Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - EQUITY ONE, INC.Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - EQUITY ONE, INC.eqy-10qx33115xexhibit311.htm
EX-12.1 - EXHIBIT 12.1 - EQUITY ONE, INC.eqy-10qx33115xexhibit121.htm
EX-31.2 - EXHIBIT 31.2 - EQUITY ONE, INC.eqy-10qx33115xexhibit312.htm
EX-32.1 - EXHIBIT 32.1 - EQUITY ONE, INC.eqy-10qx33115xexhibit321.htm
XML - IDEA: XBRL DOCUMENT - EQUITY ONE, INC.R9999.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015

OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________

Commission file number 001-13499
EQUITY ONE, INC.
________________________________________________________________________________
(Exact name of Registrant as specified in its charter)
Maryland
 
52-1794271
(State or other jurisdiction of
 incorporation or organization)
 
(I.R.S. Employer
Identification No.)
410 Park Avenue, Suite 1220
New York, NY
 
10022
(Address of principal executive offices)
 
(Zip Code)
(212) 796-1760
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 ý No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer o Non-accelerated filer o Smaller reporting company 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 ý
As of May 5, 2015, the number of outstanding shares of Common Stock, par value $0.01 per share, of the Registrant was 129,458,745.
 




 
EQUITY ONE, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED MARCH 31, 2015
 
 
 
 
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
Item 1.
Page
 
 
   2014
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 


1


PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements    
EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 2015 and December 31, 2014
(Unaudited)
(In thousands, except share par value amounts)
 
March 31,
2015
 
December 31,
2014
ASSETS
 
 
 
Properties:
 
 
 
Income producing
$
3,151,636

 
$
3,128,081

Less: accumulated depreciation
(395,180
)
 
(381,533
)
Income producing properties, net
2,756,456

 
2,746,548

Construction in progress and land
139,351

 
161,872

Properties, net
2,895,807

 
2,908,420

Cash and cash equivalents
76,167

 
27,469

Cash held in escrow and restricted cash
250

 
250

Accounts and other receivables, net
9,939

 
11,859

Investments in and advances to unconsolidated joint ventures
88,289

 
89,218

Goodwill
6,038

 
6,038

Other assets
223,267

 
218,971

TOTAL ASSETS
$
3,299,757

 
$
3,262,225

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Notes payable:
 
 
 
Mortgage notes payable
$
290,455

 
$
311,778

Unsecured senior notes payable
731,136

 
731,136

Term loan
250,000

 
250,000

Unsecured revolving credit facilities

 
37,000

 
1,271,591

 
1,329,914

Unamortized premium on notes payable, net
2,589

 
3,127

Total notes payable
1,274,180

 
1,333,041

Other liabilities:
 
 
 
Accounts payable and accrued expenses
47,125

 
49,924

Tenant security deposits
8,371

 
8,684

Deferred tax liability
12,757

 
12,567

Other liabilities
165,199

 
167,400

Total liabilities
1,507,632

 
1,571,616

Commitments and contingencies

 

Stockholders' equity:
 
 
 
Preferred stock, $0.01 par value – 10,000 shares authorized but unissued

 

Common stock, $0.01 par value – 250,000 shares authorized and 128,947 shares issued and
   outstanding at March 31, 2015; 150,000 shares authorized and 124,281 shares issued and
   outstanding at December 31, 2014
1,289

 
1,243

Additional paid-in capital
1,968,068

 
1,843,348

Distributions in excess of earnings
(379,657
)
 
(360,172
)
Accumulated other comprehensive loss
(3,720
)
 
(999
)
Total stockholders’ equity of Equity One, Inc.
1,585,980

 
1,483,420

Noncontrolling interests
206,145

 
207,189

Total equity
1,792,125

 
1,690,609

TOTAL LIABILITIES AND EQUITY
$
3,299,757

 
$
3,262,225


See accompanying notes to the condensed consolidated financial statements.

2


EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
For the three months ended March 31, 2015 and 2014
(Unaudited)
(In thousands, except per share data)
 
Three Months Ended March 31,
 
 
2015
 
2014
 
REVENUE:
 
 
 
 
Minimum rent
$
65,791

 
$
70,127

 
Expense recoveries
19,979

 
19,760

 
Percentage rent
2,154

 
2,181

 
Management and leasing services
555

 
629

 
Total revenue
88,479

 
92,697

 
COSTS AND EXPENSES:
 
 
 
 
Property operating
12,572

 
11,254

 
Real estate taxes
10,607

 
10,408

 
Depreciation and amortization
21,016

 
26,267

 
General and administrative
8,740

 
10,914

 
Total costs and expenses
52,935

 
58,843

 
INCOME BEFORE OTHER INCOME AND EXPENSE, TAX AND DISCONTINUED
   OPERATIONS
35,544

 
33,854

 
OTHER INCOME AND EXPENSE:
 
 
 
 
Investment income
41

 
171

 
Equity in income of unconsolidated joint ventures
882

 
8,261

 
Other income

 
2,841

 
Interest expense
(14,259
)
 
(16,900
)
 
Amortization of deferred financing fees
(550
)
 
(599
)
 
Loss on sale of operating properties
(17
)
 
(258
)
 
Gain on extinguishment of debt
138

 
1,074

 
Impairment loss
(11,307
)
 

 
INCOME FROM CONTINUING OPERATIONS BEFORE TAX AND DISCONTINUED
   OPERATIONS
10,472

 
28,444

 
Income tax benefit (provision) of taxable REIT subsidiaries
36

 
(533
)
 
INCOME FROM CONTINUING OPERATIONS
10,508

 
27,911

 
DISCONTINUED OPERATIONS:
 
 
 
 
Operations of income producing properties

 
(232
)
 
Gain on disposal of income producing properties

 
3,296

 
INCOME FROM DISCONTINUED OPERATIONS

 
3,064

 
NET INCOME
10,508

 
30,975

 
Net income attributable to noncontrolling interests - continuing operations
(2,502
)
 
(4,701
)
 
Net loss attributable to noncontrolling interests - discontinued operations

 
2

 
NET INCOME ATTRIBUTABLE TO EQUITY ONE, INC.
$
8,006

 
$
26,276

 
 
 
 
 
 
EARNINGS PER COMMON SHARE - BASIC:
 
 
 
 
Continuing operations
$
0.06

 
$
0.20

 
Discontinued operations

 
0.03

 
 
$
0.06

 
$
0.22

*
Number of Shares Used in Computing Basic Earnings per Share
124,740

 
117,675

 
EARNINGS PER COMMON SHARE - DILUTED:
 
 
 
 
Continuing operations
$
0.06

 
$
0.20

 
Discontinued operations

 
0.03

 
 
$
0.06

 
$
0.22

*
Number of Shares Used in Computing Diluted Earnings per Share
124,989

 
117,936

 
CASH DIVIDENDS DECLARED PER COMMON SHARE
$
0.22

 
$
0.22

 
* Note: EPS does not foot due to the rounding of the individual calculations.

See accompanying notes to the condensed consolidated financial statements.

3


EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
For the three months ended March 31, 2015 and 2014
(Unaudited)
(In thousands)
 
Three Months Ended March 31,
 
2015
 
2014
NET INCOME
$
10,508

 
$
30,975

OTHER COMPREHENSIVE LOSS:
 
 
 
Net amortization of interest rate contracts included in net income
16

 
16

Net unrealized loss on interest rate swaps (1)
(3,584
)
 
(1,729
)
Net loss on interest rate swaps reclassified from accumulated other comprehensive
   loss into interest expense
847

 
842

Other comprehensive loss
(2,721
)
 
(871
)
COMPREHENSIVE INCOME
7,787

 
30,104

Comprehensive income attributable to noncontrolling interests
(2,502
)
 
(4,699
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO EQUITY ONE, INC.
$
5,285

 
$
25,405

(1) This amount includes our share of our unconsolidated joint ventures' net unrealized losses of $195 and $161 for the three months ended March 31, 2015 and 2014, respectively.

See accompanying notes to the condensed consolidated financial statements.

4


EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Equity
For the three months ended March 31, 2015
(Unaudited)
(In thousands)
 
Common Stock
 
Additional Paid-In Capital
 
Distributions in Excess of Earnings
 
Accumulated Other Comprehensive Loss
 
Total Stockholders' Equity of Equity One, Inc.
 
Noncontrolling Interests
 
Total Equity
 
Shares
 
Amount
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2014
124,281

 
$
1,243

 
$
1,843,348

 
$
(360,172
)
 
$
(999
)
 
$
1,483,420

 
$
207,189

 
$
1,690,609

Issuance of common stock
4,673

 
46

 
124,229

 

 

 
124,275

 

 
124,275

Repurchase of common stock
(7
)
 

 
(187
)
 

 

 
(187
)
 

 
(187
)
Stock issuance costs

 

 
(597
)
 

 

 
(597
)
 

 
(597
)
Share-based compensation expense

 

 
1,335

 

 

 
1,335

 

 
1,335

Restricted stock reclassified from
   liability to equity

 

 
108

 

 

 
108

 

 
108

Net income

 

 

 
8,006

 

 
8,006

 
2,502

 
10,508

Dividends declared on common stock

 

 

 
(27,491
)
 

 
(27,491
)
 

 
(27,491
)
Distributions to noncontrolling interests

 

 

 

 

 

 
(2,498
)
 
(2,498
)
Reclassification of noncontrolling
   interest to liability

 

 
(168
)
 

 

 
(168
)
 
(1,048
)
 
(1,216
)
Other comprehensive loss

 

 

 

 
(2,721
)
 
(2,721
)
 

 
(2,721
)
BALANCE AT MARCH 31, 2015
128,947

 
$
1,289

 
$
1,968,068

 
$
(379,657
)
 
$
(3,720
)
 
$
1,585,980

 
$
206,145

 
$
1,792,125


See accompanying notes to the condensed consolidated financial statements.

5


EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2015 and 2014
 (Unaudited)
 (In thousands)
 
Three Months Ended March 31,
 
2015
 
2014
 OPERATING ACTIVITIES:
 
 
 
 Net income
$
10,508

 
$
30,975

 Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 Straight-line rent adjustment
(1,131
)
 
(661
)
 Accretion of below-market lease intangibles, net
(2,827
)
 
(8,207
)
 Amortization of below-market ground lease intangibles
149

 
148

 Equity in income of unconsolidated joint ventures
(882
)
 
(8,261
)
 Gain on change in control of interests

 
(2,807
)
 Income tax (benefit) provision of taxable REIT subsidiaries
(36
)
 
533

 Increase (decrease) in allowance for losses on accounts receivable
670

 
(914
)
 Amortization of premium on notes payable, net
(400
)
 
(620
)
 Amortization of deferred financing fees
550

 
599

 Depreciation and amortization
21,510

 
26,776

 Share-based compensation expense
1,269

 
1,767

 Amortization of derivatives
16

 
16

 Loss (gain) on sale of real estate
17

 
(3,038
)
 Gain on extinguishment of debt
(138
)
 
(1,074
)
 Operating distributions from joint ventures
897

 

 Impairment loss
11,307

 

 Changes in assets and liabilities, net of effects of acquisitions and disposals:
 
 
 
 Accounts and other receivables
1,723

 
923

 Other assets
(9,132
)
 
(8,487
)
 Accounts payable and accrued expenses
(38
)
 
(357
)
 Tenant security deposits
(313
)
 
77

 Other liabilities
273

 
822

 Net cash provided by operating activities
33,992

 
28,210

 
 
 
 
 INVESTING ACTIVITIES:
 
 
 
Acquisition of income producing properties

 
(85,901
)
Additions to income producing properties
(4,698
)
 
(4,767
)
Acquisition of land held for development
(750
)
 

Additions to construction in progress
(20,229
)
 
(13,220
)
Deposits for the acquisition of income producing properties

 
(250
)
Proceeds from sale of real estate and rental properties
4,520

 
25,108

Decrease in cash held in escrow

 
1,115

Increase in deferred leasing costs and lease intangibles
(1,789
)
 
(1,412
)
Investment in joint ventures
(214
)
 
(289
)
Repayments of advances to (advances to) joint ventures
35

 
(82
)
Distributions from joint ventures
935

 
14,792

Repayment of loans receivable

 
60,526

Collection of development costs tax credit
1,542

 

 Net cash used in investing activities
(20,648
)
 
(4,380
)

6


EQUITY ONE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2015 and 2014
(Unaudited)
 (In thousands)
 
Three Months Ended March 31,
 
2015
 
2014
 FINANCING ACTIVITIES:
 
 
 
 Repayments of mortgage notes payable
$
(21,323
)
 
$
(22,895
)
 Net (repayments) borrowings under revolving credit facilities
(37,000
)
 
34,000

 Payment of deferred financing costs
(10
)
 

 Proceeds from issuance of common stock
124,275

 
170

 Repurchase of common stock
(187
)
 
(205
)
 Stock issuance costs
(412
)
 

 Dividends paid to stockholders
(27,491
)
 
(26,107
)
 Purchase of noncontrolling interests

 
(690
)
 Distributions to noncontrolling interests
(2,498
)
 
(4,421
)
 Net cash provided by (used in) financing activities
35,354

 
(20,148
)
 
 
 
 
 Net increase in cash and cash equivalents
48,698

 
3,682

 Cash and cash equivalents at beginning of the period
27,469

 
25,583

 Cash and cash equivalents at end of the period
$
76,167

 
$
29,265

 
 
 
 
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NON-CASH INFORMATION:
 
 
 
 Cash paid for interest (net of capitalized interest of $1,272 and $701 in 2015 and 2014,
    respectively)
$
15,535

 
$
18,646

 
 
 
 
 We acquired upon acquisition of certain income producing properties:
 
 
 
Income producing properties
$

 
$
108,132

Intangible and other assets

 
7,610

Intangible and other liabilities

 
(12,553
)
Net assets acquired

 
103,189

Assumption of mortgage note payable

 
(11,353
)
Existing equity interest in Talega Village Center

 
(5,935
)
Cash paid for income producing properties
$

 
$
85,901


See accompanying notes to the condensed consolidated financial statements.

7


EQUITY ONE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2015
(Unaudited)
1.    Organization and Basis of Presentation
Organization
We are a real estate investment trust, or REIT, that owns, manages, acquires, develops and redevelops shopping centers and retail properties located primarily in supply constrained suburban and urban communities. We were organized as a Maryland corporation in 1992, completed our initial public offering in 1998, and have elected to be taxed as a REIT since 1995.
As of March 31, 2015, our portfolio comprised 121 properties, including 102 retail properties and five non-retail properties totaling approximately 13.6 million square feet of gross leasable area, or GLA, eight development or redevelopment properties with approximately 1.2 million square feet of GLA upon completion, and six land parcels. As of March 31, 2015, our consolidated shopping center occupancy was 95.2% and included national, regional and local tenants. Additionally, we had joint venture interests in 18 retail properties and two office buildings totaling approximately 3.2 million square feet of GLA.
Basis of Presentation
The condensed consolidated financial statements include the accounts of Equity One, Inc. and its wholly-owned subsidiaries and those other entities in which we have a controlling financial interest, including where we have been determined to be a primary beneficiary of a variable interest entity ("VIE") in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"). Equity One, Inc. and its subsidiaries are hereinafter referred to as "the consolidated companies," the "Company," "we," "our," "us" or similar terms. All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior-period data have been reclassified to conform to the current period presentation. Certain operations have been classified as discontinued, and the associated results of operations and financial position are separately reported for all periods presented. Information in these notes to the condensed consolidated financial statements, unless otherwise noted, does not include the accounts of discontinued operations.
The condensed consolidated financial statements included in this report are unaudited. In our opinion, all adjustments considered necessary for a fair presentation have been included, and all such adjustments are of a normal recurring nature. The results of operations for the three month periods ended March 31, 2015 and 2014 are not necessarily indicative of the results that may be expected for a full year.
Our unaudited condensed consolidated financial statements and notes are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions of Form 10-Q. Accordingly, these unaudited condensed consolidated financial statements do not contain certain information included in our annual financial statements and notes. The condensed consolidated balance sheet as of December 31, 2014 was derived from audited financial statements included in our 2014 Annual Report on Form 10-K but does not include all disclosures required under GAAP. These condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission (the "SEC") on March 2, 2015.
2.    Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

8


Recent Accounting Pronouncements
The following table provides a brief description of recent accounting pronouncements (Accounting Standards Update or "ASU")that could have a material effect on our financial statements:
Standard
 
Description
 
Date of adoption
 
Effect on the financial statements or other significant matters
 
 
 
 
 
 
 
Standards that are not yet adopted
ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs
 
The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.
 
January 1, 2016
 
We expect that the adoption of the standard will result in the presentation of debt issuance costs, which are currently included in other assets in our condensed consolidated balance sheets, as a direct deduction from the carrying amount of the related debt instrument.
ASU 2015-02, Consolidation (Topic 810), Amendments to the Consolidation Analysis
 
The standard amends the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. It may be adopted either retrospectively or on a modified retrospective basis.
 
January 1, 2016
 
We are currently evaluating the alternative methods of adoption and the effect on our financial statements and related disclosures.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
 
The standard will replace existing revenue recognition standards and significantly expand the disclosure requirements for revenue arrangements. It may be adopted either retrospectively or on a modified retrospective basis to new contracts and existing contracts with remaining performance obligations as of the effective date.
 
January 1, 2017
 
We are currently evaluating the alternative methods of adoption and the effect on our financial statements and related disclosures.
3.    Acquisitions
On January 9, 2015, we acquired a 0.18 acre outparcel adjacent to Pablo Plaza located in Jacksonville, Florida for $750,000.
During the three months ended March 31, 2015, we did not recognize any material measurement period adjustments related to prior or current year acquisitions.
During the three months ended March 31, 2015 and 2014, we expensed transaction-related costs in connection with completed or pending property acquisitions of approximately $135,000 and $1.4 million, respectively, which are included in general and administrative costs in the condensed consolidated statements of income.
4.    Dispositions
As part of our strategy to upgrade and diversify our portfolio and recycle our capital, we have sold or are in the process of selling certain non-core properties. Although we expect our pace of disposition activity to slow, we will selectively explore future opportunities to sell additional non-core properties located primarily in the southeastern United States and north and central Florida. While we have not committed to a disposition plan with respect to certain of these assets, we may consider disposing of such properties if pricing is deemed to be favorable. If the market values of these assets are below their carrying values, it is possible that the disposition of these assets could result in impairments or other losses. Depending on the prevailing market conditions and historical carrying values, these impairments and losses could be material.
On March 26, 2015, we sold Park Promenade, a 128,848 square foot shopping center located in Orlando, Florida, for gross proceeds of $4.8 million.
During the three months ended March 31, 2014, we sold four properties for an aggregate sales price of $26.3 million. The results of operations for two of the properties sold are presented as discontinued operations in the condensed consolidated statement of income for the three months ended March 31, 2014 as they were previously classified as held for sale and reported as discontinued operations prior to the adoption of ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity."

9


In November 2014, we executed a contract for the sale of a property located in Massachusetts. The sale is subject to a number of significant contingencies, including the requirement that we obtain lender consent to a potential buyer’s assumption of the loan. During the three months ended March 31, 2015, we concluded that our carrying value of the property was not recoverable based on our projected undiscounted cash flows from the property, which took into consideration the increased probability of sale as a result of on ongoing discussions with the lender, and recognized an impairment loss of $10.4 million.
5.    Investments in Joint Ventures
The following is a summary of the composition of investments in and advances to unconsolidated joint ventures in the condensed consolidated balance sheets:
 
 
 
 
 
 
 
 
Investment Balance
Joint Venture (1)
 
Number of Properties
 
Location
 
Ownership
 
March 31,
2015
 
December 31,
2014
Investments in unconsolidated joint ventures:
 
 
 
 
 
(In thousands)
GRI-EQY I, LLC (2)
 
10
 
GA, SC, FL
 
10.0%
 
$
12,388

 
$
12,629

G&I Investment South Florida Portfolio, LLC
 
3
 
 FL
 
20.0%
 
10,570

 
10,534

Madison 2260 Realty LLC
 
1
 
 NY
 
8.6%
 
526

 
526

Madison 1235 Realty LLC
 
1
 
 NY
 
20.1%
 
820

 
820

Parnassus Heights Medical Center
 
1
 
CA
 
50.0%
 
19,215

 
19,256

Equity One JV Portfolio, LLC (3) 
 
6
 
FL, MA, NJ
 
30.0%
 
43,836

 
44,689

Other Equity Investment (4)
 
 
 
 
 
45.0%
 
214

 

Total
 
 
 
 
 
 
 
87,569

 
88,454

Advances to unconsolidated joint ventures
 
 
 
 
 
 
 
720

 
764

Investments in and advances to unconsolidated
    joint ventures
 
 
 
 
 
 
 
$
88,289

 
$
89,218

______________________________________________ 
(1) All unconsolidated joint ventures are accounted for under the equity method except for the Madison 2260 Realty LLC and Madison 1235 Realty LLC joint ventures, which are accounted for under the cost method.
(2) The investment balance as of March 31, 2015 and December 31, 2014 is presented net of deferred gains of $3.3 million for both periods associated with the disposition of assets by us to the joint venture.
(3) The investment balance as of March 31, 2015 and December 31, 2014 is presented net of a deferred gain of approximately $376,000 for both periods associated with the disposition of assets by us to the joint venture.
(4) In February 2015, we entered into a joint venture to explore a potential development opportunity in the Northeast. As of March 31, 2015, the carrying amount of our investment reflects our maximum exposure to loss related to our investment in the joint venture.
Equity in income of unconsolidated joint ventures totaled $882,000 and $8.3 million for the three months ended March 31, 2015 and 2014, respectively. Equity in income of unconsolidated joint ventures for the three months ended March 31, 2014 included our proportionate share of the gain on the sale of Vernola Marketplace, a property held by one of our joint ventures, of $7.4 million, including $1.6 million attributable to a noncontrolling interest. Management fees and leasing fees earned by us associated with these joint ventures, which are included in management and leasing services revenue in the accompanying condensed consolidated statements of income, totaled approximately $555,000 and $629,000 for the three months ended March 31, 2015 and 2014, respectively.
As of March 31, 2015 and December 31, 2014, the aggregate carrying amount of the debt of our unconsolidated joint ventures accounted for under the equity method was $219.8 million and $220.5 million, respectively, of which our aggregate proportionate share was $49.2 million and $49.4 million, respectively.

10



6.    Other Assets
The following is a summary of the composition of the other assets in the condensed consolidated balance sheets:
 
 
March 31,
2015
 
December 31,
2014
 
 
(In thousands)
Lease intangible assets, net
 
$
103,638

 
$
106,064

Leasing commissions, net
 
39,054

 
39,141

Prepaid expenses and other receivables
 
33,135

 
26,880

Straight-line rent receivables, net
 
25,455

 
24,412

Deferred financing costs, net
 
8,771

 
9,322

Deposits and mortgage escrows
 
6,974

 
6,356

Furniture, fixtures and equipment, net
 
3,561

 
3,809

Fair value of interest rate swap
 
139

 
681

Deferred tax asset
 
2,540

 
2,306

Total other assets
 
$
223,267

 
$
218,971

7.    Borrowings
Mortgage Notes Payable
As of March 31, 2015, the weighted average interest rate of our fixed rate mortgage notes payable was 6.08%.
During the three months ended March 31, 2015, we prepaid, without penalty, a mortgage loan which had a balance of $19.6 million and bore interest at a rate of 5.32%.
Unsecured Senior Notes
As of March 31, 2015, the weighted average interest rate of our unsecured senior notes was 5.02%.
In March 2015, we announced the redemption of our 5.375% unsecured senior notes, which had a principal balance of $107.5 million and were scheduled to mature in October 2015, at a redemption price equal to the principal amount of the notes, accrued and unpaid interest, and a required make-whole premium of $2.6 million. In connection with the redemption in April 2015, we recognized a loss on the early extinguishment of debt of $2.7 million, which was comprised of the aforementioned make-whole premium and deferred fees and costs associated with the notes.
Unsecured Revolving Credit Facilities
Our primary credit facility is with a syndicate of banks and provides $600.0 million of unsecured revolving credit and can be increased through an accordion feature up to an aggregate of $900.0 million, subject to bank participation. The facility bears interest at applicable LIBOR plus a margin of 0.875% to 1.550% and includes a facility fee applicable to the aggregate lending commitments thereunder which varies from 0.125% to 0.300% per annum, both depending on the credit ratings of our unsecured senior notes. As of March 31, 2015, the facility fee was 0.20% per annum. As of March 31, 2015, we had no drawn balance against the facility. As of December 31, 2014, we had drawn $37.0 million against the facility, which bore interest at a weighted average rate of 1.22% per annum. The facility expires on December 31, 2018, with two six-month extensions at our option, subject to certain conditions.
We also had a $5.0 million unsecured credit facility with City National Bank of Florida, for which there was no drawn balance as of March 31, 2015 and December 31, 2014. The facility bore interest at LIBOR plus 1.25% per annum and expired on May 7, 2015.
As of March 31, 2015, giving effect to the financial covenants applicable to these credit facilities, the maximum available to us thereunder was approximately $605.0 million, excluding outstanding letters of credit with an aggregate face amount of $2.1 million.

11


Term Loan and Interest Rate Swaps
At times, we use derivative instruments, including interest rate swaps, to manage our exposure to variable interest rate risk. In this regard, we enter into derivative instruments that qualify as cash flow hedges and do not enter into such instruments for speculative purposes. As of March 31, 2015 and December 31, 2014, we had three interest rate swaps which convert the LIBOR rate applicable to our $250.0 million term loan to a fixed interest rate, providing an effective fixed interest rate under the loan agreement of 2.62% per annum. The swaps are designated and qualified as cash flow hedges and have been recorded at fair value. The swap agreements mature on February 13, 2019, which is the maturity date of the term loan. As of March 31, 2015 and December 31, 2014, the fair value of one of our interest rate swaps consisted of an asset of $139,000 and $681,000, respectively, which is included in other assets in our condensed consolidated balance sheets, while the fair value of the two remaining interest rate swaps consisted of a liability of $3.0 million and $952,000, respectively, which is included in accounts payable and accrued expenses in our condensed consolidated balance sheets. The effective portion of changes in fair value of the interest rate swaps associated with our cash flow hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into interest expense as interest is incurred on the related variable rate debt. Within the next 12 months, we expect to reclassify $2.9 million as an increase to interest expense.
8.    Other Liabilities
The following is a summary of the composition of other liabilities in the condensed consolidated balance sheets:
 
March 31,
2015
 
December 31,
2014
 
(In thousands)
Lease intangible liabilities, net
$
153,766

 
$
157,486

Prepaid rent
9,223

 
9,607

Other (1)
2,210

 
307

Total other liabilities
$
165,199

 
$
167,400

____________________________________________ 
(1) Increase is primarily related to the reclassification of the DIM Vastgoed, N.V. ("DIM") noncontrolling interest. See Note 10 for further discussion.
9.    Income Taxes
We elected to be taxed as a REIT under the Internal Revenue Code (the "Code"), commencing with our taxable year ended December 31, 1995. It is our intention to adhere to the organizational and operational requirements to maintain our REIT status. As a REIT, we generally will not be subject to corporate level federal income tax, provided that distributions to our stockholders equal at least the amount of our REIT taxable income as defined under the Code. We are required to pay U.S. federal and state income taxes on our net taxable income, if any, from the activities conducted by our taxable REIT subsidiaries ("TRSs"), which include IRT Capital Corporation II ("IRT"), DIM, Southeast US Holdings, B.V. and C&C Delaware, Inc. Accordingly, the only provision for federal income taxes in our condensed consolidated financial statements relates to our consolidated TRSs.
Although DIM is organized under the laws of the Netherlands, it pays U.S. corporate income tax based on its operations in the United States. Pursuant to the tax treaty between the U.S. and the Netherlands, DIM is entitled to the avoidance of double taxation on its U.S. income. Thus, it pays virtually no taxes in the Netherlands. As of March 31, 2015, DIM had federal and state net operating loss carry forwards of $5.2 million and $2.2 million, respectively, which begin to expire in 2027. As of March 31, 2015, IRT had federal and state net operating loss carry forwards of $2.0 million and $1.6 million, respectively, which begin to expire in 2030.
We believe that we have appropriate support for the tax positions taken on our tax returns and that our accruals for the tax liabilities are adequate for all years still subject to tax audit, which include all years after 2010.

12


10.    Noncontrolling Interests
The following is a summary of the noncontrolling interests in consolidated entities included in the condensed consolidated balance sheets:
 
March 31,
2015
 
December 31,
2014
 
(In thousands)
CapCo
$
206,145

 
$
206,145

DIM (1)

 
1,044

Total noncontrolling interests included in total equity
$
206,145

 
$
207,189

______________________________________________ 
(1) As of March 31, 2015 and December 31, 2014, our ownership interest in DIM was 98.0%. In February 2015, we entered into a settlement agreement to acquire the remaining 2.0% interests held by minority shareholders, which was subject to various conditions including the approval of the Dutch court. Upon the court’s approval of the settlement on March 31, 2015, we were obligated to acquire the remaining interests, and, as a result, the noncontrolling interests in DIM were reclassified to other liabilities within our condensed consolidated balance sheet. In April 2015, we acquired the remaining 2.0% interests.
Noncontrolling interests represent the portion of equity that we do not own in certain entities that we consolidate. We account for and report our noncontrolling interests in accordance with the provisions under the Consolidation Topic of the FASB ASC.
11.    Stockholders' Equity and Earnings Per Share
In March 2015, we completed an underwritten public offering and concurrent private placement totaling 4.5 million shares of our common stock at a price to the public and in the private placement of $27.05 per share. In the concurrent private placement, 600,000 shares were purchased by Gazit First Generation LLC, an affiliate of our largest stockholder, Gazit-Globe, Ltd., which may be deemed to be controlled by Chaim Katzman, the Chairman of our Board of Directors. The underwriters held an option to purchase up to 585,000 shares of our common stock, which ultimately went unexercised. The offerings generated net proceeds to us of approximately $121.3 million before expenses. The stock issuance costs and underwriting discounts were approximately $589,000. We used the net proceeds to fund the redemption of our 5.375% unsecured senior notes and for general corporate purposes, including the repayment of secured and unsecured debt.

13


The following summarizes the calculation of basic and diluted EPS and provides a reconciliation of the amounts of net income available to common stockholders and shares of common stock used in calculating basic and diluted EPS:
 
Three Months Ended March 31,
 
 
2015
 
2014
 
 
(In thousands, except per share amounts)
 
Income from continuing operations
$
10,508

 
$
27,911

 
Net income attributable to noncontrolling interests - continuing operations
(2,502
)
 
(4,701
)
 
Income from continuing operations attributable to Equity One, Inc.
8,006

 
23,210

 
Allocation of continuing income to participating securities
(114
)
 
(191
)
 
Income from continuing operations available to common stockholders
7,892

 
23,019

 
 
 
 
 
 
Income from discontinued operations

 
3,064

 
Net loss attributable to noncontrolling interests - discontinued operations

 
2

 
Income from discontinued operations attributable to Equity One, Inc.

 
3,066

 
Allocation of income from discontinued operations to participating securities

 
(25
)
 
Income from discontinued operations available to common stockholders

 
3,041

 
Net income available to common stockholders
$
7,892

 
$
26,060

 
 
 
 
 
 
Weighted average shares outstanding — Basic
124,740

 
117,675

 
Stock options using the treasury method
162

 
261

 
Non-participating restricted stock using the treasury method
3

 

 
Executive incentive plan shares using the treasury method
84

 

 
Weighted average shares outstanding — Diluted
124,989

 
117,936

 
 
 
 
 
 
Basic earnings per share available to common stockholders:
 
 
 
 
Continuing operations
$
0.06

 
$
0.20

 
Discontinued operations

 
0.03

 
Earnings per common share — Basic
$
0.06

 
$
0.22

*
 
 
 
 
 
Diluted earnings per share available to common stockholders:
 
 
 
 
Continuing operations
$
0.06

 
$
0.20

 
Discontinued operations

 
0.03

 
Earnings per common share — Diluted
$
0.06

 
$
0.22

*
* Note: EPS does not foot due to the rounding of the individual calculations.
No shares of common stock issuable upon the exercise of outstanding options were excluded from the computation of diluted EPS for the three months ended March 31, 2015 as the prices applicable to all options then outstanding were less than the average market price of our common shares during the period. The computation of diluted EPS for the three months ended March 31, 2014 did not include 1.6 million shares of common stock issuable upon the exercise of outstanding options, at prices ranging from $22.78 to $26.66, because the prices applicable to all options then outstanding were greater than the average market price of our common shares during the period and their inclusion would be anti-dilutive.
The computation of diluted EPS for both the three months ended March 31, 2015 and 2014 did not include 11.4 million joint venture units held by Liberty International Holdings Limited ("LIH"), which are redeemable by LIH for cash or, solely at our option, shares of our common stock on a one-for-one basis, subject to certain adjustments. These convertible units were not included in the diluted weighted average share count because their inclusion is anti-dilutive.

14


12.    Share-Based Payments
The following table presents stock option activity during the three months ended March 31, 2015:
 
Shares Under Option
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term
 
Aggregate Intrinsic Value
 
(In thousands)
 
 
 
(In years)
 
(In thousands)
Outstanding at January 1, 2015
1,208

 
$
22.37

 
 
 
 
Exercised
(324
)
 
$
24.81

 
 
 
 
Outstanding at March 31, 2015
884

 
$
21.47

 
4.6
 
$
4,613

Exercisable at March 31, 2015
684

 
$
21.06

 
3.3
 
$
3,849

The total cash received from options exercised during the three months ended March 31, 2015 was $2.5 million. The total intrinsic value of options exercised during the three months ended March 31, 2015 was $735,000.
The following table presents information regarding restricted stock activity during the three months ended March 31, 2015:
 
Unvested Shares
 
Weighted Average Grant-Date Fair Value
 
(In thousands)
 
 
Unvested at January 1, 2015
180

 
$
22.91

Granted
382

 
$
25.84

Vested
(52
)
 
$
23.54

Forfeited

(1) 
$
22.57

Unvested at March 31, 2015
510


$
25.04

____________________________________________ 
(1) During the three months ended March 31, 2015, 443 shares of restricted stock were forfeited.
During the three months ended March 31, 2015, we granted approximately 382,000 shares of restricted stock that are subject to forfeiture and vest over periods from 2 to 4 years. We measure compensation expense for restricted stock awards based on the fair value of our common stock at the date of grant and charge such amounts to expense ratably over the vesting period on a straight-line basis. The total grant-date value of the approximately 52,000 shares of restricted stock that vested during the three months ended March 31, 2015 was approximately $1.2 million.
Share-based compensation expense, which is included in general and administrative expenses in the accompanying condensed consolidated statements of income, is summarized as follows:
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Restricted stock expense
$
1,225

 
$
1,756

Stock option expense
103

 
79

Employee stock purchase plan discount
7

 
8

Total equity-based expense
1,335

 
1,843

Restricted stock classified as a liability
61

 
105

Total expense
1,396

 
1,948

Less amount capitalized
(127
)
 
(181
)
Net share-based compensation expense
$
1,269

 
$
1,767


15


As of March 31, 2015, we had $14.2 million of total unrecognized compensation expense related to unvested and restricted share-based payment arrangements (unvested options and restricted shares) granted under our Amended and Restated Equity One 2000 Executive Incentive Compensation Plan. This expense is expected to be recognized over a weighted average period of 2.9 years.
Employment Related Agreement
Matthew Ostrower
On January 26, 2015, we entered into a four-year employment agreement with Matthew Ostrower to serve as our next Chief Financial Officer. Mr. Ostrower’s employment agreement provides for an annual base salary of $500,000 and other benefits generally made available to our senior executive officers. In addition, Mr. Ostrower is eligible for an annual target performance bonus of $400,000. Bonuses will be payable 50% in cash and 50% in shares of our restricted stock which will vest ratably over three years. Mr. Ostrower will also be reimbursed up to $30,000 for expenses incurred in relocating to New York in connection with his employment.
Upon the commencement of his employment on March 3, 2015, Mr. Ostrower received 22,189 shares of restricted stock that will vest ratably on the first, second, third, and fourth anniversaries of the grant date and a long-term incentive plan award ("LTIP"), under which Mr. Ostrower’s target award is 44,379 shares of our common stock. The number of shares of stock that will ultimately be issued is based on our performance during the four-year period beginning on the date of Mr. Ostrower’s employment. The performance metrics (and their weightings) are absolute total shareholder return ("Absolute TSR") (25%), total shareholder return relative to peer companies ("Relative TSR") (25%) and growth in recurring funds from operations per share ("Recurring FFO Growth") (25%). The remaining 25% of Mr. Ostrower’s award is discretionary. For each of these four components, Mr. Ostrower can earn 50%, 100% or 200% of the portion of the 44,379 target shares allocated to such component based on the actual performance compared to specified targets. Shares earned pursuant to the LTIP will be issued following the completion of the four-year performance period, subject to Mr. Ostrower’s continued employment through the end of such period, and will not participate in dividends during the performance period.
The Absolute TSR and Relative TSR components of Mr. Ostrower's LTIP are considered market-based awards. Accordingly, the probability of meeting the market criteria was considered when calculating the estimated fair value of the awards on the date of grant using Monte Carlo simulations. Furthermore, compensation expense associated with these awards will be recognized over the requisite service period as long as the requisite service is provided, regardless of whether the market criteria are achieved and the awards are ultimately earned. The significant assumptions used to value these awards include the volatility of our common stock (21.9%), the volatility of the common stock of various peer companies (which ranged from 14.3% to 23.7%), and the risk-free interest rate (1.4%). The aggregate estimated fair value of these components of Mr. Ostrower's LTIP was $486,000, which will be recognized over the four-year performance period.
The Recurring FFO Growth component of Mr. Ostrower's LTIP is considered a performance-based award which is earned subject to future performance measurement. The award was valued at $23.47 per share based on the fair value of our common stock at the date of grant less the present value of the dividends expected to be paid on our common stock during the requisite service period. Compensation expense for this component will be recognized over the requisite service period based on management’s periodic estimate of the likelihood that the performance criteria will be met. No compensation expense will be recognized for the discretionary portion of Mr. Ostrower's LTIP prior to the completion of the performance period.
13.    Commitments and Contingencies
As of March 31, 2015, we had provided letters of credit having an aggregate face amount of $2.1 million as additional security for financial and other obligations.
As of March 31, 2015, we have invested an aggregate of approximately $113.0 million in active development or redevelopment projects at various stages of completion and anticipate that these projects will require an additional $28.8 million to complete, based on our current plans and estimates, which we anticipate will be primarily expended in 2015. In addition, we have other significant projects for which we have outstanding obligations to fund approximately $14.0 million, and we expect these funds will be primarily expended in 2015. These obligations, comprised principally of construction contracts, are generally due as the work is performed and are expected to be financed by funds available under our credit facility, proceeds from property dispositions and available cash.
We are subject to litigation in the normal course of business; however, we do not believe that any of the litigation outstanding as of March 31, 2015 will have a material adverse effect on our financial condition, results of operations or cash flows.

16



14.    Environmental Matters
We are subject to numerous environmental laws and regulations. The operation of dry cleaning and gas station facilities at our shopping centers are the principal environmental concerns. We require that the tenants who operate these facilities do so in material compliance with current laws and regulations and we have established procedures to monitor dry cleaning operations. Where available, we have applied and been accepted into state sponsored environmental programs. Several properties in the portfolio will require or are currently undergoing varying levels of environmental remediation. We have environmental insurance policies covering most of our properties which limits our exposure to some of these conditions, although these policies are subject to limitations and environmental conditions known at the time of acquisition are typically excluded from coverage. Management believes that the ultimate disposition of currently known environmental matters will not have a material adverse effect on our financial condition, results of operations or cash flows.
15.    Fair Value Measurements
Recurring Fair Value Measurements
As of March 31, 2015 and December 31, 2014, we had three interest rate swap agreements with a notional amount of $250.0 million that are measured at fair value on a recurring basis. As of March 31, 2015 and December 31, 2014, the fair value of one of our interest rate swaps consisted of an asset of $139,000 and $681,000, respectively, which is included in other assets in our condensed consolidated balance sheets, while the fair value of the two remaining interest rate swaps consisted of a liability of $3.0 million and $952,000, respectively, which is included in accounts payable and accrued expenses in our condensed consolidated balance sheets. The net unrealized loss on our interest rate swaps was $2.6 million for the three months ended March 31, 2015 and is included in accumulated other comprehensive loss. The fair values of the interest rate swaps are based on the estimated amounts we would receive or pay to terminate the contracts at the reporting date and are determined using interest rate pricing models and observable inputs. The interest rate swaps are classified within Level 2 of the valuation hierarchy.
The following are assets and liabilities measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014:
 
Fair Value Measurements
 
Total
 
Level 1
 
Level 2
 
Level 3
March 31, 2015
(In thousands)
Interest rate derivatives:
 
 
 
 
 
 
 
Classified as an asset in other assets
$
139

 
$

 
$
139

 
$

Classified as a liability in accounts payable
   and accrued expenses
$
2,996

 
$

 
$
2,996

 
$

 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
Interest rate derivatives:
 
 
 
 
 
 
 
Classified as an asset in other assets
$
681

 
$

 
$
681

 
$

Classified as a liability in accounts payable
   and accrued expenses

$
952

 
$

 
$
952

 
$


17


Valuation Methods
The fair values of our interest rate swaps were determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of the derivative financial instrument. This analysis reflected the contractual terms of the derivative, including the period to maturity, and used observable market-based inputs, including interest rate market data and implied volatilities in such interest rates. While it was determined that the majority of the inputs used to value the derivatives fall within Level 2 of the fair value hierarchy under authoritative accounting guidance, the credit valuation adjustments associated with the derivatives also utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. However, as of March 31, 2015, the significance of the impact of the credit valuation adjustments on the overall valuation of the derivative financial instruments was assessed and it was determined that these adjustments were not significant to the overall valuation of the derivative financial instruments. As a result, it was determined that the derivative financial instruments in their entirety should be classified in Level 2 of the fair value hierarchy. The net unrealized loss included in other comprehensive loss was attributable to the net change in unrealized gains or losses related to the interest rate swaps that remained outstanding as of March 31, 2015, none of which were reported in the condensed consolidated statements of income because they were documented and qualified as hedging instruments.
Non-Recurring Fair Value Measurements
The following table presents our hierarchy for those assets measured and recorded at fair value on a non-recurring basis as of March 31, 2015:
Assets:
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total Losses(1)
 
 
(In thousands)
Operating property held and used
 
$
7,950

 
$

 
$
7,950

 
$

 
$
10,444

Total
 
$
7,950

 
$

 
$
7,950

 
$

 
$
10,444

____________________________________________ 
(1) Total losses exclude an impairment of $864,000 recognized related to a property sold during the three months ended March 31, 2015, based on the sales contract.
The following table presents our hierarchy for those assets measured and recorded at fair value on a non-recurring basis as of December 31, 2014:
Assets:
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total Losses(1)
 
 
(In thousands)
Operating properties held and used
 
$
22,700

 
$

 
$

 
$
22,700

(2) 
$
15,111

Development properties held for use
 
7,370

 

 

 
7,370

 
2,230

Total
 
$
30,070

 
$

 
$

 
$
30,070

 
$
17,341

____________________________________________ 
(1) Total losses exclude impairments of $4.5 million recognized related to properties sold during the year ended December 31, 2014, primarily based on sales contracts.
(2) $11.9 million of the total represents the fair value of operating properties as of the date they were impaired during the second quarter of 2014. As of December 31, 2014, the carrying amounts of the properties no longer equaled their fair values.
On a non-recurring basis, we evaluate the carrying value of investment property and investments in and advances to unconsolidated joint ventures when events or changes in circumstances indicate that the carrying value may not be recoverable. Impairments, if any, typically result from values established by Level 3 valuations. The carrying value is considered impaired when the total projected undiscounted cash flows from such asset are separately identifiable and are less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset as determined by purchase price offers or by discounted cash flows using the income or market approach. These cash flows are comprised of unobservable inputs which include contractual rental revenue and forecasted rental revenue and expenses based upon market conditions and expectations for growth. Capitalization rates and discount rates utilized in these models are based upon observable rates that we believe to be within a reasonable range of current market rates for the respective properties. Based on these inputs, we determined that the valuations of these investment properties and investments in unconsolidated joint ventures are classified within Level 3 of the fair value hierarchy.

18


The following are ranges of key inputs used in determining the fair value of income producing properties measured using Level 3 inputs:
 
December 31, 2014
 
Low
 
High
Overall capitalization rates
8.0%
 
15.0%
Discount rates
9.5%
 
14.5%
Terminal capitalization rates
8.5%
 
13.5%
During the three months ended March 31, 2015, we recognized an impairment loss of $10.4 million on an operating property. The estimated fair value related to the impairment assessment was based upon the expected sales price as determined by an executed contract and, therefore, is classified within Level 2 of the fair value hierarchy. During the year ended December 31, 2014, we recognized $15.1 million of impairment losses on operating properties. The estimated fair values related to the impairment assessments were primarily based on discounted cash flow analyses and, therefore, are classified within Level 3 of the fair value hierarchy.
During the year ended December 31, 2014, we recognized impairment losses of $2.2 million on land parcels. The estimated fair values related to the impairment assessments were based on appraisals and, therefore, are classified within Level 3 of the fair value hierarchy.
16.    Fair Value of Financial Instruments
The estimated fair values of financial instruments have been determined by us using available market information and appropriate valuation methods. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts. We have used the following market assumptions and/or estimation methods:
Cash and Cash Equivalents, Accounts and Other Receivables, Accounts Payable and Accrued Expenses and Unsecured Revolving Credit Facilities (classified within Levels 1, 2 and 3 of the valuation hierarchy) – The carrying amounts reported in the condensed consolidated balance sheets for these financial instruments approximate fair value because of their short maturities.
Mortgage Notes Payable (classified within Level 2 of the valuation hierarchy) – The fair value estimated as of March 31, 2015 and December 31, 2014 was approximately $315.8 million and $337.4 million, respectively, calculated based on the net present value of payments over the term of the loans using estimated market rates for similar mortgage loans and remaining terms. The carrying amount (principal and unaccreted premium) of these notes was $294.3 million and $316.3 million as of March 31, 2015 and December 31, 2014, respectively.
Unsecured Senior Notes Payable (classified within Level 2 of the valuation hierarchy) – The fair value estimated as of March 31, 2015 and December 31, 2014 was approximately $773.9 million and $772.9 million, respectively, calculated based on the net present value of payments over the terms of the notes using estimated market rates for similar notes and remaining terms. The carrying amount (principal net of unamortized discount) of these notes was $729.8 million as of both March 31, 2015 and December 31, 2014.
Term Loan (classified within Level 2 of the valuation hierarchy) – The fair value estimated as of March 31, 2015 and December 31, 2014 was approximately $250.8 million and $249.8 million, respectively, calculated based on the net present value of payments over the term of the loan using estimated market rates for similar notes and remaining terms. The carrying amount of this loan was $250.0 million as of both March 31, 2015 and December 31, 2014.
The fair market value calculations of our debt as of March 31, 2015 and December 31, 2014 include assumptions as to the effects that prevailing market conditions would have on existing secured or unsecured debt. The calculations use a market rate spread over the risk-free interest rate. This spread is determined by using the remaining life to maturity coupled with loan-to-value considerations of the respective debt. Once determined, this market rate is used to discount the remaining debt service payments in an attempt to reflect the present value of this stream of cash flows. While the determination of the appropriate market rate is subjective in nature, recent market data gathered suggest that the composite rates used for mortgages, senior notes and term loans are consistent with current market trends.

19


Interest Rate Swap Agreements (classified within Level 2 of the valuation hierarchy) – As of March 31, 2015 and December 31, 2014, the fair value of one of our interest rate swaps consisted of an asset of $139,000 and $681,000, respectively, which is included in other assets in our condensed consolidated balance sheets, while the fair value of the two remaining interest rate swaps consisted of a liability of $3.0 million and $952,000, respectively, which is included in accounts payable and accrued expenses in our condensed consolidated balance sheets. See Note 15 above for a discussion of the method used to value the interest rate swaps.
17.    Condensed Consolidating Financial Information
Many of our subsidiaries that are 100% owned, either directly or indirectly, have guaranteed our indebtedness under our unsecured senior notes and our term loan and revolving credit facilities. The guarantees are joint and several and full and unconditional. The following statements set forth consolidating financial information with respect to guarantors of our unsecured senior notes:
Condensed Consolidating Balance Sheet
As of March 31, 2015
Equity One, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminating Entries
 
Consolidated
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
Properties, net
$
139,126

 
$
1,496,106

 
$
1,260,658

 
$
(83
)
 
$
2,895,807

Investment in affiliates
2,781,781

 

 

 
(2,781,781
)
 

Other assets
269,204

 
101,147

 
846,010

 
(812,411
)
 
403,950

TOTAL ASSETS
$
3,190,111

 
$
1,597,253


$
2,106,668


$
(3,594,275
)

$
3,299,757

LIABILITIES
 
 
 
 
 
 
 
 
 
Total notes payable
$
1,579,848

 
$
122,067

 
$
332,865

 
$
(760,600
)
 
$
1,274,180

Other liabilities
24,283

 
100,539

 
160,524

 
(51,894
)
 
233,452

TOTAL LIABILITIES
1,604,131

 
222,606


493,389


(812,494
)

1,507,632

EQUITY
1,585,980

 
1,374,647

 
1,613,279

 
(2,781,781
)
 
1,792,125

TOTAL LIABILITIES AND EQUITY
$
3,190,111

 
$
1,597,253

 
$
2,106,668

 
$
(3,594,275
)
 
$
3,299,757

Condensed Consolidating Balance Sheet
As of December 31, 2014
Equity One, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminating Entries
 
Consolidated
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
Properties, net
$
138,293

 
$
1,498,100

 
$
1,272,110

 
$
(83
)
 
$
2,908,420

Investment in affiliates
2,760,512

 

 

 
(2,760,512
)
 

Other assets
225,509

 
97,820

 
840,654

 
(810,178
)
 
353,805

TOTAL ASSETS
$
3,124,314

 
$
1,595,920

 
$
2,112,764

 
$
(3,570,773
)
 
$
3,262,225

LIABILITIES
 
 
 
 
 
 
 
 
 
Total notes payable
$
1,616,764

 
$
122,580

 
$
354,297

 
$
(760,600
)
 
$
1,333,041

Other liabilities
24,130

 
102,988

 
161,118

 
(49,661
)
 
238,575

TOTAL LIABILITIES
1,640,894

 
225,568

 
515,415

 
(810,261
)
 
1,571,616

EQUITY
1,483,420

 
1,370,352

 
1,597,349

 
(2,760,512
)
 
1,690,609

TOTAL LIABILITIES AND EQUITY
$
3,124,314

 
$
1,595,920


$
2,112,764


$
(3,570,773
)

$
3,262,225



20


Condensed Consolidating Statement of Comprehensive Income
for the three months ended March 31, 2015
Equity One, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminating Entries
 
Consolidated
 
(In thousands)
Total revenue
$
5,684

 
$
47,323

 
$
35,522

 
$
(50
)
 
$
88,479

Equity in subsidiaries' earnings
42,457

 

 

 
(42,457
)
 

Total costs and expenses
10,270

 
23,316

 
19,676

 
(327
)
 
52,935

   INCOME BEFORE OTHER INCOME AND
      EXPENSE AND TAX
37,871

 
24,007

 
15,846

 
(42,180
)
 
35,544

Other income and (expense)
(30,015
)
 
(1,895
)
 
7,088

 
(250
)
 
(25,072
)
   INCOME FROM CONTINUING OPERATIONS
      BEFORE TAX
7,856

 
22,112

 
22,934

 
(42,430
)
 
10,472

Income tax benefit (provision) of taxable REIT
   subsidiaries

 
234

 
(198
)
 

 
36

   NET INCOME
7,856

 
22,346

 
22,736

 
(42,430
)
 
10,508

Other comprehensive loss
(2,571
)
 

 
(150
)
 

 
(2,721
)
   COMPREHENSIVE INCOME
5,285

 
22,346

 
22,586

 
(42,430
)
 
7,787

Comprehensive income attributable to
   noncontrolling interests

 

 
(2,502
)
 

 
(2,502
)
   COMPREHENSIVE INCOME ATTRIBUTABLE
      TO EQUITY ONE, INC.
$
5,285

 
$
22,346

 
$
20,084

 
$
(42,430
)
 
$
5,285

Condensed Consolidating Statement of Comprehensive Income
for the three months ended March 31, 2014
Equity One, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminating Entries
 
Consolidated
 
(In thousands)
Total revenue
$
6,585

 
$
51,791

 
$
34,321

 
$

 
$
92,697

Equity in subsidiaries' earnings
50,840

 

 

 
(50,840
)
 

Total costs and expenses
13,107

 
25,819

 
20,129

 
(212
)
 
58,843

   INCOME BEFORE OTHER INCOME AND
      EXPENSE, TAX AND DISCONTINUED
      OPERATIONS
44,318

 
25,972

 
14,192

 
(50,628
)
 
33,854

Other income and (expense)
(18,168
)
 
(1,939
)
 
14,940

 
(243
)
 
(5,410
)
   INCOME FROM CONTINUING OPERATIONS
      BEFORE TAX AND DISCONTINUED
      OPERATIONS
26,150

 
24,033

 
29,132

 
(50,871
)
 
28,444

Income tax provision of taxable REIT
   subsidiaries

 
(19
)
 
(514
)
 

 
(533
)
   INCOME FROM CONTINUING OPERATIONS
26,150

 
24,014

 
28,618

 
(50,871
)
 
27,911

Income (loss) from discontinued operations

 
3,110

 
(51
)
 
5

 
3,064

   NET INCOME
26,150

 
27,124

 
28,567

 
(50,866
)
 
30,975

Other comprehensive loss
(745
)
 

 
(126
)
 

 
(871
)
   COMPREHENSIVE INCOME
25,405

 
27,124

 
28,441

 
(50,866
)
 
30,104

Comprehensive income attributable to
   noncontrolling interests

 

 
(4,699
)
 

 
(4,699
)
   COMPREHENSIVE INCOME ATTRIBUTABLE
       TO EQUITY ONE, INC.
$
25,405

 
$
27,124

 
$
23,742

 
$
(50,866
)
 
$
25,405





21


Condensed Consolidating Statement of Cash Flows
for the three months ended March 31, 2015
Equity One, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidated
 
(In thousands)
Net cash (used in) provided by operating activities
$
(38,450
)
 
$
28,444

 
$
43,998

 
$
33,992

INVESTING ACTIVITIES:
 
 
 
 
 
 
 
Additions to income producing properties
(864
)
 
(2,595
)
 
(1,239
)
 
(4,698
)
Acquisition of land held for development

 
(750
)
 

 
(750
)
Additions to construction in progress
(2,857
)
 
(11,963
)
 
(5,409
)
 
(20,229
)
Proceeds from sale of real estate and rental properties

 
4,520

 

 
4,520

Increase in deferred leasing costs and lease intangibles
(214
)
 
(840
)
 
(735
)
 
(1,789
)
Investment in joint ventures
(214
)
 

 

 
(214
)
Repayments of advances to joint ventures

 

 
35

 
35

Distributions from joint ventures

 

 
935

 
935

Collection of development costs tax credit

 
1,542

 

 
1,542

Repayments from subsidiaries, net
32,122

 
(17,842
)
 
(14,280
)
 

Net cash provided by (used in) investing activities
27,973

 
(27,928
)
 
(20,693
)
 
(20,648
)
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
Repayments of mortgage notes payable

 
(516
)
 
(20,807
)
 
(21,323
)
Net repayments under revolving credit facilities
(37,000
)
 

 

 
(37,000
)
Payment of deferred financing costs
(10
)
 

 

 
(10
)
Proceeds from issuance of common stock
124,275

 

 

 
124,275

Repurchase of common stock
(187
)
 

 

 
(187
)
Stock issuance costs
(412
)
 

 

 
(412
)
Dividends paid to stockholders
(27,491
)
 

 

 
(27,491
)
Distributions to noncontrolling interests

 

 
(2,498
)
 
(2,498
)
Net cash provided by (used in) financing activities
59,175

 
(516
)
 
(23,305
)
 
35,354

Net increase in cash and cash equivalents
48,698

 

 

 
48,698

Cash and cash equivalents at beginning of the period
27,469

 

 

 
27,469

Cash and cash equivalents at end of the period
$
76,167

 
$

 
$

 
$
76,167



22


Condensed Consolidating Statement of Cash Flows
for the three months ended March 31, 2014
Equity One, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidated
 
(In thousands)
Net cash (used in) provided by operating activities
$
(35,785
)
 
$
27,757

 
$
36,238

 
$
28,210

INVESTING ACTIVITIES:
 
 
 
 
 
 
 
Acquisition of income producing properties

 
(80,350
)
 
(5,551
)
 
(85,901
)
Additions to income producing properties
(824
)
 
(2,107
)
 
(1,836
)
 
(4,767
)
Additions to construction in progress
(173
)
 
(9,244
)
 
(3,803
)
 
(13,220
)
Deposits for the acquisition of income producing properties
(250
)
 

 

 
(250
)
Proceeds from sale of real estate and rental properties
9,363

 
10,440

 
5,305

 
25,108

Decrease in cash held in escrow
1,115

 

 

 
1,115

Increase in deferred leasing costs and lease intangibles
(80
)
 
(912
)
 
(420
)
 
(1,412
)
Investment in joint ventures

 

 
(289
)
 
(289
)
Advances to joint ventures

 

 
(82
)
 
(82
)
Distributions from joint ventures

 

 
14,792

 
14,792

Repayment of loans receivable

 

 
60,526

 
60,526

Repayments from subsidiaries, net
22,458

 
54,966

 
(77,424
)
 

Net cash provided by (used in) investing activities
31,609

 
(27,207
)
 
(8,782
)
 
(4,380
)
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
Repayments of mortgage notes payable

 
(550
)
 
(22,345
)
 
(22,895
)
Net borrowings under revolving credit facilities
34,000

 

 

 
34,000

Proceeds from issuance of common stock
170

 

 

 
170

Repurchase of common stock
(205
)
 

 

 
(205
)
Dividends paid to stockholders
(26,107
)
 

 

 
(26,107
)
Purchase of noncontrolling interests

 

 
(690
)
 
(690
)
Distributions to noncontrolling interests

 

 
(4,421
)
 
(4,421
)
Net cash provided by (used in) financing activities
7,858

 
(550
)
 
(27,456
)
 
(20,148
)
Net increase in cash and cash equivalents
3,682

 

 

 
3,682

Cash and cash equivalents at beginning of the period
25,583

 

 

 
25,583

Cash and cash equivalents at end of the period
$
29,265

 
$

 
$

 
$
29,265


23


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed consolidated interim financial statements and notes thereto appearing in “Item 1. Financial Statements” of this report and the more detailed information contained in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 2, 2015.
Overview
We are a real estate investment trust, or REIT, that owns, manages, acquires, develops and redevelops shopping centers and retail properties located primarily in supply constrained suburban and urban communities. Our principal business objective is to maximize long-term stockholder value by generating sustainable cash flow growth and increasing the long-term value of our real estate assets. To achieve our objective, we lease and manage our shopping centers primarily with experienced, in-house personnel. We acquire shopping centers that either have leading anchor tenants or contain a mix of tenants that reflect the shopping needs of the communities they serve. We also develop and redevelop shopping centers, leveraging existing tenant relationships and geographic and demographic knowledge, while seeking to minimize risks associated with land development.
As of March 31, 2015, our portfolio comprised 121 properties, including 102 retail properties and five non-retail properties totaling approximately 13.6 million square feet of gross leasable area, or GLA, eight development or redevelopment properties with approximately 1.2 million square feet of GLA upon completion, and six land parcels. As of March 31, 2015, our consolidated shopping center occupancy was 95.2% and included national, regional and local tenants. Additionally, we had joint venture interests in 18 retail properties and two office buildings totaling approximately 3.2 million square feet of GLA.
We have continued to see increasing interest from prospective small shop tenants during 2014 and the first quarter of 2015 across the portfolio and are cautiously optimistic that this trend will continue in line with general economic conditions. The majority of our shopping centers are anchored by supermarkets or drug stores which are commodity-oriented retailers and are thus less susceptible to economic cycles. As of March 31, 2015, approximately 60% of our shopping centers were supermarket-anchored, which we believe is a competitive advantage because supermarkets draw recurring traffic to shopping centers even during challenging economic conditions. We also continue to reinvest proceeds from dispositions into higher quality assets located in urban markets or markets with significant barriers to entry. We believe this continued diversification of our portfolio has made us less susceptible to economic downturns and positions us to enjoy the benefits of an improving economy.
We intend to seek opportunities to invest in our primary target markets of California, the northeastern United States, Washington D.C., South Florida and Atlanta while selectively disposing of non-strategic assets located primarily in the southeastern United States and north and central Florida. We also actively seek opportunities to develop or redevelop centers in high density markets with strong demographic characteristics and established markets with high barriers to entry. As pricing and opportunity permits, we expect to acquire additional assets in our target markets through the use of both joint venture arrangements and our own capital resources, and we expect to finance development and redevelopment activity primarily with our own capital resources or by issuing debt or equity.
While the markets in which we operate continued to experience gradual improvement in general economic conditions during 2014 and the first quarter of 2015, the rate of economic recovery has varied across our operating regions. In addition, factors affecting supply and demand in many of our markets are impacted by store openings and closings of national and franchise operators. Certain retail categories such as electronic goods, office supply stores and book stores continue to face increased threats from e-commerce. We believe the continued growth and diversification of our portfolio into top urban markets combined with the current lack of newly developed shopping centers, should continue to help mitigate the impact of these challenges on our business, and we anticipate that our same-property net operating income (as defined in "Results of Operations" below) for 2015 will reflect an increase of 2.75% to 3.50% as compared to 2014.
The execution of our business strategy during the first quarter of 2015 resulted in:
the issuance of 4.5 million shares of our common stock in an underwritten public offering and concurrent private placement that raised net proceeds before expenses of $121.3 million, a portion of which were used in April 2015 to fund the redemption of our $107.5 million 5.375% unsecured senior notes due October 2015;
the acquisition of a 0.18 acre outparcel adjacent to Pablo Plaza located in Jacksonville, Florida for $750,000;
the sale of one non-core asset located in Orlando, Florida for gross proceeds of $4.8 million;
the prepayment of $19.6 million in mortgage debt, without penalty, which bore interest at a rate of 5.32%;

24


the signing of 42 new leases totaling 168,719 square feet, including, on a same-space(1) basis, 27 new leases totaling 58,068 square feet at an average rental rate of $20.81 per square foot in 2015 (excluding $16.47 per square foot of tenant improvements and concessions) as compared to the prior in-place average rent of $19.68 per square foot, resulting in a 5.7% average rent spread;
the renewal and extension of 67 leases, all of which were on a same-space basis, totaling 673,999 square feet at an average rental rate of $18.79 per square foot in 2015 (excluding $0.64 per square foot of tenant improvements and concessions) as compared to the prior in-place average rent of $17.59 per square foot, resulting in a 6.8% average rent spread;
the increase in consolidated shopping center occupancy(2) to 95.2% at March 31, 2015 from 93.9% at March 31, 2014 and from 95.0% at December 31, 2014; and
the increase in occupancy on a same-property basis(3) to 95.2% at March 31, 2015 from 94.5% at March 31, 2014, and from 95.1% at December 31, 2014.
_________________________
(1) 
The “same-space” designation is used to compare leasing terms (principally cash leasing spreads) from the prior tenant to the new/current tenant. In some cases, leases and/or premises are excluded from “same-space” because the gross leasable area of the prior premises is combined or divided to form a larger or smaller, non-comparable space. Also excluded from the “same-space” designation are those leases for which a comparable prior rent is not available due to the acquisition or development of a new center.
(2) 
Our consolidated shopping center occupancy excludes non-retail properties, properties held in unconsolidated joint ventures and development and redevelopment properties.
(3) 
Information provided on a same-property basis includes the results of properties that we consolidated, owned and operated for the entirety of both periods being compared except for non-retail properties and properties for which significant development or redevelopment occurred during either of the periods being compared.
Results of Operations
We derive substantially all of our revenue from rents received from tenants under existing leases on each of our properties. This revenue includes fixed base rents, recoveries of expenses that we have incurred and that we pass through to the individual tenants and percentage rents that are based on specified percentages of tenants’ revenue, in each case as provided in the particular leases.
Our primary cash expenses consist of our property operating expenses, which include: repairs and maintenance, management expenses, insurance, and utilities; real estate taxes; general and administrative expenses, which include payroll, office expenses, professional fees, acquisition costs and other administrative expenses; and interest expense, primarily on mortgage debt, unsecured senior debt, term loans and revolving credit facilities. In addition, we incur substantial non-cash charges for depreciation and amortization on our properties. We also capitalize certain expenses, such as taxes, interest and salaries related to properties under development or redevelopment until the property is ready for its intended use.
Our consolidated results of operations often are not comparable from period to period due to the impact of property acquisitions, dispositions, developments and redevelopments. The results of operations of any acquired property are included in our financial statements as of the date of its acquisition. A large portion of the changes in our statement of income line items is related to these changes in our shopping center portfolio. In addition, non-cash impairment charges may also affect comparability.
Throughout this section, we have provided certain information on a “same-property” basis. Information provided on a same-property basis includes the results of properties that we consolidated, owned and operated for the entirety of both periods being compared except for non-retail properties and properties for which significant development or redevelopment occurred during either of the periods being compared. While there is judgment surrounding changes in designations, a property is removed from the same-property pool when a property is considered to be a redevelopment property because it is undergoing significant renovation pursuant to a formal plan or is being repositioned in the market and such renovation or repositioning is expected to have a significant impact on property operating income. A development or redevelopment property is moved to the same-property pool once a substantial portion of the growth expected from the development or redevelopment is reflected in both the current and comparable prior year period. Acquisitions are moved into the same-property pool once we have owned the property for the entirety of the comparable periods and the property is not under significant development or redevelopment. For the three months ended March 31, 2015, we moved one property that had been under development (The Gallery at Westbury Plaza) totaling 311,669 square feet into the same-property pool.



25


Same-Property NOI
In this section, we present net operating income (“NOI”), which is a non-GAAP financial measure. The most directly comparable GAAP financial measure is income from continuing operations before tax and discontinued operations, which, to calculate NOI, is adjusted to add back depreciation and amortization, general and administrative expense, interest expense, amortization of deferred financing fees and impairments, and to exclude straight-line rent adjustments, accretion of below market lease intangibles (net), revenue earned from management and leasing services, investment income, equity in income of unconsolidated joint ventures, loss on sale of operating properties, gain on extinguishment of debt and other income. NOI includes management fee expense recorded at each property based on a percentage of revenue which is eliminated in consolidation. We use NOI internally as a performance measure and believe NOI provides useful information to investors regarding our financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level. Our management also uses NOI to evaluate property level performance and to make decisions about resource allocations. Further, we believe NOI is useful to investors as a performance measure because, when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition and disposition activity on an unleveraged basis, providing perspective not immediately apparent from income from continuing operations before tax and discontinued operations. NOI excludes certain components from net income attributable to Equity One, Inc. in order to provide results that are more closely related to a property’s results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level as opposed to the property level. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. NOI presented by us may not be comparable to NOI reported by other REITs that define NOI differently. We believe that in order to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with income from continuing operations before tax and discontinued operations as presented in our condensed consolidated financial statements. NOI should not be considered as an alternative to income from continuing operations before tax and discontinued operations as an indication of our performance or to cash flows as a measure of liquidity or our ability to make distributions.
Same-property NOI increased by $1.5 million, or 3.0%, for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014. The increase in same-property NOI was primarily driven by a net increase in minimum rent due to rent commencements (net of concessions and abatements) and contractual rent increases partially offset by higher bad debt expense. Same-property NOI including redevelopments increased 4.7% for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014, benefitting from income growth from lease commencements at Willows Shopping Center, Lake Mary Centre, Kirkman Shoppes and from Dick’s Sporting Goods at Serramonte.

26


Same-property NOI is reconciled to income from continuing operations before tax and discontinued operations as follows:
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands, except number of properties)
Same-property NOI
$
51,903

 
$
50,401

Redevelopment property NOI
4,000

 
2,975

Same-property NOI including redevelopments
55,903

 
53,376

Other non same-property NOI
1,969

 
4,134

Adjustments (1)
128

 
1,493

Total NOI
58,000

 
59,003

Add:
 
 
 
Straight-line rent adjustment
1,131

 
662

Accretion of below-market lease intangibles, net
2,827

 
7,981

Management and leasing services income
555

 
629

Elimination of intercompany expenses
2,787

 
2,760

Equity in income of unconsolidated joint ventures
882

 
8,261

Investment income
41

 
171

Other income

 
2,841

Gain on extinguishment of debt
138

 
1,074

Less:
 
 
 
Depreciation and amortization expense
21,016

 
26,267

General and administrative expense
8,740

 
10,914

Interest expense
14,259

 
16,900

Amortization of deferred financing fees
550

 
599

Loss on sale of operating properties
17

 
258

Impairment loss
11,307

 

Income from continuing operations before tax and discontinued operations
$
10,472

 
$
28,444

 
 
 
 
Growth in same-property NOI
3.0
%
 
 
Number of properties (2)
100

 
 
 
 
 
 
Growth in same-property NOI including redevelopments
4.7
%
 
 
Number of properties (3)
107

 
 
___________________________________________________ 
(1) Includes adjustments for items that affect the comparability of, and were excluded from, the same-property results. Such adjustments include: common area maintenance costs and real estate taxes related to a prior period, revenue and expenses associated with outparcels sold, settlement of tenant disputes, lease termination revenue and expense, or other similar matters that affect comparability.
(2) The same-property pool includes only those properties that the company consolidated, owned and operated for the entirety of both periods being compared and excludes properties for which significant development or redevelopment occurred during either of the periods being compared.
(3) The same-property pool including redevelopments includes only those properties that the company consolidated, owned and operated for the entirety of both periods being compared and includes properties for which significant redevelopment occurred during either of the periods being compared.




27


Comparison of the Three Months Ended March 31, 2015 to 2014
The following summarizes certain line items from our unaudited condensed consolidated statements of income that we believe are important in understanding our operations and/or those items which significantly changed in the three months ended March 31, 2015 as compared to the same period in 2014:
 
Three Months Ended March 31,
 
2015
 
2014
 
% Change
 
(In thousands)
 
 
Total revenue
$
88,479

 
$
92,697

 
(4.6
)%
Property operating expenses
12,572

 
11,254

 
11.7
 %
Real estate taxes
10,607

 
10,408

 
1.9
 %
Depreciation and amortization
21,016

 
26,267

 
(20.0
)%
General and administrative expenses
8,740

 
10,914

 
(19.9
)%
Equity in income of unconsolidated joint ventures
882

 
8,261

 
(89.3
)%
Other income

 
2,841

 
NM*

Interest expense
14,259

 
16,900

 
(15.6
)%
Gain on extinguishment of debt
138

 
1,074

 
(87.2
)%
Impairment loss
11,307

 

 
NM*

Income from discontinued operations

 
3,064

 
(100.0
)%
Net income
10,508

 
30,975

 
(66.1
)%
Net income attributable to Equity One, Inc.
8,006

 
26,276

 
(69.5
)%
______________________________________________ 
* NM = Not meaningful
Total revenue decreased by $4.2 million, or 4.6%, to $88.5 million in 2015 from $92.7 million in 2014. The decrease was primarily attributable to the following:
a decrease of approximately $4.4 million related to the recognition in 2014 of a net termination benefit at our property located at 101 7th Avenue in New York from the acceleration of the accretion of a below-market lease liability upon the tenant vacating the space and rejecting the lease in connection with a bankruptcy filing; and
a decrease of approximately $4.1 million associated with properties sold in 2015 and 2014; partially offset by
an increase of approximately $2.2 million in same-property revenue primarily due to higher rent from new rent commencements and renewals;
an increase of approximately $1.6 million related to development and redevelopment projects; and
an increase of approximately $590,000 associated with properties acquired in 2014.
Property operating expenses increased by $1.3 million, or 11.7%, to $12.6 million in 2015 from $11.3 million in 2014. The increase primarily consisted of the following:
a net increase of approximately $1.9 million in same-property expenses primarily attributable to higher bad debt expense of $1.6 million in part due to the reversal of $1.1 million in 2014 in our allowance for doubtful accounts for certain historical real estate tax billings for which a settlement was reached with the tenants; and
an increase of approximately $140,000 associated with properties acquired in 2015 and 2014; partially offset by
a decrease of approximately $930,000 associated with properties sold in 2015 and 2014.

28


Real estate tax expense increased by $199,000, or 1.9%, to $10.6 million in 2015 from $10.4 million in 2014. The increase primarily consisted of the following:
a net increase of approximately $554,000 in real estate tax expense across our portfolio of properties; partially offset by
a decrease of approximately $445,000 associated with properties sold in 2015 and 2014.
Depreciation and amortization decreased by $5.3 million, or 20.0%, to $21.0 million for 2015 from $26.3 million in 2014. The decrease was primarily related to the following:
a net decrease of approximately $3.1 million related to accelerated depreciation of assets razed as part of redevelopment projects in 2014, partially offset by new depreciable assets added during 2015 and 2014;
a decrease of approximately $1.3 million due to assets becoming fully depreciated and amortized during 2015 and 2014; and
a decrease of approximately $855,000 associated with properties sold in 2015 and 2014.
General and administrative expenses decreased by $2.2 million, or 19.9%, to $8.7 million for 2015 from $10.9 million in 2014. The decrease was primarily related to the following:
a decrease in transaction-related costs in connection with completed or pending property acquisitions of approximately $1.2 million; and
a decrease of approximately $1.1 million in employment costs primarily due to lower share-based compensation expense and higher capitalized payroll expense.
We recorded $882,000 of equity in income of unconsolidated joint ventures in 2015 compared to $8.3 million in 2014. The decrease was primarily related to the 2014 sale of Vernola Marketplace, a property held by one of our joint ventures, of which our proportionate share of the gain was $7.4 million (including $1.6 million attributable to a noncontrolling interest).
Other income of $2.8 million in 2014 relates to the acquisition of our joint venture partners' interests in Talega Village Center, resulting in the recognition of a $2.8 million gain, including $561,000 attributable to a noncontrolling interest, due to the remeasurement of our existing equity investment to fair value.
Interest expense decreased by $2.6 million, or 15.6%, to $14.3 million for 2015 from $16.9 million in 2014. The decrease was primarily attributable to the following:
a decrease of approximately $1.4 million associated with lower mortgage interest primarily due to the repayment of mortgages during 2015 and 2014;
a decrease of approximately $570,000 due to higher capitalized interest as a result of a major redevelopment project;
a decrease of approximately $330,000 associated with lower interest expense associated with the term loan; and
a decrease of approximately $315,000 associated with lower interest expense and unused facility fees associated with the unsecured revolving credit facilities.
We recorded gains on extinguishment of debt of $138,000 and $1.1 million in 2015 and 2014, respectively. The gain in 2014 primarily relates to the sale of Brawley Commons. The property was encumbered by a $6.5 million mortgage loan which matured on July 1, 2013 and remained unpaid. In February 2014, we sold the property to a third party for $5.5 million and the lender accepted this amount as full repayment of the loan, resulting in the recognition of a gain on extinguishment of debt of approximately $882,000.
In 2015, we recorded an impairment loss in continuing operations of $11.3 million, consisting of $864,000 related to an income producing property sold and $10.4 million related to a property held for use.
In 2014, income from discontinued operations of $3.1 million related to two of the properties sold (Stanley Marketplace and Oak Hill Village) as they were classified as held for sale prior to the adoption of ASU No. 2014-08. In 2015, the results of operations for the one property sold are reported in continuing operations as the disposition does not represent a strategic shift that has or will have a major effect on our operations and financial results.

29


As a result of the foregoing, net income decreased by $20.5 million to $10.5 million for 2015 compared to $31.0 million in 2014. Net income attributable to Equity One, Inc. decreased by $18.3 million to $8.0 million for 2015 compared to $26.3 million in 2014.
Funds From Operations
We believe Funds from Operations (“FFO”) (when combined with the primary GAAP presentations) is a useful supplemental measure of our operating performance that is a recognized metric used extensively by the real estate industry and, in particular, REITs. The National Association of Real Estate Investment Trusts (“NAREIT”) stated in its April 2002 White Paper on Funds from Operations, “Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.”
FFO, as defined by NAREIT, is “net income (computed in accordance with GAAP), excluding gains (or losses) from sales of, or impairment charges related to, depreciable operating properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.” NAREIT states further that “adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis.” We believe that financial analysts, investors and stockholders are better served by the presentation of comparable period operating results generated from our FFO measure. Our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
FFO is presented to assist investors in analyzing our operating performance. FFO (i) does not represent cash flow from operations as defined by GAAP, (ii) is not indicative of cash available to fund all cash flow needs, including the ability to make distributions, (iii) is not an alternative to cash flow as a measure of liquidity, and (iv) should not be considered as an alternative to net income (which is determined in accordance with GAAP) for purposes of evaluating our operating performance.
The following table illustrates the calculation of FFO and FFO available to diluted common shareholders for the three months ended March 31, 2015 and 2014:
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Net income attributable to Equity One, Inc.
$
8,006

 
$
26,276

Adjustments:
 
 
 
Rental property depreciation and amortization, net of noncontrolling interest (1)
20,699

 
25,935

Pro-rata share of real estate depreciation and amortization from
   unconsolidated joint ventures
1,033

 
1,051

Loss (gain) on disposal of depreciable assets, net of tax (1)
17

 
(3,008
)
Pro-rata share of gain on disposal of depreciable assets from unconsolidated joint
   ventures, net of noncontrolling interest (2)

 
(8,007
)
Impairments of depreciable real estate, net of tax (1)
11,061

 

Funds from operations
40,816

 
42,247

Earnings attributed to noncontrolling interest (3)
2,499

 
2,499

Funds from operations available to diluted common shareholders
$
43,315

 
$
44,746

__________________________________________ 
(1) Includes amounts classified as discontinued operations.
(2) Includes the remeasurement of the fair value of our equity interest in Talega Village Center JV, LLC, the owner of Talega Village Center, of $2.2 million, net of the related noncontrolling interest for the three months ended March 31, 2014.
(3) Represents earnings attributed to convertible units held by Liberty International Holdings Limited ("LIH"). Although these convertible units are excluded from the calculation of earnings per diluted share, FFO available to diluted shareholders includes earnings allocated to LIH, as the inclusion of these units is dilutive to FFO per diluted share.


30


The following table reflects the reconciliation of FFO per diluted share to earnings per diluted share attributable to Equity One, Inc., the most directly comparable GAAP measure:
 
Three Months Ended March 31,
 
2015
 
2014
 
 
 
 
Earnings per diluted share attributable to Equity One, Inc.
$
0.06

 
$
0.22

Adjustments:
 
 
 
Rental property depreciation and amortization, net of noncontrolling interest
0.15

 
0.20

Earnings attributed to noncontrolling interest (1)
0.02

 
0.02

Net adjustment for rounding and earnings attributable to unvested shares (2)

 
(0.02
)
Pro-rata share of real estate depreciation and amortization from unconsolidated joint
   ventures
0.01

 
0.01

Gain on disposal of depreciable assets, net of tax

 
(0.02
)
Pro-rata share of gain on disposal of depreciable assets from unconsolidated joint
   ventures, net of noncontrolling interest

 
(0.06
)
Impairments of depreciable real estate, net of tax
0.08

 

Funds from operations per diluted common share
$
0.32

 
$
0.35

Weighted average diluted shares (in thousands) (3)
136,358

 
129,294

______________________________________________ 
(1) Represents earnings attributed to convertible units held by LIH, which have been excluded for purposes of calculating earnings per diluted share. The computation of FFO includes earnings allocated to LIH and the respective weighted average share totals include the LIH shares outstanding as their inclusion is dilutive.
(2) Represents an adjustment to compensate for earnings allocated to unvested shares and shares issuable to LIH and for the rounding of the individual calculations.
(3) Weighted average diluted shares used to calculate FFO per share are higher than the GAAP diluted weighted average shares as a result of the dilutive impact of the 11.4 million joint venture units held by LIH which are convertible into our common stock. These convertible units are not included in the diluted weighted average share count for GAAP purposes because their inclusion is anti-dilutive.
Critical Accounting Policies
Our 2014 Annual Report on Form 10-K contains a description of our critical accounting policies, including initial adoption of accounting policies, revenue recognition and accounts receivable, recognition of gains from the sales of real estate, real estate acquisitions, real estate properties and development assets, long lived assets, investments in unconsolidated joint ventures, goodwill, share-based compensation and incentive awards, income taxes, and properties held for sale. For the three months ended March 31, 2015, there were no material changes to these policies. See Note 2 to the condensed consolidated financial statements included as part of this Quarterly Report on Form 10-Q for a description of the potential impact of the adoption of any new accounting pronouncements.
Liquidity and Capital Resources
Due to the nature of our business, we typically generate significant amounts of cash from operations; however, the cash generated from operations is primarily paid to our stockholders in the form of dividends. Our status as a REIT requires that we distribute 90% of our REIT taxable income (excluding net capital gains) each year, as defined in the Internal Revenue Code (the “Code”).  
Short-term liquidity requirements
Our short-term liquidity requirements consist primarily of normal recurring operating expenses, regular debt service requirements (including debt service relating to additional or replacement debt, as well as scheduled debt maturities), recurring company expenditures, such as general and administrative expenses, non-recurring company expenditures (such as costs associated with development and redevelopment activities, tenant improvements and acquisitions) and dividends to common stockholders. We have satisfied these requirements through cash generated from operations and from financing and investing activities.


31


As of March 31, 2015, we had approximately $76.2 million of cash and cash equivalents available. In addition, we had two revolving credit facilities providing for borrowings of up to $605.0 million of which the maximum was available to be drawn thereunder, based on the financial covenants contained in those facilities. As of March 31, 2015, we had no outstanding balances under the credit facilities. As of March 31, 2015, we had outstanding letters of credit with an aggregate face amount of $2.1 million. Our $5.0 million credit facility expired on May 7, 2015.
In April 2015, we redeemed our 5.375% unsecured senior notes, which had a principal balance of $107.5 million and were scheduled to mature in October 2015 at a redemption price equal to the principal amount of the notes, accrued and unpaid interest, and a required make-whole premium of $2.6 million. During the remainder of 2015, we have approximately $5.2 million in scheduled debt maturities and normal recurring principal amortization payments. Additionally, we are actively searching for acquisition and joint venture opportunities that may require additional capital and/or liquidity. Our available cash and cash equivalents, revolving credit facility, and cash from property dispositions will be used to fund prospective acquisitions as well as our debt maturities and normal operating expenses.
Long-term liquidity requirements
Our long-term capital requirements consist primarily of maturities of various long-term debts, development and redevelopment costs and the costs related to growing our business, including acquisitions.
An important component of our growth strategy is the redevelopment of properties within our portfolio and the development of new shopping centers. As of March 31, 2015, we have invested an aggregate of approximately $113.0 million in active development or redevelopment projects at various stages of completion and anticipate these projects will require an additional $28.8 million to complete, based on our current plans and estimates, which we anticipate will be primarily expended in 2015. In addition, we have other significant projects for which we have outstanding obligations to fund approximately $14.0 million, and we expect these funds will be primarily expended in 2015.
Historically, we have funded these requirements through a combination of sources that were available to us, including additional and replacement secured and unsecured borrowings, proceeds from the issuance of additional debt or equity securities, capital from institutional partners that desire to form joint venture relationships with us and proceeds from property dispositions.
2015 liquidity events
While we believe our availability under our line of credit is sufficient to operate our business for the remainder of 2015, if we identify acquisition or redevelopment opportunities that meet our investment objectives, we may need to raise additional capital.
While there is no assurance that we will be able to raise additional capital in the amounts or at the prices we desire, we believe we have positioned our balance sheet in a manner that facilitates our capital raising plans. The following is a summary of our financing and investing activities completed during the three months ended March 31, 2015:
We issued 4.5 million shares of our common stock in an underwritten public offering and concurrent private placement that raised net proceeds before expenses of $121.3 million, a portion of which were used in April 2015 to fund the redemption of our $107.5 million 5.375% unsecured senior notes due October 2015;
We sold one non-core asset located in Orlando, Florida for gross proceeds of $4.8 million;
We received proceeds of $2.5 million from the issuance of common stock in connection with the exercise of stock options by employees;
We repaid $37.0 million in borrowings outstanding under our $600.0 million line of credit;
We invested $26.7 million in capital expenditures to improve our properties;
We prepaid, without penalty, a mortgage loan which had a balance of $19.6 million and bore interest at a rate of 5.32%; and
We acquired a 0.18 acre outparcel adjacent to Pablo Plaza located in Jacksonville, Florida for $750,000.

32


Summary of Cash Flows. The following summary discussion of our cash flows is based on the condensed consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.
 
Three Months Ended March 31,
 
2015
 
2014
 
Increase (Decrease)
 
(In thousands)
Net cash provided by operating activities
$
33,992

 
$
28,210

 
$
5,782

Net cash used in investing activities
$
(20,648
)
 
$
(4,380
)
 
$
(16,268
)
Net cash provided by (used in) financing activities
$
35,354

 
$
(20,148
)
 
$
55,502

Our principal source of operating cash flow is cash generated from our rental properties. Our properties provide a relatively consistent stream of rental income that provides us with resources to fund operating expenses, general and administrative expenses, debt service and quarterly dividends. Net cash provided by operating activities totaled $34.0 million for the three months ended March 31, 2015 compared to $28.2 million in the 2014 period. The increase is due primarily to a decrease in interest expense as a result of a decrease in the amount of outstanding debt and the timing of expenses.
Net cash used in investing activities was $20.6 million for the three months ended March 31, 2015 compared to $4.4 million for the same period in 2014. Investing activities during 2015 primarily consisted of: additions to construction in progress of $20.2 million; additions to income producing properties of $4.7 million; and acquisition of land held for development of $750,000; partially offset by: proceeds related to the sale of real estate and rental properties of $4.5 million; collection of development costs tax credit of $1.5 million; and distributions from joint ventures of $935,000. Investing activities during 2014 primarily consisted of: acquisitions of income producing properties of $85.9 million; additions to construction in progress of $13.2 million; and additions to income producing properties of $4.8 million; partially offset by: proceeds from the repayment of loans receivable of $60.5 million; proceeds related to the sale of real estate and rental properties of $25.1 million; and distributions from joint ventures of $14.8 million.
The following summarizes our capital expenditures:
 
Three Months Ended March 31,
 
2015
 
2014
Capital expenditures:
(In thousands)
Tenant improvements and allowances
$
6,083

 
$
2,692

Leasing commissions and costs
1,818

 
1,522

Developments
2,108

 
8,038

Redevelopments
9,694

 
6,062

Maintenance capital expenditures
2,520

 
1,536

Total capital expenditures
22,223

 
19,850

Net change in accrued capital spending
4,493

 
(451
)
Capital expenditures per condensed consolidated statements of cash flows
$
26,716

 
$
19,399

The increase in tenant improvements and allowances during the three months ended March 31, 2015 compared to the same period in 2014 was primarily attributable to expenditures associated with a new anchor tenant at Ambassador Row Courtyard and other tenant allowances across the portfolio. The decrease in development capital expenditures during the three months ended March 31, 2015 compared to the same period in 2014 was primarily the result of costs incurred in 2014 for Broadway Plaza. The increase in redevelopment capital expenditures during the three months ended March 31, 2015 compared to the same period in 2014 was primarily the result of costs incurred for Willows Shopping Center, Lake Mary Centre, Kirkman Shoppes and Boynton Plaza. We capitalized internal costs related to capital expenditures of $1.8 million and $1.4 million during the three months ended March 31, 2015 and 2014, respectively, primarily related to successful leasing activities of $954,000 and $881,000, respectively, development activities of $178,000 and $136,000, respectively, and redevelopment and expansion activities of $460,000 and $204,000, respectively. Capitalized interest totaled $1.3 million and $701,000 during the three months ended March 31, 2015 and 2014, respectively, primarily related to development and redevelopment activities.

33


Net cash provided by financing activities totaled $35.4 million for the three months ended March 31, 2015 compared net cash used in financing activities of $20.1 million for the same period in 2014. During 2015, the issuance of common stock generated gross proceeds of $124.3 million partially offset by: net repayments under the revolving credit facilities of $37.0 million; dividends paid to stockholders of $27.5 million; prepayments and repayments of mortgage debt of $21.3 million; and distributions to noncontrolling interests of $2.5 million. The largest financing outflows for 2014 related to: dividends paid to stockholders of $26.1 million; prepayments and repayments of $22.9 million of mortgage debt; and distributions to noncontrolling interests of $4.4 million; partially offset by net borrowings under the revolving credit facilities of $34.0 million.
Future Contractual Obligations. During the three months ended March 31, 2015, there were no material changes to the contractual obligation information presented in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2014 except as noted above with respect to net repayments under the revolving credit facilities of $37.0 million.
Off-Balance Sheet Arrangements
Joint Ventures. We consolidate entities in which we own less than a 100% equity interest if we have a controlling interest or are the primary beneficiary in a variable interest entity, as defined in the Consolidation Topic of the FASB ASC. From time to time, we may have off-balance-sheet joint ventures and other unconsolidated arrangements with varying structures.
As of March 31, 2015, we have investments in seven unconsolidated joint ventures in which our effective ownership interests range from 8.6% to 50.0%. We exercise significant influence over, but do not control, five of these entities and therefore they are presently accounted for using the equity method of accounting while two of these joint ventures are accounted for under the cost method. For a more complete description of our joint ventures see Note 5 to the condensed consolidated financial statements included in this report.
As of March 31, 2015, the aggregate carrying amount of the debt, including our partners’ shares, incurred by those joint ventures accounted for under the equity method was approximately $219.8 million (of which our aggregate proportionate share was approximately $49.2 million). Although we have not guaranteed the debt of these joint ventures, we have agreed to customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) on certain of the loans of the joint ventures. 
Reconsideration events could cause us to consolidate these joint ventures and partnerships in the future. We evaluate reconsideration events as we become aware of them. Some triggers to be considered are additional contributions required by each partner and each partners’ ability to make those contributions. Under certain of these circumstances, we may purchase our partner’s interest. Our unconsolidated real estate joint ventures are with entities which appear sufficiently stable to meet their capital requirements; however, if market conditions worsen and our partners are unable to meet their commitments, there is a possibility we may have to consolidate these entities.
Contingencies
Letters of Credit. As of March 31, 2015, we had provided letters of credit having an aggregate face amount of $2.1 million as additional security for financial and other obligations. All of our letters of credit are issued under our revolving credit facilities.
Construction Commitments. As of March 31, 2015, we have entered into construction commitments and had outstanding obligations to fund approximately $28.8 million, based on current plans and estimates, in order to complete active development and redevelopment projects, which we anticipate will be primarily expended in 2015. In addition, we have other significant projects for which we have outstanding obligations to fund approximately $14.0 million, and we expect these funds will be primarily expended in 2015. These obligations, comprised principally of construction contracts, are generally due as the work is performed and are expected to be financed by funds available under our credit facility, proceeds from property dispositions and available cash.
Operating Lease Obligations. We are obligated under non-cancelable operating leases for office space, equipment rentals and ground leases on certain of our properties totaling $44.3 million.
Non-Recourse Debt Guarantees. Under the terms of certain non-recourse mortgage loans, we could, under specific circumstances, be responsible for portions of the mortgage indebtedness in connection with certain customary non-recourse carve-out provisions, such as environmental conditions, misuse of funds, impermissible transfers and material misrepresentations. In management’s judgment, it would be unlikely for us to incur any material liability under these guarantees that would have a material adverse effect on our financial condition, results of operations, or cash flows.
Other than our joint ventures and obligations described above and our contractual obligation items, we have no off-balance sheet arrangements or contingencies as of March 31, 2015 that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, capital expenditures or capital resources.

34



Capital Recycling Initiatives
As part of our strategy to upgrade and diversify our portfolio and recycle our capital, in 2013 and 2014 we sold a total of fifty-four non-core properties. Although we expect our pace of disposition activity to slow, we will selectively explore future opportunities to sell additional non-core properties located primarily in the southeastern United States and north and central Florida if pricing is deemed to be favorable. If the market values of these assets are below their carrying values, it is possible that the disposition of these assets could result in impairments or other losses. Depending on the prevailing market conditions and historical carrying values, these impairments and losses could be material. Depending on how proceeds from such dispositions are invested, we may also suffer earnings and FFO dilution. See Note 4 to the condensed consolidated financial statements included in this report for additional discussion of the status of a disposition under contract and the related financial statement impact.
During the three months ended March 31, 2015, we recognized impairment losses on a property sold and a property held for use totaling $864,000 and $10.4 million, respectively. See Notes 4 and 15 to the condensed consolidated financial statements included in this report for additional information regarding impairment losses.
Environmental Matters
We are subject to numerous environmental laws and regulations. The operation of dry cleaning and gas station facilities at our shopping centers are the principal environmental concerns. We require that the tenants who operate these facilities do so in material compliance with current laws and regulations and we have established procedures to monitor dry cleaning operations. Where available, we have applied and been accepted into state sponsored environmental programs. Several properties in the portfolio will require or are currently undergoing varying levels of environmental remediation. We have environmental insurance policies covering most of our properties which limits our exposure to some of these conditions, although these policies are subject to limitations and environmental conditions known at the time of acquisition are typically excluded from coverage. Management believes that the ultimate disposition of currently known environmental matters will not have a material effect on our financial condition, results of operations or cash flows.
Future Capital Requirements
We believe, based on currently proposed plans and assumptions relating to our operations, that our existing financial arrangements, together with cash generated from our operations, cash on hand and any short-term investments will be sufficient to satisfy our cash requirements for a period of at least twelve months. In the event that our plans change, our assumptions change or prove to be inaccurate or cash flows from operations or amounts available under existing financing arrangements prove to be insufficient to fund our debt maturities, pay our dividends, fund expansion, development and redevelopment efforts or to the extent we discover suitable acquisition targets the purchase price of which exceeds our existing liquidity, we would be required to seek additional sources of financing. Additional financing may not be available on acceptable terms or at all, and any future equity financing could be dilutive to existing stockholders. If adequate funds are not available, our business operations could be materially adversely affected. See Part I – Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2014 for additional information regarding such risks.
Distributions
We believe that we currently qualify and intend to continue to qualify as a REIT under the Code. As a REIT, we are allowed to reduce taxable income by all or a portion of our distributions to stockholders. As distributions have exceeded taxable income, no provision for federal income taxes has been made. While we intend to continue to pay dividends to our stockholders, we also will reserve such amounts of cash flow as we consider necessary for the proper maintenance and improvement of our real estate and other corporate purposes while still maintaining our qualification as a REIT.
Inflation and Economic Condition Considerations
Most of our leases contain provisions designed to partially mitigate any adverse impact of inflation. Although inflation has been low in recent periods and has had a minimal impact on the performance of our shopping centers, there is more recent data suggesting that inflation may be a greater concern in the future given economic conditions and governmental fiscal policy. Most of our leases require the tenant to pay its share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation, though some larger tenants have capped the amount of these operating expenses they are responsible for under their lease. A small number of our leases also include clauses enabling us to receive percentage rents based on a tenant’s gross sales above predetermined levels, which sales generally increase as prices rise, or escalation clauses which are typically related to increases in the Consumer Price Index or similar inflation indices.

35


Cautionary Statement Relating to Forward Looking Statements
Certain matters discussed in this Quarterly Report on Form 10-Q contain “forward-looking statements” for purposes of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations and are not guarantees of future performance. 
All statements other than statements of historical facts are forward-looking statements and can be identified by the use of forward-looking terminology such as “may,” “will,” “might,” “would,” “expect,” “anticipate,” “estimate,” “could,” “should,” “believe,” “intend,” “project,” “forecast,” “target,” “plan,” or “continue” or the negative of these words or other variations or comparable terminology. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Because these statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution you not to place undue reliance on those statements, which speak only as of the date of this report. 
Among the factors that could cause actual results to differ materially are:
general economic conditions, including current macro-economic challenges, competition from alternative sales channels including the internet, and changes in the supply of and demand for shopping center properties in our markets;
risks that tenants will not remain in occupancy or pay rent, or pay reduced rent due to declines in their businesses;
interest rate levels, the availability of financing and our credit ratings;
potential environmental liability and other risks associated with the ownership, development, redevelopment and acquisition of shopping center properties;
greater than anticipated construction or operating costs or delays in completing development or redevelopment projects or obtaining necessary approvals therefor;
inflationary, deflationary and other general economic trends;
the effects of hurricanes, earthquakes, terrorist attacks and other natural or man-made disasters;
changes in key personnel;
management’s ability to successfully combine and integrate the properties and operations of separate companies that we have acquired in the past or may acquire in the future;
the impact of acquisitions and dispositions of properties and joint venture interests and expenses incurred by us in connection with our acquisition and disposition activity;
the ability to identify properties for acquisition and other accretive uses of cash available from operations, the disposition of non-core assets and financing activities;
impairment charges related to changes in market values of our properties as well as those related to our disposition activity;
our ability to maintain our status as a real estate investment trust, or REIT, for U.S. federal income tax purposes and the effect of future changes in REIT requirements as a result of new legislation; and
other risks detailed from time to time in the reports filed by us with the Securities and Exchange Commission, including, but not limited to, those risk factors identified in our most recently filed Annual Report on Form 10-K.
Except for ongoing obligations to disclose material information as required by the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. All of the above factors are difficult to predict, contain uncertainties that may materially affect our actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for our management to predict all such factors or to assess the effect of each factor on our business.

36


ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The primary market risk to which we have exposure is interest rate risk. Changes in interest rates can affect our net income and cash flows. As changes in market conditions occur and interest rates increase or decrease, interest expense on the variable component of our debt will move in the same direction. We intend to utilize variable-rate indebtedness available under our unsecured revolving credit facility in order to initially fund future acquisitions, development and redevelopment costs and other operating needs. With respect to our fixed rate mortgage notes and unsecured senior notes, changes in interest rates generally do not affect our interest expense as these notes are at fixed rates for extended terms. Because we have the intent to hold our existing fixed-rate debt either to maturity or until the sale of the associated property, these fixed-rate notes pose an interest rate risk to our results of operations and our working capital position only upon the refinancing of that indebtedness. Our possible risk is from increases in long-term interest rates that may occur as this may increase our cost of refinancing maturing fixed-rate debt. In addition, we may incur prepayment penalties or defeasance costs when prepaying or defeasing debt. With respect to our floating rate term loan, the primary market risk exposure is increasing LIBOR-based interest rates, which we have effectively converted to a fixed rate of interest through the use of interest rate swaps.
The fair value of our fixed-rate debt was $1.1 billion as of March 31, 2015, which includes our mortgage notes and unsecured senior notes payable. If interest rates increase by 1%, the fair value of our total fixed-rate debt, based on the fair value as of March 31, 2015, would decrease by approximately $36.3 million. If interest rates decrease by 1%, the fair value of our total fixed-rate debt would increase by approximately $38.4 million. This assumes that our total outstanding fixed-rate debt remains at approximately $1.0 billion, the balance as of March 31, 2015.
As of March 31, 2015, we had $250.0 million of floating rate debt outstanding under our term loan, which we have effectively converted to a fixed rate of interest through the use of interest rate swaps – see “Hedging Activities” below. The fair value of our term loan was $250.8 million as of March 31, 2015. If interest rates increase by 1%, the fair value of our total term loan (unhedged), based on the fair value as of March 31, 2015, would decrease by approximately $9.3 million. If interest rates decrease by 1%, the fair value of our total term loan (unhedged), based on the fair value as of March 31, 2015, would increase by approximately $9.6 million.
Hedging Activities
To manage, or hedge, our exposure to interest rate risk, we follow established risk management policies and procedures, including the use of a variety of derivative financial instruments. We do not enter into derivative instruments for speculative purposes. We require that the hedges or derivative financial instruments be effective in managing the interest rate risk exposure that they are designated to hedge. This effectiveness is essential to qualify for hedge accounting. Hedges that meet these hedging criteria are formally designated as such at the inception of the contract. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, resulting in some ineffectiveness, the change in the fair value of the derivative instrument will be included in earnings.
In connection with our $250.0 million unsecured term loan, we entered into three interest rate swaps in order to convert the variable LIBOR rate under the term loan to a fixed interest rate, providing us an effective weighted average fixed interest rate on the term loan of 2.62% per annum based on the current credit ratings of our unsecured senior notes. As of March 31, 2015 and December 31, 2014, the fair value of one of our interest rate swaps consisted of an asset of $139,000 and $681,000, respectively, which is included in other assets in our condensed consolidated balance sheets, while the fair value of the two remaining interest rate swaps consisted of a liability of $3.0 million and $952,000, respectively, which is included in accounts payable and accrued expenses in our condensed consolidated balance sheets.
Other Market Risks
As of March 31, 2015, we had no material exposure to any other market risks (including foreign currency exchange risk or commodity price risk). In making this determination and for purposes of the SEC's market risk disclosure requirements, we have estimated the fair value of our financial instruments as of March 31, 2015 based on pertinent information available to management as of that date. Although management is not aware of any factors that would significantly affect the estimated amounts as of March 31, 2015, future estimates of fair value and the amounts which may be paid or realized in the future may differ significantly from amounts presented.

37


ITEM 4.    CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2015, our disclosure controls and procedures were effective at the reasonable assurance level such that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

38



PART II – OTHER INFORMATION
ITEM 1.   LEGAL PROCEEDINGS
We are not presently involved in any litigation nor, to our knowledge, is any litigation threatened against us that, in management's opinion, would result in a material adverse effect on our business, financial condition, results of operations or our cash flows.
ITEM 1A.   RISK FACTORS
Our Annual Report on Form 10-K for the year ended December 31, 2014, Part I – Item 1A, Risk Factors, describes important risk factors that could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-Q or presented elsewhere by management from time to time. Except to the extent updated below or previously updated or to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters discussed in Part I, "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations"), there were no material changes in such risk factors.
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Issuer Purchases of Equity Securities.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(c)
 
 
 
 
 
 
(b)
 
Total Number
 
(d)
 
 
(a)
 
Average
 
of Shares
 
Maximum Number (or
 
 
Total Number
 
Price
 
Purchased as
 
Approximate Dollar
 
 
of Shares of
 
Paid per
 
Part of Publicly
 
Value) of Shares that
 
 
Common
 
Share of
 
Announced
 
May Yet be Purchased
 
 
Stock
 
Common
 
Plans or
 
Under the Plan or
Period
 
Purchased
 
Stock
 
Programs
 
Program
January 1, 2015 - January 31, 2015
 

 
$

 
N/A
 
N/A
February 1, 2015 - February 28, 2015
 
6,802

(1) 
$
27.43

 
N/A
 
N/A
March 1, 2015 - March 31, 2015
 

 
$

 
N/A
 
N/A
 
 
6,802

 
$
27.43

 
N/A
 
N/A
____________________________________ 
(1) Represents shares of common stock surrendered by employees to us to satisfy such employees' tax withholding obligations in connection with the vesting of restricted common stock.
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.   MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.   OTHER INFORMATION
None.

39



ITEM 6.   EXHIBITS
(a)
Exhibits

3.1
Articles of Amendment to Charter of the Company (previously filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed on March 11, 2015 and incorporated by reference herein).
 
 
3.2
Articles Supplementary to Charter of the Company (previously filed as Exhibit 3.2 to the Company's Current Report on Form 8-K filed on March 11, 2015 and incorporated by reference herein).
 
 
10.1
Second Amendment to Employment Agreement between Equity One and Mark Langer dated March 10, 2015 (previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 11, 2015 and incorporated by reference herein).
 
 
10.2
Common Stock Purchase Agreement, dated as of March 18, 2015, between Equity One, Inc. and Gazit First Generation LLC (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 24, 2015 and incorporated by reference herein).
 
 
10.3
Registration Rights Agreement, dated as of March 18, 2015, between Equity One, Inc. and Gazit First Generation LLC (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 24, 2015 and incorporated by reference herein).
 
 
12.1
Ratio of Earnings to Fixed Charges
 
 
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended and Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended and Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended and 18 U.S.C 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema
 
 
101.CAL
XBRL Extension Calculation Linkbase
 
 
101.LAB
XBRL Extension Labels Linkbase
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase




40


SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
    
 
EQUITY ONE, INC.
 
Date:
May 8, 2015
/s/ Matthew Ostrower
 
Matthew Ostrower
Executive Vice President, Chief Financial Officer and Treasurer
 
(Principal Financial Officer)

    
 
Date:
May 8, 2015
/s/ Angela Valdes
 
Angela Valdes
Vice President and Chief Accounting Officer
 
(Principal Accounting Officer)

41


INDEX TO EXHIBITS
 
 
Exhibits
Description
3.1
Articles of Amendment to Charter of the Company (previously filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed on March 11, 2015 and incorporated by reference herein).
 
 
3.2
Articles Supplementary to Charter of the Company (previously filed as Exhibit 3.2 to the Company's Current Report on Form 8-K filed on March 11, 2015 and incorporated by reference herein).
 
 
10.1
Second Amendment to Employment Agreement between Equity One and Mark Langer dated March 10, 2015 (previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 11, 2015 and incorporated by reference herein).
 
 
10.2
Common Stock Purchase Agreement, dated as of March 18, 2015, between Equity One, Inc. and Gazit First Generation LLC (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 24, 2015 and incorporated by reference herein).
 
 
10.3
Registration Rights Agreement, dated as of March 18, 2015, between Equity One, Inc. and Gazit First Generation LLC (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 24, 2015 and incorporated by reference herein).
 
 
12.1
Ratio of Earnings to Fixed Charges
 
 
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended and Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended and Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended and 18 U.S.C 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema
 
 
101.CAL
XBRL Extension Calculation Linkbase
 
 
101.LAB
XBRL Extension Labels Linkbase
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase
 








42