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

COVID-19 Pandemic

For a discussion of the COVID-19 pandemic, refer to Part I Item 1. Business.

Executing on our Strategy

During the year ended December 31, 2020, we had Net income attributable to common stockholders of $44.9 million, which includes the impacts of a $132.1 million Goodwill impairment charge and $117.0 million of uncollectible Lease income, as compared to Net income attributable to common stockholders of $239.4 million during the year ended December 31, 2019.

During the year ended December 31, 2020:

	•	Our Pro-rata same property NOI, excluding termination fees, declined 11.6%, primarily attributable to uncollectible Lease income; however, as of February 8, 2021, we experienced sequential improvement in our Pro-rata base collection rates billed by quarter as follows:

		Q2			Q3			Q4
Base Rent Collections		79%			89%			92%

	•	We executed 1,511 new and renewal leasing transactions representing 5.8 million Pro-rata SF with positive trailing twelve month rent spreads of 2.2%, as compared to 1,702 leasing transactions representing 6.1 million Pro-rata SF with positive trailing twelve month rent spreads of 8.5% in the prior year. Rent spreads are on comparable retail operating property spaces in each period.

	•	At December 31, 2020, our total property portfolio was 92.3% leased while our same property portfolio was 92.9% leased, as compared to 94.8% leased and 95.1% leased, respectively, at December 31, 2019. Primarily as a result from the impacts of the pandemic, our percent leased declined during 2020 due to tenant closures and bankruptcies, combined with declines in new leasing activity.

We continued our development and redevelopment of high quality shopping centers in a targeted manner amidst the pandemic, although many in process projects have stopped or slowed while we evaluate current market conditions and assess the feasibility of these projects. As of December 31, 2020, we have a total of 14 properties in process of development or redevelopment with total estimated Pro-rata project costs of $319.3 million as compared to 22 properties and $350.8 million at December 31, 2019.

We maintained a conservative balance sheet providing liquidity and financial flexibility to respond to these uncertain economic times and to cost effectively fund investment commitments, opportunities, and debt maturities:

	•	During March of 2020, we settled forward sales agreements under our ATM program that we entered into during 2019 by delivering 1,894,845 shares of common stock and receiving $125.8 million in net proceeds. We used these proceeds for working capital and general corporate purposes. Under our current ATM equity offering program, we may sell up to $500 million of common stock at prices determined by the market at the time of sale.

	•	On May 11, 2020, we issued $600 million of 10 year senior unsecured public notes at 3.7%, which priced at 99.805%. The proceeds of the offering were used to increase liquidity, including redeeming other outstanding public notes, repaying the outstanding balance on our Line, and for general working capital purposes.

	•	On September 2, 2020, we redeemed the entire $300 million outstanding of 3.75% Notes due 2022 for a redemption price of $325.1 million, including accrued and unpaid interest through the redemption date and a make-whole amount.

	•	As of December 31, 2020, we have a borrowing capacity of $1.2 billion on our Line of Credit (“Line”).

	•	At December 31, 2020, our Pro-rata net debt-to-operating EBITDAre ratio on a trailing twelve month basis was 6.0x as compared to 5.4x at December 31, 2019.

	•	Subsequent to December 31, 2020, we repaid our $265 million Term Loan, leaving us with no unsecured debt maturities until 2024.

	•	Subsequent to December 31, 2020, we extended our Line maturity date to March 2025, retaining the same $1.25 billion borrowing commitment.

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 and service providers to operate their businesses.

Pro-rata Percent Leased

The following table summarizes Pro-rata percent leased of our combined Consolidated and Unconsolidated shopping center portfolio:

		December 31, 2020				December 31, 2019
Percent Leased – All properties			92.3	%			94.8	%
Anchor space			95.1	%			97.3	%
Shop space			87.5	%			90.6	%

Our percent leased in both the Anchor and Shop space categories declined during 2020 due to tenant closures and bankruptcies primarily as a result from the impacts of the pandemic. Additionally, a number of tenants at our properties were either required or elected to temporarily close due to the pandemic. Some of these tenants may be unable to sustain their business models in this current pandemic environment and may fail. While the pandemic continues, we may be unable to find suitable replacement tenants for an extended period of time and the terms of the leases with replacement tenants may be less favorable to us. As such, our percent leased could decline further in future periods, resulting in reduced Lease income from both lower base rent and recoveries from tenants for CAM, real estate taxes, and insurance costs at our centers.

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, 2020
		Leasing Transactions				SF (in thousands)				Base Rent PSF				Tenant Allowance and Landlord Work PSF				Leasing Commissions PSF
Anchor Space Leases
New			19				442			$	14.69			$	28.45			$	4.67
Renewal			107				2,854				13.77				0.38				0.25
Total Anchor Leases			126				3,296			$	13.89			$	4.14			$	0.84
Shop Space Leases
New			369				608			$	34.61			$	30.68			$	9.30
Renewal			1,016				1,866				32.30				1.58				0.54
Total Shop Space Leases			1,385				2,474			$	32.87			$	8.74			$	2.69
Total Leases			1,511				5,770			$	22.03			$	6.11			$	1.63

		Year Ended December 31, 2019
		Leasing Transactions				SF (in thousands)				Base Rent PSF				Tenant Allowance and Landlord Work PSF				Leasing Commissions PSF
Anchor Space 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 Leases
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

New leasing activity has declined as many businesses delay executing leases amidst the immediate and uncertain future economic impacts from the pandemic; however, renewal leasing activity has remained consistent with 2019 levels. New and renewal rent spreads, as compared to prior rents on these same spaces leased, remained positive at 2.2% for the twelve months ended December 31, 2020, although the spreads tightened throughout the year as compared to 5.7% for the twelve months ended December 31, 2019. With

the average annual base rent of all shop space leases due to expire during the next 12 months of $33.37 PSF, there is a possibility of negative rent spreads occurring as we execute new or renewal lease deals, considering the total weighted average base rent on signed shop space leases during 2020 was lower at $32.87 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. Based on percentage of annualized base rent, the following table summarizes our most significant tenants, of which the top four are grocers:

		December 31, 2020
Anchor		Number of Stores				Percentage of Company- owned GLA (1)				Percentage of Annualized Base Rent (1)
Publix			69				6.7	%			3.5	%
Kroger Co.			54				6.6	%			3.1	%
Albertsons Companies, Inc.			45				4.2	%			2.9	%
Amazon/Whole Foods			35				2.6	%			2.6	%
TJX Companies, Inc.			62				3.2	%			2.5	%

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

Bankruptcies and Credit Concerns

The impact of bankruptcies may increase significantly if tenants occupying our centers are unable to withstand and recover from the disruptions caused by the pandemic, which could materially adversely impact our Lease income. Since the pandemic began, we have seen an increase in the number of tenants filing for bankruptcy. Due to the pandemic there has been and continues to be a greater focus on whether tenants’ businesses are considered essential or non-essential, which may directly impact the tenants’ ability to operate and generate sufficient cash flows to meet their operating expenses, including lease payments. Continued higher unemployment levels could also negatively impact consumer spending and, along with large-scale business failures, have an adverse effect on our results from 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 customer traffic, and maintaining a presence in affluent suburbs and dense infill trade areas. As of December 31, 2020, approximately 63% of Pro-rata average base rent in our portfolio is derived from tenants’ businesses classified as essential.

Since the pandemic began, the Company has been closely monitoring its cash collections which significantly declined from historic levels in the initial months of the pandemic, most notably from tenants whose businesses are classified as non-essential. The pandemic has continued to result in certain tenants requesting concessions from rent obligations, including deferrals, abatements and requests to negotiate future rents, while some tenants have been unable to reopen or have not honored the terms of their existing lease agreements. The Company has entered into approximately 1,600 agreements, representing $40.8 million of Pro-rata base rent or 4.6% of our total annual base rent, with tenants within our consolidated real estate portfolio and our unconsolidated real estate investment partnerships, enabling them to defer a portion of their rental payments and repay them over future periods. The Company expects to continue to work with other tenants, which may result in further rent concessions or legal actions as determined to be necessary and appropriate. Due to the uncertainty surrounding the pandemic, there can be no assurances that all such deferred rent will ultimately be collected, or collected within the timeframes agreed upon.

We closely monitor the operating performance of tenants in our shopping centers as well as those experiencing significant changes to their business models, as can be seen through reduced customer traffic in their stores. Operators / tenants who are unable to withstand these and other business pressures, such as significant cash flow declines or debt maturities, may file for bankruptcy. As a result of our research and findings, we may reduce new leasing, suspend leasing, or curtail allowances for construction of leasehold improvements within certain retail categories or to a specific tenant in order to reduce our risk of loss from bankruptcies and store closings.

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 adjudicate 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. As of December 31, 2020, tenants who are currently in bankruptcy and continue to occupy space in our shopping centers represent an aggregate of 0.4% of our annual base rent on a Pro-rata basis. We anticipate fewer tenant bankruptcies in 2021, but it is possible they could increase depending on the length and severity of the pandemic.

Results from Operations

Comparison of the years ended December 31, 2020 and 2019:

Our revenues changed as summarized in the following table:

(in thousands)		2020				2019				Change
Lease income		$	980,166				1,094,301				(114,135	)
Other property income			9,508				9,201				307
Management, transaction, and other fees			26,501				29,636				(3,135	)
Total revenues		$	1,016,175				1,133,138				(116,963	)

Lease income decreased $114.1 million, driven by the following contractually billable components of rent to the tenants per the lease agreements:

$105.1 million decrease from recognizing additional Uncollectible lease income, consisting of $28.1 million increase in uncollectible Straight-line rent receivables and $77.0 million increase in uncollectible billable tenant receivables. The pandemic has been most impactful to those tenants considered non-essential by governmental authorities. The current economic environment has resulted in changes in our expectations of collecting certain tenant receivables and their related future contracted rent increases previously recognized through straight-line rent. Approximately 92% of Pro-rata base rent billed for the three months ended December 31, 2020, has been collected as of February 8, 2021.

$5.7 million decrease from billable Base rent, as follows:

	•	$1.6 million increase from rent commencing at development properties; and

	•	$6.2 million net increase primarily from acquisitions of operating properties; reduced by

	•	$2.0 million net decrease from same properties due to the loss of rents from tenant move-outs and bankruptcies and rental rate declines, offset by increases from contracted rent increases in existing leases; and

	•	$11.5 million decrease from the sale of operating properties.

$3.2 million decrease in Above and below market rent primarily from the sale of operating properties.

$1.6 million increase in Other lease income from higher lease termination fees.

$1.4 million decrease in Percentage rent due to lower sales in this pandemic environment by certain tenants.

$361,000 remaining net decrease driven primarily by a reduction in straight-line rent.

Management, transaction and other fees decreased $3.1 million primarily from decreases in development, construction management, and property management fees from projects within our unconsolidated partnerships. Two development projects within our unconsolidated partnerships completed during 2019, resulting in reduced development fees in 2020. Additionally, decreases in property rent collections during this pandemic have negatively impacted our property management income earned from our unconsolidated partnerships.

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

(in thousands)		2020				2019				Change
Depreciation and amortization		$	345,900				374,283				(28,383	)
Operating and maintenance			170,073				169,909				164
General and administrative			75,001				74,984				17
Real estate taxes			143,004				136,236				6,768
Other operating expenses			12,642				7,814				4,828
Total operating expenses		$	746,620				763,226				(16,606	)

Depreciation and amortization costs changed as follows:

	•	$2.0 million increase as we began depreciating costs at development properties where tenant spaces were completed and became available for occupancy; and

	•	$1.9 million increase from acquisitions of operating properties and corporate assets; reduced by

	•	$26.9 million net decrease at same properties, primarily attributable to additional 2019 depreciation and amortization due to both redevelopment properties and early tenant move-outs; and

	•	$5.4 million decrease from the sale of operating properties.

Operating and maintenance costs remained steady even with increases in property insurance premiums as those increases were offset by decreases in common area maintenance costs during the pandemic and a decrease in lease termination expense.

General and administrative expenses remained constant although there was a $10.2 million increase from less development overhead capitalized as many development and redevelopment projects were delayed due to the pandemic, offset by $8.2 million decrease in incentive compensation costs, and $2.3 million decrease in other expenses related to lower travel and conference costs amidst the pandemic.

Real estate taxes changed as follows:

	•	$1.7 million increase from development properties where capitalization ceased as tenant spaces became available for occupancy; and

	•	$1.1 million increase from acquisitions of operating properties; and

	•	$5.7 million increase within the same property portfolio from changes in assessed property values; reduced by

	•	$1.7 million decrease from the sale of operating properties.

Other operating expenses increased $4.8 million primarily attributable to a $7.9 million increase in development pursuit costs charged to expense for abandoned projects, offset by a $2.9 million decrease in state and franchise taxes.

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

(in thousands)		2020				2019				Change
Interest expense, net
Interest on notes payable		$	148,371				131,357				17,014
Interest on unsecured credit facilities			9,933				17,604				(7,671	)
Capitalized interest			(4,355	)			(4,192	)			(163	)
Hedge expense			4,329				7,564				(3,235	)
Interest income			(1,600	)			(1,069	)			(531	)
Interest expense, net			156,678				151,264				5,414
Goodwill impairment			132,128				—				132,128
Provision for impairment of real estate, net of tax			18,536				54,174				(35,638	)
Gain on sale of real estate, net of tax			(67,465	)			(24,242	)			(43,223	)
Early extinguishment of debt			21,837				11,982				9,855
Net investment (income) loss			(5,307	)			(5,568	)			261
Total other expense (income)		$	256,407				187,610				68,797

The $5.4 million net increase in total interest expense is primarily due to:

	•	$17.0 million net increase in Interest on notes payable, primarily related to the timing of issuing new unsecured notes of $600 million during 2020, whereby we held the proceeds in cash on our balance sheet as liquidity reserves related to the pandemic until we redeemed $300 million of unsecured debt in September 2020 and $265 million of Term Loan debt in January 2021; partially offset by

	•	$7.7 million decrease in Interest on unsecured credit facilities resulting from the repayment of a term loan using proceeds from a senior unsecured note issuance; and

	•	$3.2 million decrease in Hedge expense resulting from the maturity of a forward swap hedging ten-year senior unsecured notes.

During the year ended December 31, 2020, we recognized $132.1 million of Goodwill impairment, due to the significant market and economic impacts of the pandemic. The market disruptions triggered evaluation of reporting unit fair values for goodwill impairment. Of our 269 reporting units with goodwill, 87 reporting units were determined to have fair values lower than carrying value. As such, goodwill impairment losses were recognized for the amount that the carrying amount of the reporting unit, including goodwill, exceeded its fair value, limited to the total amount of goodwill allocated to that reporting unit.

The $35.6 million decrease in Provision for impairment of real estate is due to:

	•	During 2019, we recognized $54.2 million of impairment losses, including $40.3 million for one operating property, classified as held and used, which was further impaired in 2020 as noted below.

	•	During 2020, we recognized $18.5 million of impairment losses resulting from impairment of two operating properties and the sale of one land parcel. This includes an additional $17.5 million impairment of a single tenant property located in the Manhattan market of New York City that was previously impaired during 2019 as a result of its retail tenant declaring bankruptcy. As the pandemic continues to impact the leasing market, limiting visibility for replacement prospects for this property, our hold period probabilities have shifted triggering further evaluation of the current fair value resulting in the additional impairment charge in 2020.

During 2020, we recognized gains of $67.5 million from the sale of ten land parcels, five operating properties, receipt of property insurance proceeds, and the re-measurement gain from the acquisition of controlling interest in a previously held equity investment. During 2019, we sold five operating properties and six land parcels for gains totaling $24.2 million.

During 2020, we incurred $21.8 million of debt extinguishment costs of which $19.4 million related to the early redemption of our unsecured notes due to mature in 2022 and a $2.4 million charge for termination of an interest rate swap on our term loan that was repaid in January 2021. During 2019, we redeemed unsecured notes and repaid one mortgage, all prior to original maturity, resulting in $12 million of debt extinguishment costs.

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

(in thousands)		Regency's Ownership			2020				2019				Change
GRI - Regency, LLC (GRIR)		40.00%			$	25,425			$	43,536				(18,111	)
Equity One JV Portfolio LLC (NYC)		30.00%				488				(9,967	)			10,455
Columbia Regency Retail Partners, LLC (Columbia I)		20.00%				1,030				1,626				(596	)
Columbia Regency Partners II, LLC (Columbia II)		20.00%				1,045				1,748				(703	)
Cameron Village, LLC (Cameron)		30.00%				757				1,062				(305	)
RegCal, LLC (RegCal)		25.00%				1,296				3,796				(2,500	)
US Regency Retail I, LLC (USAA)		20.01%				790				1,028				(238	)
Other investments in real estate partnerships (1)		35.00% - 50.00%				3,338				18,127				(14,789	)
Total equity in income of investments in real estate partnerships					$	34,169			$	60,956				(26,787	)

	(1)	Includes our investment in the Town and Country shopping center, which we owned 18.38% during 2019. In January 2020, we purchased an additional 16.62%, bringing our total ownership interest to 35%.

The $26.8 million decrease in total Equity in income in investments in real estate partnerships is attributed to:

	•	$18.1 million decrease within GRIR primarily due to the following:

	o	$9.9 million decrease from higher uncollectible lease income attributable to the impact of the pandemic on tenants; and

	o	$9.4 million decrease driven by gains recognized during 2019 on the sale of operating real estate; reduced by

	o	$1.6 million increase from additional termination fee income in 2020.

	•	$10.5 million increase within NYC primarily due to the $10.9 million provision for impairment of real estate recognized in 2019; offset by

	•	$2.5 million decrease within RegCal primarily due to a $2.5 million gain recognized during 2019 on the sale of an operating property within the partnership;

	•	$14.8 million decrease within Other investments in real estate partnerships primarily due to a $15.0 million gain recognized during 2019 on the sale of a single operating property; and

	•	All of our investments in real estate partnerships experienced higher amounts of uncollectible lease income, negatively impacting our equity in income.

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

(in thousands)		2020				2019				Change
Net income		$	47,317				243,258				(195,941	)
Income attributable to noncontrolling interests			(2,428	)			(3,828	)			1,400
Net income attributable to common stockholders		$	44,889				239,430				(194,541	)
Net income attributable to exchangeable operating partnership units			203				634				(431	)
Net income attributable to common unit holders		$	45,092				240,064				(194,972	)

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

For a comparison of our results from operations for the years ended December 31, 2019 and 2018, 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, 2019, filed with the SEC on February 18, 2020.

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 believe these non-GAAP measures provide useful information to our Board of Directors, management and investors regarding certain trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, purposes of determining management incentive compensation and budgeting, forecasting and planning purposes. 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 our reported results under GAAP. We believe presenting our Pro-rata share of operating results, along with other non-GAAP measures, may assist in comparing our 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.

We do not consider non-GAAP measures an alternative to financial measures determined in accordance with GAAP, rather they supplement GAAP measures by providing additional information we believe to be useful to our shareholders. The principal limitation of these non-GAAP financial measures is they may exclude significant expense and income items that are required by GAAP to be recognized in our consolidated financial statements. In addition, they reflect the exercise of management’s judgment about which expense and income items are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, reconciliations of the non-GAAP financial measures we use to their most directly comparable GAAP measures are provided. Non-GAAP financial measures should not be relied upon in evaluating our financial condition, results of operations, or future prospects.

Pro-rata Same Property NOI:

Our Pro-rata same property NOI changed as follows:

(in thousands)		2020				2019				Change
Base rent (1)		$	830,516				833,749				(3,233	)
Recoveries from tenants (1)			265,616				266,792				(1,176	)
Percentage rent (1)			6,963				8,476				(1,513	)
Termination fees (1)			7,695				3,438				4,257
Uncollectible lease income			(84,073	)			(5,073	)			(79,000	)
Other lease income (1)			9,914				10,336				(422	)
Other property income			6,445				7,507				(1,062	)
Total real estate revenue			1,043,076				1,125,225				(82,149	)
Operating and maintenance			168,039				167,190				849
Termination expense			25				520				(495	)
Real estate taxes			151,615				145,839				5,776
Ground rent			10,307				10,610				(303	)
Total real estate operating expenses			329,986				324,159				5,827
Pro-rata same property NOI		$	713,090				801,066				(87,976	)
Less: Termination fees / expense			7,670				2,918				4,752
Pro-rata same property NOI, excluding termination fees / expense		$	705,420				798,148				(92,728	)
Pro-rata same property NOI growth, excluding termination fees / expense											(11.6	)%

	(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.

Billable Base rent decreased $3.2 million due to loss of rents from bankruptcies and other tenant move-outs which were partially offset by contractual rent increases.

Recoveries from tenants decreased $1.2 million largely due to declines in percent leased stemming from bankruptcies and other tenant move-outs.

Percentage rent decreased $1.5 million principally due to lower tenant sales which were impacted by lockdowns during the pandemic which affected customer traffic and tenant sales.

Termination fees increased $4.3 million primarily due to strategic changes in merchandising mix and negotiated terminations for tenant failures related to COVID-19.

Uncollectible lease income increased $79.0 million due to changes in collection expectations of our lease income caused by the impact of the pandemic on our tenants.

Other property income decreased $1.1 million primarily due to reduced demand for paid parking during the pandemic.

Real estate taxes increased $5.8 million due to changes in assessed values at properties across our portfolio.

Same Property Rollforward:

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

		2020								2019
(GLA in thousands)		Property Count				GLA				Property Count				GLA
Beginning same property count			396				40,525				399				40,866
Acquired properties owned for entirety of comparable periods			5				315				6				415
Developments that reached completion by beginning of earliest comparable period presented			3				553				3				358
Disposed properties			(8	)			(677	)			(11	)			(1,204	)
SF adjustments (1)			—				(43	)			—				194
Properties under or being repositioned for redevelopment			(3	)			(445	)			(1	)			(104	)
Ending same property count			393				40,228				396				40,525

	(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)		2020				2019
Reconciliation of Net income to Nareit FFO
Net income attributable to common stockholders		$	44,889				239,430
Adjustments to reconcile to Nareit FFO: (1)
Depreciation and amortization (excluding FF&E)			375,865				402,888
Goodwill impairment			132,128				—
Provision for impairment of real estate			18,778				65,074
Gain on sale of real estate, net of tax			(69,879	)			(53,664	)
Exchangeable operating partnership units			203				634
Nareit FFO attributable to common stock and unit holders		$	501,984				654,362

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

(in thousands)		2020				2019
Net income attributable to common stockholders		$	44,889				239,430
Less:
Management, transaction, and other fees			26,501				29,636
Other (1)			25,912				58,904
Plus:
Depreciation and amortization			345,900				374,283
General and administrative			75,001				74,984
Other operating expense			12,642				7,814
Other expense (income)			256,407				187,610
Equity in income of investments in real estate excluded from NOI (2)			59,726				39,807
Net income attributable to noncontrolling interests			2,428				3,828
Pro-rata NOI			744,580				839,216
Less non-same property NOI (3)			(31,490	)			(38,150	)
Pro-rata same property NOI		$	713,090			$	801,066

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

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

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

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 $200 million of 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 $200 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.

As the pandemic and its related impacts continue to evolve, we have taken the following steps to ensure sufficient liquidity and financial flexibility:

	•	We settled our forward equity agreements under our previous ATM program and received proceeds of approximately $125.8 million in March 2020.

	•	We renewed our ATM equity offering program in May 2020 which provides for the sale of $500 million of common stock. As of December 31, 2020, all $500 million of common stock remained available for issuance.

	•	We issued $600 million of new 10-year senior unsecured public notes in May 2020 and received proceeds of $598.8 million. Portions of the proceeds were used to repay the outstanding balance on our Line and to redeem in September 2020 our $300 million 3.75% unsecured Notes due 2022.

	•	In January 2021, we repaid our $265 million Term Loan, resulting in no unsecured notes maturing until 2024.

	•	We have a borrowing capacity on our Line of $1.2 billion, which in February 2021 was amended to extend the maturity to March 23, 2025 with the option to extend the maturity for two additional six-month periods. Our existing financial covenants under the Line remained unchanged. We also had $376.1 million of unrestricted cash available to us as of December 31, 2020, of which $265 million was used to repay the Term Loan in January 2021.

We also continue to closely monitor and assess the capital requirements of all in process and planned developments, redevelopments, and capital expenditures, which has resulted in our delaying, phasing or curtailing certain in-process and planned development, redevelopment and capital expenditure projects. We have no unsecured debt maturities until 2024 and a manageable level of secured mortgage maturities during 2021, including those mortgages within our joint ventures.

We continually evaluate alternative financing options, and we believe we can obtain financing on reasonable terms; however, there can be no assurance that additional financing or capital will be available, or that the terms will be acceptable or advantageous to us. Based upon our available cash balance, sources of capital, our current credit ratings, the number of high quality, unencumbered properties we own, and our decisions to delay, phase or curtail projects, we believe our available capital resources are sufficient to meet our expected capital needs for at least the next 12 months.

In addition to our unrestricted cash at December 31, 2020, we have the following additional sources of capital available:

(in thousands)		December 31, 2020
ATM equity program (see note 12 to our Consolidated Financial Statements)
Original offering amount		$	500,000
Available capacity		$	500,000
Line of Credit (see note 9 to our Consolidated Financial Statements)
Total commitment amount		$	1,250,000
Available capacity (1)		$	1,240,342
Maturity (2)		March 23, 2025

	(1)	Net of letters of credit.

	(2)	In February 2021, the Company amended its Line agreement, which was due to mature in March 2022, to, among other items, extend the maturity date to March 23, 2025 with the option to extend the maturity for two additional six-month periods while retaining the same $1.25 billion borrowing capacity.

The declaration of dividends is determined quarterly by our Board of Directors. On February 10, 2021, our Board of Directors declared a common stock dividend of $0.595 per share, payable on April 6, 2021, to shareholders of record as of March 15, 2021. While future dividends will be determined at the discretion of our Board of Directors, 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 have historically generated sufficient cash flow from operations to fund our dividend distributions. During the years ended December 31, 2020 and 2019, we generated cash flow from operations of $499.1 million and $621.3 million, respectively, and paid $403.3 million and $391.6 million in dividends to our common stock and unit holders, respectively, including the payment of the dividend we declared on December 15, 2020 and paid on January 5, 2021 of $101.4 million. We are closely monitoring our cash collections from our tenants which significantly declined from historic levels at the start of the pandemic and resulting restrictions. As of February 8, 2021, we experienced sequential improvement in our collection rates of Pro-rata base rent billed by quarter in 2020 as follows:

		Q2			Q3			Q4
Base Rent Collections		79%			89%			92%

Based upon our collection experience since the pandemic began, we expect our collection rates will continue to trend lower than historical pre-pandemic averages for the foreseeable future until the vaccines are fully deployed, restrictions are lifted, and the percent

leased in our shopping centers increases. If our cash flow from operations is insufficient to fund our current dividend level, a reduction in our cash dividend may be necessary or dividends could be paid in Regency stock, in order to remain in compliance with minimum REIT distributions.

We currently have 14 development and redevelopment projects in various stages of construction, along with a pipeline of potential projects for future development or redevelopment. As the effects of the pandemic remain uncertain, we continue to evaluate the pandemic’s impacts on the feasibility of our pipeline projects and non-essential capital expenditures, including project scope, investment, tenant use, timing and return on investment.

After repaying our $265 million Term Loan and funding our dividend payment in January 2021 with cash on hand, we estimate that we will require capital during the next twelve months of approximately $353.6 million to repay maturing debt, to fund construction and related costs for committed tenant improvements and in-process development and redevelopment, and to make capital contributions to our co-investment partnerships. 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. The combination of our $1.2 billion capacity available on our Line and no unsecured debt maturities until 2024 strengthens our financial position enabling us to fund our expected near-term operating and capital expenditures amid the uncertainty of operating cash flows during this pandemic and recovery period. We expect to generate the necessary cash to fund our long-term capital needs from cash flow from operations, borrowings from our Line, proceeds from the sale of real estate, mortgage loan and unsecured bank financing, and when the capital markets are favorable, proceeds from the sale of equity or the issuance of new unsecured debt.

We endeavor to maintain a high percentage of unencumbered assets, as measured by 89.6% of our wholly-owned real estate assets being unencumbered at December 31, 2020. Such assets allow us to access the secured and unsecured debt markets and to maintain availability on the Line. Our trailing twelve month Fixed charge coverage ratio, including our Pro-rata share of our partnerships, was 3.6x and 4.3x for the periods ended December 31, 2020 and 2019, respectively, and our Pro-rata net debt-to-operating EBITDAre ratio on a trailing twelve month basis was 6.0x and 5.4x, respectively, for the same periods. We expect that these ratios could worsen during 2021 as a result of potential further impacts from the ongoing pandemic.

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, 2020, 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)		2020				2019				Change
Net cash provided by operating activities		$	499,118				621,271				(122,153	)
Net cash used in investing activities			(25,641	)			(282,693	)			257,052
Net cash used in financing activities			(210,589	)			(268,206	)			57,617
Net increase in cash, cash equivalents, and restricted cash			262,888				70,372				192,516
Total cash, cash equivalents, and restricted cash		$	378,450			$	115,562				262,888

Net cash provided by operating activities:

Net cash provided by operating activities decreased by $122.2 million due to:

	•	$129.0 million decrease in cash flows from operating income, largely resulting from lower rent collections attributable to the impact of the pandemic on our tenants. However, we continue to negotiate with some of our tenants on repayment periods and since the pandemic began, we have executed approximately 1,600 rent deferral agreements, representing $40.8 million of rent or 4.6% of annual base rent, within our consolidated and unconsolidated real estate portfolios. The weighted average deferral period of these agreements is approximately 3.3 months, with repayment periods of approximately 9.7 months beginning in December 2020. Due to the uncertainty surrounding the pandemic, there can be no assurances how much deferred rent will ultimately be paid, or paid within the timeframes negotiated and agreed upon. The duration and severity of the pandemic will continue to impact our ability to generate cash flow from operations; offset by,

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

Net cash used in investing activities:

Net cash used in investing activities changed by $257.1 million as follows:

(in thousands)		2020				2019				Change
Cash flows from investing activities:
Acquisition of operating real estate		$	(16,867	)			(222,444	)			205,577
Advance deposits refunded (paid) on acquisition of operating real estate			100				(125	)			225
Real estate development and capital improvements			(180,804	)			(200,012	)			19,208
Proceeds from sale of real estate investments			189,444				137,572				51,872
Proceeds from property insurance casualty claims			7,957				9,350				(1,393	)
(Issuance) collection of notes receivable			(1,340	)			(547	)			(793	)
Investments in real estate partnerships			(51,440	)			(66,921	)			15,481
Return of capital from investments in real estate partnerships			32,125				63,693				(31,568	)
Dividends on investment securities			353				660				(307	)
Acquisition of investment securities			(25,155	)			(23,458	)			(1,697	)
Proceeds from sale of investment securities			19,986				19,539				447
Net cash used in investing activities		$	(25,641	)			(282,693	)			257,052

Significant investing activities included:

	•	We acquired one operating property for $16.9 million during 2020 and four operating properties for $222.4 million during 2019.

	•	We invested $19.2 million less in 2020 than 2019 on real estate development, redevelopment, and capital improvements, as further detailed in a table below.

	•	We received proceeds of $189.4 million from the sale of 6 shopping centers and 11 land parcels in 2020, including proceeds from a short term note issued at closing and repaid during the same period, compared to $137.6 million for 7 shopping centers and 6 land parcels in 2019.

	•	We received property insurance claim proceeds of $8.0 million during 2020 primarily related to a single property damaged by a tornado in 2020 and additional proceeds received on prior year fire and tornado claims. We received proceeds of $9.4 million during 2019 attributable to a single property that was severely damaged by a tornado in that year.

	•	We invested $51.4 million in our real estate partnerships during 2020, including:

	o	$19.6 million to fund our share of development and redevelopment activities,

	o	$16.0 million to fund our share of acquiring an additional equity interest in one partnership, and

	o	$15.8 million to fund our share of debt refinancing activities.

During the same period in 2019, we invested $66.9 million in our real estate partnerships, 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.

	•	Return of capital from our investments in real estate partnerships includes sales or financing proceeds. The $32.1 million received in 2020 is driven by our share of proceeds from debt refinancing activities and the sale of two operating properties. During the same period in 2019, we received $63.7 million from the sale of four operating properties and our share of proceeds from debt refinancing activities.

	•	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, although in the midst of the pandemic we are re-evaluating the feasibility of all pipeline development and redevelopment projects. This evaluation may result in curtailment, delay or phasing of some or all projects, as well as limiting capital expenditures not immediately necessary as the economic situation continues to unfold. During 2020, we deployed capital of $180.8 million for the development, redevelopment, and improvement of our real estate properties, comprised of the following:

(in thousands)		2020				2019				Change
Capital expenditures:
Land acquisitions for development / redevelopment		$	—				5,206				(5,206	)
Building and tenant improvements			46,902				62,012				(15,110	)
Redevelopment costs			98,177				70,854				27,323
Development costs			20,155				47,699				(27,544	)
Capitalized interest			3,762				2,870				892
Capitalized direct compensation			11,808				11,371				437
Real estate development and capital improvements		$	180,804				200,012				(19,208	)

	•	During 2019, we acquired two land parcels for new development and redevelopment projects. We had no such land parcel acquisitions during 2020.

	•	Building and tenant improvements decreased $15.1 million during the year ended December 31, 2020, primarily related to the timing of capital projects and our active management of capital spend to preserve liquidity.

	•	Redevelopment expenditures were higher during 2020 due to the timing, magnitude, and number of projects in process. Subject to capital availability, we intend to continuously improve our portfolio of shopping centers through redevelopment which can include adjacent land acquisition, existing building expansion, facade renovation, 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 could also result in volatility in NOI. See the tables below for more details about our redevelopment projects.

	•	Development expenditures were lower in 2020 due to the progress towards completion of our development projects currently in process, coupled with delays in new development starts amidst the pandemic. At December 31, 2020 and 2019, we had three development projects 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. If we reduce our development and redevelopment activity, the amount of interest that we capitalize may be lower than historical averages.

	•	We have a staff of employees who directly support our development program, which includes redevelopment of our existing properties. Internal compensation costs directly attributable to these activities are capitalized as part of each project. In light of the current economic environment, we expect that our development and redevelopment activity will be significantly lower than our recent historical averages. As a result, we expect the amount of internal costs for development and redevelopment activities that may be capitalized could be significantly lower, reducing our financial results.

The following table summarizes our development projects in-process and completed:

(in thousands, except cost PSF)												December 31, 2020
Property Name		Market		Ownership				Start Date		Estimated Stabilization Year (1)		Estimated / Actual Net Development Costs (2) (3)				GLA (3)				Cost PSF of GLA (2) (3)				% of Costs Incurred
Developments In-Process
Carytown Exchange		Richmond, VA		64%				Q4-18		2023		$	19,595				46			$	426				65	%
East San Marco		Jacksonville, FL		100%				Q4-20		2024			19,519				59				331				23	%
Eastfield at Baybrook (Ph IA) (4)		Houston, TX		50%				Q4-20		2022			2,337				53				44				84	%
Developments Completed
The Village at Hunter's Lake		Tampa, FL		100%				Q4-18		2021		$	21,442				72				298

(1)	Estimated Stabilization Year represents the estimated first full calendar year that the project will reach our expected stabilized yield.

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

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

(4)	Estimated Net Development Costs for Eastfield at Baybrook Phase 1A is limited to our ownership interest in the value of land and site improvements to deliver a parcel to a grocer, under a ground lease agreement, to construct their building and improvements.

The following table summarizes our redevelopment projects in-process and completed:

(in thousands, except cost PSF)												December 31, 2020
Property Name		Market		Ownership				Start Date		Estimated Stabilization Year (1)		Estimated Incremental Project Costs (2) (3)				GLA (3)				% of Costs Incurred
Redevelopments In-Process
Bloomingdale Square		Tampa, FL		100%				Q3-18		2022		$	21,327				252				88	%
Market Common Clarendon		Metro, DC		100%				Q4-18		2024			57,691				130				54	%
Point 50		Metro, DC		100%				Q4-18		2023			17,664				48				84	%
The Abbot		Boston, MA		100%				Q2-19		2024			55,420				65				47	%
Sheridan Plaza		Hollywood, FL		100%				Q3-19		2022			12,115				506				50	%
West Bird Plaza		Miami, FL		100%				Q4-19		2022			10,338				99				50	%
Preston Oaks		Dallas, TX		100%				Q4-20		2023			22,327				103				24	%
Serramonte Center		San Francisco, CA		100%				Q4-20		2026		55,000 +/-					917				22	%
Various Properties		Various		40%-100%				Various		Various			26,010				1,555				36	%
Redevelopments Completed
Pablo Plaza Ph. II		Jacksonville, FL		100%				Q4-18		2022		$	14,627
Various Properties		Various		20%-100%				Various		Various			35,376

(1)	Estimated Stabilization Year represents the estimated first full calendar year that the project will reach our expected stabilized yield.

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

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

Net cash used in financing activities:

Net cash flows used in financing activities changed during 2020, as follows:

(in thousands)		2020				2019				Change
Cash flows from financing activities:
Net proceeds from common stock issuances		$	125,608				—				125,608
Repurchase of common shares in conjunction with equity award plans			(5,512	)			(6,204	)			692
Common shares repurchased through share repurchase program			—				(32,778	)			32,778
Distributions to limited partners in consolidated partnerships, net			(2,770	)			(3,367	)			597
Dividend payments and operating partnership distributions			(301,903	)			(391,649	)			89,746
(Repayments of) proceeds from unsecured credit facilities, net			(220,000	)			75,000				(295,000	)
Proceeds from debt issuance			598,830				723,571				(124,741	)
Debt repayment, including early redemption costs			(400,048	)			(625,769	)			225,721
Payment of loan costs			(5,063	)			(7,019	)			1,956
Proceeds from sale of treasury stock, net			269				9				260
Net cash used in financing activities		$	(210,589	)			(268,206	)			57,617

Significant financing activities during the years ended December 31, 2020 and 2019 include the following:

	•	We received proceeds of $125.6 million, net of costs, in 2020 upon settling our forward equity agreements under our ATM program entered into during 2019.

	•	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 $5.5 million and $6.2 million during the years ended December 31, 2020 and 2019, respectively.

	•	We paid $32.8 million during 2019 to repurchase 563,229 common shares through our share repurchase program that were executed in December 2018 but not settled until January 2019.

	•	We paid $89.7 million less in dividends during 2020 compared to 2019 primarily as a result of shifting our fourth quarter 2020 dividend payment date to January 2021, partially offset by an increase in our dividend rate during 2020 as compared to 2019.

	•	We had the following debt related activity during 2020:

	o	We repaid, net of draws, an additional $220 million on our Line.

	o	We received net proceeds of $598.8 million upon issuance, in May 2020, of senior unsecured public notes.

	o	We paid $400.0 million for other debt repayments, including:

	▪	$321.7 million, including a make-whole premium, to redeem our senior unsecured public notes originally due November 2022;

	▪	$67.2 million to repay four mortgages; and

	▪	$11.1 million in principal mortgage payments.

	o	We paid $5.1 million of loan costs in connection with our public note offerings above.

	•	We had the following debt related activity during 2019:

	o	We borrowed, net of payments, 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 $625.8 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.

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 notes 4, 7, 9, and 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.

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, 2020, 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 $9.7 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)		2021				2022				2023				2024				2025				Beyond 5 Years				Total
Notes payable:
Regency (1)		$	188,284		(3)		424,576		(3)		213,267				475,709				411,820				3,857,270			$	5,570,926
Regency's share of joint ventures (1) (2)			142,165				111,596				75,674				22,808				53,061				290,495				695,799
Operating leases:
Office leases - Regency			4,654				3,379				2,580				2,114				1,961				2,777				17,465
Subleases:
Office leases - Regency			(309	)			—				—				—				—				—				(309	)
Ground leases:
Regency			10,778				10,837				11,054				11,103				11,106				542,184				597,062
Regency's share of joint ventures			278				278				278				1,206				186				9,730				11,956
Total		$	345,850				550,666				302,853				512,940				478,134				4,702,456				6,892,899

(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 which would be secured by the partner’s membership interest.

(3)	2021 and 2022 payments for Regency’s notes payable include principal and interest for its $265 million 2% Term Loan due to mature in January 2022 but repaid by Regency in January 2021.

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.

Collectibility of Lease Income

Lease income, which includes base rent, percentage rent, and 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.

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 and uncollected 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, the Company may recognize 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.

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.

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 specific chemicals historically used by certain current and former dry cleaning tenants, the existence of asbestos in older shopping centers, and the presence of underground petroleum storage tanks. We believe that the few tenants who currently operate dry cleaning plants or gas stations do so in accordance with current laws and regulations. Generally, we endeavor to require tenants to remove dry cleaning plants from our shopping centers or convert them to more environmentally friendly systems, in accordance with the terms of our leases. We also 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 secured environmental insurance policies, where appropriate, on a relatively small number of 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, 2020, we had accrued liabilities of $8.3 million for our Pro-rata share of environmental remediation, including our Investments in real estate partnerships. We believe that the ultimate remediation of currently known environmental matters will not have a material effect on our financial position, liquidity, or results of operations. We can give no assurance that existing environmental studies on our shopping centers have revealed all potential environmental contamination; that our estimate of liabilities will not change as more information becomes available; 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 future. Substantially 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 may decline as the supply of available retail space exceeds demand and consumer spending declines. Percent leased declines may also result in lower recovery rates of our operating expenses.