Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

Document



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form 10-Q
 
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934
 
For the quarterly period ended March 31, 2019
 
Commission file number 1-10093
 
RPT REALTY
(Exact name of registrant as specified in its charter)
 
MARYLAND
 
13-6908486
(State of other jurisdiction of incorporation or organization)
 
(I.R.S Employer Identification Numbers)
 
 
 
31500 Northwestern Highway, Suite 300
Farmington Hills, Michigan
 
48334
(Address of principal executive offices)
 
(Zip Code)
 
248-350-9900
 
(Registrant’s telephone number, including area code) 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.
Yes   x                       No  o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes   x                       No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company  o
 
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   o                       No  x
 
Securities Registered Pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange
On Which Registered
Common Shares of Beneficial Interest, ($0.01 Par Value Per Share)
 
RPT
 
New York Stock Exchange
7.25% Series D Cumulative Convertible Perpetual Preferred Shares of Beneficial Interest ($0.01 Par Value Per Share)
 
RPT.PRD
 
New York Stock Exchange

Number of common shares of beneficial interest ($0.01 par value) of the registrant outstanding as of April 26, 2019: 80,352,686




INDEX
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Page 2





PART 1 – FINANCIAL INFORMATION
Item 1.  Unaudited Condensed Consolidated Financial Statements
RPT REALTY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
 
 
 
 
 
March 31,
2019
 
December 31,
2018
 
(unaudited)
 
 
ASSETS
 
 
 
Income producing properties, at cost:
 
 
 
Land
$
361,973

 
$
373,490

Buildings and improvements
1,598,812

 
1,652,283

Less accumulated depreciation and amortization
(352,074
)
 
(358,195
)
Income producing properties, net
1,608,711

 
1,667,578

Construction in progress and land available for development
47,799

 
53,222

Net real estate
1,656,510

 
1,720,800

Equity investments in unconsolidated joint ventures
1,606

 
1,572

Cash and cash equivalents
85,016

 
41,064

Restricted cash and escrows
3,297

 
3,658

Accounts receivable (net of allowance for doubtful accounts of $978 and $858 as of March 31, 2019 and December 31, 2018, respectively)
26,671

 
23,802

Acquired lease intangibles, net
40,802

 
44,432

Operating lease right-of-use assets
17,698

 

Other assets, net
90,451

 
93,112

TOTAL ASSETS
$
1,922,051

 
$
1,928,440

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 

 
 

Notes payable, net
$
962,433

 
$
963,149

Finance lease obligation
975

 
975

Accounts payable and accrued expenses
47,526

 
56,355

Distributions payable
19,772

 
19,728

Acquired lease intangibles, net
46,321

 
48,647

Operating lease liabilities
16,403

 

Other liabilities
6,830

 
8,043

TOTAL LIABILITIES
1,100,260

 
1,096,897

 
 
 
 
Commitments and Contingencies


 


 
 
 
 
RPT Realty ("RPT") Shareholders' Equity:
 
 

Preferred shares, $0.01 par, 2,000 shares authorized: 7.25% Series D Cumulative Convertible Perpetual Preferred Shares, (stated at liquidation preference $50 per share), 1,849 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
92,427

 
92,427

Common shares of beneficial interest, $0.01 par, 120,000 shares authorized, 79,757 and 79,734 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
798

 
797

Additional paid-in capital
1,166,048

 
1,164,848

Accumulated distributions in excess of net income
(459,365
)
 
(450,130
)
Accumulated other comprehensive income
2,517

 
4,020

TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO RPT
802,425

 
811,962

Noncontrolling interest
19,366

 
19,581

TOTAL SHAREHOLDERS' EQUITY
821,791

 
831,543

 
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
1,922,051

 
$
1,928,440

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 3





RPT REALTY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
 
Three Months Ended March 31,
 
2019

2018
REVENUE
 
 
 
Rental income
$
58,358

 
$
61,818

Other property income
1,299

 
814

Management and other fee income
51

 
86

TOTAL REVENUE
59,708

 
62,718

 
 
 
 
EXPENSES
 

 
 

Real estate taxes
9,822

 
10,157

Recoverable operating expense
6,681

 
6,806

Non-recoverable operating expense
2,490

 
1,712

Depreciation and amortization
19,219

 
21,112

General and administrative expense
6,066

 
5,176

TOTAL EXPENSES
44,278

 
44,963

 
 
 
 
OPERATING INCOME
15,430

 
17,755

 
 
 
 
OTHER INCOME AND EXPENSES
 

 
 

Other (expense) income, net
(108
)
 
253

Gain on sale of real estate
5,702

 

Earnings from unconsolidated joint ventures
54

 
71

Interest expense
(10,349
)
 
(10,601
)
INCOME BEFORE TAX
10,729

 
7,478

Income tax provision
(36
)
 
(18
)
NET INCOME
10,693

 
7,460

Net income attributable to noncontrolling partner interest
(250
)
 
(174
)
NET INCOME ATTRIBUTABLE TO RPT
10,443

 
7,286

Preferred share dividends
(1,675
)
 
(1,675
)
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
$
8,768

 
$
5,611

 
 
 
 
EARNINGS PER COMMON SHARE
 

 
 

Basic
$
0.11

 
$
0.07

Diluted
$
0.11

 
$
0.07

 


 


WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 

 
 

Basic
79,744

 
79,423

Diluted
79,931


79,570

 
 
 
 
Cash Dividend Declared per Common Share
$
0.22

 
$
0.22

 
 
 
 
OTHER COMPREHENSIVE INCOME
 

 
 

Net income
$
10,693

 
$
7,460

Other comprehensive gain (loss):
 

 
 

(Loss) gain on interest rate swaps
(1,539
)
 
2,442

Comprehensive income
9,154

 
9,902

Comprehensive income attributable to noncontrolling interest
(214
)
 
(232
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO RPT
$
8,940

 
$
9,670


The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 4





RPT REALTY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 2019 and March 31, 2018
(In thousands)
(Unaudited)
 
 
 
 
 
 
 
Shareholders' Equity of RPT Realty
 
 
 
 
 
Preferred
Shares
 
Common
Shares
 
Additional
Paid-in Capital
 
Accumulated Distributions in Excess of Net Income
 
Accumulated Other Comprehensive Income
 
Noncontrolling Interest
 
Total Shareholders’ Equity
Balance, December 31, 2018
$
92,427

 
$
797

 
$
1,164,848

 
$
(450,130
)
 
$
4,020

 
$
19,581

 
$
831,543

Adoption of ASU 2016-02

 

 

 
(325
)
 

 
(8
)
 
(333
)
Share-based compensation, net of shares withheld for employee taxes

 
1

 
1,200

 

 

 

 
1,201

Dividends declared to common shareholders

 

 

 
(17,546
)
 

 

 
(17,546
)
Dividends declared to preferred shareholders

 

 

 
(1,675
)
 

 

 
(1,675
)
Distributions declared to noncontrolling interests

 

 

 

 

 
(421
)
 
(421
)
Dividends declared to deferred shares

 

 

 
(132
)
 

 

 
(132
)
Other comprehensive income adjustment

 

 

 

 
(1,503
)
 
(36
)
 
(1,539
)
Net income

 

 

 
10,443

 

 
250

 
10,693

Balance, March 31, 2019
$
92,427

 
$
798

 
$
1,166,048

 
$
(459,365
)
 
$
2,517

 
$
19,366

 
$
821,791

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
$
92,427

 
$
794

 
$
1,160,862

 
$
(392,619
)
 
$
2,858

 
$
20,847

 
$
885,169

Adoption of ASU 2017-05

 

 

 
2,109

 

 
51

 
2,160

Redemption of OP unit holders

 

 

 
(2
)
 

 
(5
)
 
(7
)
Share-based compensation, net of shares withheld for employee taxes

 
1

 
390

 

 

 

 
391

Dividends declared to common shareholders

 

 

 
(17,484
)
 

 

 
(17,484
)
Dividends declared to preferred shareholders

 

 

 
(1,675
)
 

 

 
(1,675
)
Distributions declared to noncontrolling interests

 

 

 

 

 
(421
)
 
(421
)
Dividends declared to deferred shares

 

 

 
(127
)
 

 

 
(127
)
Other comprehensive income adjustment

 

 

 

 
2,385

 
57

 
2,442

Net income

 

 

 
7,286

 

 
174

 
7,460

Balance, March 31, 2018
$
92,427

 
$
795

 
$
1,161,252

 
$
(402,512
)
 
$
5,243

 
$
20,703

 
$
877,908

 
The accompanying notes are an integral part of these condensed consolidated financial statements.


Page 5





RPT REALTY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
 
Three Months Ended March 31,
 
2019
 
2018
OPERATING ACTIVITIES
 
 
 
Net income
$
10,693

 
$
7,460

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
19,219

 
21,112

Amortization of deferred financing fees
362

 
380

Income tax provision
36

 
18

Earnings from unconsolidated joint ventures
(54
)
 
(71
)
Distributions received from operations of unconsolidated joint ventures
17

 
222

Gain on sale of real estate
(5,702
)
 

Amortization of premium on mortgages, net
(242
)
 
(260
)
Service-based restricted share expense
812

 
724

Long-term incentive cash and equity compensation expense
206

 
71

Changes in assets and liabilities:
 

 
 

Accounts receivable, net
(2,687
)
 
891

Acquired lease intangibles and other assets, net
(454
)
 
206

Accounts payable, acquired lease intangibles and other liabilities
(8,330
)
 
(3,205
)
Net cash provided by operating activities
13,876

 
27,548

 
 
 
 
INVESTING ACTIVITIES
 

 
 

Acquisition of real estate

 
(6,365
)
Development and capital improvements
(16,760
)
 
(22,816
)
Net proceeds from sales of real estate
66,960

 

Net cash provided by (used in) investing activities
50,200

 
(29,181
)
 
 
 
 
FINANCING ACTIVITIES
 

 
 

Repayments of mortgages and notes payable
(654
)
 
(642
)
Proceeds on revolving credit facility

 
25,000

Redemption of operating partnership units for cash

 
(7
)
Shares used for employee taxes upon vesting of awards
(101
)
 
(411
)
Dividends paid to preferred shareholders
(1,675
)
 
(1,675
)
Dividends paid to common shareholders and deferred shares
(17,634
)
 
(17,573
)
Distributions paid to operating partnership unit holders
(421
)
 
(421
)
Net cash (used in) provided by financing activities
(20,485
)
 
4,271

 
 
 
 
Net change in cash, cash equivalents and restricted cash
43,591

 
2,638

Cash, cash equivalents and restricted cash at beginning of period
44,722

 
12,891

Cash, cash equivalents and restricted cash at end of period
$
88,313

 
$
15,529

 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 

 
 

Cash paid for interest (net of capitalized interest of $24 and $245 in 2019 and 2018, respectively)
$
7,296

 
$
6,078

Deferred gain recognized in equity
$

 
$
2,160


 
As of March 31,
Reconciliation of cash, cash equivalents and restricted cash
2019
 
2018
Cash and cash equivalents
$
85,016

 
$
10,315

Restricted cash and escrows
3,297

 
5,214

 
$
88,313

 
$
15,529

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 6





RPT REALTY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.  Organization and Basis of Presentations

Organization

RPT Realty, together with its subsidiaries (the “Company” or “RPT”), is a real estate investment trust (“REIT”) engaged in the business of owning and operating a national portfolio of dynamic open-air shopping destinations principally located in the top U.S. markets. The Company's locally-curated consumer experience reflects the lifestyles of its diverse neighborhoods and match the modern expectation of its retail partners. The Company is a fully integrated and self-administered REIT publicly traded on the New York Stock Exchange under the ticker symbol RPT. As of March 31, 2019, the Company's portfolio consisted of 49 shopping centers (including one shopping center owned through a joint venture) representing 11.9 million square feet.  As of March 31, 2019, the Company’s aggregate portfolio was 94.8% leased.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company and our majority owned subsidiary, the operating partnership, RPT Realty, L.P. (the "OP") (97.7% owned by the Company at March 31, 2019 and December 31, 2018), and all wholly-owned subsidiaries, including entities in which we have a controlling financial interest.

We have elected to be a REIT for federal income tax purposes.  All intercompany balances and transactions have been eliminated in consolidation.  The information furnished is unaudited and reflects all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature.  These condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018.

The preparation of our unaudited financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited financial statements and the reported amounts of revenues and expenses during the reporting period.  We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and reported amounts that are not readily apparent from other sources.  Actual results could differ from those estimates.

Reclassifications

Certain amounts in the prior period have been reclassified in order to conform with the current period’s presentation. The Company reclassified $0.7 million of expense associated with property related employee compensation and benefits from General and administrative expense to Non-recoverable operating expense for the three months ended March 31, 2018.

Recently Adopted Accounting Pronouncements

In June 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expanded the scope of Topic 718, Compensation-Stock Compensation (which previously only included share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees is now substantially aligned. This standard became effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The adoption of this standard did not have a material impact on our consolidated financial statements.


Page 7





In February 2016, the FASB updated ASC Topic 842 “Leases” (“ASU 2016-02”). ASU 2016-02 requires lessees to record operating and financing leases as assets and liabilities on the balance sheet and lessors to expense costs that are not incremental direct leasing costs. In addition, the following ASUs were subsequently issued related to ASC Topic 842, all of which were effective with ASU 2016-02:

In January 2018, the FASB issued ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842”. The standard provides an optional transition practical expedient for the adoption of ASU 2016-02 that, if elected, does not require an organization to reconsider its accounting for existing land easements that are not currently accounted for under the old leases standard.
In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” which affects narrow aspects of the guidance issued in the amendments in ASU 2016-02.
In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” which provides lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (Topic 606) and certain criteria are met. The guidance also provides an optional transition method which would allow entities to initially apply the new guidance in the period of adoption, recognizing a cumulative-effect adjustment to the opening balance of retained earnings, if necessary.
In December 2018, the FASB issued ASU 2018-20, “Leases (Topic 842): Narrow-Scope Improvements for Lessors,” which addresses specific issues in the leasing guidance, including sales taxes and other similar taxes collected from lessees, certain lessor costs paid directly by lessees, and recognition of variable payments for contracts with lease and non-lease components.

This standard became effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company has elected the practical expedients allowable under ASU 2018-01 and ASU 2018-11, which included the optional transition method permitting January 1, 2019 to be its initial application date. On January 1, 2019, the Company elected the single component practical expedient, which requires a lessor, by class of underlying asset, not to allocate the total consideration to the lease and non-lease components based on their relative stand-alone selling prices. This single component practical expedient requires the Company to account for the lease component and non-lease component(s) associated with that lease as a single component if (i) the timing and pattern of transfer of the lease component and the non-lease component(s) associated with it are the same and (ii) the lease component would be classified as an operating lease if it were accounted for separately. If these criteria are met, and the lease component is predominant, the lease is accounted for under ASC 842. As a result of this assessment, minimum rent and recovery income from the lease of real estate assets that qualify for this expedient are accounted for as a single component under ASC 842, with recovery income primarily as variable consideration. The Company’s operating leases commencing or modified after January 1, 2019, for which the Company is the lessor, qualify for the single component practical expedient accounting under ASC 842. Based on the Company’s election of available practical expedients, the Company’s existing operating leases whereby it is the lessor continue to be accounted for as operating leases under ASC 842.
However, ASC 842 changed certain requirements regarding lease classification for lessors that could result in the Company classifying certain future leases transacted or modified subsequent to adoption of the standard, particularly long-term ground leases, as sales-type or direct financing leases as opposed to operating leases.

Prior to the adoption of ASC 842, the Company recognized tenant recovery income regardless of whether the third party was paid by the lessor or lessee. Effective January 1, 2019, such tenant recoveries are only recognized to the extent that the Company pays the third party directly and are classified as rental income on the Company’s condensed consolidated income statement. Under ASC 842, lessors are required to continually assess collectibility of lessee payments and, if operating lease payments are not probable of collection, to only recognize into income the lesser of (i) straight-line rental income or (ii) lease payments received to date. Additionally, only incremental direct leasing costs are now capitalized under this new guidance, and the Company recognized a cumulative effect adjustment of approximately $0.3 million to shareholders' equity, primarily related to certain costs associated with unexecuted leases that were deferred as of the adoption date.

For leases where the Company is a lessee, primarily the Company’s ground lease and administrative office leases, the Company recorded an operating lease liability of $16.6 million and a operating lease right-of-use asset of $18.0 million upon adoption, which were initially measured at the present value of future lease payments. The right-of-use asset was recorded net of our existing straight-line rent liability and ground lease intangible asset. The present value of future lease payments was discounted using our incremental borrowing rate on a collateralized basis over a similar term in a similar environment. For leases with a term of 12 months or less, the Company has made a policy election to not recognize lease liabilities and lease assets. For our existing ground and office operating leases, we have continued to recognize straight-line rent expense within non-recoverable operating expenses and general and administrative expenses, respectively, within our condensed consolidated statement of operations.

Page 8






Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,” which amends ASC 820, Fair Value Measurement. ASU 2018-13 modified the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. This standard is effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. We are currently evaluating the guidance and have not determined the impact this standard may have on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04 “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of ASU 2017-04 is not expected to have a material impact on our consolidated financial statements.

In June 2016, the FASB updated Accounting Standards Codification (“ASC”) Topic 326 “Financial Instruments - Credit Losses” with ASU 2016-13 “Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 enhances the methodology of measuring expected credit losses to include the use of forward-looking information to better inform credit loss estimates. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within that fiscal year. In addition, in November 2018 the FASB issued ASU 2018-19, which clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard. We are currently evaluating the guidance and have not determined the impact this standard may have on our condensed consolidated financial statements.

2.  Real Estate

Included in our net real estate assets are income producing properties that are recorded at cost less accumulated depreciation and amortization, construction in progress and land available for development.

We review our investment in real estate, including any related intangible assets, for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of the property may not be recoverable.  These changes in circumstances include, but are not limited to, changes in occupancy, rental rates, net operating income, real estate values and expected holding period.

For the three months ended March 31, 2019 and March 31, 2018, we recorded no impairment provision.

Land available for development includes real estate projects where vertical construction has yet to commence, but which have been identified by us and are available for future development when market conditions dictate the demand for a new shopping center or outparcel pad. The viability of all projects under construction or development is regularly evaluated under applicable accounting requirements, including requirements relating to abandonment of assets or changes in use.  Land available for development was $28.3 million and $29.5 million at March 31, 2019 and December 31, 2018, respectively.

Construction in progress represents existing development, redevelopment and tenant build-out projects.  When projects are substantially complete and ready for their intended use, balances are transferred to land or building and improvements as appropriate.  Construction in progress was $19.5 million and $23.7 million at March 31, 2019 and December 31, 2018, respectively. The decrease in construction in progress from December 31, 2018 to March 31, 2019 was due primarily to property dispositions and the completion of ongoing expansion projects, partially offset by capital expenditures for ongoing projects.

Pursuant to the criteria established under ASC Topic 360 we classify properties as held for sale when executed purchase and sales agreement contingencies have been satisfied thereby signifying that the sale is legally binding and probable of closing within one year of the reporting date. As of March 31, 2019, and December 31, 2018, we had no properties and no land parcels classified as held for sale.

Page 9





3.  Property Acquisitions and Dispositions

Acquisitions

There were no acquisitions in the three months ended March 31, 2019.

Dispositions

The following table provides a summary of our disposition activity in the three months ended March 31, 2019:
 
 
 
 
 
 
 
 
 
 
Gross
Property Name
 
Location
 
GLA
 
Acreage

 
Date
Sold
 
Sales Price
 
Gain on Sale
 
 
 
 
(in thousands)

 
 
 
 
 
(In thousands)
East Town Plaza
 
Madison, WI
 
217

 
N/A

 
02/20/19
 
$
13,500

 
$
1,169

The Shoppes at Fox River
 
Waukesha, WI
 
332

 
N/A

 
03/06/19
 
55,000

 
4,533

Total income producing dispositions
 
549

 
N/A

 
 
 
$
68,500

 
$
5,702

 
 
 
 
 
 
 
 
 
 
 
 
 
Total dispositions
 
 
 
549

 

 
 
 
$
68,500

 
$
5,702

 
 
 
 
 
 
 
 
 
 
 
 
 

4.  Equity Investments in Unconsolidated Joint Ventures

We are an investor in three joint venture agreements: 1) Ramco/Lion Venture LP, 2) Ramco 450 Venture LLC, and 3) Ramco HHF NP LLC, whereby we own 7%, 20%, and 30%, respectively, of the equity in each joint venture. We and the joint venture partners have joint approval rights for major decisions, including those regarding property operations.  We cannot make significant decisions without our partner’s approval.  Accordingly, we account for our interest in the joint ventures using the equity method of accounting.

The combined condensed financial information for our unconsolidated joint ventures is summarized as follows:
Balance Sheets
 
March 31, 2019
 
December 31, 2018
 
 
(In thousands)
ASSETS
 
 
 
 
Investment in real estate, net
 
$
22,450

 
$
22,591

Other assets
 
2,122

 
2,099

Total Assets
 
$
24,572

 
$
24,690

LIABILITIES AND OWNERS' EQUITY
 
 

 
 

Total liabilities
 
$
249

 
$
525

Owners' equity
 
24,323

 
24,165

Total Liabilities and Owners' Equity
 
$
24,572

 
$
24,690

 
 
 
 
 
RPT's equity investments in unconsolidated joint ventures
 
$
1,606

 
$
1,572

 
 
 
 
 


Page 10





 
 
Three Months Ended March 31,
Statements of Operations
 
2019
 
2018
 
 
(In thousands)
Total revenue
 
$
794

 
$
1,187

Total expenses 
 
396

 
748

Net income
 
$
398

 
$
439

 
 
 
 
 
RPT's share of earnings from unconsolidated joint ventures
 
$
54

 
$
71

 
 
 
 
 

Acquisitions

There was no acquisition activity in the three months ended March 31, 2019 by any of our unconsolidated joint ventures.

Dispositions

There was no disposition activity in the three months ended March 31, 2019 by any of our unconsolidated joint ventures.

Joint Venture Management and Other Fee Income

We are engaged by our joint ventures to provide asset management, property management, leasing and investing services for such ventures' respective properties.  We receive fees for our services, including a property management fee calculated as a percentage of gross revenues received, and recognize these fees as the services are rendered.  

The following table provides information for our fees earned which are reported in our condensed consolidated statements of operations:
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(In thousands)
Management fees
 
$
27

 
$
46

Leasing fees
 
24

 
40

Total
 
$
51

 
$
86

 
 
 
 
 


Page 11





5.  Debt

The following table summarizes our mortgages, notes payable and finance lease obligation as of March 31, 2019 and December 31, 2018:
Notes Payable and Finance Lease Obligation
 
March 31,
2019
 
December 31,
2018
 
 
(In thousands)
Senior unsecured notes
 
$
610,000

 
$
610,000

Unsecured term loan facilities
 
210,000

 
210,000

Fixed rate mortgages
 
114,480

 
115,134

Unsecured revolving credit facility
 

 

Junior subordinated notes
 
28,125

 
28,125

 
 
962,605

 
963,259

Unamortized premium
 
2,706

 
2,948

Unamortized deferred financing costs
 
(2,878
)
 
(3,058
)
Total notes payable
 
$
962,433

 
$
963,149

 
 
 
 
 
Finance lease obligation
 
$
975

 
$
975

 
 
 
 
 
 
Senior Unsecured Notes

The following table summarizes the Company's senior unsecured notes:
 
 
 
 
March 31, 2019
 
December 31, 2018
Senior Unsecured Notes
 
Maturity Date
 
Principal Balance
 
Interest Rate/Weighted Average Interest Rate
 
Principal Balance
 
Interest Rate/Weighted Average Interest Rate
 
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Senior unsecured notes
 
6/27/2021
 
$
37,000

 
3.75
%
 
$
37,000

 
3.75
%
Senior unsecured notes
 
12/21/2022
 
25,000

 
4.13
%
 
25,000

 
4.13
%
Senior unsecured notes
 
6/27/2023
 
41,500

 
4.12
%
 
41,500

 
4.12
%
Senior unsecured notes
 
5/28/2024
 
50,000

 
4.65
%
 
50,000

 
4.65
%
Senior unsecured notes
 
11/4/2024
 
50,000

 
4.16
%
 
50,000

 
4.16
%
Senior unsecured notes
 
11/18/2024
 
25,000

 
4.05
%
 
25,000

 
4.05
%
Senior unsecured notes
 
6/27/2025
 
31,500

 
4.27
%
 
31,500

 
4.27
%
Senior unsecured notes
 
7/6/2025
 
50,000

 
4.20
%
 
50,000

 
4.20
%
Senior unsecured notes
 
9/30/2025
 
50,000

 
4.09
%
 
50,000

 
4.09
%
Senior unsecured notes
 
5/28/2026
 
50,000

 
4.74
%
 
50,000

 
4.74
%
Senior unsecured notes
 
11/4/2026
 
50,000

 
4.30
%
 
50,000

 
4.30
%
Senior unsecured notes
 
11/18/2026
 
25,000

 
4.28
%
 
25,000

 
4.28
%
Senior unsecured notes
 
12/21/2027
 
30,000

 
4.57
%
 
30,000

 
4.57
%
Senior unsecured notes
 
11/30/2028
 
75,000

 
3.64
%
 
75,000

 
3.64
%
Senior unsecured notes
 
12/21/2029
 
20,000

 
4.72
%
 
20,000

 
4.72
%
 
 
 
 
$
610,000

 
4.21
%
 
$
610,000

 
4.21
%
Unamortized deferred financing costs
 
 
 
(1,480
)
 
 
 
(1,546
)
 
 
 
 
Total
 
$
608,520

 
 
 
$
608,454

 


 
 
 
 
 
 
 
 
 
 
 



Page 12





Unsecured Term Loan Facilities and Revolving Credit Facility

The following table summarizes the Company's unsecured term loan facilities and revolving credit facility:
 
 
 
 
March 31, 2019
 
December 31, 2018
Unsecured Credit Facilities
 
Maturity Date
 
Principal Balance
 
Interest Rate/Weighted Average Interest Rate
 
Principal Balance
 
Interest Rate/Weighted Average Interest Rate
 
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
Unsecured term loan - fixed rate (1)
 
5/16/2020
 
$
75,000

 
2.99
%
 
$
75,000

 
2.99
%
Unsecured term loan - fixed rate (2)
 
5/29/2021
 
75,000

 
2.79
%
 
75,000

 
2.84
%
Unsecured term loan - fixed rate (3)
 
3/1/2023
 
60,000

 
3.37
%
 
60,000

 
3.42
%
 
 
 
 
$
210,000

 
3.03
%
 
$
210,000

 
3.06
%
Unamortized deferred financing costs
 
 
 
(716
)
 
 
 
(808
)
 
 
Term loans, net
 
 
 
$
209,284

 
 
 
$
209,192

 
 
 
 
 
 
 
 
 
 
 
 
 
Revolving credit facility - variable rate
 
9/14/2021
 
$

 
3.80
%
 

 
3.81
%
 
 
 
 
 
 
 
 
 
 
 
(1) 
Swapped to a weighted average fixed rate of 1.69%, plus a credit spread of 1.30%, based on a leverage grid at March 31, 2019.
(2) 
Swapped to a weighted average fixed rate of 1.49%, plus a credit spread of 1.30%, based on a leverage grid at March 31, 2019.
(3) 
Swapped to a weighted average fixed rate of 1.77%, plus a credit spread of 1.60%, based on a leverage grid at March 31, 2019.

As of March 31, 2019 and December 31, 2018, we had no balance outstanding under our revolving credit facility. After adjusting for outstanding letters of credit issued under our revolving credit facility, not reflected in the accompanying condensed consolidated balance sheets, totaling $0.2 million, we had $349.8 million of availability under our revolving credit facility. The interest rate as of March 31, 2019 was 3.80%.

Mortgages

The following table summarizes the Company's fixed rate mortgages:
 
 
 
 
March 31, 2019
 
December 31, 2018
Mortgage Debt
 
Maturity Date
 
Principal Balance
 
Interest Rate/Weighted Average Interest Rate
 
Principal Balance
 
Interest Rate/Weighted Average Interest Rate
 
 
 
 
(in thousands)
 
 
 
(in thousands)
 
 
West Oaks II and Spring Meadows Place
 
4/20/2020
 
$
25,588

 
6.50
%
 
$
25,804

 
6.50
%
Bridgewater Falls Shopping Center
 
2/6/2022
 
54,237

 
5.70
%
 
54,514

 
5.70
%
The Shops on Lane Avenue
 
1/10/2023
 
28,650

 
3.76
%
 
28,650

 
3.76
%
Nagawaukee II
 
6/1/2026
 
6,005

 
5.80
%
 
6,166

 
5.80
%
 
 
 
 
$
114,480

 
5.40
%
 
$
115,134

 
5.40
%
Unamortized premium
 
 
 
2,706

 
 
 
2,948

 
 
Unamortized deferred financing costs
 
 
 
(59
)
 
 
 
(73
)
 
 
 
 
Total
 
$
117,127

 
 
 
$
118,009

 
 
 
 
 
 
 
 
 
 
 
 
 

The fixed rate mortgages are secured by properties that have an approximate net book value of $180.3 million as of March 31, 2019.

The mortgage loans encumbering our properties are generally nonrecourse, subject to certain exceptions for which we would be liable for any resulting losses incurred by the lender.  These exceptions vary from loan to loan but generally include fraud or a material misrepresentation, misstatement or omission by the borrower, intentional or grossly negligent conduct by the borrower that harms the property or results in a loss to the lender, filing of a bankruptcy petition by the borrower, either directly or indirectly and certain environmental liabilities.  In addition, upon the occurrence of certain events, such as fraud or filing of a bankruptcy

Page 13





petition by the borrower, we would be liable for the entire outstanding balance of the loan, all interest accrued thereon and certain other costs, including penalties and expenses.

We have entered into a mortgage loan which is secured by multiple properties and contains cross-collateralization and cross-default provisions.  Cross-collateralization provisions allow a lender to foreclose on multiple properties in the event that we default under the loan.  Cross-default provisions allow a lender to foreclose on the related property in the event a default is declared under another loan.

Junior Subordinated Notes

Our junior subordinated notes have a variable rate of LIBOR plus 3.30%. The maturity date is January 2038.

Covenants

Our unsecured revolving credit facility, senior unsecured notes, and unsecured term loan facilities contain financial covenants relating to total leverage, fixed charge coverage ratio, unencumbered assets, tangible net worth and various other calculations. As of March 31, 2019, we were in compliance with these covenants.

Debt Maturities

The following table presents scheduled principal payments on mortgages and notes payable as of March 31, 2019:
Year Ending December 31,
 
(In thousands)
2019
$
1,957

2020
102,269

2021
114,508

2022
77,397

2023
129,388

Thereafter
537,086

Subtotal debt
962,605

Unamortized premium
2,706

Unamortized deferred financing costs
(2,878
)
Total debt
$
962,433

 
 


6.  Fair Value

We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  Derivative instruments (interest rate swaps) are recorded at fair value on a recurring basis.  Additionally, we, from time to time, may be required to record other assets at fair value on a nonrecurring basis.  As a basis for considering market participant assumptions in fair value measurements, GAAP establishes three fair value levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.  The assessed inputs used in determining any fair value measurement could result in incorrect valuations that could be material to our condensed consolidated financial statements.  These levels are:

Level 1
Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2
Valuation is based upon prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3
Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market.  These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the assets or liabilities.


Page 14





The following is a description of valuation methodologies used for our assets and liabilities recorded at fair value.

Derivative Assets and Liabilities

All of our derivative instruments are interest rate swaps for which quoted market prices are not readily available.  For those derivatives, we measure fair value on a recurring basis using valuation models that use primarily market observable inputs, such as yield curves.  We classify these instruments as Level 2.  Refer to Note 7 Derivative Financial Instruments of the notes to the condensed consolidated financial statements for additional information on our derivative financial instruments.

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018.
 
 
 
 
Total
Fair Value
 
Level 2
 
 
Balance Sheet Location
 
 
March 31, 2019
 
 
 
(In thousands)
Derivative assets - interest rate swaps
 
Other assets
 
$
2,576

 
$
2,576

Derivative liabilities - interest rate swaps
 
Other liabilities
 
$

 
$

December 31, 2018
 
 
 
 
 
 
Derivative assets - interest rate swaps
 
Other assets
 
$
4,115

 
$
4,115

Derivative liabilities - interest rate swaps
 
Other liabilities
 
$

 
$

 
 
 
 
 
 
 
 
The carrying values of cash and cash equivalents, restricted cash, receivables and accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short maturity of these financial instruments.

We estimated the fair value of our debt based on our incremental borrowing rates for similar types of borrowing arrangements with the same remaining maturity and on the discounted estimated future cash payments to be made for other debt.  The discount rates used approximate current lending rates for loans or groups of loans with similar maturities and credit quality, assume the debt is outstanding through maturity and consider the debt’s collateral (if applicable).  Since such amounts are estimates that are based on limited available market information for similar transactions (Level 3), there can be no assurance that the disclosed value of any financial instrument could be realized by immediate settlement of the instrument. 

Fixed rate debt (including variable rate debt swapped to fixed through derivatives) with carrying values of $934.5 million and $935.1 million as of March 31, 2019 and December 31, 2018, respectively, had fair values of approximately $942.4 million and $928.2 million, respectively.  Variable rate debt’s fair value is estimated to be the carrying values of $28.1 million as of March 31, 2019 and December 31, 2018.

The following is a description of valuation methodologies used for our assets and liabilities recorded at fair value on a nonrecurring basis:

Net Real Estate

Our net investment in real estate, including any identifiable intangible assets, is subject to impairment testing on a nonrecurring basis. To estimate fair value, we use discounted cash flow models that include assumptions of the discount rates that market participants would use in pricing the asset or pricing from potential or comparable market transactions. To the extent impairment has occurred, we charge to expense the excess of the carrying value of the property over its estimated fair value. We classify impaired real estate assets as nonrecurring Level 3. During the three months ended March 31, 2019, we did not incur any impairment for income producing shopping centers that are required to be measured at fair value on a nonrecurring basis. We did not have any material liabilities that were required to be measured at fair value on a nonrecurring basis during the period.


Page 15





7.  Derivative Financial Instruments

We utilize interest rate swap agreements for risk management purposes to reduce the impact of changes in interest rates on our variable rate debt.  We may also enter into forward starting swaps to set the effective interest rate on planned variable rate financing. On the date we enter into an interest rate swap, the derivative is designated as a hedge against the variability of cash flows that are to be paid in connection with a recognized liability.  Subsequent changes in the fair value of a derivative designated as a cash flow hedge that is determined to be effective are recorded in other comprehensive income (“OCI”) until earnings are affected by the variability of cash flows of the hedged transaction.  The differential between fixed and variable rates to be paid or received is accrued, as interest rates change, and recognized currently as interest expense in the condensed consolidated statements of operations.  We assess effectiveness of our cash flow hedges both at inception and on an ongoing basis.   Our cash flow hedges become ineffective, for example, if critical terms of the hedging instrument and the debt do not perfectly match such as notional amounts, settlement dates, reset dates and calculation period and LIBOR rate. At March 31, 2019, all of our hedges were effective.

The following table summarizes the notional values and fair values of our derivative financial instruments as of March 31, 2019:
 
 
Hedge
Type
 
Notional
Value
 
Fixed
Rate
 
Fair
Value
 
Expiration
Date
Underlying Debt
 
 
 
 
 
 
 
 
 
(In thousands)
 
 

 
(In thousands)
 
 
Derivative Assets
 
 
 
 
 
 
 
 
 
 
Unsecured term loan
 
Cash Flow
 
$
15,000

 
2.150
%
 
$
36

 
05/2020
Unsecured term loan
 
Cash Flow
 
10,000

 
2.150
%
 
24

 
05/2020
Unsecured term loan
 
Cash Flow
 
50,000

 
1.460
%
 
508

 
05/2020
Unsecured term loan
 
Cash Flow
 
20,000

 
1.498
%
 
305

 
05/2021
Unsecured term loan
 
Cash Flow
 
15,000

 
1.490
%
 
232

 
05/2021
Unsecured term loan
 
Cash Flow
 
40,000

 
1.480
%
 
625

 
05/2021
Unsecured term loan
 
Cash Flow
 
60,000

 
1.770
%
 
846

 
03/2023
 
 
 
 
$
210,000

 
 
 
$
2,576

 
 
 
 
 
 
 
 
 
 
 
 
 

The effect of derivative financial instruments on our condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018 is summarized as follows:
 
 
Amount of Gain (Loss)
Recognized in OCI on Derivative
 
Location of Gain
(Loss)
Reclassified from
Accumulated OCI
into Income
 
Amount of Gain (Loss)
Reclassified from
Accumulated OCI into
Income
Derivatives in Cash Flow Hedging Relationship
 
Three Months Ended March 31,
 
 
Three Months Ended March 31,
 
2019
 
2018
 
 
2019
 
2018
 
 
(In thousands)
 
 
 
(In thousands)
Interest rate contracts - assets
 
$
(1,988
)
 
$
2,278

 
Interest Expense
 
$
449

 
$
(33
)
Interest rate contracts - liabilities
 

 
277

 
Interest Expense
 

 
(80
)
Total
 
$
(1,988
)
 
$
2,555

 
Total
 
$
449

 
$
(113
)
 
 
 
 
 
 
 
 
 
 
 


Page 16





8. Leases

Revenues

Approximate future minimum revenues from rentals under non-cancelable operating leases in effect at March 31, 2019, assuming no new or renegotiated leases or option extensions on lease agreements and no early lease terminations were as follows:
Year Ending December 31,
 
 
(In thousands)
2019 (remaining)
$
124,826

2020
155,214

2021
136,845

2022
114,215

2023
92,956

Thereafter
315,063

Total
$
939,119

 
 


We recognized rental income related to variable lease payments of $15.1 million for the three months ended March 31, 2019.

Substantially all of the assets included as Income producing properties, net on the condensed consolidated balance sheets, relate to our portfolio of wholly owned shopping centers, in which we are the lessor under operating leases with our tenants. As of March 31, 2019, the Company’s aggregate portfolio was 94.8% leased.
 
Expenses

We have operating leases for our two corporate offices that expire in August 2019 and January 2024, and an operating ground lease at Centennial Shops located in Edina, Minnesota which includes rent escalations throughout the lease period and expires in April 2105. We also have a finance ground lease at our Buttermilk Towne Center with the City of Crescent Springs that expires in December 2032. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expenses for these leases on a straight-line basis over the lease term.

The components of lease expense were as follows:
 
 
Three Months Ended March 31,
Statements of Operations
Classification
2019
 
2018
 
 
(In thousands)
Operating ground lease cost
Non-recoverable operating expense
$
291

 
$
291

Operating administrative lease cost
General and administrative expense
$
233

 
$
149

Finance lease cost
Interest Expense
$
13

 
$
13

 
 
 
 
 

Page 17





Supplemental balance sheet information related to leases is as follows:
Balance Sheet
Classification
March 31, 2019
 
 
(In thousands)
ASSETS
 
 
Operating lease assets
Operating lease right-of-use assets
$
17,698

Finance lease asset
Land
13,249

Total leased assets
 
$
30,947

 
 
 
LIABILITIES
 
 
Operating lease liabilities
Operating lease liabilities
$
16,403

Finance lease liability
Finance lease liability
975

Total lease liabilities
 
$
17,378

 
 
 
Weighted Average Remaining Lease Terms
 
Operating leases
 
76 years

Finance lease
 
14 years

Weighted Average Incremental Borrowing Rate
 
Operating leases
 
6.21
%
Finance lease
 
5.23
%
 
 
 

Supplemental cash flow information related to leases is as follows:
 
Three Months Ended
 
March 31, 2019
 
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
434

Operating cash flows from finance lease

Financing cash flows from finance lease

 
 

Maturities of lease liabilities as of March 31, 2019 were as follows:
Maturity of Lease Liabilities
 
Operating Leases
 
Finance Lease
 
 
(In thousands)
2019 (remaining)
 
$
1,193

 
$
100

2020
 
1,243

 
100

2021
 
1,252

 
100

2022
 
1,262

 
100

2023
 
1,272

 
100

Thereafter
 
94,462

 
900

Total lease payments
 
$
100,684

 
$
1,400

Less imputed interest
 
(84,281
)
 
(425
)
Total
 
$
16,403

 
$
975

 
 
 

 
 


Page 18





9.   Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per share:
 
Three Months Ended
 
March 31,
 
2019
 
2018
 
(In thousands, except per share data)
Net income
$
10,693

 
$
7,460

Net income attributable to noncontrolling interest
(250
)
 
(174
)
Allocation of income to restricted share awards
(132
)
 
(108
)
Income attributable to RPT
10,311


7,178

Preferred share dividends
(1,675
)
 
(1,675
)
Net income available to common shareholders - Basic and Diluted
$
8,636

 
$
5,503

 
 
 
 
Weighted average shares outstanding, Basic
79,744

 
79,423

Restricted stock awards using the treasury method
187

 
147

Weighted average shares outstanding, Diluted
79,931

 
79,570


 

 
 

Income per common share, Basic
$
0.11

 
$
0.07

Income per common share, Diluted
$
0.11

 
$
0.07

 
 
 
 

We exclude certain securities from the computation of diluted earnings per share. The following table presents the outstanding securities that were excluded from the computation of diluted earnings per share and the number of common shares each was convertible into (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
 
Outstanding
Convertible
 
Outstanding
Convertible
Operating Partnership Units
1,909

1,909

 
1,916

1,916

Series D Preferred Shares
1,849

6,891

 
1,849

6,772

Performance Share Units


 
196


 
3,758

8,800

 
3,961

8,688

 
 
 
 
 
 

10.  Share-based Compensation Plans

As of March 31, 2019, we have two share-based compensation plans in effect: 1) the 2012 Omnibus Long-Term Incentive Plan (“2012 LTIP”) under which our compensation committee may grant, subject to any Company performance conditions as specified by the compensation committee, restricted shares, restricted share units, options and other awards to trustees, officers and other key employees; and 2) the Inducement Incentive Plan (“Inducement Plan”), which was approved by the Board of Trustees in April 2018 and under which our compensation committee may grant, subject to any Company performance conditions as specified by the compensation committee, restricted shares, restricted share units, options and other awards to individuals who were not previously employees or members of the Board as an inducement to the individual’s entry into employment with the Company.  The 2012 LTIP allows us to issue up to 2.0 million common shares of beneficial interest, of which 0.6 million remained available for issuance as of March 31, 2019. The Inducement Plan allows us to issue up to 6.0 million common shares of beneficial interest, of which 5.4 million remained available for issuance as of March 31, 2019.

As of March 31, 2019, we had 312,997 unvested service-based share awards granted under the 2012 LTIP and 218,955 unvested service-based share awards granted under the Inducement Plan.  These awards have various expiration dates through March 2023.


Page 19





During the three months ended March 31, 2019, we granted the following awards:

207,230 shares of service-based restricted stock. The service-based awards were valued based on our closing stock price as of the grant date; and
performance-based equity awards that are earned subject to a future performance measurement based on a three-year shareholder return peer comparison (“TSR Grants”).  

The service-based restricted share awards to employees vest over three years or five years and the compensation expense is recognized on a graded vesting basis. The service-based restricted share awards to trustees vest over one year. We recognized expense related to service-based restricted share grants of $0.8 million and $0.7 million for the three months ended March 31, 2019 and March 31, 2018, respectively.

Pursuant to ASC 718 – Stock Compensation, we determine the grant date fair value of TSR Grants that will be settled in cash, and any subsequent re-measurements, based upon a Monte Carlo simulation model.  We will recognize the compensation expense ratably over the requisite service period.  We are required to re-value the cash awards at the end of each quarter using the same methodology as was used at the initial grant date and adjust the compensation expense accordingly.  If at the end of the three-year measurement period the performance criterion is not met, compensation expense related to the cash awards previously recognized would be reversed. Compensation expense (benefit) related to the cash awards was $(0.3) million and $0.0 million for the three months ended March 31, 2019 and March 31, 2018, respectively. The weighted average assumptions used in the Monte Carlo simulation models are summarized in the following table:
 
 
March 31, 2019
 
December 31, 2018
Closing share price
 
$
12.01

 
$
11.95

Expected dividend rate
 
7.3
%
 
7.4
%
Expected stock price volatility
 
23.2% - 25.2%

 
24.9
%
Risk-free interest rate
 
2.2% - 2.4%

 
2.6
%
Expected life (years)
 
0.75 - 2.75

 
1.00

 
 
 
 
 

The Company also determines the grant date fair value of the TSR Grants that will be settled in equity based upon a Monte Carlo simulation model and recognizes the compensation expense ratably over the requisite service period. These equity awards are not re-valued at the end of each quarter. The compensation cost will be recognized regardless of whether the performance criterion are met, provided the requisite service has been provided. Compensation expense related to the equity awards was $0.5 million and $0.1 million for the three months ended March 31, 2019 and March 31, 2018, respectively. The fair value of each grant for the reported periods is estimated on the date of grant using the Monte Carlo simulation model using the weighted average assumptions noted in the following table.
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Closing share price
 
$
12.05

 
$
11.89

Expected dividend rate
 
7.3
%
 
7.4
%
Expected stock price volatility
 
22.9
%
 
21.5
%
Risk-free interest rate
 
2.5
%
 
2.3
%
Expected life (years)
 
2.85

 
2.85

 
 
 
 
 

We recognized total share-based compensation expense of $1.0 million and $0.8 million for the three months ended March 31, 2019 and March 31, 2018, respectively.

As of March 31, 2019, we had $9.1 million of total unrecognized compensation expense related to unvested restricted shares and performance based equity and cash awards.  This expense is expected to be recognized over a weighted-average period of 2.4 years.


Page 20





11.  Taxes

Income Taxes

We conduct our operations with the intent of meeting the requirements applicable to a REIT under sections 856 through 860 of the Internal Revenue Code.  In order to maintain our qualification as a REIT, we are required to distribute annually at least 90% of our REIT taxable income, excluding net capital gain, to our shareholders.  As long as we qualify as a REIT, we will generally not be liable for federal corporate income taxes.

Certain of our operations, including property management and asset management, as well as ownership of certain land, are conducted through our taxable REIT subsidiaries (“TRSs”) which allows us to provide certain services and conduct certain activities that are not generally considered as qualifying REIT activities.

Deferred tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws.  Deferred tax assets are reduced by a valuation allowance to the amount where realization is more likely than not assured after considering all available evidence, including expected taxable earnings and potential tax planning strategies.  Our temporary differences primarily relate to deferred compensation, depreciation, land basis differences, and net operating loss carry forwards.

As of March 31, 2019, we had a federal and state deferred tax asset of $7.6 million and a valuation allowance of $7.6 million.  Our deferred tax assets are reduced by an offsetting valuation allowance where there is uncertainty regarding their realizability. We believe that it is more likely than not that the results of future operations will not generate sufficient taxable income to recognize the deferred tax assets.  These future operations are primarily dependent upon the profitability of our TRSs, the timing and amounts of gains on land sales, and other factors affecting the results of operations of the TRSs.  

If in the future we are able to conclude it is more likely than not that we will realize a future benefit from a deferred tax asset, we will reduce the related valuation allowance by the appropriate amount. The first time this occurs, it will result in a net deferred tax asset on our balance sheet and an income tax benefit of equal magnitude in our consolidated statement of operations in the period we make the determination.

Income tax provisions recorded for the three months ended March 31, 2019 and 2018 were negligible.

Sales Taxes

We collect various taxes from tenants and remit these amounts, on a net basis, to the applicable taxing authorities.

12.  Commitments and Contingencies

Construction Costs

In connection with the development and expansion of various shopping centers as of March 31, 2019, we had entered into agreements for construction costs of approximately $7.2 million.

Litigation

From time to time, we are involved in certain litigation arising in the ordinary course of business; however, we do not believe that any of this litigation will have a material effect on our consolidated financial statements.

Development Obligations

As of March 31, 2019, the Company has $2.2 million of development related obligations that require annual payments through December 2034.


Page 21





Guarantee

A redevelopment agreement was entered into between the City of Jacksonville, the Jacksonville Economic Development Commission and the Company, to construct and develop River City Marketplace in 2005. As part of the agreement, the city agreed to finance up to $12.2 million of bonds. Repayment of the bonds is to be made in accordance with a level-payment amortization schedule over 20 years, and repayments are made out of tax revenues generated by the redevelopment. The remaining debt service payments due over the life of the bonds, including principal and interest, are $10.3 million. As part of the redevelopment, the Company executed a guaranty agreement whereby the Company would fund debt service payments if incremental tax revenues were not sufficient to fund repayment. There have been no payments made by the Company under this guaranty agreement to date.

Environmental Matters

We are subject to numerous federal, state and local environmental laws, ordinances and regulations in the areas where we own or operate properties. We are not aware of any contamination which may have been caused by us or any of our tenants that would have a material effect on our consolidated financial statements.

As part of our risk management activities, we have applied and been accepted into state sponsored environmental programs which will expedite and assure satisfactory compliance with environmental laws and regulations should contaminants need to be remediated. We also have an environmental insurance policy that covers us against third party liabilities and remediation
costs.

While we believe that we do not have any material exposure to environmental remediation costs, we cannot give absolute assurance that changes in the law or new discoveries of contamination will not result in additional liabilities to us.

13.  Subsequent Events

On April 30, 2019, we prepaid the outstanding balance of our $28.1 million junior subordinated note. The unamortized deferred financing costs at payoff approximated $0.6 million.

Page 22





Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Where we say "we," "us," or "our," we mean RPT Realty, RPT Realty, L.P., and/or its subsidiaries, as the context may require.

The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements, including the respective notes thereto, which are included in this Form 10-Q.

Forward-Looking Statements

This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements represent our expectations, plans or beliefs concerning future events and may be identified by terminology such as “may,” “will,” “should,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” “predict” or similar terms.  Although the forward-looking statements made in this document are based on our good faith beliefs, reasonable assumptions and our best judgment based upon current information, certain factors could cause actual results to differ materially from those in the forward-looking statements, including: our success or failure in implementing our business strategy; economic conditions generally and in the commercial real estate and finance markets specifically; the cost and availability of capital, which depends in part on our asset quality and our relationships with lenders and other capital providers; our business prospects and outlook; changes in governmental regulations, tax rates and similar matters; our continuing to qualify as a REIT; and other factors detailed from time to time in our filings with the SEC, including in particular those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.   Given these uncertainties, you should not place undue reliance on any forward-looking statements.  Except as required by law, we assume no obligation to update these forward-looking statements, even if new information becomes available in the future.

Overview

We own and operate a national portfolio of dynamic open-air shopping destinations principally located in the top U.S. markets. The Company's locally-curated consumer experience reflect the lifestyles of its diverse neighborhoods and match the modern expectation of its retail partners. The Company is a fully integrated and self-administered REIT publicly traded on the New York Stock Exchange under the ticker symbol RPT. As of March 31, 2019, the Company's portfolio consisted of 49 shopping centers (including one shopping center owned through a joint venture) representing 11.9 million square feet.  As of March 31, 2019, the Company’s aggregate portfolio was 94.8% leased.

Our Strategy

Our goal is to be a dominant shopping center owner, with a focus on the following:
Own and manage high quality open-air shopping centers predominantly concentrated in the top U.S. metro areas;
Maintain a value creation redevelopment and expansion pipeline;
Maximize balance sheet liquidity and flexibility; and
Retain motivated, talented and high performing employees.

Key methods to achieve our strategy:
Deliver above average relative shareholder return and generate outsized consistent and sustainable same property NOI and Operating FFO per share growth;
Pursue selective redevelopment projects with significant pre-leasing for which we expect to achieve attractive returns on investment;
Sell assets that no longer meet our long-term strategy and redeploy the proceeds to lease, redevelop and acquire assets in our core markets;
Achieve lower leverage while maintaining low variable interest rate risk; and
Retain access to diverse sources of capital, maintain liquidity through borrowing capacity under our unsecured line of credit and minimize the amount of debt maturities in a single year.

Page 23





The following table summarizes our operating portfolio by market as of March 31, 2019:
Market Summary
MSA
 
Number of Properties
 
GLA (in thousands)
 
Leased %
 
Occupied %
 
ABR/SF
 
% of ABR
Top 40 MSAs:
 
 
 
 
 
 
 
 
 
 
 
 
Atlanta
 
3

 
526

 
95.8
%
 
91.6
%
 
$
11.99

 
3.5
%
Baltimore
 
1

 
252

 
94.7
%
 
89.7
%
 
9.76

 
1.3
%
Chicago
 
4

 
767

 
92.0
%
 
86.1
%
 
15.97

 
6.4
%
Cincinnati
 
3

 
1,263

 
93.2
%
 
92.4
%
 
15.70

 
11.0
%
Columbus
 
2

 
434

 
93.1
%
 
87.3
%
 
16.95

 
3.9
%
Denver
 
1

 
503

 
91.3
%
 
76.4
%
 
20.94

 
4.8
%
Detroit
 
9

 
2,315

 
98.4
%
 
96.0
%
 
14.73

 
19.8
%
Indianapolis
 
1

 
247

 
89.4
%
 
86.0
%
 
13.61

 
1.7
%
Jacksonville
 
2

 
707

 
87.9
%
 
87.7
%
 
17.65

 
6.6
%
Miami
 
6

 
1,035

 
95.7
%
 
95.2
%
 
17.57

 
10.4
%
Milwaukee
 
2

 
546

 
89.9
%
 
89.9
%
 
12.23

 
3.6
%
Minneapolis
 
2

 
445

 
91.3
%
 
88.9
%
 
24.30

 
5.8
%
Nashville
 
1

 
633

 
98.4
%
 
98.0
%
 
13.30

 
5.0
%
St. Louis
 
4

 
827

 
97.1
%
 
89.0
%
 
15.74

 
7.0
%
Tampa
 
4

 
749

 
99.0
%
 
97.7
%
 
12.62

 
5.6
%
Top 40 MSA subtotal
 
45

 
11,249

 
94.8
%
 
91.7
%
 
$
15.50

 
96.4
%
Non Top 40 MSA
 
3

 
516

 
95.0
%
 
93.9
%
 
12.22

 
3.6
%
Total
 
48

 
11,765

 
94.8
%
 
91.8
%
 
$
15.36

 
100.0
%