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

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

Executing on our Strategy

We had Net income attributable to the Company of $239.4 million during the year ended December 31, 2019, as compared to $249.1 million during the year ended December 31, 2018.

We sustained same property NOI growth:

	•	We attained Pro-rata same property NOI growth, excluding termination fees, of 2.1%.

	•	We executed 1,702 leasing transactions representing 6.1 million Pro-rata SF of new and renewal leasing with trailing twelve month rent spreads of 8.5% on comparable retail operating property spaces.

	•	At December 31, 2019, our total property portfolio was 94.8% leased while our same property portfolio was 95.1% leased.

We continued our development and redevelopment of high quality shopping centers at attractive returns on investment:

	•	We started a new development representing a total Pro-rata investment of $27.3 million upon completion with a projected return on investment of 6.0%.

	•	We started 11 new redevelopments representing a total incremental Pro-rata investment of $237.2 million upon completion with a weighted average projected return on investment of 6.9%, including $74.7 million for two future phases at Serramonte Center.

	•	Including these projects, a total of 22 properties were in the process of development or redevelopment as of December 31, 2019 representing a Pro-rata investment upon completion of $350.8 million.

	•	We completed six new developments during 2019 representing a total Pro-rata investment of $223.2 million with a weighted average return on investment of 7.2%.

	•	We completed three new redevelopments during 2019 representing a total incremental Pro-rata investment of $7.6 million with a weighted average return on investment of 7.0%.

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

	•	On March 6, 2019, we issued $300.0 million of 4.65% senior unsecured public notes, which priced at 99.661%, and mature in March 2049. The net proceeds of the offering were used to repay in full our $250 million 4.8% notes due April 15, 2021, including a make-whole premium of approximately $9.6 million and accrued interest. The remaining proceeds were used toward repaying in full two mortgages for $52.7 million with interest rates ranging between 6.25% and 7.25%, including a repayment premium of $1.0 million.

	•	On August 13, 2019, we issued $425.0 million of 2.95% senior unsecured public notes, which priced at 99.903% and mature in September 2029. The net proceeds of the offering were used to repay in full our $300.0 million term loan that was due to mature in December 2020, including an interest rate swap breakage fee of approximately $1.1 million, and to reduce the outstanding balance on our Line.

	•	During September 2019, we entered into forward sale agreements under our ATM program through which we will issue 1,894,845 shares of common stock at an average offering price of $67.99. The shares under the forward sales agreements may be settled at any time before the required settlement date of September 12, 2020. Proceeds from the issuance of shares are expected to be used to fund acquisitions of operating properties, to fund developments and redevelopments, and for general corporate purposes. No shares have been settled through December 31, 2019.

	•	At December 31, 2019, our annualized net debt-to-operating EBITDAre 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:


% Leased – All properties	94.8	%	95.6	%
Anchor space	97.3	%	98.4	%
Shop space	90.6	%	90.9	%

The decline in both anchor and shop space percent leased is primarily attributable to bankruptcy filings.

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, 2019
	Leasing Transactions		SF (in thousands)		Base Rent PSF		Tenant Allowance and Landlord Work PSF		Leasing Commissions PSF (1)
Anchor Leases
New		32		633	$	20.78	$	48.64	$	4.88
Renewal		107		2,756		13.89		0.60		0.13
Total Anchor Leases		139		3,389	$	15.18	$	9.57	$	1.02
Shop Space
New		506		921	$	33.60	$	29.75	$	9.67
Renewal		1,057		1,819		33.59		1.04		0.61
Total Shop Space Leases		1,563		2,740	$	33.59	$	10.69	$	3.65
Total Leases		1,702		6,129	$	23.41	$	10.07	$	2.20

(1)	On January 1, 2019, the Company adopted ASC Topic 842, Leases, under which non-contingent internal leasing costs can no longer be capitalized.

	Year Ended December 31, 2018
	Leasing Transactions		SF (in thousands)		Base Rent PSF		Tenant Allowance and Landlord Work PSF		Leasing Commissions PSF
Anchor Leases
New		38		625	$	18.75	$	29.78	$	6.96
Renewal		99		2,886		15.18		0.60		0.35
Total Anchor Leases		137		3,511	$	15.82	$	5.79	$	1.52
Shop Space
New		519		890	$	33.05	$	28.17	$	13.86
Renewal		1,146		1,838		33.65		0.83		2.13
Total Shop Space Leases		1,665		2,728	$	33.45	$	9.75	$	5.96
Total Leases		1,802		6,239	$	23.53	$	7.52	$	3.46

Total weighted average base rent on signed shop space leases during 2019 was $33.59 PSF and exceeds the average annual base rent of all shop space leases due to expire during the next 12 months of $32.56 PSF. The increase in tenant allowance and landlord work committed on new anchor leases signed in 2019 is attributable to anchor deals that include costs to either convert units to a specialized use, deliver new GLA, or demise units to accommodate smaller tenant formats.

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, 2019
Anchor	Number of Stores		Percentage of Company- owned GLA (1)			Percentage of Annualized Base Rent (1)
Publix		68		6.4	%		3.2	%
Kroger Co.		56		6.7	%		3.0	%
Albertsons Companies, Inc.		46		4.3	%		2.8	%
TJX Companies, Inc.		62		3.1	%		2.4	%
Whole Foods		33		2.5	%		2.4	%

	(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 could negatively impact our tenants’ sales potentially resulting in large scale business failures, which could have an adverse effect on our results of operations. We seek to mitigate these potential impacts through tenant diversification, replacing 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 that are unable to withstand these and other business pressures, such as significant debt maturities, may file for bankruptcy. Although base rent is supported by long-term lease contracts, tenants filing for bankruptcy protection 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. For operating leases in which collectability of lease income is not probable, lease income is recognized on a cash basis and all previously recognized lease income is reversed in the period in which the lease income is determined not to be probable of collection. Additionally, we may incur significant expense to adjudicate our claim and to release the vacated space. In the event that a tenant with a significant amount of annualized base rent files bankruptcy and cancels its leases, we could experience a significant reduction in our revenues. Tenants who are currently in bankruptcy and continue to occupy space in our shopping centers at December 31, 2019, represent an aggregate of 0.6% of our annual base rent on a Pro-rata basis, which includes 0.5% for the 57,000 square foot Barneys’ space in New York. The Barneys’ lease is expected to terminate in February 2020.

Results from Operations

Comparison of the years ended December 31, 2019 and 2018:

Our revenues changed as summarized in the following table:

(in thousands)	2019
Lease income (1)	$	1,094,301	1,083,770	10,531
Other property income		9,201	8,711	490
Management, transaction, and other fees		29,636	28,494	1,142
Total revenues	$	1,133,138	1,120,975	12,163

	(1)	As discussed in Note 1 to the Consolidated Financial Statements, Regency adopted ASC Topic 842, Leases, using the modified retrospective adoption method as of January 1, 2019, and elected to apply the transition provisions of the standard at the beginning of the period of adoption. As such, the prior period amounts prepared and presented under the former ASC Topic 840, Leases, were not restated, but were reclassified to conform with the current year presentation. Part of the practical expedients in ASC Topic 842 allow management to avoid separating lease and non-lease components of Lease income, therefore all lease income earned pursuant to tenant leases, including recoveries from tenants and percentage rent, in 2019 and as reclassified for 2018 and 2017, is reflected in Lease income in the accompanying Consolidated Statements of Operations.

Lease income increased $10.5 million, driven by the following contractually billable components of rent from tenants per the lease agreements:

$12.6 million increase from billable Base rent, as follows:

	•	$12.4 million increase from rent commencing at development properties;

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

	•	$13.5 million net increase from same properties due to rental rate growth on new and renewal leases and rent steps in existing leases; reduced by

	•	$19.5 million decrease from the sale of operating properties.

$1.8 million increase from billable Recoveries from tenants, which represents amounts contractually billable to tenants per the terms of the lease for their reimbursement to us for the 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, on a net basis, as follows:

	•	$4.0 million increase from rent commencing at development properties; and

	•	$3.5 million increase from acquisitions of operating properties; reduced by

	•	$520,000 decrease from same properties, due to a net decrease in the amount of recoverable expenses; and

	•	$5.2 million decrease from the sale of operating properties.

$8.7 million decrease in Straight-line rent driven by a $4.8 million decrease for known or expected early lease terminations and a $3.9 million net decrease driven by timing of contractual rent steps.

$10.5 million increase in Above and below market rent accretion, as follows:

	•	$2.8 million increase primarily driven by accelerated below-market rent accretion for an early lease termination at a recently acquired property;

	•	$7.4 million increase from same properties primarily driven by $8.8 million of accelerated below-market rent accretion for expected early lease terminations; and

	•	$352,000 increase from the sale of operating properties, which had greater above market rent amortization in 2018.

$5.4 million decrease related to uncollectible lease income recorded as a direct charge against Lease income beginning on January 1, 2019, with the adoption of ASC 842, Leases. During the year ended December 31, 2018, uncollectible lease income of $5.0 million was recorded as Provision for doubtful accounts included in Other operating expenses below.

Management, transaction and other fees increased $1.1 million primarily due to an increase in development fees from projects within our unconsolidated partnerships.

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

(in thousands)	2019
Depreciation and amortization	$	374,283	359,688	14,595
Operating and maintenance		169,909	168,034	1,875
General and administrative		74,984	65,491	9,493
Real estate taxes		136,236	137,856	(1,620	)
Provision for doubtful accounts (1)		—	4,993	(4,993	)
Other operating expenses		7,814	4,744	3,070
Total operating expenses	$	763,226	740,806	22,420

	(1)	Beginning with the adoption of ASC 842, Leases, on January 1, 2019, uncollectible lease income is a direct charge against Lease income, which totaled $5.4 million during the year ended December 31, 2019.

Depreciation and amortization costs changed as follows:

	•	$5.8 million increase as we began depreciating costs at development properties where tenant spaces were completed and became available for occupancy;

	•	$8.9 million net increase from acquisitions of operating properties; and

	•	$10.6 million net increase at same properties, primarily attributable to additional depreciation at redevelopment properties; reduced by

	•	$10.7 million decrease from the sale of operating properties.

Operating and maintenance costs changed as follows:

	•	$3.6 million increase from operations commencing at development properties; and

	•	$1.9 million increase at same properties, primarily attributable to $2.7 million of increases in recoverable costs, offset by a reduction in termination fee expense; reduced by

	•	$3.7 million decrease from the sale of operating properties.

General and administrative changed as follows:

	•	$8.2 million increase due to eliminating capitalization of non-contingent internal leasing costs and legal costs associated with leasing activities upon the adoption of ASC 842, Leases, on January 1, 2019; and

	•	$6.3 million increase in the value of participant obligations within the deferred compensation plan; reduced by

	•	$3.4 million decrease from higher development overhead capitalization based on the timing and size of current development and redevelopment projects; and

	•	$1.6 million net decrease in compensation and other corporate overhead costs, primarily driven by lower incentive compensation.

Real estate taxes changed as follows:

	•	$2.7 million increase from development properties where capitalization ceased as tenant spaces became available for occupancy; and

	•	$1.9 million increase from acquisitions of operating properties; offset by

	•	$3.7 million decrease at same properties from successful tax appeals with refunds received in 2019 and 2018 including increases for post-merger tax reassessments; and

	•	$2.5 million decrease from the sale of operating properties.

Provision for doubtful accounts was $5.0 million during the year ended December 31, 2018. Beginning with the adoption of ASC 842, Leases, on January 1, 2019, uncollectible lease income is a direct charge against Lease income. The uncollectible lease income was $5.4 million during the year ended December 31, 2019, reflecting changes in collection expectations.

Other operating expenses increased $3.1 million, attributable to environmental remediation costs within our same properties and increased development pursuit costs.

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

(in thousands)	2019
Interest expense, net
Interest on notes payable	$	131,357		129,299		2,058
Interest on unsecured credit facilities		17,604		18,999		(1,395	)
Capitalized interest		(4,192	)	(7,020	)	2,828
Hedge expense		7,564		8,408		(844	)
Interest income		(1,069	)	(1,230	)	161
Interest expense, net		151,264		148,456		2,808
Provision for impairment		54,174		38,437		15,737
Gain on sale of real estate, net of tax		(24,242	)	(28,343	)	4,101
Early extinguishment of debt		11,982		11,172		810
Net investment (income) loss		(5,568	)	1,096		(6,664	)
Total other expense (income)	$	187,610		170,818		16,792

The $2.8 million net increase in total interest expense is primarily due to:

	•	$2.1 million net increase in interest on notes payable due to additional unsecured debt offerings to fund the repayment of our $300.0 million term loan and several mortgages;

	•	$2.8 million increase from lower capitalization of interest based on the size and progress of development and redevelopment projects in process; reduced by

	•	$1.4 million decrease in interest on unsecured credit facilities due to repayment of our $300 million term loan in August 2019; and

	•	$0.7 million decrease as a result of a previously settled forward hedge for a ten year unsecured note issuance fully amortizing in early 2019.

During 2019, we recognized $54.2 million of impairment losses, including $3.1 million of goodwill impairment, on six operating properties, three of which have been sold. During 2018, we recognized $38.4 million of impairment losses, including $12.6 million of goodwill impairment, on ten operating properties and two land parcels, all of which have sold. One of the remaining three properties that was impaired in 2019 is our 101 7th Avenue center in New York, which was occupied by a single retail tenant, Barneys, who filed bankruptcy and is expected to terminate their lease in February 2020. As a result, management reassessed the expected hold period of the property as well as its highest and best use, resulting in a $40.3 million impairment loss to reduce the carrying value to its estimated fair value.

During 2019, we sold five operating properties and six land parcels for gains totaling $24.2 million. During 2018, we sold six operating properties and seven land parcels for gains totaling $28.3 million.

Net investment income increased $6.7 million, driven by valuation changes in the stock market, primarily attributable to investments held within the non-qualified deferred compensation plan.

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

(in thousands)	Regency's Ownership	2019			2018
GRI - Regency, LLC (GRIR)	40.00%	$	43,536		$	29,614	13,922
Equity One JV Portfolio LLC (NYC)	30.00%		(9,967	)		490	(10,457	)
Columbia Regency Retail Partners, LLC (Columbia I)	20.00%		1,626			1,311	315
Columbia Regency Partners II, LLC (Columbia II)	20.00%		1,748			4,673	(2,925	)
Cameron Village, LLC (Cameron)	30.00%		1,062			943	119
RegCal, LLC (RegCal)	25.00%		3,796			1,542	2,254
US Regency Retail I, LLC (USAA)	20.01%		1,028			937	91
Other investments in real estate partnerships	9.375% - 50.00%		18,127			3,464	14,663
Total equity in income of investments in real estate partnerships		$	60,956		$	42,974	17,982

The $18.0 million increase in total Equity in income in investments in real estate partnerships is attributed to:

	•	$13.9 million increase within GRIR primarily due to our share of gains on the sale of two operating properties;

	•	$10.5 million decrease within NYC due to a provision for impairments of real estate resulting from changes in the expected hold periods of various properties;

	•	$2.9 million decrease within Columbia II due to our share of 2018 gain on the sale of an operating property;

	•	$2.3 million increase within RegCal due to our share of 2019 gains on the sale of one operating property; and

	•	$14.7 million increase in Other investments in real estate partnerships due to the sale of our ownership interest in a single operating property partnership.

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

(in thousands)	2019
Income from operations	$	243,258		252,325		(9,067	)
Income attributable to noncontrolling interests		(3,828	)	(3,198	)	(630	)
Net income attributable to common stockholders	$	239,430		249,127		(9,697	)
Net income attributable to exchangeable operating partnership units		634		525		109
Net income attributable to common unit holders	$	240,064		249,652		(9,588	)

Comparison of the years ended December 31, 2018 and 2017:

For a comparison of our results from operations for the years ended December 31, 2018 and 2017, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 21, 2019.

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 our operating results. We provide Pro-rata financial information because we believe it assists investors and analysts in estimating our economic interest in our consolidated and unconsolidated partnerships, when read in conjunction with the Company’s reported results under GAAP. We believe presenting our Pro-rata share of operating results, 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:

Our Pro-rata same property NOI changed as follows:

(in thousands)	2019
Base rent (1)	$	836,641		821,405	15,236
Recoveries from tenants (1)		265,784		265,604	180
Percentage rent (1)		8,211		8,231	(20	)
Termination fees (1)		3,416		3,040	376
Uncollectible lease income (2)		(4,449	)	—	(4,449	)
Other lease income (1)		10,403		10,143	260
Other property income		7,579		7,463	116
Total real estate revenue		1,127,585		1,115,886	11,699
Operating and maintenance		166,899		163,313	3,586
Termination expense		520		1,700	(1,180	)
Real estate taxes		144,187		147,711	(3,524	)
Ground rent		7,836		8,297	(461	)
Provision for doubtful accounts (2)		—		4,631	(4,631	)
Total real estate operating expenses		319,442		325,652	(6,210	)
Pro-rata same property NOI	$	808,143		790,234	17,909
Less: Termination fees		2,896		1,340	1,556
Pro-rata same property NOI, excluding termination fees	$	805,247		788,894	16,353
Pro-rata same property NOI growth, excluding termination fees					2.1	%

	(1)	Represents amounts included within Lease income, in the accompanying Consolidated Statements of Operations and further discussed in Note 1, that are contractually billable to the tenant per the terms of the lease agreements.

	(2)	Beginning with the adoption of ASC 842, Leases, on January 1, 2019, uncollectible lease income is a direct charge against Lease income. Provision for doubtful accounts was included in Total real estate operating expenses during the year ended December 31, 2018.

Billable Base rent increased $15.2 million, driven by increases in rental rate growth on new and renewal leases and contractual rent steps in existing leases, partially offset by a decline in rent paying occupancy.

Operating and maintenance costs increased $3.6 million due to increases in recoverable costs, including insurance, security, and property maintenance, offset by decreases in snow removal costs.

Termination expense decreased $1.2 million due to more significant costs in 2018 to terminate specific tenant leases.

Real estate taxes decreased $3.5 million due to successful supplemental tax appeal receipts at certain properties in 2019. In addition, 2018 included higher real estate tax expense related to supplemental tax bills received from the 2017 merger with Equity One.

Same Property Rollforward:

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

	2019						2018
(GLA in thousands)	Property Count			GLA			Property Count			GLA
Beginning same property count		399			40,866			395			40,601
Acquired properties owned for entirety of comparable periods		6			415			7			917
Completed developments that feature two years of anchor operations		3			358			8			512
Disposed properties		(11	)		(1,204	)		(11	)		(1,178	)
SF adjustments (1)		—			194			—			14
Property materially damaged by a natural disaster		(1	)		(104	)		—			—
Ending same property count		396			40,525			399			40,866

	(1)	SF adjustments arise from remeasurements or redevelopments.

NAREIT FFO:

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

(in thousands, except share information)	2019
Reconciliation of Net income to NAREIT FFO
Net income attributable to common stockholders	$	239,430		249,127
Adjustments to reconcile to NAREIT FFO: (1)
Depreciation and amortization (excluding FF&E)		402,888		390,603
Provision for impairment to operating properties		65,074		37,895
Gain on sale of operating properties, net of tax		(52,958	)	(25,293	)
Gain on sale of land, net of tax (2)		(706	)	—
Exchangeable operating partnership units		634		525
NAREIT FFO attributable to common stock and unit holders	$	654,362		652,857

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

	(2)	Effective January 1, 2019, Regency prospectively adopted the NAREIT FFO White Paper – 2018 Restatement, and elected the option of excluding gains on sales and impairments of land, which are considered incidental to the Company’s main business. Prior period amounts were not restated to conform to the current year presentation of NAREIT FFO, and therefore 2018 includes $6.7 million of gains on sale of land and $542,000 of provision for impairment to land.

Reconciliation of Same Property NOI to Nearest GAAP Measure:

Our reconciliation of Net income attributable to common stockholders to Same Property NOI, on a Pro-rata basis, is as follows:

(in thousands)	2019			2018
Net income attributable to common stockholders	$	239,430			249,127
Less:
Management, transaction, and other fees		29,636			28,494
Other (1)		58,904			56,906
Plus:
Depreciation and amortization		374,283			359,688
General and administrative		74,984			65,491
Other operating expense, excluding provision for doubtful accounts (2)		7,814			4,744
Other expense (income)		187,610			170,818
Equity in income of investments in real estate excluded from NOI (3)		39,807			56,680
Net income attributable to noncontrolling interests		3,828			3,198
Pro-rata NOI		839,216			824,346
Less non-same property NOI (4)		(31,073	)		(34,112	)
Pro-rata same property NOI	$	808,143		$	790,234

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

	(2)	Provision for doubtful accounts is applicable only to 2018 amounts. Beginning January 1, 2019, with the adoption of Topic 842, Leases, uncollectible amounts are presented net within Lease income.

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

	(4)	Includes revenues and expenses attributable to non-same property, sold property, development properties, corporate activities, and noncontrolling interests.

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 $500 million of unsecured public and private placement debt, 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 of the $500 million of outstanding debt of our Parent Company. 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 our $113.0 million of unrestricted cash at December 31, 2019, we have the following additional sources of capital available:

(in thousands)	December 31, 2019
ATM equity program (see note 11 to our Consolidated Financial Statements)
Original offering amount	$	500,000
Available capacity (1)	$	371,171
Line of Credit (the "Line") (see note 8 to our Consolidated Financial Statements)
Total commitment amount	$	1,250,000
Available capacity (2)	$	1,017,510
Maturity (3)	March 23, 2022

	(1)	We have 1,894,845 shares pledged under a Forward Equity Offering that must settle by September 12, 2020 at an average offering price of $67.99 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.

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 $0.595 per share, payable on March 5, 2020, to shareholders of record as of February 24, 2020. 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.

We expect to generate sufficient cash flow from operations to fund our dividend distributions. We generated cash flow from operations of approximately $621.3 million and $610.3 million for the years ended December 31, 2019 and 2018, respectively. We paid $391.6 million and $376.8 million to our common stock and unit holders for the years ended December 31, 2019 and 2018, respectively.

We estimate that we will require capital during the next twelve months of approximately $391.2 million to fund construction and related costs for in-process developments and redevelopments, to repay maturing debt, and to make capital contributions to our co-investment partnerships. We expect to generate the necessary cash to fund our capital needs from future cash flow from operations after dividends paid, borrowings from our Line, proceeds from the sale of real estate, and when the capital markets are favorable, proceeds from the sale of equity or the issuance of new debt.

If we start new developments or redevelopments, commit to new acquisitions, prepay debt prior to maturity, or repurchase shares of our common stock, our cash requirements will increase. In addition, at December 31, 2019, we had an agreement related to our ownership interest in the Town and Country Center in Los Angeles, CA, to purchase an additional 16.62% ownership interest in this center for approximately $18.1 million. We closed on the purchase in January 2020.

We endeavor to maintain a high percentage of unencumbered assets. As of December 31, 2019, 88.6% 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 Fixed charge coverage ratio, including our Pro-rata share of our partnerships, was 4.3 times and 4.2 times for the periods ended December 31, 2019 and 2018, respectively.

Our Line, Term Loan, and unsecured debt require that we remain in compliance with various covenants, which are described in note 9 to the Consolidated Financial Statements. We are in compliance with these covenants at December 31, 2019, 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)	2019			2018
Net cash provided by operating activities	$	621,271			610,327		10,944
Net cash used in investing activities		(282,693	)		(106,024	)	(176,669	)
Net cash used in financing activities		(268,206	)		(508,494	)	240,288
Net increase (decrease) in cash, cash equivalents, and restricted cash		70,372			(4,191	)	74,563
Total cash, cash equivalents, and restricted cash	$	115,562		$	45,190		70,372

Net cash provided by operating activities:

Net cash provided by operating activities increased by $10.9 million due to:

	•	$2.0 million increase in operating cash flow distributions from our unconsolidated real estate partnerships; and,

	•	$17.1 million net increase in cash due to timing of cash receipts and payments related to operating activities; offset by

	•	$1.3 million decrease in cash from operating income; and,

	•	$6.9 million decrease from cash paid to settle treasury rate locks in 2019 to hedge changes in interest rates on our 30 year fixed rate debt offering completed during 2019 and to settle an interest rate swap on the repayment of our $300 million term loan during 2019.

Net cash used in investing activities:

Net cash used in investing activities changed by $176.7 million as follows:

(in thousands)	2019
Cash flows from investing activities:
Acquisition of operating real estate	$	(222,444	)	(85,289	)	(137,155	)
Advance deposits paid toward the acquisition of operating real estate		(125	)	—		(125	)
Real estate development and capital improvements		(200,012	)	(226,191	)	26,179
Proceeds from sale of real estate investments		137,572		250,445		(112,873	)
Proceeds from property insurance casualty claims		9,350		—		9,350
(Issuance)/Collection of notes receivable		(547	)	15,648		(16,195	)
Investments in real estate partnerships		(66,921	)	(74,238	)	7,317
Return of capital from investments in real estate partnerships		63,693		14,647		49,046
Dividends on investment securities		660		531		129
Acquisition of investment securities		(23,458	)	(23,164	)	(294	)
Proceeds from sale of investment securities		19,539		21,587		(2,048	)
Net cash used in investing activities	$	(282,693	)	(106,024	)	(176,669	)

Significant investing and divesting activities included:

	•	We acquired four operating properties for $222.4 million during 2019 and three operating properties for $85.3 million during 2018.

	•	We invested $26.2 million less in 2019 than 2018 on real estate development, redevelopment, and capital improvements, as further detailed in a table below.

	•	We received proceeds of $137.6 million from the sale of seven shopping centers and six land parcels in 2019, compared to $250.4 million for ten shopping centers and nine land parcels in 2018.

	•	We received property insurance claim proceeds of $9.4 million during 2019 attributable to a single property that was severely damaged by a tornado in the current year.

	•	We received $15.6 million upon the collection of two notes in 2018.

	•	We invested $66.9 million in our real estate partnerships during 2019, including:

	o	$44.3 million to fund our share of development and redevelopment activities,

	o	$9.7 million to fund our share of acquiring an additional equity interest in one partnership,

	o	$8.2 million to fund our share of acquiring land under one shopping center that was previously under a ground lease, and

	o	$4.7 million to fund our share of repayments for maturing debt.

During the same period in 2018, we invested $74.2 million in our real estate partnerships, including:

	o	$48.8 million to fund our share of acquiring four operating properties,

	o	$21.9 million to fund our share of development and redevelopment activities,

	o	$1.3 million to acquire an interest in one land parcel for development, and

	o	$2.2 million to fund our share of maturing debt.

	•	Distributions from our unconsolidated real estate partnerships include return of capital from sales or financing proceeds. The $63.7 million received in 2019 is driven by the sale of three operating properties, the sale of our ownership interest in a single operating property partnership, and our share of proceeds from debt financing activities. During the same period in 2018, we received $14.6 million from the sale of one land parcel and one operating property plus our share of proceeds from debt financing activities.

	•	Dividends on securities, acquisition of securities, and proceeds from sale of securities pertain to investment activities 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. During 2019, we deployed capital of $200.0 million for the development, redevelopment, and improvement of our real estate properties as comprised of the following:

(in thousands)	2019
Capital expenditures:
Land acquisitions for development / redevelopment	$	5,206	2,787	2,419
Building and tenant improvements		62,012	68,463	(6,451	)
Redevelopment costs		70,854	51,351	19,503
Development costs		47,699	86,800	(39,101	)
Capitalized interest		2,870	6,303	(3,433	)
Capitalized direct compensation		11,371	10,487	884
Real estate development and capital improvements	$	200,012	226,191	(26,179	)

	•	During 2019, we acquired two land parcels for new development and redevelopment projects as compared to three land parcels during 2018.

	•	Building and tenant improvements decreased $6.5 million during the year ended December 31, 2019, primarily related to the timing of capital projects.

	•	Redevelopment expenditures were higher during 2019 due to the timing, magnitude, and number of projects in process. We intend to continuously improve our portfolio of shopping centers through redevelopment which can include adjacent land acquisition, existing building expansion, façade renovations, new out-parcel building construction, and redevelopment related tenant improvement costs. The size and magnitude of each redevelopment project varies with each redevelopment plan. The timing and duration of these projects, which generally includes tenant vacancies before and during the redevelopment, could also result in volatility in NOI. See the tables below for more details about our redevelopment projects.

	•	Development expenditures were lower in 2019 based on the progress towards completion of our development projects in process. At December 31, 2019 and 2018, we had three and six consolidated 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 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 program, which includes redevelopment of our existing properties. We currently expect that our development and redevelopment activities will approximate our recent historical averages, although the amount of activity by type will vary. Internal compensation costs directly attributable to these activities are capitalized as part of each project. Changes in the level of future development activity could adversely impact results of operations by reducing the amount of internal costs for development projects that may be capitalized. A 10% reduction in either development or redevelopment activity without a corresponding reduction in related compensation costs could result in an additional charge to net income of $1.5 million per year.

The following table summarizes our development projects:

(in thousands, except cost PSF)					December 31, 2019
Property Name	Market	Ownership %	Start Date	Estimated / Actual Project Completion	Estimated / Actual Net Development Costs (1) (2)		GLA (2)		Cost PSF of GLA (1) (2)		% of Costs Incurred (1)

Developments In-Process
Carytown Exchange	Richmond, VA	64%	Q4-18	2021	$	26,860		74	$	362		31	%
Culver Public Market	Los Angeles, CA	100%	Q2-19	2020		27,313		27		1,012		18	%
The Village at Hunter's Lake	Tampa, FL	100%	Q4-18	2020		22,056		72		306		58	%
Total Developments In-Process					$	76,229		173	$	440		34	%

Developments Completed
Indigo Square	Charleston, SC	100%		Q2-19	$	17,111		51	$	336
Mellody Farm	Chicago, IL	100%		Q4-19		104,213		259		402
Pinecrest Place (3)	Miami, FL	100%		Q4-19		16,367		70		234
The Village at Riverstone	Houston, TX	100%		Q4-19		29,884		167		179
Midtown East	Raleigh, NC	50%		Q3-19		23,115		79		293
Ballard Blocks II	Seattle, WA	49.9%		Q4-19		32,487		57		570
Total Developments Completed					$	223,177		683	$	327

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

(2)	Estimated Net Development Costs and GLA reported based on Regency’s ownership interest in the partnership at project completion.

(3)	Estimated Net Development Costs for Pinecrest Place exclude the cost of land, which the Company has leased long term.

The following table summarizes our redevelopment projects:

(in thousands, except cost PSF)					December 31, 2019
Property Name	Market	Ownership %	Start Date	Estimated / Actual Project Completion	Estimated Incremental Project Costs (1)		GLA		% of Costs Incurred (1)

Redevelopments In-Process
West Bird Plaza	Miami, FL	100%	Q4-19	2021	$	10,338		99		4	%
Sheridan Plaza	Hollywood, FL	100%	Q3-19	2020		14,302		506		5	%
Tech Ridge	Austin, TX	100%	Q1-19	2020		7,739		215		83	%
Point 50	Metro, DC	100%	Q4-18	2020		17,522		48		44	%
Pablo Plaza Ph II	Jacksonville, FL	100%	Q4-18	2020		14,627		161		67	%
Bloomingdale	Tampa, FL	100%	Q3-18	2020		19,904		254		76	%
Serramonte - Ph I	San Francisco, CA	100%	Q4-19	2021		54,072		1,140		4	%
The Abbot	Boston, MA	100%	Q2-19	2021		52,342		65		20	%
Market Common Clarendon	Metro, DC	100%	Q4-18	2021		54,241		422		32	%
Various Properties	Various	20-100%	Various	Various		29,440		1,604		42	%
Total Redevelopments In-Process					$	274,527		4,514		26	%

Redevelopments Completed
Various	Various	40%-100%	Various	Various	$	7,548		379

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

Net cash used in financing activities:

Net cash flows used in financing activities changed during 2019, as follows:

(in thousands)	2019
Cash flows from financing activities:
Repurchase of common shares in conjunction with equity award plans	$	(6,204	)	(6,772	)	568
Common shares repurchased through share repurchase program		(32,778	)	(213,851	)	181,073
Distributions to limited partners in consolidated partnerships, net		(3,367	)	(4,526	)	1,159
Dividend payments and operating partnership distributions		(391,649	)	(376,755	)	(14,894	)
Proceeds from unsecured credit facilities, net		75,000		85,000		(10,000	)
Proceeds from debt issuance		723,571		301,251		422,320
Debt repayment, including early redemption costs		(625,769	)	(283,492	)	(342,277	)
Payment of loan costs		(7,019	)	(9,448	)	2,429
Proceeds from sale of treasury stock, net		9		99		(90	)
Net cash used in financing activities	$	(268,206	)	(508,494	)	240,288

Significant financing activities during the years ended December 31, 2019 and 2018 include the following:

	•	We repurchased for cash a portion of the common stock granted to employees for stock based compensation to satisfy employee tax withholding requirements, which totaled $6.2 million and $6.8 million during the years ended December 31, 2019 and 2018.

	•	We paid $32.8 million to repurchase 563,229 common shares through our prior share repurchase program that were executed in December 2018 but not settled until January 2019. During 2018, we paid $213.9 million to repurchase 3,689,104 common shares through our repurchase program.

	•	Net distributions to limited partners in consolidated partnerships decreased by $1.2 million primarily due to contributions made by a new limited partner during 2019.

	•	We paid $14.9 million more in dividends during 2019 as a result of an increase in our dividend rate from $2.22 per share during 2018 to $2.34 per share during 2019, partially offset by the reduced shares outstanding during 2019 resulting from our common stock repurchases executed during 2018.

	•	We had the following debt related activity during 2019:

	o	We borrowed, net of repayments, an additional $75.0 million on our Line.

	o	We received total proceeds of $723.6 million upon the issuance of two senior unsecured public note offerings during 2019.

	o	We paid $624.7 million for other debt repayments, including:

	▪	$259.6 million to redeem our senior unsecured public notes originally due April 2021;

	▪	$300 million for repayment of a term loan originally due December 2020;

	▪	$53.7 million to repay two mortgages; and

	▪	$12.4 million in principal mortgage payments.

	o	We paid $7.0 million of loan costs in connection with our two public note offerings above.

	•	We had the following debt related activity during 2018:

	o	We borrowed, net of payments, an additional $85.0 million on our Line.

	o	We received proceeds of $301.3 million from debt issuances, including $299.5 million of senior unsecured public notes and $1.7 million from construction loan draws used to fund an in-process development project.

	o	We paid $283.5 million for other debt payments, including $160.5 million to early redeem our senior unsecured public notes originally due June 2020, $113 million to repay four mortgages, and $10 million in scheduled principal mortgage payments.

	o	We paid $9.4 million of loan costs in connection with our public note offering above and expanding our Line commitment.

Contractual Obligations

We have debt obligations related to our mortgage loans, unsecured notes, unsecured credit facilities, interest rate swap obligations, and lease agreements as described further below and in note 7, note 9, and note 10 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, 2019, we had a contractual commitment to purchase an additional 16.62% ownership interest in our Town and Country shopping center, bringing our ownership interest to 35%. We closed on the purchase in January 2020 for $18.1 million.

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, 2019, 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 $12.5 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 14 to the Consolidated Financial Statements.

	Payments Due by Period
(in thousands)	2020			2021			2022		2023		2024		Beyond 5 Years		Total
Notes payable:
Regency (1)	$	193,307			226,724			930,099		184,038		452,878		3,530,677	$	5,517,723
Regency's share of joint ventures (1) (2)		136,916			119,294			80,189		73,499		20,617		176,850		607,365
Operating leases:
Regency - office leases		5,152			4,149			3,188		2,410		1,939		4,404		21,242
Subleases:
Regency - office leases		(614	)		(309	)		—		—		—		—		(923	)
Ground leases:
Regency		10,697			10,671			10,698		10,915		10,964		553,116		607,061
Regency's share of joint ventures		278			278			278		278		1,206		9,917		12,235
Purchase commitment		18,100			—			—		—		—		—		18,100
Total	$	363,836			360,807			1,024,452		271,140		487,604		4,274,964		6,782,803

(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

Lease income, which includes base 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. Additionally, we recognize Lease income on a straight line basis over the term of the lease, which generally results in straight line rent receivable for future contractual rent steps.

Lease income for operating leases with fixed payment terms is recognized on a straight-line basis over the expected term of the lease for all leases for which collectibility is considered probable at the commencement date. At lease commencement, the Company generally expects that collectibility is probable due to the Company’s credit assessment of tenants and other creditworthiness analysis undertaken before entering into a new lease; therefore, income from most operating leases is initially recognized on a straight-line basis. For operating leases in which collectibility of Lease income is not considered probable, Lease income is recognized on a cash basis and all previously recognized uncollectible Lease income is reversed in the period in which the Lease income is determined not to be probable of collection. In addition to the lease-specific collectibility assessment performed under Topic 842, the Company also recognizes a general reserve, as a reduction to Lease income, for its portfolio of operating lease receivables which are not expected to be fully collectible based on the Company’s historical collection experience. 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. Transaction costs associated with asset acquisitions are capitalized, while such costs are expensed for business combinations in the period incurred. Beginning in July 2017, the Company adopted Accounting Standard Update 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, under which the acquisition of operating properties are generally considered asset acquisitions. If, however, the acquisition is determined to be a business combination, 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's methodology for determining fair value of the acquired tangible and intangible assets and liabilities includes estimating an “as-if vacant” fair value of the physical property, which includes land, building, and improvements. In addition, the Company determines the estimated fair value of identifiable intangible assets and liabilities, considering the following categories: (i) value of in-place leases, and (ii) above and below-market value of in-place leases.

The value of in-place leases is estimated based on the value associated with the costs avoided in originating leases compared to the acquired in-place leases as well as the value associated with lost rental and recovery revenue during the assumed lease-up period. The value of in-place leases is recorded to Depreciation and amortization expense in the Consolidated Statements of Operations over the remaining expected term of the respective leases.

Above-market and below-market in-place lease values for acquired properties are recorded based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management's estimate of fair market lease rates for comparable in-place leases, measured over a period equal to the remaining non-cancelable term of the lease, including below-market renewal options, if applicable. The value of above-market leases is amortized as a reduction of Lease income over the remaining terms of the respective leases and the value of below-market leases is accreted to Lease income over the remaining terms of the respective leases, including below-market renewal options, if applicable.

Changes to these assumptions could result in a different pattern of recognition. If tenants do not remain in their lease through the expected term or exercise an assumed renewal option, there could be a material impact to earnings.

Development and Redevelopment of Real Estate Assets and Cost Capitalization

We have a development program, which includes development of new shopping centers and redevelopment of our existing shopping centers. We capitalize the acquisition of land, the construction of buildings, and other specifically identifiable development costs incurred by recording them in Real estate assets, at cost, 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.

	•	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.

	•	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, 2019, 2018, and 2017, we capitalized interest of $4.2 million, $7.0 million, and $7.9 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 directly supporting our development and redevelopment 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, 2019, 2018, and 2017, we capitalized $20.4 million, $17.1 million, and $17.6 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, expected leasing activity, 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.

The fair value of real estate assets is subjective and is determined through comparable sales information and other market data if available, as well as the use of an income approach such as the direct capitalization method or the discounted cash flow approach. 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 is 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. 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 partnership 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, and the financial condition and long-term prospects of the entity. 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.

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, underground petroleum storage tanks, and other historic land use practices. 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 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, 2019, we and our Investments in real estate partnerships had accrued liabilities of $9.4 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. Many of our unconsolidated investment partnerships’ operating properties have been financed with non-recourse loans, to which we have no repayment guarantees.

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, base 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.

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