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

Executing on our Strategy

During the year ended 2017, we completed the merger with Equity One on March 1, 2017 and acquired 121 properties representing 16.0 million SF of GLA for $5.2 billion, further enhancing the quality of our operating portfolio of retail shopping centers. The consolidated net assets and results of operations of Equity One are included in the consolidated financial statements from the closing date, March 1, 2017.

We had Net income attributable to common stockholders of $159.9 million, net of $80.7 million of merger costs, as compared to $143.9 million of Net income attributable to common stockholders during the year ended December 31, 2016.

We sustained superior same property NOI growth compared to the average of our shopping center peers:

•	We achieved pro-rata same property NOI growth, excluding termination fees, of 3.6%.

•	We executed 1,849 leasing transactions representing 6.3 million pro-rata SF of new and renewal leasing, with trailing twelve month rent spreads of 7.8% on comparable retail operating property spaces.

•	At December 31, 2017, our total property portfolio was 95.5% leased, while our same property portfolio was 96.3% leased.

We developed and redeveloped high quality shopping centers at attractive returns on investment:

•	We started five new developments representing a total investment of $197.5 million upon completion, with projected weighted average returns on investment of 7.3%.

•	Including these new projects, a total of 23 properties were in the process of development or redevelopment at December 31, 2017, representing a pro-rata investment upon completion of $543.8 million.

We maintained a conservative balance sheet providing financial flexibility to cost effectively fund investment opportunities and debt maturities:

•	In January 2017, we issued $300.0 million of 4.4% senior unsecured notes due February 1, 2047, the proceeds of which were used to redeem all of the $250.0 million 6.625% Series 6 preferred stock and reduce the balance of our unsecured line of credit (the "Line").

•	On March 1, 2017 in conjunction with the merger with Equity One, we increased the commitment amount of our line to $1.0 billion.

•	In June 2017, we issued an additional $125.0 million of 4.4% senior unsecured notes due February 1, 2047, the proceeds of which were used to redeem the $75.0 million of 6.0% Series 7 preferred stock on August 23, 2017, and to reduce the Line balance.

•	Also in June 2017, the Company issued an additional $175.0 million of 3.6% senior unsecured public notes due in 2027, with proceeds used to retire $112.0 million of mortgage loans with interest rates ranging from 7.0% to 7.8% on various properties, and to reduce the Line balance.

•	At December 31, 2017, our annualized net debt-to-adjusted EBITDA ratio on a pro-rata basis was 5.4x.

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.

Pro-rata Occupancy

The following table summarizes pro-rata occupancy rates of our combined Consolidated and Unconsolidated shopping center portfolio:

		December 31, 2017		December 31, 2016
% Leased – Operating		96.2%		96.0%
Anchor space		98.3%		97.8%
Shop space		92.5%		93.1%

The decline in shop space percent leased is due to the merger with Equity One, which had lower shop space occupancy than Regency.

Pro-rata Leasing Activity

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

Year ended December 31, 2017
		Leasing Transactions (1)(3)		SF (in thousands)		Base Rent PSF (2)				Tenant Improvements PSF (2)				Leasing Commissions PSF (2)
Anchor Leases
New		39		895		$	17.34			$	9.71			$	4.92
Renewal		87		2,465		14.47				—				0.46
Total Anchor Leases		126		3,360		$	15.24			$	2.59			$	1.65
Shop Space
New		548		952		$	32.45			$	12.06			$	13.17
Renewal		1,175		2,005		31.31				1.02				2.40
Total Shop Space Leases		1,723		2,957		$	31.68			$	4.57			$	5.87
Total Leases		1,849		6,317		$	22.93			$	3.52			$	3.62
(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.
(3) For the period ending December 31, 2017, amounts include leasing activity of properties acquired from Equity One beginning March 1, 2017.

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
(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 pro-rata base rent on signed shop space leases during 2017 was $31.68 PSF and approximates the pro-rata average annual base rent of all shop space leases due to expire during the next twelve months of $31.72 PSF.

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 most significant tenants, based on their percentage of annualized base rent:

		December 31, 2017
Anchor		Number of Stores		Percentage of Company- owned GLA (1)		Percentage of Annualized Base Rent (1)
Publix		69		6.2%		3.1%
Kroger		58		6.5%		3.1%
Albertsons/Safeway		46		4.0%		2.9%
TJX Companies		58		3.2%		2.4%
Whole Foods		27		2.2%		2.3%
(1) 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 retail trends, consumer preferences, customer shopping behaviors, changes in retail delivery methods, and changing demographics in order to anticipate the challenges and opportunities impacting the retail industry. A greater shift to e-commerce, large-scale retail business failures, unemployment, and tight credit markets could negatively impact consumer spending and have an adverse effect on our results of operations. We seek to mitigate these potential impacts through tenant diversification, re-tenanting weaker tenants with stronger operators, anchoring our centers with market leading grocery stores that drive foot traffic, and maintaining a presence in affluent suburbs and dense infill trade areas. As a result of our research and findings, we may reduce new leasing, suspend leasing, or curtail allowances for 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.

We closely monitor the operating performance and rent collections of tenants in our shopping centers as well as those retailers experiencing significant changes to their business models as a result of reduced customer traffic in their stores and increased competition from e-commerce sales. Retailers who are unable to withstand these and other business pressures may file for 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. Any unsecured claim we hold against a bankrupt tenant for unpaid rent might be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims. As a result, it is likely that we would recover substantially less than the full value of any unsecured claims we hold. Additionally, we may incur significant expense to recover our claim and to release the vacated space. 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. Tenants who have filed for bankruptcy and continue to occupy space in our shopping centers represent an aggregate of 0.3% of our annual base rent on a pro-rata basis.

Results from Operations

Comparison of the years ended December 31, 2017 and 2016:

Results from operations for the twelve months ended December 31, 2017 reflect the results of our merger with Equity One on March 1, 2017.

Our total revenues increased as summarized in the following table:

(in thousands)		2017				2016			Change
Minimum rent		$	728,078			444,305			283,773
Percentage rent		6,635				4,128			2,507
Recoveries from tenants		206,675				127,677			78,998
Other income		16,780				12,934			3,846
Management, transaction, and other fees		26,158				25,327			831
Total revenues		$	984,326			614,371			369,955

Minimum rent changed as follows:

•	$7.2 million increase from development properties;

•	$5.2 million increase from acquisitions of operating properties;

•	$15.1 million increase at same properties reflecting an increase from rental rate growth on new and renewal leases, contractual rent steps, and our redevelopment properties; and

•	$261.4 million increase from properties acquired through the Equity One merger;

•	reduced by $5.2 million from the sale of operating properties.

Percentage rent increased $2.5 million primarily as a result of properties acquired through the Equity One merger.

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:

•	$1.7 million increase from rent commencing at development properties;

•	$1.9 million increase from acquisitions of operating properties;

•	$8.4 million increase from same properties associated with higher recoverable costs and an improvement in recovery rates; and

•	$68.6 million increase from properties acquired through the Equity One merger;

•	reduced by $1.7 million from the sale of operating properties.

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

•	$354,000 increase from development properties;

•	$1.0 million from acquisitions of operating properties; and

•	$3.9 million from properties acquired through the Equity One merger;

•	reduced by $1.4 million in same properties primarily due to other fee income in 2016.

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

(in thousands)		2017				2016			Change
Depreciation and amortization		$	334,201			162,327			171,874
Operating and maintenance		143,990				95,022			48,968
General and administrative		67,624				65,327			2,297
Real estate taxes		109,723				66,395			43,328
Other operating expenses		89,225				14,081			75,144
Total operating expenses		$	744,763			403,152			341,611

Depreciation and amortization costs changed as follows:

•	$2.8 million increase as we began depreciating costs at development properties where tenant spaces were completed and became available for occupancy;

•	$2.7 million increase from acquisitions of operating properties and corporate assets;

•	$2.2 million increase at same properties, attributable primarily to redevelopments; and

•	$165.9 million increase from properties acquired through the Equity One merger;

•	reduced by $1.8 million from the sale of operating properties.

Operating and maintenance costs changed as follows:

•	$1.4 million increase from operations commencing at development properties;

•	$1.5 million increase from acquisitions of operating properties;

•	$1.0 million net increase from claims losses within the company's wholly-owned captive insurance program;

•	$1.0 million increase at same properties primarily attributable to recoverable costs; and

•	$45.3 million increase from properties acquired through the Equity One merger;

•	reduced by $1.2 million from the sale of operating properties.

General and administrative changed increased as follows:

•	$2.2 million increase in the value of participant obligations within the deferred compensation plan, and

•	$4.6 million increase primarily in compensation costs related to additional staffing as a result of the Equity One merger, and additional incentive compensation;

•	reduced by $4.5 million primarily from greater development overhead capitalization based on the progress and size of current development and redevelopment projects.

Real estate taxes changed as follows:

•	$782,000 increase from development properties where capitalization ceased as tenant spaces became available for occupancy;

•	$1.3 million increase from acquisitions of operating properties;

•	$3.6 million increase at same properties from increased tax assessments; and

•	$38.6 million increase from properties acquired through the Equity One merger;

•	reduced by $1.0 million from sold properties.

Other operating expenses increased as follows:

•	$1.8 million increase in corporate expenses due to an increase in franchise taxes; and

•	$79.4 million increase primarily attributable to transaction costs related to the Equity One merger in March 2017;

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

(in thousands)		2017				2016			Change
Interest expense, net
Interest on notes payable		$	119,301			81,330			37,971
Interest on unsecured credit facilities		14,677				5,635			9,042
Capitalized interest		(7,946		)		(3,481	)		(4,465	)
Hedge expense		8,408				8,408			—
Interest income		(1,811		)		(1,180	)		(631	)
Interest expense, net		132,629				90,712			41,917
Provision for impairment		—				4,200			(4,200	)
Early extinguishment of debt		12,449				14,240			(1,791	)
Net investment income		(3,985		)		(1,672	)		(2,313	)
Loss on derivative instruments		—				40,586			(40,586	)
Total other expense (income)		$	141,093			148,066			(6,973	)

The $41.9 million net increase in total interest expense is due to:

•	$38.0 million increase in interest on notes payable due to:

◦	$26.0 million of additional interest on notes payable assumed with the Equity One merger; and

◦	$29.7 million increase in interest attributable to the issuance of $950 million of new unsecured debt;

◦	offset by $6.9 million decrease in mortgage interest expense primarily due to the payoff of nine mortgages loans; and

◦	$10.8 million decrease due to the early redemption of our $300 million notes in the third quarter of 2016;

•	$9.0 million increase in interest on unsecured credit facilities related to higher average balances including, a new $300 million term loan which closed on March 1, 2017;

•	offset by $4.5 million decrease from higher capitalization of interest based on the size and progress of development and redevelopment projects in process.

We did not recognize any impairments during 2017. During 2016, we recognized $4.2 million of impairment losses on two operating properties and two land parcels, all of which have since been sold.

During 2017, we repaid nine mortgages with a portion of the proceeds from our unsecured public debt offering in June 2017, and recognized $12.4 million of debt extinguishment costs. In 2016, we recognized a $14.2 million charge in connection with the early redemption of the $300 million unsecured notes.

Net investment income increased $2.3 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.

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

(in thousands)		Regency's Ownership		2017				2016			Change
GRI - Regency, LLC (GRIR)		40.00%		$	27,440			29,791			(2,351	)
Equity One JV Portfolio LLC (NYC)		30.00%		686				—			686
Columbia Regency Retail Partners, LLC (Columbia I)		20.00%		3,620				4,180			(560	)
Columbia Regency Partners II, LLC (Columbia II)		20.00%		1,530				3,240			(1,710	)
Cameron Village, LLC (Cameron)		30.00%		850				695			155
RegCal, LLC (RegCal)		25.00%		1,403				1,080			323
US Regency Retail I, LLC (USAA)		20.01%		4,456				1,180			3,276
Other investments in real estate partnerships		50.00%		3,356				16,352			(12,996	)
Total Equity in income of investments in real estate partnerships				$	43,341			56,518			(13,177	)

The $13.2 million decrease in our Total Equity in income in investments in real estate partnerships is largely attributed to:

•	$2.4 million decrease within GRIR driven by gains on sale of real estate that were recognized in 2016, offset by lower depreciation expense in 2017 related to assets that became fully depreciated in 2016;

•	$1.7 million decrease within Columbia II due to gains on sale of real estate that were recognized in 2016;

•	$3.3 million increase within USAA due to gains on sale of real estate recognized in 2017; and

•	$13.0 million decrease within Other investments in real estate partnerships due to our pro-rata share of gains on sale of real estate recognized in these partnerships in 2016.

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

(in thousands)		2017				2016			Change
Income from operations before income taxes		$	141,811			119,671			22,140
Deferred income tax benefit		9,737				—			9,737
Gain on sale of real estate, net of tax		27,432				47,321			(19,889	)
Income attributable to noncontrolling interests		(2,903		)		(2,070	)		(833	)
Preferred stock dividends and issuance costs		(16,128		)		(21,062	)		4,934
Net income attributable to common stockholders		$	159,949			143,860			16,089
Net income attributable to exchangeable operating partnership units		388				257			131
Net income attributable to common unit holders		$	160,337			144,117			16,220

The $9.7 million income tax benefit during 2017 was primarily due to revaluing the net deferred tax liability at a TRS entity acquired through the Equity One merger, as a result of the change in corporate tax rates from the 2017 Tax Cuts and Jobs Act.

During 2017, we sold six operating properties and nine land parcels resulting in gains of $27.4 million, compared to gains of $47.3 million from the sale of eleven operating properties and sixteen land parcels during 2016.

During 2017, we redeemed both our Series 6 and Series 7 preferred stock, resulting in a decrease to preferred stock dividends, offset by a charge upon writing off issuance costs.

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 changed as follows:

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

•	$15.3 million increase from 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 changed as follows:

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

•	$4.2 million increase from 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 changed 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 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 changed as follows:

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

•	$6.2 million increase from 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 changed as follows:

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

•	$2.8 million increase from 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 merger with 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, all of which 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 and issuance costs		(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 11 operating properties and 16 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.

Supplemental Earnings Information

We use certain non-GAAP performance measures, in addition to certain performance metrics determined under GAAP, 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. See "Defined Terms" in Part I, Item 1.

Pro-Rata Same Property NOI:

For purposes of evaluating same property NOI on a comparative basis, and in light of the merger with Equity One on March 1, 2017, we are presenting our same property NOI on a pro forma basis as if the merger had occurred January 1, 2016. This perspective allows us to evaluate same property NOI growth over a comparable period. The pro forma same property NOI as adjusted is not necessarily indicative of what the actual same property NOI and growth would have been if the merger had occurred on January 1, 2016, nor does it purport to represent the same property NOI and growth for future periods.

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

(in thousands)		2017				2016			Change
Base rent (1)		$	782,142			755,556			26,586
Percentage rent (1)		8,499				10,364			(1,865	)
Recovery revenue (1)		238,076				227,322			10,754
Other income (1)		14,019				15,026			(1,007	)
Operating expenses (1)		288,940				279,700			9,240
Pro-rata same property NOI, as adjusted		$	753,796			728,568			25,228
Less: Termination fees (1)		690				1,359			(669	)
Pro-rata same property NOI, as adjusted, excluding termination fees		$	753,106			727,209			25,897
Pro-rata same property NOI growth, as adjusted									3.6	%
(1) Adjusted for Equity One operating results prior to the merger for these periods. For additional information and details about the Equity One operating results included herein, refer to the Same Property NOI reconciliation at the end of the Supplemental Earnings section.

Base rent increased $26.6 million, driven by increases in rental rate growth on new and renewal leases, contractual rent steps and rent commencement at redevelopments.

Percentage rent decreased $1.9 million, as a result of lease negotiations to shift percentage rent into base rent upon renewal, coupled with decline in performance at certain historically larger percentage rent paying tenants.

Recovery revenue increased $10.8 million, as a result of increases in recoverable costs, as noted below, and improvements in recovery rates.

Other income decreased $1.0 million, due to a reduction in lease termination and other fee income.

Operating expenses increased $9.2 million, primarily due to higher real estate taxes from increases in assessed values.

Same Property Rollforward:

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

	2017					2016
(GLA in thousands)	Property Count		GLA			Property Count		GLA
Beginning same property count	289		26,392			300		26,508
Acquired properties owned for entirety of comparable periods	1		180			6		443
Developments that reached completion by beginning of earliest comparable period presented	2		331			2		342
Disposed properties	(7	)	(546	)		(19	)	(933	)
Properties acquired through Equity One merger	110		14,181			—		—
SF adjustments (1)	—		63			—		32
Ending same property count	395		40,601			289		26,392
(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)		2017				2016
Reconciliation of Net income to NAREIT FFO
Net income attributable to common stockholders		$	159,949			143,860
Adjustments to reconcile to NAREIT FFO: (1)
Depreciation and amortization (excluding FF&E)		364,908				193,451
Provision for impairment to operating properties		—				3,159
Gain on sale of operating properties, net of tax		(30,402		)		(63,426	)
Exchangeable operating partnership units		388				257
NAREIT FFO attributable to common stock and unit holders		$	494,843			277,301
Reconciliation of NAREIT FFO to Core FFO
NAREIT FFO attributable to common stock and unit holders		$	494,843			277,301
Adjustments to reconcile to Core FFO: (1)
Development pursuit costs		1,569				1,503
Deferred income tax benefit		(9,737		)		—
Acquisition pursuit and closing costs		138				2,007
Merger related costs		80,715				6,539
Gain on sale of land		(3,623		)		(8,769	)
Provision for impairment to land		—				580
(Gain) loss on derivative instruments and hedge ineffectiveness		(15		)		40,589
Loss on early extinguishment of debt		12,449				14,207
Preferred redemption charge		12,227				—
Merger related debt offering interest		975				—
Hurricane losses		2,596				—
Core FFO attributable to common stockholders		$	592,137			333,957
(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:

		2017										2016
(in thousands)		Same Property				Other (1)			Total			Same Property			Other (1)			Total
Net income attributable to common stockholders		$	340,455			(180,506	)		159,949			278,322			(134,462	)		143,860
Less:
Management, transaction, and other fees		—				26,158			26,158			—			25,327			25,327
Gain on sale of real estate, net of tax		—				27,432			27,432			—			47,321			47,321
Other (2)		33,935				13,422			47,357			5,849			10,295			16,144
Plus:
Depreciation and amortization		308,311				25,890			334,201			146,708			15,619			162,327
General and administrative		—				67,624			67,624			—			65,327			65,327
Other operating expense, excluding provision for doubtful accounts		906				74,590			75,496			1,966			10,410			12,376
Other expense (income)		44,745				96,348			141,093			28,335			119,731			148,066
Equity in income (loss) of investments in real estate excluded from NOI (3)		51,069				2,221			53,290			31,050			2,902			33,952
Net income attributable to noncontrolling interests		—				2,903			2,903			—			2,070			2,070
Preferred stock dividends and issuance costs		—				16,128			16,128			—			21,062			21,062
Same Property NOI for non-ownership periods of Equity One (4)		42,245				—			42,245			248,036			—			248,036
Pro-rata NOI, as adjusted		$	753,796			38,186			791,982			728,568			19,716			748,284
(1) Includes revenues and expenses attributable to non-same property, sold property, development properties, corporate activities, and noncontrolling interests.
(2) Includes straight-line rental income and expense, 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.
(4) NOI from Equity One prior to the merger was derived from the accounting records of Equity One without adjustment. Equity One's financial information for the period ended February 28, 2017 and the period ended December 31, 2016 was subject to a limited internal review by Regency. The table below provides Same Property NOI detail for the non-ownership periods of Equity One.

(in thousands)		Two Months Ended February 2017				Twelve Months Ended December 2016
Base rent		$	43,798			256,326
Percentage rent		1,143				5,143
Recovery revenue		13,889				79,651
Other income		611				3,647
Operating expenses		17,196				96,731
Pro-rata same property NOI, as adjusted		$	42,245			248,036
Less: Termination fees		30				135
Pro-rata same property NOI, as adjusted, excluding termination fees		$	42,215			247,901

Liquidity and Capital Resources

General

We use cash flows generated from operating, investing, and financing activities to strengthen our balance sheet, finance our development and redevelopment projects, fund our investment activities, 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.

Except for the $500 million of unsecured public and private placement debt assumed with the Equity One merger on March 1, 2017, our Parent Company has no capital commitments other than its guarantees of the commitments of our Operating Partnership. All remaining debt is held by our Operating Partnership or by our co-investment partnerships. The Operating Partnership is a co-issuer and a guarantor on the $500 million of outstanding debt of our Parent Company assumed in the Equity One merger. 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. 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 $45.4 million of cash, the Company has the following additional sources of capital available:

(in thousands)		December 31, 2017
ATM equity program (see note 10 to our Consolidated Financial Statements)
Original offering amount		$	500,000
Available capacity		$	500,000
Line of Credit (the "Line") (see note 7 to our Consolidated Financial STatements)
Total commitment amount		$	1,000,000
Available capacity (1)		$	930,600
Maturity (2)		May 13, 2019
(1) Net of letters of credit.
(2) 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 $328.3 million and $222.4 million for the years ended December 31, 2017 and 2016, respectively. We currently do not have any preferred shares issued and outstanding. 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 $0.555 per share, payable on March 2, 2018, to shareholders of record as of February 20, 2018. 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 $256.4 million of cash, including $238.0 million to complete in-process developments and redevelopments, $6.4 million to repay maturing debt, and $12.0 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, commit to new acquisitions, prepay debt prior to maturity, or repurchase shares of our common stock, our cash requirements will increase. If we refinance maturing debt, our cash requirements will decrease. To meet our cash requirements, we will 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 or the issuance of new long-term debt. In addition, we are under contract to purchase, through November 2019, up to 100% ownership interest in an operating shopping center valued at $205.0 million. We are currently expecting to be able to purchase a 30% ownership interest in the property by November 2019.

We endeavor to maintain a high percentage of unencumbered assets. As of December 31, 2017, 85.7% 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 annualized coverage ratio, including our pro-rata share of our partnerships, was 4.1 and 3.3 times for for the periods ended December 31, 2017 and 2016, respectively. We define our coverage ratio as earnings before

interest, taxes, investment transaction profits net of deal costs, depreciation and amortization (“ 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 Loans, and unsecured loans require that we remain in compliance with various covenants, which are described in note 7 to the Consolidated Financial Statements. We are in compliance with these covenants at December 31, 2017 and expect to remain in compliance.

Summary of Cash Flow Activity

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

(in thousands)		2017				2016			Change
Net cash provided by operating activities		$	471,146			297,360			173,786
Net cash used in investing activities		(1,007,980		)		(409,671	)		(598,309	)
Net cash provided by financing activities		568,948				88,711			480,237
Net increase (decrease) in cash and cash equivalents		32,114				(23,600	)		55,714
Total cash and cash equivalents		$	45,370			13,256			32,114

Net cash provided by operating activities:

Net cash provided by operating activities increased by $173.8 million due to:

•	$201.3 million increase in cash from operating income;

•	$3.1 million increase in operating cash flow distributions from our unconsolidated real estate partnerships; and, decreased by,

•	$30.7 million net decrease in cash due to timing of cash receipts and payments related to operating activities.

Net cash used in investing activities:

Net cash used in investing activities increased by $598.3 million as follows:

(in thousands)		2017				2016			Change
Cash flows from investing activities:
Acquisition of operating real estate		$	(124,727	)		(333,220	)		208,493
Costs paid in advance of real estate acquisitions		(4,917		)		(750	)		(4,167	)
Acquisition of Equity One, net of cash acquired of $72,534		(648,763		)		—			(648,763	)
Real estate development and capital improvements		(347,780		)		(234,598	)		(113,182	)
Proceeds from sale of real estate investments		112,161				135,269			(23,108	)
Issuance of notes receivable		(5,236		)		—			(5,236	)
Investments in real estate partnerships		(23,529		)		(37,879	)		14,350
Distributions received from investments in real estate partnerships		36,603				58,810			(22,207	)
Dividends on investment securities		365				330			35
Acquisition of securities		(23,535		)		(55,223	)		31,688
Proceeds from sale of securities		21,378				57,590			(36,212	)
Net cash used in investing activities		$	(1,007,980	)		(409,671	)		(598,309	)

Significant investing and divesting activities included:

•	Other than those included with the merger, we invested $124.7 million in 2017 to acquire two operating properties and two real estate parcels at existing operating properties, compared to three operating properties for $333.2 million during 2016.

•	We issued 65.5 million shares of common stock to the shareholders of Equity One valued at $4.5 billion in a stock for stock exchange and merged Equity One into the Company on March 1, 2017. As part of the merger, we paid $648.8 million, net of cash acquired, which was used by Equity One to repay its credit facilities not assumed by the Company with the merger.

•	We invested $113.2 million more in 2017 than 2016 on real estate development and capital improvements, as further detailed in a table below.

•	We received proceeds of $112.2 million from the sale of six shopping centers and nine land parcels in 2017, compared to $135.3 million for 11 shopping centers and 16 land parcels in 2016.

•	We invested $23.5 million in our real estate partnerships during 2017 to fund our share of maturing mortgage debt and development and redevelopment activities, compared to $37.9 million during the same period in 2016, which included contributions to fund the acquisition of an operating property.

•

Distributions from our unconsolidated real estate partnerships include return of capital from sales or financing proceeds. The $36.6 million received in 2017 is driven by the sale of three operating properties and one land parcel plus our share of proceeds from refinancing certain operating properties within the partnerships. During the same period in 2016, we received $58.8 million from the sale of ten shopping centers within the partnerships.

•	Acquisition of securities and proceeds from sale of securities pertain to investments held in our captive insurance company and our deferred compensation plan.

We plan to continue developing and redeveloping shopping centers for long-term investment purposes. We deployed capital of $347.8 million for the development, redevelopment, and improvement of our real estate properties as comprised of the following:

(in thousands)		2017				2016			Change
Capital expenditures:
Land acquisitions for development / redevelopment		$	26,688			26,938			(250	)
Building and tenant improvements		54,200				32,941			21,259
Redevelopment costs		133,597				51,226			82,371
Development costs		108,611				107,300			1,311
Capitalized interest		7,946				3,482			4,464
Capitalized direct compensation		16,738				12,711			4,027
Real estate development and capital improvements		$	347,780			234,598			113,182

•	During both 2017 and 2016 we acquired four land parcels for new development projects.

•	Building and tenant improvements increased $21.3 million during the year ended December 31, 2017 primarily related to the overall increase in the size of our portfolio from the merger with Equity One in March 2017.

•

Redevelopment expenditures were higher during 2017 due to the timing, magnitude, and number of projects currently in process, including projects acquired from Equity One. We intend to continuously improve our portfolio of shopping centers through redevelopment which can include adjacent land acquisition, existing building expansion, facade renovations, new out-parcel building construction, and tenant improvement costs. The size and scope of each redevelopment project varies with each redevelopment plan.

•	Development expenditures were higher in 2017 due to the progress towards completion of our development projects currently in process. At December 31, 2017 and 2016, we had nine and six development projects, respectively, that were either under construction or in lease up. See the tables below for more details about our 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.

•

We have a staff of employees who directly support our development and redevelopment programs. 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 development related compensation costs could result in an additional charge to net income of $1.8 million per year.

The following table summarizes our consolidated development projects:

December 31, 2017
(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)
Northgate Marketplace Ph II		Medford, OR		Q4-15		Oct-16		$	40,791			98	%		177			230
The Market at Springwoods Village (2)		Houston , TX		Q1-16		May-17		27,492				82	%		89			309
Chimney Rock Crossing		New York, NY		Q4-16		April-18		71,005				79	%		218			326
The Village at Riverstone		Houston, TX		Q4-16		Oct-18		30,658				50	%		165			186
The Field at Commonwealth		Metro DC		Q1-17		Aug-18		45,033				64	%		187			241
Pinecrest Place (3)		Miami, FL		Q1-17		Jan-18		16,427				21	%		70			235
Mellody Farm		Chicago, IL		Q2-17		Oct-18		97,399				39	%		252			387
Indigo Square		Charleston, SC		Q4-17		Feb-19		16,574				31	%		51			325
Total								$	345,379			58	%		1,209			$	286
(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%.
(3) Estimated Net Development Costs for Pinecrest Place excludes the cost of land, which the Company has leased long term.

The following table summarizes our pro-rata share of unconsolidated development projects. There were no unconsolidated development projects at December 31, 2016.

December 31, 2017
(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)
Midtown East		Raleigh, NC		Q4-17		July-19		$	22,015			35	%		87			$	253
(1) Includes leasing costs, and is net of tenant reimbursements.

The following table summarizes our completed consolidated development projects:

December 31, 2017
(in thousands, except cost PSF)
Property Name		Market		Completion Date		Net Development Costs (1)				GLA			Cost PSF GLA (1)
Willow Oaks Crossing		Charlotte, NC		Q1-17		$	13,991			69			$	203
The Village at Tustin Legacy		Los Angeles, CA		Q4-17		37,122				112			331
						$	51,113			181			$	282
(1) Includes leasing costs and is net of tenant reimbursements.

Net cash provided by financing activities:

Net cash flows generated from financing activities increased by $480.2 million during 2017, as follows:

(in thousands)		2017				2016			Change
Cash flows from financing activities:
Equity issuances		$	88,458			548,920			(460,462	)
Repurchase of common shares in conjunction with tax withholdings on equity award plans		(18,649		)		(7,984	)		(10,665	)
Preferred stock redemption		(325,000		)		—			(325,000	)
Distributions to limited partners in consolidated partnerships, net		(8,139		)		(4,213	)		(3,926	)
Dividend payments and operating partnership distributions		(328,314		)		(222,398	)		(105,916	)
Borrowings on unsecured credit facilities, net		345,000				115,000			230,000
Proceeds from debt issuance		1,084,184				53,446			1,030,738
Debt repayments		(255,421		)		(392,755	)		137,334
Payment of loan costs		(13,271		)		(2,233	)		(11,038	)
Proceeds from sale of treasury stock, net		100				928			(828	)
Net cash provided by financing activities		$	568,948			88,711			480,237

Significant financing activities during the years ended December 31, 2017 and 2016 include the following:

•	We raised $88.5 million during December 2017 upon settling the remaining 1,250,000 shares under the forward equity offering. We raised $548.9 million during 2016 by:

◦	issuing 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,

◦	issuing 1,850,000 shares under our forward equity offering at an average price of $74.32 per share resulting in proceeds of $137.5 million, and

◦	issuing 5,000,000 shares of common stock at $79.78 per share resulting in net proceeds of $400.1 million.

•	We repurchased for cash a portion of the common stock related to stock based compensation to satisfy employee federal and state tax withholding requirements. The repurchases increased $10.7 million in 2017 primarily due to the vesting of Equity One's stock based compensation program as a result of the merger.

•	We redeemed all of the issued and outstanding shares of our 6.625% Series 6 and 6.000% Series 7 cumulative redeemable preferred stock on February 16, 2017 and August 23, 2017, respectively, for $325.0 million.

•	Net distributions to consolidated partnerships increased $3.9 million primarily due to excess proceeds from property refinancings during 2017.

•	As a result of the shares of common stock issued during 2016 and common shares issued as merger consideration during 2017, combined with an increase in our quarterly dividend rate, our annual dividend payments increased $105.9 million.

•

During 2017 and 2016, we received proceeds of $300.0 million upon closing a new term loan and $100.0 million of proceeds upon expanding an existing term loan, respectively. The proceeds from the new term loan were used to repay a $300.0 million Equity One term loan that was not assumed in the merger and proceeds from the term loan expansion were used to fund acquisition activities. During 2017, we borrowed $45.0 million on our Line, net of repayments, compared to $15.0 million net borrowings in 2016.

•	We issued $1.1 billion of debt in 2017 related to the following activity:

◦	In January and June, we issued $650.0 million and $300.0 million of senior unsecured public notes, respectively. The notes were issued in two tranches of which $425.0 million is due in 2047 and $525.0 million is due in 2027. The January proceeds of $648.0 million were used to redeem all of

our $250.0 million Series 6 preferred stock and to fund consideration paid to Equity One to repay its credit facilities not assumed by the Company in the merger.

◦	A portion of the $300 million June bond offering proceeds were used to retire approximately $112.0 million of loans secured by mortgages with interest rates ranging from 7.0% to 7.8% on various properties and to reduce the outstanding balance on the Line. We used the remainder of the proceeds to redeem all of our $75.0 million Series 7 preferred stock in August and for general corporate purposes.

◦	Additionally, during 2017 we received proceeds of $122.5 million from mortgage loans and $8.6 million from development construction draws, all within consolidated real estate partnerships. During 2016, we received $53.4 million in mortgage proceeds upon encumbering two properties.

•	We paid $255.4 million to repay or refinance mortgage loans and to pay scheduled principal payments as compared to $392.8 million in 2016.

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 7 and note 15 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. We also have non-cancelable operating leases pertaining to office space from which we conduct our business. In addition, at December 31, 2017 we have a commitment to purchase up to 100% ownership interest in an operating property valued at $205.0 million by November 2019. Our current expectation is to acquire a 30% interest by that date, and is reflected accordingly in the following table.

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, 2017, and excludes the following:

•	Recorded debt premiums or discounts and issuance costs 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 $9.4 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 12 to the Consolidated Financial Statements.

		Payments Due by Period
(in thousands)		2018				2019			2020			2021			2022			Beyond 5 Years			Total
Notes payable:
Regency (1)		$	257,062			223,934			659,897			429,423			667,130			2,586,335			$	4,823,781
Regency's share of joint ventures (1) (2)		43,501				46,768			110,326			114,224			84,095			237,847			636,761
Operating leases:
Regency - office leases		4,744				4,860			4,573			3,684			2,798			8,155			28,814
Subleases:
Regency - office leases		(216		)		(221	)		(227	)		(115	)		—			—			(779		)
Ground leases:
Regency		9,738				10,690			10,432			10,338			10,251			473,817			525,266
Regency's share of joint ventures		385				391			392			392			392			18,321			20,273
Purchase commitment		—				60,000			—			—			—			—			60,000
Total		$	315,214			346,422			785,393			557,946			764,666			3,324,475			$	6,094,116
(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. Any excess consideration above the fair value allocated to the applicable assets and liabilities results in goodwill. 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. The Company expenses transaction costs associated with business combinations in the period incurred and capitalizes costs associated with asset acquisitions.

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 have significant influence but do not have a controlling financial interest. 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, 2017, 2016, and 2015, we capitalized interest of $7.9 million, $3.5 million, and $6.7 million, respectively, on our development projects.

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

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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, 2017, 2016, and 2015, we capitalized $17.6 million, $13.0 million, and $13.8 million, respectively, of direct internal costs incurred to support our development program.

Valuation of Real Estate Investments

In accordance with GAAP, we evaluate our real estate for impairment whenever there are indicators, including property operating performance and general market conditions, 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, comparable sales information, 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. In estimating the fair value of undeveloped land, we generally use market data and comparable sales information.

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.

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 8 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 expected discounted 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 primarily 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, 2017 we and our Investments in real estate partnerships had accrued liabilities of $9.9 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 near future. Most all of our long-term leases contain provisions designed to mitigate the adverse impact of inflation, which 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 will result in lower recovery rates of our operating expenses.