Market		Completion Date		Net Development Costs (1)				GLA			Cost PSF GLA (1)
Belmont Chase		Washington, DC		Q1-16		$	28,308			91			$	311
CityLine Market		Dallas, TX		Q1-16		27,861				81			344
Village at La Floresta		Los Angeles, CA		Q2-16		32,451				87			373
Brooklyn Station on Riverside		Jacksonville, FL		Q3-16		14,987				50			300
CityLine Market Ph II		Dallas, TX		Q4-16		5,597				22			$	254
Total						$	109,204			331			$	330

(1) Includes leasing costs and is net of tenant reimbursements.

Net cash provided by (used in) financing activities:

Net cash flows generated from financing activities increased by $309.9 million during 2016, as follows:

(in thousands)		2016				2015			Change
Cash flows from financing activities:
Equity issuances		$	548,920			198,494			350,426
Distributions to limited partners in consolidated partnerships, net		(4,213		)		(5,341	)		1,128
Dividend payments		(222,398		)		(202,753	)		(19,645	)
Unsecured credit facilities		115,000				90,000			25,000
Proceeds from debt issuance		53,446				252,476			(199,030	)
Debt repayment		(392,755		)		(540,089	)		147,334
Payment of loan costs		(2,233		)		(5,998	)		3,765
Proceeds from sale of treasury stock, net		928				—			928
Net cash provided by (used in) financing activities		$	96,695			(213,211	)		309,906

Significant financing activities during the years ended December 31, 2016 and 2015 include the following:

•	We raised $548.9 million during 2016 through equity issuances:

◦	we issued 182,787 shares of common stock through our ATM program at an average price of $68.85 per share resulting in net proceeds of $12.3 million,

◦	we settled 1.85 million shares under our forward equity offering at an average price of $74.32 per share resulting in proceeds of $137.5 million, and

◦	we issued 5.0 million shares of common stock at $79.78 per share resulting in net proceeds of $400.1 million.

During 2015, we issued 2.9 million shares of common stock at an average price of $64.71 in an underwritten forward public equity offering that settled in November 2015 resulting in net proceeds of $185.8 million. Additionally, we issued 189,266 shares of common stock through our ATM program at an average price of $67.86 per share resulting in net proceeds of $12.7 million.

•	The change in distributions paid to limited partners in consolidated partnerships, net, primarily relates to the buyout of a limited partner's interest during 2015.

•	During 2016, our dividend payments increased as a result of the greater number of common shares outstanding and an increase in our dividend rate.

•	We received proceeds of $100.0 million upon expanding our Term Loan during 2016 which were used to partially fund the acquisition of Market Common Clarendon, and repay $15.0 million, net on the Line as compared to $90.0 million borrowed on from our Term Loan during 2015.

•	We received $53.4 million of mortgage proceeds in 2016 upon the encumbrance of two operating properties. During 2015, we issued $250.0 million of new fixed rate ten-year unsecured public debt.

•	During 2016, we used $392.8 million to repay debt, including:

◦	$300.0 million for the early redemption of our $300 million notes due 2017,

◦	$14.1 million paid for debt extinguishment costs, including a make-whole premium to redeem the $300 million notes, and

◦	$78.7 million for scheduled principal payments and four mortgage repayments.

During 2015, we used $540.1 million to repay debt, including:

◦	$350.0 million to redeem our notes that matured in 2015 and $108.0 million, including an $8.0 million make-whole premium, to redeem a portion of our notes due 2017, and

◦	$82.0 million for scheduled principal payments and three mortgage repayments.

•	We paid $2.2 million in loan closing costs during 2016, primarily to amend the Term Loan, while we paid $6.0 million during 2015 for the new fixed rate unsecured public debt and the modification to our Line.

Contractual Obligations

We have debt obligations related to our mortgage loans, unsecured notes, unsecured credit facilities and interest rate swap obligations as described further below and in note 6 and note 7 to the Consolidated Financial Statements. We have shopping centers that are subject to non-cancelable long-term ground leases where a third party owns and has leased the underlying land to us to construct and/or operate a shopping center. In addition, we have non-cancelable operating leases pertaining to office space from which we conduct our business.

The following table of Contractual Obligations summarizes our debt maturities, including our pro-rata share of obligations within co-investment partnerships as of December 31, 2016, and excludes the following:

•	Recorded debt premiums or discounts that are not obligations;

•	Obligations related to construction or development contracts, since payments are only due upon satisfactory performance under the contracts;

•	Letters of credit of $5.8 million issued to cover our captive insurance program and performance obligations on certain development projects, which the latter will be satisfied upon completion of the development projects; and

•	Obligations for retirement savings plans due to uncertainty around timing of participant withdrawals, which are solely within the control of the participant, and are further discussed in note 11 to the Consolidated Financial Statements.

		Payments Due by Period
(in thousands)		2017				2018			2019			2020			2021			Beyond 5 Years			Total
Notes payable:
Regency (1)		$	161,440			127,262			184,022			286,971			323,262			904,803			$	1,987,760
Regency's share of joint ventures (1) (2)		32,550				48,851			41,381			102,286			94,726			270,555			590,349
Operating leases:
Regency - office leases		4,017				3,518			3,482			3,314			2,992			9,410			26,733
Subleases:
Regency - office leases		(46		)		—			—			—			—			—			(46		)
Ground leases:
Regency		5,769				7,946			8,649			8,392			8,298			433,066			472,120
Regency's share of joint ventures		385				385			391			392			392			18,713			20,658
Total		$	204,115			187,962			237,925			401,355			429,670			1,636,547			$	3,097,574

(1) Includes interest payments.

(2) We are obligated to contribute our pro-rata share to fund maturities if they are not refinanced. We believe that our partners are financially sound and have sufficient capital or access thereto to fund future capital requirements. In the event that a co-investment partner was unable to fund its share of the capital requirements of the co-investment partnership, we would have the right, but not the obligation, to loan the defaulting partner the amount of its capital call.

Critical Accounting Estimates

Knowledge about our accounting policies is necessary for a complete understanding of our financial statements. The preparation of our financial statements requires that we make certain estimates that impact the balance of assets and liabilities as of a financial statement date and the reported amount of income and expenses during a financial reporting period. These accounting estimates are based upon, but not limited to, our judgments about historical and expected future results, current market conditions, and interpretation of industry accounting standards. They are considered to be critical because of their significance to the financial statements and the possibility that future events may differ from those judgments, or that the use of different assumptions could result in materially different estimates. We review these estimates on a periodic basis to ensure reasonableness; however, the amounts we may ultimately realize could differ from such estimates.

Accounts Receivable and Straight Line Rent

Minimum rent, percentage rent, and expense recoveries from tenants for common area maintenance costs, insurance and real estate taxes are the Company's principal source of revenue. As a result of generating this revenue, we will routinely have accounts receivable due from tenants. We are subject to tenant defaults and bankruptcies that may affect the collection of outstanding receivables. To address the collectability of these receivables, we analyze historical tenant collection rates, write-off experience, tenant credit-worthiness and current economic trends when evaluating the adequacy of our allowance for doubtful accounts and straight line rent reserve. Although we estimate uncollectible receivables and provide for them through charges against income, actual experience may differ from those estimates.

Real Estate Investments

Acquisition of Real Estate Investments

Upon acquisition of real estate operating properties, the Company estimates the fair value of acquired tangible assets (consisting of land, building, building improvements and tenant improvements) and identified intangible assets and liabilities (consisting of above and below-market leases and in-place leases), assumed debt, and any noncontrolling interest in the acquiree at the date of acquisition, based on evaluation of information and estimates available at that date. Based on these estimates, the Company allocates the estimated fair value to the applicable assets and liabilities. Fair value is determined based on an exit price approach, which contemplates the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If, up to one year from the acquisition date, information regarding fair value of the assets acquired and liabilities assumed is received and estimates are refined, appropriate adjustments are made to the purchase price allocation on a retrospective basis. The Company expenses transaction costs associated with business combinations in the period incurred.

We strategically co-invest with partners to own, manage, acquire, develop and redevelop operating properties. We analyze our investments in real estate partnerships in order to determine whether the entity should be consolidated. If it is determined that these investments do not require consolidation because the entities are not variable interest entities (“VIEs”), we are not considered the primary beneficiary of the entities determined to be VIEs, we do not have voting control, and/or the limited partners (or non-managing members) have substantive kick-out or participation rights, then the selection of the accounting method used to account for our investments in real estate partnerships is generally determined by our voting interests and the degree of influence we have over the entity. Management uses its judgment when making these determinations. We use the equity method of accounting for investments in real estate partnerships when we own 20% or more of the voting interests and have significant influence but do not have a controlling financial interest, or if we own less than 20% of the voting interests but have determined that we have significant influence. Under the equity method, we record our investments in and advances to these entities as investments in real estate partnerships in our consolidated balance sheets, and our proportionate share of earnings or losses earned by the joint venture is recognized in equity in income (loss) of investments in real estate partnerships in our consolidated statements of operations.

Development of Real Estate Assets and Cost Capitalization

We capitalize the acquisition of land, the construction of buildings, and other specifically identifiable development costs incurred by recording them in properties in development in our accompanying Consolidated Balance Sheets. Other specifically identifiable development costs include pre-development costs essential to the development process, as well as, interest, real estate taxes, and direct employee costs incurred during the development period. Once a development property is substantially complete and held available for occupancy, these indirect costs are no longer capitalized.

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Pre-development costs are incurred prior to land acquisition during the due diligence phase and include contract deposits, legal, engineering, and other professional fees related to evaluating the feasibility of developing a shopping center. If we determine it is probable that a specific project undergoing due diligence will not be developed, we immediately expense all related capitalized pre-development costs not considered recoverable.

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Interest costs are capitalized to each development project based on applying our weighted average borrowing rate to that portion of the actual development costs expended. We cease interest cost capitalization when the property is no longer being developed or is available for occupancy upon substantial completion of tenant improvements, but in no event would we capitalize interest on the project beyond 12 months after the anchor opens for business. During the years ended December 31, 2016, 2015, and 2014, we capitalized interest of $3.5 million, $6.7 million, and $7.1 million, respectively, on our development projects.

•	Real estate taxes are capitalized to each development project over the same period as we capitalize interest.

•	We have a staff of employees who directly support our development program. All direct internal costs attributable to these development activities are capitalized as part of each development project. The capitalization of costs is directly

related to the actual level of development activity occurring. During the years ended December 31, 2016, 2015, and 2014, we capitalized $13.0 million, $13.8 million, and $16.1 million, respectively, of direct internal costs incurred to support our development program.

Valuation of Real Estate Investments

We evaluate whether there are any indicators that have occurred, including property operating performance and general market conditions, that would result in us determining that the carrying value of our real estate properties (including any related amortizable intangible assets or liabilities) may not be recoverable. If such indicators occur, we compare the current carrying value of the asset to the estimated undiscounted cash flows that are directly associated with the use and ultimate disposition of the asset. Our estimated cash flows are based on several key assumptions, including rental rates, costs of tenant improvements, leasing commissions, anticipated hold period, and assumptions regarding the residual value upon disposition, including the exit capitalization rate. These key assumptions are subjective in nature and the resulting impairment, if any, could differ from the actual gain or loss recognized upon ultimate sale in an arm's length transaction. If the carrying value of the asset exceeds the estimated undiscounted cash flows, an impairment loss is recognized equal to the excess of carrying value over fair value. Changes in our disposition strategy or changes in the marketplace may alter the hold period of an asset or asset group, which may result in an impairment loss and such loss could be material to the Company's financial condition or operating performance.

We evaluate our investments in real estate partnerships for impairment whenever there are indicators, including underlying property operating performance and general market conditions, that the value of our investments in real estate partnerships may be impaired. An investment in a real estate partnerships is considered impaired only if we determine that its fair value is less than the net carrying value of the investment in that real estate partnerships on an other-than-temporary basis. Cash flow projections for the investments consider property level factors, such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors. We consider various qualitative factors to determine if a decrease in the value of our investment is other-than-temporary. These factors include the age of the real estate partnerships, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity and relationships with our partners and banks. If we believe that the decline in the fair value of the investment is temporary, no impairment charge is recorded. If our analysis indicates that there is an other-than-temporary impairment related to the investment in a particular real estate partnership, the carrying value of the investment will be adjusted to an amount that reflects the estimated fair value of the investment.

The fair value of real estate investments is subjective and is determined through comparable sales information and other market data if available, or through use of an income approach such as the direct capitalization or the traditional discounted cash flow methods. Such cash flow projections consider factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors, and therefore are subject to management judgment and changes in those factors could impact the determination of fair value. In estimating the fair value of undeveloped land, we generally use market data and comparable sales information.

Derivative Instruments

The Company utilizes financial derivative instruments to manage risks associated with changing interest rates. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or future payment of known and uncertain cash amounts, the amount of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash payments principally related to the Company's borrowings. For additional information on the Company’s use and accounting for derivatives, see Notes 1 and 7 to the Consolidated Financial Statements.

The Company assesses effectiveness of our cash flow hedges both at inception and on an ongoing basis. The effective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recorded in other comprehensive income which is included in accumulated other comprehensive loss on our consolidated balance sheet and our consolidated statement of equity. Our cash flow hedges become ineffective if critical terms of the hedging instrument and the debt instrument do not perfectly match such as notional amounts, settlement dates, reset dates, calculation period and LIBOR rate. If a cash flow hedge is deemed ineffective, the ineffective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recognized in earnings in the period affected.

The fair value of the Company's interest rate derivatives is determined using widely accepted 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. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements.

Recent Accounting Pronouncements

See Note 1 to Consolidated Financial Statements.

Environmental Matters

We are subject to numerous environmental laws and regulations as they apply to our shopping centers pertaining to chemicals used by the dry cleaning industry, the existence of asbestos in older shopping centers, and underground petroleum storage tanks. We believe that the tenants who currently operate dry cleaning plants or gas stations do so in accordance with current laws and regulations. Generally, we use all legal means to cause tenants to remove dry cleaning plants from our shopping centers or convert them to more environmentally friendly systems. Where available, we have applied and been accepted into state-sponsored environmental programs. We have a blanket environmental insurance policy for third-party liabilities and remediation costs on shopping centers that currently have no known environmental contamination. We have also placed environmental insurance, where possible, on specific properties with known contamination, in order to mitigate our environmental risk. We monitor the shopping centers containing environmental issues and in certain cases voluntarily remediate the sites. We also have legal obligations to remediate certain sites and we are in the process of doing so.

As of December 31, 2016 we and our Investments in real estate partnerships had accrued liabilities of $8.9 million for our pro-rata share of environmental remediation. We believe that the ultimate disposition of currently known environmental matters will not have a material effect on our financial position, liquidity, or results of operations; however, we can give no assurance that existing environmental studies on our shopping centers have revealed all potential environmental liabilities; that any previous owner, occupant or tenant did not create any material environmental condition not known to us; that the current environmental condition of the shopping centers will not be affected by tenants and occupants, by the condition of nearby properties, or by unrelated third parties; or that changes in applicable environmental laws and regulations or their interpretation will not result in additional environmental liability to us.

Off-Balance Sheet Arrangements

We do not have off-balance sheet arrangements, financings, or other relationships with other unconsolidated entities (other than our unconsolidated investment partnerships) or other persons, also known as variable interest entities, not previously discussed. Our unconsolidated investment partnership properties have been financed with non-recourse loans. We have no guarantees related to these loans.

Inflation/Deflation

Inflation has been historically low and has had a minimal impact on the operating performance of our shopping centers; however, inflation may become a greater concern in the future. Substantially all of our long-term leases contain provisions designed to mitigate the adverse impact of inflation. Most of our leases require tenants to pay their pro-rata share of operating expenses, including common-area maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. In addition, many of our leases are for terms of less than ten years, which permits us to seek increased rents upon re-rental at market rates. However, during deflationary periods or periods of economic weakness, minimum rents and percentage rents will decline as the supply of available retail space exceeds demand and consumer spending declines. Occupancy declines resulting from a weak economic period will also likely result in lower recovery rates of our operating expenses.