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5
A
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Thomas P. McGuinness
President & CEO
Dear InvenTrust Stockholders,
InvenTrust Properties Corp. (“InvenTrust”) had a transformative year in 2015. We began
the year with three core real estate platforms – student housing, multi-tenant retail and
hotels – as well as a portfolio of non-core assets. Following a series of transactions, with
the fi nal transaction expected to be completed by the end of the second quarter of 2016,
InvenTrust will become a pure-play retail asset class company with a simplifi ed and focused
portfolio strategy.
Fellow stockholders, there is no denying InvenTrust’s long history and complex investment
story. Since our inception, InvenTrust (which was, at that time, known as Inland American)
assembled a $12 billion portfolio of assets with a focus on the credit quality of tenants
and length of lease term. This investment thesis was consistent with our original stated
investment charter. A signifi cant number of our assets were purchased prior to 2009 (before
the economic downturn) and were in a wide variety of geographic markets and asset
classes including: offi ce, hotels, industrial, student housing, net lease and multi-tenant
retail, etc. Our diversity and size supported our attractive distribution payout during the
downturn, but this same size and diversity led to complexity in monetizing the portfolio.
We are now approaching our goal of a streamlined strategy and a single asset class focus.
Establishing the Foundation for Our Strategic Evolution
In 2012, when we fi rst articulated our long-term plan, our focus included streamlining
our portfolio while improving and strengthening our balance sheet. We understood the
collection of properties in each of our separate platforms had a unique and diff erentiating
story in their respective sectors that would make these platforms attractive to both private
and public buyers. These elements ultimately validated and supported the company’s
strategy to monetize its portfolio of assets by individual platform, utilizing a range of
options. While these multiple corporate actions and events have taken time to execute,
we believe these actions maximize value for InvenTrust’s stockholders.
InvenTrust Properties 2015 Annual Report | 1
EXECUTION OF TRANSFORMATION STRATEGY
Sale of apartment
portfolio
Disposition of triple
net assets
Led to signifi cant debt
reduction and balance
sheet restructuring
Led to $398 million
share buy back
Led to spin-off and listing
of hotel platform - Xenia
Hotels & Resorts, Inc.
Additional investment
in full service, premier
hotel assets
$1.1 billion select
service hotel
portfolio sale
2 | InvenTrust Properties 2015 Annual Report
Self-management
for no fees
Led to elimination of
sponsor asset
management fees
Led to enhancement of
management team by
adding experienced &
proven professionals and an
appointment of a new board
member
Spin-off of our
non-core assets -
Highlands REIT, Inc.
Pending the sale of the
student housing
platform
Will lead to InvenTrust
becoming a pure-play,
single asset retail REIT
Achieving Our Transformation
With this foundation in place, we have been
able to deliver on multiple elements of our
strategy in 2015 and into 2016. Following the
completion of these transactions, InvenTrust
will be a more focused REIT committed to our
strategy of refi ning and tailoring our pure-
play retail platform.
The sale of our student housing platform will
mark the culmination of our evolution and will
allow us to focus our energies and investment
capital into our multi-tenant retail platform.
We expect to complete the student housing
transaction by the end of the second quarter
of 2016.
The Board continues to evaluate potential
uses of the proceeds from the student
housing sale which may include, but are not
limited to:
•
•
•
Investing in premier retail multi-tenant
assets in our target markets with job and
population growth;
Reducing debt and enhancing capital
structure; and
Repurchasing shares to provide
stockholders with another liquidity
opportunity.
After the Board determines the best use
of proceeds, the next step is to realign our
distribution rate to reflect what can be
supported from the remaining InvenTrust
portfolio. When the Board sets the new
distribution rate it will consider a number of
factors including the:
•
•
•
Reduced size of our remaining portfolio;
Speed by which the company may be
able to redeploy proceeds from property
dispositions and the dilution from these
activities;
Yield or cash flow produced by newly
acquired properties; and
• Cash flow produced by the current
portfolio of assets including joint venture
operations and individual property sales.
We expect that a new distribution rate will be
determined and announced after the closing of
the student housing sale expected in late June.
InvenTrust Properties 2015 Annual Report | 3
Let’s take a look at an important hub for InvenTrust – Denver.
In Denver, we are leveraging the enhanced local knowledge
collected from the company’s real estate professionals in the
region to acquire and manage assets not only in Denver, but also
in surrounding markets such as Colorado Springs and Greeley (the
home of Northern Colorado University). The benefi t of this deep,
local knowledge has allowed us to target assets that contribute a
higher yield and value to our platform.
InvenTrust in 2016: Enhancing Value as a Pure-Play
Retail REIT
So what is next for InvenTrust? As we execute on our next
chapter, we are witnessing critical changes in the retail real estate
environment. Consumers continue to spend more time online,
but retailers are embracing a “bricks and clicks” or omni-channel
business model. Even e-commerce retailers are fi nding that having
a physical presence is critical to their success. As consumers and
their families demand quicker and healthier dining options, we
are witnessing a rapid increase in fresh prepared off erings from
our grocery tenants and new cutting edge, healthy restaurant
concepts. As millennials look for an atmosphere of community,
retailers want to be in open-air centers that bring a sense of local
character and drive shopper engagement. We believe that these
are all opportunities for InvenTrust to focus and drive value in our
go-forward retail-focused strategy.
It’s an exciting and innovative time to be in retail real estate, but
as always there is one constant: Location matters. At InvenTrust,
our focus is to own and operate retail properties in premier
locations in high job and population growth markets. This dynamic
combination drives demand for space from all retailers resulting
in improved occupancy for our properties and enhanced rental
income growth, with the ultimate objective of delivering value for
our stockholders.
Center Type by Gross Leaseable Area (GLA)
at 12/31/15
aa
Forest
Forest
Rocky Mountain
Rocky Mountain
National Park
National Park
d
Loveland
dnnd
Loveland
GGRREEEELLEYEY
YYYYYY
GREELEY
GREELEY
Greeley
Longmont
Longmont
Indian Peaks
Indian Peaks
Wilderness Area
Wilderness Area
Hudson
Hudson
Boulder
Boulder
Lafayette
Lafayette
Westminster
WWEESTSTTMMIINNSTSTTEER
WESTMINSTER
WESTMINSTER
Arpaho National
Arpaho National
Forest
Forest
Idaho
Idaho
Springs
Springs
Golden
enen
Golden
Mount Evans
Mount Evans
Wilderness Area
Wilderness Area
Evergreen
Evergreen
Conifer
Conifer
Arvada
dddd
AArrvvaadda
Arvada
CoCoCoComomommmmmmememerercerrcrcece CCititty
Commerce City
yyyC
Commerce City
DENVER
VVVVVVVVVVVNNNNNNNNNNNDDDD VVNNNNNNNDDDEENVNVVEER AAururrororrara
DENVER Aurora
DENVER
Aurora
d
EEnngglele
ddd
EEnEnEnnggglgleewwooooodd
Englewood
Englewood
LLLiLiitittttttletlleleetoettotonoonn
Littleton
Littleton
Centennial
Centennial
Castle Rock
Castle Rock
Lost Creek
Lost Creek
Wilderness Area
Wilderness Area
Pike National
Pike National
Forest
Forest
Neighborhood
Center
32%
Power Center
68%
sabel National
sabel National
l
Pike National
Pike National
Forest
Forest
Colorado Springs
COLORADO SPRINGS
OCCOOLLOORARAADDO SSPPRRIINNGGS
O
CCCC OOO
COLORADO SPRINGS
PP
Non-Grocery
Anchor
43%
Grocery Anchor
57%
Establishing a Presence in Key Locations
We refer to one aspect of our location strategy as a ‘Hub-and-Spoke’
model. This strategy emphasizes a focus on target markets with
favorable demographics and characteristics, including:
Signifi cant population density and growth;
•
• Above-average household income and education levels;
•
Strong barriers to entry that make new competition diffi cult;
and
Suffi cient asset concentration or favorable opportunity to
build signifi cant concentration.
•
Once we establish a presence in the ‘Hub’ – typically an urban area
that meets these criteria – we build out the ‘Spokes.’ This means
targeting properties with similar characteristics in the surrounding
communities and sub-markets. We fi nd that we are able to achieve
favorable acquisition pricing and service these spoke markets cost-
eff ectively.
4 | InvenTrust Properties 2015 Annual Report
Supporting Credibility in Our Communities
Our ‘Hub and Spoke’ strategy along with the expansion of our
regional offi ces provides a competitive advantage in our target
markets based on our expertise in each operating region. This
allows us to build solid tenant relationships and enhances our
credibility as both a landlord and community contributor. In
addition to learning about a tenant’s growth objectives before the
tenant leases space from us, we support the tenant by sharing our
market knowledge and working closely together on regional retail
trends. This mutually benefi cial relationship ensures that we can
grow together, while providing a pipeline for future collaboration
as retailers expand in the region or other InvenTrust markets. Our
concentrated presence of centers in these target markets also
provides us with a unique opportunity to leverage our relationships
to secure more favorable lease terms.
Delivering a Superior Consumer Experience
Another element that drives demand to our centers is an improved
consumer experience. Consumers, especially millennials, value a
sense of community. They want an environment that is relevant,
enjoyable and comfortable – the types of venues where families and
people in the community gather. We’re doing a number of things
to bring these elements to our centers, such as installing improved
lighting, designing enhanced landscaping and hosting community
activities and entertainment to create a more appealing shopping
experience for our customers.
Targeting Retailers that are Expanding
Retailers are expanding again. They’re doing it cautiously and they’re doing it judiciously, but they are opening up additional stores.
In addition, many traditional online retailers have recognized that a physical market presence is essential to complement their
e-commerce platform. Retailers are realizing that a combined platform (an omni-channel model) enhances their performance.
These elements, coupled with historically low levels of new retail centers being developed, have contributed to a favorable
landlord market.
InvenTrust Properties 2015 Annual Report | 5
Building a Direct Leasing Staff
As part of the self-management transition, we have evolved from a broker-centric
leasing model to a direct leasing staff and to an internal property management
structure. Our direct leasing staff is based primarily in our regional offi ces which
allows us to maintain close contact with regional and local tenants. The leasing
teams are tasked with actively seeking to lease space at favorable rates while
establishing a more favorable tenant mix and identifying complementary uses
to maximize tenant performance at our properties. Our property management
team is focused on maintaining strong tenant relationships, controlling expenses
and enhancing the customer shopping experience.
Top 5 retail tenants by retail gross leasable area (GLA)
at 12/31/15
5.4%
4.1%
2.9%
3.2%
2.7%
Exiting Unfavorable Markets
As we continue to execute on our key markets strategy, we intend to
opportunistically sell non-strategic retail properties. We currently operate in
about 40 markets, but we expect to target our investments to roughly half that
number. Our future focus is to continue to target markets with high job and
population growth, primarily in Sunbelt markets. This will best serve our focused
strategy and provide capital that can be redeployed into our target markets.
Target Market Acquisitions
Strategic Retail Properties
Non-Strategic Retail Properties
InvenTrust Properties Office Location
6 | InvenTrust Properties 2015 Annual Report
uisitions
perties
il Properties
es Office Location
InvenTrust Properties 2015 Annual Report | 7
InvenTrust Properties 2015 Annual Report | 7
InvenTrust Properties 2
20015 AAn5 AA
2010155 AAn
l
nnual
Leverage Ratio
55%
at 12/31/15
36%
2012
2015
50%
40%
30%
20%
10%
0%
Growth through Redevelopment
The fi nal piece of our strategy is our redevelopment
plan at select properties. We have initiated this at
two assets in 2015 and anticipate this program
will grow in the future. In addition, we have
identifi ed properties in our retail portfolio where
additional growth can be achieved by adding
outparcel sites or increasing the rentable square
footage. With limited new development and
increasing, but controlled, retailer expansion, we
see this as a great opportunity to increase our
cash fl ow from properties we control and where
tenants are looking to locate or expand.
op
d
p
w
i
y
le
me
ns
ea
d
Maintaining a Solid Balance Sheet
We have made tremendous progress strengthening our balance
sheet and capital structure. To that end, in November 2015 we
closed on a $300 million term loan to help support our expected
debt maturities in 2017 and eff ectively manage the laddering
of our maturity schedule. Our leverage ratio is in line with our
expectations and, while we anticipate interest rates to rise over
the long term, we believe we have positioned our debt structure
to handle any moderate increases in rates. Moving into 2016, we
will also start to expand our unencumbered debt metrics on the
balance sheet. Our solid balance sheet and capital structure provide
InvenTrust with the resources or the “dry powder” to execute on our
retail acquisition strategy over the next 18 months.
The InvenTrust Team
As you are aware, we have achieved many
signifi cant milestones over the past 24 months.
The completion of these events and activities
tie
would not have been possible without the eff ort and dedication
onn
of a fi ne group of professionals I have the pleasure of working with
every day. The team’s collaboration and innovation is the backbone
of InvenTrust. I will continue to rely on them as we move our
strategy forward in 2016 with key acquisitions, excellent balance
sheet management and thoughtful capital allocation.
m
nt
To our more than 170,000 stockholders, we are committed to
working diligently to successfully maximize value for all of you.
I look forward to updating you on our further achievements
throughout the year.
Total Mortgage Debt
Sincerely,
Variable Rate
12%
at 12/31/15
INVENTRUST PROPERTIES CORP
Fixed Rate
88%
Thomas P. McGuinness
President, CEO
April 29, 2016
8 | InvenTrust Properties 2015 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(cid:95)(cid:3)
(cid:133)(cid:3)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
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: 000-51609
InvenTrust Properties Corp.
(Exact name of registrant as specified in its charter)
Maryland
34-2019608
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2809 Butterfield Road, Suite 360, Oak Brook, Illinois
(Address of principal executive offices)
60523
(Zip Code)
(855) 377-0510
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $0.001 par value per share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:133) No (cid:95)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:95)
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 the
filing requirements for the past 90 days. Yes (cid:95) No (cid:133)
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 Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes (cid:95) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (cid:133)
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).
Large accelerated filer (cid:133)(cid:3)
Non-accelerated filer
(cid:95)(cid:3)
Accelerated filer
Smaller reporting company
(cid:133)(cid:3)
(cid:133)(cid:3)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:133) No (cid:95)
There is no established market for the registrant’s shares of common stock. The aggregate market value of the registrant’s common stock held by
non-affiliates of the registrant as of June 30, 2015 (the last business day of the registrant’s most recently completed second quarter) was
approximately $3,446,515,096, based on the estimated per share value of $4.00, as established by the registrant on February 4, 2015.
As of March 17, 2016, there were 862,205,672 shares of the registrant’s common stock outstanding.
INVENTRUST PROPERTIES CORP.
TABLE OF CONTENTS
Special Note Regarding Forward-Looking Statements
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part I
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Consolidated Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Signatures
Part IV
Page
ii
1
6
27
27
33
33
34
36
40
72
74
139
139
139
140
143
168
170
171
172
173
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K, other than purely historical information, are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements about InvenTrust
Properties Corp.'s plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash
distributions, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, our actual
financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-
looking statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "expect,"
"intend," "plan," "seek," "anticipate," "believe," "estimate," "guidance," "predict," "potential," "continue," "likely," "will," "would,"
"illustrative" and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such
forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by us based on
our knowledge and understanding of the business and industry, are inherently uncertain. These statements are not guarantees of
future performance, and stockholders should not place undue reliance on forward-looking statements. There are a number of risks,
uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ
materially from the forward-looking statements contained in this Annual Report on Form 10-K. Such risks, uncertainties and other
important factors, include, among others, the risks, uncertainties and factors set forth under "Part I, Item IA. -- Risk Factors" and
"Part II, Item 7 -- Management’s Discussion and Analysis of Financial Condition and Results of Operations," and the risks and
uncertainties related to the following:
• market and economic volatility experienced by the U.S. economy or real estate industry as a whole, and the local
economic conditions in the markets in which our properties are located;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to complete strategic transactions, including the anticipated spin-off of non-core assets and sale of our
student housing platform;
our ability to identify, execute and complete disposition opportunities;
our ability to identify, execute and complete acquisition opportunities and to integrate and successfully operate any
properties acquired in the future and the risks associated with such properties;
our ability to manage the risks and costs of being a self-managed company over the long term;
loss of members of our senior management team or key personnel;
changes in governmental regulations and United States accounting standards or interpretations thereof;
our ability to access capital for renovations and acquisitions on terms and at times that are acceptable to us;
changes in the competitive environment in the leasing market and any other market in which we operate;
forthcoming expirations of certain of our leases and our ability to re-lease such properties;
our ability to collect rent from tenants or to rent space on favorable terms or at all;
the impact of leasing and capital expenditures to improve our properties in order to retain and attract tenants;
events beyond our control, such as war, terrorist attacks, natural disasters and severe weather incidents, and any
uninsured or underinsured loss resulting therefrom;
actions or failures by our joint venture partners, including development partners;
the cost of compliance with and liabilities under environmental, health and safety laws;
changes in real estate and zoning laws and increases in real property tax rates;
the economic success and viability of our anchor retail tenants;
our debt financing, including risk of default, loss and other restrictions placed on us;
our ability to refinance maturing debt or to obtain new financing on attractive terms;
future increases in interest rates;
the availability of cash flow from operating activities to fund distributions;
our investment in equity and debt securities and in companies we do not control, including Xenia Hotels & Resorts,
Inc.;
our status as a real estate investment trust ("REIT") for federal tax purposes; and
•
changes in federal, state or local tax law, including legislative, administrative, regulatory or other actions affecting
REITs.
These factors are not necessarily all of the important factors that could cause our actual results, performance or achievements to
differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable
factors also could harm our business, financial condition, results of operations or cash flows. All forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth
above. Forward-looking statements speak only as of the date they are made, and we do not undertake or assume any obligation
to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in
assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable law. If
we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with
respect to those or other forward-looking statements.
PART I
Item 1. Business
General
References in this Annual Report on Form 10-K ("Annual Report") to "we", "our", "us", "InvenTrust" and the "Company" are
references to InvenTrust Properties Corp., and our business and operations conducted through our direct or indirect
subsidiaries.
InvenTrust was incorporated as Inland American Real Estate Trust, Inc. in October 2004 as a Maryland corporation and has
elected to be taxed, and currently qualifies, as a real estate investment trust ("REIT") for federal tax purposes. We were formed
to own, manage, acquire and develop a diversified portfolio of commercial real estate located throughout the United States and
to own properties in development and partially own properties through joint ventures, as well as investments in marketable
securities and other assets. As of December 31, 2015, our portfolio was comprised of 129 properties representing 15.3 million
square feet of retail space, 11,039 student housing beds and 5.7 million square feet of non-core space.
Throughout 2015 and into 2016, we have continued to implement our strategy of focusing, tailoring, and refining our portfolio
of real estate assets to enhance stockholder value and provide liquidity events for our stockholders. We achieved several
important milestones in our efforts, including the purchase of four high performing retail assets located in key markets such as
Denver, Dallas and Orlando, as well as the following:
•
•
•
•
•
In February 2015, we completed the spin-off and listing of our lodging platform, Xenia Hotels & Resorts, Inc.
("Xenia");
In April 2015, we changed our name to InvenTrust in order to highlight and develop a brand that was independent
from our former sponsor and distinguish ourselves in our core retail business;
In November 2015, we signed a new $300 million unsecured term loan credit facility with a group of lenders led by
Wells Fargo Securities, LLC;
In December 2015, we announced our intent to spin off substantially all of our non-core assets through the distribution
of the shares of common stock of Highlands REIT, Inc. ("Highlands"), a wholly-owned subsidiary that we formed to
hold these assets; and
In January 2016, after undergoing a robust evaluation process, we announced an agreement to sell our student housing
platform, University House Communities Group, Inc. ("University House"), for approximately $1.4 billion.
These actions, which are described in more detail below, are consistent with our strategy to focus on becoming a pure-play
multi-tenant retail platform. Moving forward, we plan to continue to acquire open-air assets in key growth markets with
favorable demographics and expected above-average net operating income growth, while disposing of non-strategic properties
in markets that are low growth, lack sufficient asset concentration and do not provide a favorable opportunity to build
significant concentration.
Spin-Off of Xenia Hotels & Resorts, Inc.
On February 3, 2015, we completed the spin-off of our subsidiary, Xenia (the "Xenia Spin-Off"), which at the time owned 46
premium full service, lifestyle and urban upscale hotels and two hotels in development, through the pro rata taxable distribution
of 95% of the outstanding common stock of Xenia to holders of record of our common stock as of the close of business on
January 20, 2015, the record date. Each holder of record of our common stock received one share of Xenia’s common stock for
every eight shares of our common stock held at the close of business on the record date. In lieu of fractional shares, our
stockholders received cash. On February 4, 2015, Xenia’s common stock began trading on the New York Stock Exchange
("NYSE") under the ticker symbol "XHR."
Following the Xenia Spin-Off, our board of directors analyzed and reviewed our distribution rate, and on February 24, 2015,
we announced that our board reduced our annual distribution rate from $0.50 per share of common stock to $0.13 per share of
common stock.
A number of factors were considered in establishing the new distribution rate. Xenia generated a substantial portion of our cash
flows from operations and as a result, our previous distribution rate was not sustainable after the Xenia Spin-Off. In addition,
our board of directors determined that it is in the best interests of the Company to retain additional operating cash flow in order
1
to accumulate an appropriate level of capital reserves to enable us to tailor and grow our retail and student housing platforms,
consistent with our strategy and objectives, as well as to address future lease maturities and disposition plans related to several
properties in our non-core portfolio.
Anticipated Spin-Off of Assets Included in Our Non-Core Segment
On December 23, 2015, we announced our intent to spin off substantially all of the assets included in our non-core segment
through the pro-rata distribution of 100% of the outstanding shares of common stock of Highlands REIT, Inc. ("Highlands"), a
wholly-owned subsidiary of InvenTrust that was formed to hold a number of our remaining non-core assets. Highlands has
filed a preliminary registration statement on Form 10 with the Securities and Exchange Commission ("SEC") in connection
with the proposed spin-off. Through this spin-off, we expect Highlands to be better-positioned to provide stockholders with a
return of their investment by liquidating and distributing net proceeds from the non-core portfolio in a value-maximizing
manner.
Upon completion of the proposed separation and distribution from InvenTrust, Highlands will be an independent, self-
managed, non-traded REIT with a dedicated management team focused on preserving, protecting and maximizing the total
value of its portfolio. Highlands’ portfolio is expected to consist of seven single- and multi-tenant office assets, two industrial
assets, six retail assets, two correctional facilities, four parcels of unimproved land and one bank branch. Highlands will be led
by Richard Vance, who currently serves as our Senior Vice President - Portfolio Management & Corporate Strategy, and in
which role he has been responsible for managing our non-core segment with regard to asset management, property operations
and leasing. Mr. Vance will serve as Highlands’ President and Chief Executive Officer and a member of Highlands’ board of
directors.
We anticipate that the spin-off will be effected by means of a pro-rata distribution by us of 100% of the outstanding shares of
Highlands common stock. This will occur on a distribution date to be set by our board of directors in the future by way of a
taxable pro-rata special distribution to our stockholders of record on the record date of the distribution. Each of our
stockholders will be entitled to receive a to-be-determined number of shares of Highlands common stock for a to-be-
determined number of shares of our common stock held by each stockholder at the close of business on the record date of the
distribution.
Although the distribution of the outstanding shares of Highlands common stock will be in the form of a taxable distribution to
our stockholders, we do not anticipate recognizing taxable gain as a result of the distribution. As a result, so long as
stockholders own our common stock for the entire year in which the distribution occurs, we anticipate that the spin-off and
distribution of Highlands common stock will not increase the amount of dividend income stockholders would have recognized
if the distribution had not occurred.
Following the distribution, our stockholders will own shares in both InvenTrust and Highlands. The number of InvenTrust
shares held by stockholders will not change as a result of the distribution of Highlands common stock. Stockholder approval of
the distribution is not required, and our stockholders will not be required to make any payment, or to surrender or exchange
their shares of our common stock or take any other action to receive their shares of Highlands common stock on the distribution
date. Highlands’ shares of common stock will not be listed on any securities exchange or other market as part of the spin-off.
Following the completion of the distribution, we will not continue to own any shares of common stock of Highlands.
We currently expect the spin-off to be completed in the second quarter of 2016. The completion of the spin-off will be subject
to conditions and approvals, including, among others, the registration statement on Form 10 being declared effective by the
SEC and final approval of the spin-off and related transactions by our board of directors.
Entry into Agreement to Sell Student Housing Platform
On January 4, 2016, we announced that we entered into a definitive purchase agreement with UHC Acquisition Sub LLC, a
subsidiary of a joint venture formed between Canada Pension Plan Investment Board, GIC and Scion Communities Investors
LLC, under which the joint venture’s subsidiary will acquire our student housing platform, University House. The agreement’s
gross all-cash value is $1.4 billion. Under the terms of the agreement, the final net proceeds will be determined at the closing of
the transaction following the determination of several events and closing considerations. During the period between signing and
closing, University House has agreed, among other things, to conduct its business in the ordinary course, not acquire or dispose
of any material properties and to continue to develop its development properties in accordance with existing development
plans. The parties made customary representations, warranties and covenants in the agreement.
The transactions contemplated by the agreement, which are expected to close in the second quarter of 2016, are subject to
customary closing conditions. The agreement contains provisions pursuant to which the closing may be deferred until up to
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July 5, 2016 in order to obtain certain third-party consents. The agreement provides that either the Company or acquiror may
terminate the agreement at any time prior to the closing pursuant to customary termination rights. Upon certain events of
termination, our sole recourse is an $85 million reverse break-up fee to be funded by the joint venture partners. For a more-
detailed summary of the terms of the agreement, see our Current Report on Form 8-K filed on January 4, 2016.
Estimated Share Value and Distribution Rate
As previously announced, we are deferring the publication of a new estimated share value until closer proximity to the spin-off
of Highlands and the closing of the student housing sale, which are expected to occur in the second quarter of 2016. We have
engaged an independent, third-party valuation firm to assist in the valuation. The valuation firm will provide a detailed
explanation of the valuation method, analysis and process used to estimate a new per share value. We expect the value of our
shares of common stock to be lower immediately following the spin-off of Highlands, as the value of our stock will no longer
reflect the value of the Highlands portfolio. Once the new estimated share value is determined, we will disclose to stockholders
how it was calculated and determined.
Our board of directors will analyze and review our distribution rate in connection with the spin-off of Highlands and the student
housing sale. We expect distribution payments to decrease because the University House assets produced significant cash flow
for us. We expect to announce a new distribution rate correlated to the cash generated from the remaining portfolio of assets
after the closing of the student housing sale.
Strategy and Objectives
Upon completion of the transactions described above, our sole remaining platform will be focused on multi-tenant retail
properties. As a pure-play retail company, our strategy will be to acquire open-air assets in key growth markets with favorable
demographics and expected above-average net operating income growth, while disposing of non-strategic properties in markets
that are low growth, lack sufficient asset concentration and do not provide a favorable opportunity to build significant
concentration. Our objective has been, and will continue to be, maximizing stockholder value over the long term.
We believe we have built a strong foundation in our retail portfolio. Our strategy includes focusing on key growth markets
across the country, primarily in the Sun Belt states, and growing our presence in those markets. These key markets share
fundamental characteristics such as job growth, increasing wages and population growth. Within these markets, we will look to
invest in properties with high traffic patterns and in desirable locations. We are confident about our investment opportunities in
this space, particularly as national and regional retailers continue to place a premium on retail space in leading markets. We will
dispose of non-strategic retail properties to take advantage of market conditions or in situations where the properties no longer
fit within our strategic objectives.
We believe that through the active management of our retail portfolio, we can positively impact our financial performance as
follows:
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increase rental rates by replacing underperforming tenants with stronger tenants who better meet the needs of the
applicable market and improve the overall shopping experience of the property;
expand our network of regional offices to continue to focus our regional leasing and operating teams on maximizing
local market knowledge and build solid relationships with our tenants;
invest capital in our properties to ensure we continue to meet the needs of our tenants and their customers;
continue to reduce property expense levels to minimize overhead and operating costs;
utilize the combined expertise of our staff in striving to provide the optimal shopping experience for our merchants
and their customers;
proactively manage tenant mix and lease rollover to minimize exposure to any one tenant or concentration of lease
renewals in a particular period; and
strive to maximize portfolio net operating income through implementation of select re-development and outparcel re-
development opportunities.
Segment Data
For the year ended December 31, 2015, our business segments are retail, student housing and non-core. We evaluate segment
performance primarily based on net operating income and modified net operating income. Net operating income of the
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segments excludes interest expense, depreciation and amortization, general and administrative expenses, net income of
noncontrolling interest and other investment income from corporate investments. Modified net operating income reflects the
income from operations excluding nonrecurring events and other GAAP rent adjustments in order to provide a comparable
presentation of operating activity across periods. Modified net operating income and net operating income is calculated and
reconciled to U.S. generally accepted accounting principles ("GAAP") net income in "Part II, Item 8. Note 13 to the
Consolidated Financial Statements" and "Part II, Item 6. Selected Financial Data". The non-segmented assets consist of our
cash and cash equivalents, investment in marketable securities, construction in progress, investment in unconsolidated entities
and notes receivable. Information related to our business segments, including a measure of profits or loss and revenues from
our tenants for each of the last three fiscal years and total assets for each of the last two fiscal years, is set forth in "Part II, Item
8. Note 13 to the Consolidated Financial Statements."
Significant Tenants
For the year ended December 31, 2015, we generated approximately 15.8% of our total annualized rental income (excluding
student housing) from three non-core properties leased to one tenant, AT&T ("AT&T"). The original terms of these leases
expire in 2016, 2017, and 2019, as described in more detail below.
One of these properties, with a lease expiration in August 2016 and approximately 1.7 million square feet, is in Hoffman
Estates, Illinois, which is in the greater metro Chicago market. AT&T did not renew this lease during the contractual renewal
option period. The second property, with a lease expiration in September 2017 and approximately 1.5 million square feet is in
St. Louis, Missouri. The renewal option for this lease expires in September 2016. The third property, with a lease expiration in
September 2019 and approximately 460,000 square feet is in Cleveland, Ohio.
There is a strong possibility that AT&T may not renew any or all of its leases. The three non-core properties leased to AT&T are
included in the non-core asset portfolio that we intend to spin off in the second quarter of 2016, subject to conditions and
approvals. See "- General - Anticipated Spin-Off of Assets Included in Our Non-Core Segment" for more information
regarding the spin-off and the risk factors related to the spin-off and the AT&T leases in "Item 1A. Risk Factors."
Tax Status
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"), beginning with the tax year ended December 31, 2005. Because we qualify for taxation as a REIT, we generally will
not be subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in
any taxable year, without the benefit of certain relief provisions, we will be subject to federal and state income tax on our
taxable income at regular corporate rates. Even if we qualify for taxation as a REIT, we may be subject to certain state and local
taxes on our income, property or net worth, respectively, and to federal income and excise taxes on our undistributed income.
Competition
The commercial real estate market is highly competitive. We compete for tenants in all of our markets with other owners and
operators of commercial properties. We compete based on a number of factors that include location, rental rates, security,
suitability of the property’s design to tenants’ needs and the manner in which the property is operated and marketed. The
number of competing properties in a particular market could have a material effect on a property’s occupancy levels, rental
rates and operating income.
We compete with many third parties engaged in real estate investment activities, including other REITs, specialty finance
companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors,
investment banking firms, lenders, hedge funds, governmental bodies and other entities. There are also other REITs with
investment objectives similar to ours and others may be formed in the future. In addition, these same entities seek financing
through the same channels that we do. Therefore, we compete for funding in a market where funds for real estate investment
may decrease, or grow less than the underlying demand.
Employees
As of December 31, 2015, we had 362 full-time individuals employed at the Company, of which 180 full time individuals were
employed at University House.
Environmental Matters
Compliance with federal, state and local environmental laws has not had a material adverse effect on our business, assets, or
results of operations, financial condition and ability to pay distributions, and we do not believe that our existing portfolio will
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require us to incur material expenditures to comply with these laws and regulations. However, we cannot predict the impact of
unforeseen environmental contingencies or new or changed laws or regulations on our properties.
Access to Company Information
We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
all amendments to those reports with the Securities and Exchange Commission ("SEC"). The public may read and copy any of
the reports that are filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room by calling the SEC at (800)-SEC-0330. The SEC
maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information
regarding issuers that file electronically.
We make available, free of charge, by responding to requests addressed to our investor relations group, the Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports on our
website, www.inventrustproperties.com. These reports are available as soon as reasonably practicable after such material is
electronically filed or furnished to the SEC.
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Item 1A. Risk Factors
You should carefully consider each of the following risks described below and all of the other information in this Annual Report
on Form 10-K in evaluating us. Our business, financial condition, cash flows, results of operations and/or ability to pay
distributions to our stockholders could be materially adversely affected by any of these risks. This Annual Report on Form 10-K
also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described
below and elsewhere in this Annual Report on Form 10-K. See “Special Note Regarding Forward-Looking Statements.”
Risks Related to Our Business
Economic and market conditions could negatively impact our business, results of operations and financial condition.
Our business may be affected by market and economic challenges experienced by the U.S. or global economies or the real
estate industry as a whole or by the local economic conditions in the markets in which our assets are located, including any
dislocations in the credit markets. For example, prolonged lower oil prices may negatively impact the economy in Texas, where
we have several properties. These conditions may materially affect our tenants, the value and performance of our assets and our
ability to sell assets, as well as our ability to make principal and interest payments on, or refinance, any outstanding debt when
due. Challenging economic conditions may also impact the ability of certain of our tenants to enter into new leasing
transactions or satisfy rental payments under existing leases. Specifically, these conditions may have the following
consequences:
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the financial condition of our tenants may be adversely affected, which may result in us having to increase
concessions, reduce rental rates or make capital improvements in order to maintain occupancy levels or to negotiate
for reduced space needs, which may result in a decrease in our occupancy levels;
significant job loss may occur, which may decrease demand for space and result in lower occupancy levels, which will
result in decreased revenues and which could diminish the value of assets, which depend, in part, upon the cash flow
generated by our assets;
an increase in the number of bankruptcies or insolvency proceedings of our tenants and lease guarantors, which could
delay our efforts to collect rent and any past due balances under the relevant leases and ultimately could preclude
collection of these sums;
our ability to borrow on terms and conditions that we find acceptable may be limited;
the amount of capital that is available to finance assets could diminish, which, in turn, could lead to a decline in asset
values generally, slow asset transaction activity, and reduce the loan to value ratio upon which lenders are willing to
lend; and
the value of certain of our assets may decrease below the amounts we paid for them, which would limit our ability to
dispose of assets at attractive prices or for potential buyers to obtain debt financing secured by these assets and could
reduce our ability to finance our business.
Our management and our board of directors are executing on strategic transactions related to our non-core and student
housing assets designed to maximize the value of these assets and provide liquidity for our stockholders. Such strategic
transactions may not occur, and even if they do occur, they may not be successful or result in the anticipated benefits.
In December 2015, we announced our intent to spin off substantially all of our remaining non-core assets through the pro rata
distribution of 100% of the outstanding shares of common stock of Highlands, a wholly-owned subsidiary that we formed to
hold a number of our non-core assets. We expect that Highlands will become a standalone public company that is better
positioned to provide stockholders with a return of their investment by liquidating and distributing net proceeds from its assets
in a value-maximizing manner. However, there can be no guarantee that Highlands will successfully execute on its strategy. In
addition, by separating from InvenTrust, Highlands will be a significantly smaller company than InvenTrust and will likely be
unable to obtain financing, technology and services at prices and on terms as favorable as those available to it as one of our
subsidiaries. In addition, Highlands will no longer benefit from InvenTrust's financial, administrative and other support
systems. The transition costs and additional costs of operating Highlands as a stand-alone company could be substantial and
material and adversely affect Highlands' ability to achieve the anticipated benefits of the spin-off in a timely manner or at all.
This spin-off is expected to occur in the second quarter of 2016, but is subject to conditions and approvals, including, among
others, the registration statement on Form 10 being declared effective by the SEC. We cannot assure you that any or all of
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these conditions will be met in a timely manner or at all. In addition, our board of directors has reserved the right, in its sole
discretion, to amend, modify or abandon the separation and distribution and the related transactions at any time prior to the
distribution date. This means that we may cancel or delay the planned separation and distribution if at any time our board of
directors determines that it is not in the best interests of InvenTrust and its stockholders. If our board of directors makes a
decision to cancel the separation and distribution, stockholders of InvenTrust will not receive any distribution of Highlands
common stock and we will be under no obligation whatsoever to our stockholders to distribute the Highlands common stock.
In addition, in January 2016, we announced that we entered into an agreement to sell our student housing platform for the gross
all-cash value of $1.4 billion, with the final net proceeds determined at the closing of the transaction following the
determination of several events and closing considerations. The transaction is expected to close in the second quarter of 2016,
subject to certain closing conditions. We cannot assure you that any or all of these conditions will be met in a timely manner or
at all. If such conditions are not met, the sale of our student housing platform may not occur or may be delayed.
Our ongoing business strategy involves the selling of assets; however, we may be unable to sell an asset at acceptable terms
and conditions, if at all.
We intend to continue to hold our assets as long-term investments until such time as we determine that a sale or other
disposition appears to be advantageous to achieve our investment objectives or until it appears such objectives will not be met.
As we look to sell these assets, general economic conditions, market conditions, and asset-specific issues may negatively affect
the value of our assets and therefore reduce our return on the investment or prevent us from selling the asset on acceptable
terms or at all. Some of our leases contain provisions giving the tenant a right to purchase the asset, such as a right of first offer
or right of first refusal, which may lessen our ability to freely control the sale of the asset. Debt levels currently exceed the
value of certain assets and debt levels on other assets may exceed the value of those assets in the future, making it more
difficult for us to rent, refinance or sell the assets. In addition, real estate investments are relatively illiquid and often cannot be
sold quickly, limiting our ability to sell our assets when we decide to do so, or in response to such changing economic or asset-
specific issues. Further, economic conditions may prevent potential purchasers from obtaining financing on acceptable terms, if
at all, thereby delaying or preventing our ability to sell our assets.
Our ongoing strategy depends, in part, upon completing future acquisitions, and we may not be successful in identifying
and consummating these transactions.
As part of our strategy, we intend to tailor and grow our retail platform. We cannot assure you that we will be able to identify
opportunities or complete transactions on commercially reasonable terms or at all, or that we will actually realize any
anticipated benefits from such acquisitions or investments. There may be high barriers to entry in many key markets and
scarcity of available acquisition and investment opportunities in desirable locations. We face significant competition for
attractive investment opportunities from an indeterminate number of other real estate investors, including investors with
significant capital resources such as domestic and foreign corporations and financial institutions, sovereign wealth funds, public
and private REITs, private institutional investment funds, domestic and foreign high-net-worth individuals, life insurance
companies and pension funds. As a result of competition, we may be unable to acquire additional properties as we desire or the
purchase price may be significantly elevated. Similarly, we cannot assure you that we will be able to obtain financing for
acquisitions or investments on attractive terms or at all, or that the ability to obtain financing will not be restricted by the terms
of credit facility or other indebtedness we may incur.
Additionally, we regularly review our business to identify properties or other assets that we believe are in markets or of a
property type that may not benefit us as much as other markets or property types. One of our strategies is to selectively dispose
of retail properties and use sale proceeds to fund our growth in markets and with properties that will enhance our retail
platform. We cannot assure you that we will be able to consummate any such sales on commercially reasonable terms or at all,
or that we will actually realize any anticipated benefits from such sales. Additionally, we may be unable to successfully
identify attractive and suitable replacement assets even if we are successful in completing such dispositions. We may face
delays in reinvesting net sales proceeds in new assets, which would impact the return we earn on our assets. Dispositions of
real estate assets can be particularly difficult in a challenging economic environment, as financing alternatives are often limited
for potential buyers. Our inability to sell assets, or to sell such assets at attractive prices, could have an adverse impact on our
ability to realize proceeds for reinvestment. In addition, even if we are successful in consummating sales of selected retail
properties, such dispositions may result in losses.
Any such acquisitions, investments or dispositions could also demand significant attention from our management that would
otherwise be available for our regular business operations, which could harm our business.
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Our transition to self-management may not prove successful over the long term.
We completed our transition to a self-managed company at the beginning of 2015. As a self-managed company, we continue to
face challenges integrating the business management and property management services that were previously provided by our
former business manager and our former property managers into our organization and now bear risks to which we have not
historically been exposed. An inability to operate effectively as a self-managed company could, therefore, result in our
incurring additional costs or experiencing other problems. There may also be unforeseen costs, expenses and difficulties
associated with self-providing the services previously provided by our former business manager and our former property
managers. Such difficulties could cause us to incur additional costs, and our management’s attention could be diverted from
most effectively managing our business and properties.
We are now responsible for paying the salaries and benefits (including employee benefit plan costs) of all our employees as
well as costs associated with legal, accounting, information technology, human resources, general office and other services. We
also have become subject to potential liabilities that are commonly faced by employers, such as workers’ disability and
compensation claims, potential labor disputes and other employee-related grievances. We have also issued equity awards to
directors and employees, which dilute your investment. As a consequence, we cannot be certain that the transition to self-
management will improve our financial performance over the long term.
If we lose or are unable to obtain key personnel, our ability to implement our business strategies could be delayed or
hindered.
We believe that our future success depends, in large part, on our ability to retain and hire highly-skilled managerial and
operating personnel. Competition for persons with managerial and operational skills is intense, and we cannot assure you that
we will be successful in retaining or attracting skilled personnel. If we lose or are unable to obtain the services of our executive
officers and other key personnel, or do not establish or maintain the necessary strategic relationships, our ability to implement
our business strategy could be delayed or hindered.
We are increasingly dependent on information technology, and potential cyber-attacks, security problems, or other
disruption present risks.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our
information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include an
intruder gaining unauthorized access to systems to disrupt operations, corrupt data or steal confidential information. As our
reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. Our
three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to
our relationships with our tenants and private data exposure. Our financial results and reputation may be negatively impacted
by such an incident.
A failure of our information technology ("IT") infrastructure could adversely impact our business and operations.
We rely upon the capacity, reliability and security of our IT infrastructure and our ability to expand and continually update this
infrastructure in response to changing needs of our business. Following our transition to self-management, we continue to face
the challenge of integrating new systems and hardware into our operations. We may not be able to successfully implement
these upgrades in an effective manner. In addition, we may incur significant increases in costs and extensive delays in the
implementation and roll-out of any upgrades or new systems. If there are technological impediments, unforeseen
complications, errors or breakdowns in implementation, the disruptions could have an adverse effect on our business and
financial condition.
We disclose funds from operations ("FFO"), a non-GAAP (U.S. generally accepted accounting principles, or "GAAP")
financial measure, in communications with investors, including documents filed with the SEC; however, FFO is not
equivalent to our net income or loss as determined under GAAP, and you should consider GAAP measures to be more
relevant to our operating performance.
We use internally, and disclose to investors, FFO, a non-GAAP financial measure. FFO is not equivalent to our net income or
loss as determined under GAAP, and investors should consider GAAP measures to be more relevant to our operating
performance. Because of the manner in which FFO differs from GAAP net income or loss, it may not be an accurate indicator
of our operating performance. Furthermore, FFO is not necessarily indicative of cash flow available to fund cash needs and
should not be considered as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds
available to fund our cash needs, including our ability to make distributions to our stockholders. Neither the SEC nor any other
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regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO. Also, because not all
companies calculate FFO the same way, comparisons with other companies may not be meaningful.
Risks Related to our Real Estate Assets
There are inherent risks with investments in real estate, including the relative illiquidity of such investments.
Investments in real estate are subject to varying degrees of risk. For example, an investment in real estate cannot generally be
quickly sold, and we cannot predict whether we will be able to sell any asset we desire to on the terms set by us or acceptable to
us, or the length of time needed to find a willing purchaser and to close the sale of such asset. Moreover, the Internal Revenue
Code imposes restrictions on a REIT’s ability to dispose of assets that are not applicable to other types of real estate companies.
In particular, the tax laws applicable to REITs require that we hold our assets for investment, rather than primarily for sale in
the ordinary course of business, which may cause us to forego or defer sales of assets that otherwise would be in our best
interests. Therefore, we may not be able to vary our portfolio promptly in response to changing economic, financial and
investment conditions and dispose of assets at opportune times or on favorable terms, which may adversely affect our cash
flows and our ability to make distributions to stockholders.
Investments in real estate are also subject to adverse changes in general economic conditions. Among the factors that could
impact our assets and the value of an investment in us are:
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risks associated with the possibility that cost increases will outpace revenue increases and that in the event of an
economic slowdown, the high proportion of fixed costs will make it difficult to reduce costs to the extent required to
offset declining revenues;
changes in tax laws and property taxes, or an increase in the assessed valuation of an asset for real estate tax purposes;
adverse changes in the federal, state or local laws and regulations applicable to us, including those affecting zoning,
fuel and energy consumption, water and environmental restrictions, and the related costs of compliance;
changing market demographics;
an inability to finance real estate assets on favorable terms, if at all;
the ongoing need for owner-funded capital improvements and expenditures to maintain or upgrade assets;
fluctuations in real estate values or potential impairments in the value of our assets;
natural disasters, such as earthquakes, floods or other insured or uninsured losses; and
changes in interest rates and availability, cost and terms of financing.
Our assets may be subject to impairment charges that may materially affect our financial results.
Economic and other conditions may adversely impact the valuation of our assets, resulting in impairment charges that could
have a material adverse effect on our results of operations and earnings. On a regular basis, we evaluate our assets for
impairments based on various triggers, including changes in the projected cash flows of such assets and market conditions. If
we determine that an impairment has occurred, then we would be required to make an adjustment to the net carrying value of
the asset, which could have a material adverse effect on our results of operations in the accounting period in which the
adjustment is made. Furthermore, changes in estimated future cash flows due to a change in our plans, policies, or views of
market and economic conditions could result in the recognition of additional impairment losses for already impaired assets,
which, under the applicable accounting guidance, could be substantial and could materially adversely affect our results of
operations.
We depend on tenants for our revenue, and accordingly, lease terminations, tenant defaults and bankruptcies could
adversely affect the income produced by our assets.
Our business and financial condition depend on the financial stability of our tenants. Certain economic conditions may
adversely affect one or more of our tenants. For example, business failures and downsizings can affect the tenants of our non-
core assets (i.e., our office and industrial properties) and may also contribute to reduced consumer demand for retail products
and services, which would impact tenants of our retail properties. In addition, our retail shopping center properties typically
are anchored by large, nationally recognized tenants, any of which may experience a downturn in its business that may weaken
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significantly its financial condition and thus the performance of the applicable shopping center. Further, mergers or
consolidations among large retail establishments could result in the closure of existing stores or duplicate or geographically
overlapping store locations, which could include tenants at our retail properties.
As a result of these factors, our tenants may delay lease commencements, decline to extend or renew their leases upon
expiration, fail to make rental payments, or declare bankruptcy. Individual tenants may lease more than one asset or space at
more than one asset. As a result, the financial failure of one tenant could increase vacancy at more than one asset or cause more
than one lease to become non-performing. Any of these actions could result in the termination of the tenants’ leases, the
expiration of existing leases without renewal or the loss of rental income attributable to the terminated or expired leases, any of
which could have a material adverse effect on our financial condition, cash flows, results of operations, and our ability to pay
distributions.
In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as a landlord and may incur
substantial costs in protecting our investment and re-leasing our asset. Specifically, a bankruptcy filing by, or relating to, one of
our tenants or a lease guarantor would bar efforts by us to collect pre-bankruptcy debts from that tenant or lease guarantor, or
its asset, unless we receive an order permitting us to do so from the bankruptcy court. In addition, we cannot evict a tenant
solely because of bankruptcy. The bankruptcy of a tenant or lease guarantor could delay our efforts to collect past-due balances
under the relevant leases, and could ultimately preclude collection of these sums. If a lease is rejected by a tenant in
bankruptcy, we would have only a general, unsecured claim for damages. An unsecured claim would only be paid to the extent
that funds are available and only in the same percentage as is paid to all other holders of general, unsecured claims.
Restrictions under the bankruptcy laws further limit the amount of any other claims that we can make if a lease is rejected. As
a result, it is likely that we would recover substantially less than the full value of the remaining rent during the term.
Our portfolio is subject to geographic concentration, which exposes us to risks of oversupply and competition in the relevant
markets. Significant increases in the supply of certain property types without corresponding increases in demand in those
markets could have a material adverse effect on our financial condition, our results of operations and our ability to pay
distributions.
As of December 31, 2015, approximately, 12%, 6% and 6% of the base rental income of our consolidated portfolio, excluding
the student housing properties, was generated by properties located in the Chicago, St. Louis, and Dallas metropolitan areas,
respectively. An oversupply of retail properties in any of these markets, without a corresponding increase in demand, could
have a material adverse effect on our financial condition, our results of operations and our ability to pay distributions.
Real estate is a competitive business.
We compete with numerous developers, owners and operators of commercial real estate assets in the leasing market, many of
which own assets similar to, and in the same market areas as, our assets. In addition, some of these competitors may be willing
to accept lower returns on their investments than we are, and many have greater resources than we have and may enjoy
significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating
efficiencies. Principal factors of competition include rents charged, attractiveness of location, the quality of the asset and
breadth and quality of services provided. Our success depends upon, among other factors, trends affecting national and local
economies, the financial condition and operating results of current and prospective tenants and customers, availability and cost
of capital, construction and renovation costs, taxes, governmental regulations, legislation, job creation and population trends.
We also face competition from other real estate investment programs for buyers. We perceive there to be a smaller universe of
potential buyers for many of the types of assets that comprise our portfolio in comparison to assets in more core real estate
sectors, which may make it challenging for us to sell our assets.
We may be unable to renew leases, lease vacant space or re-let space as leases expire, thereby increasing or prolonging
vacancies, which could adversely affect our financial condition, cash flows and results of operations.
As of December 31, 2015, leases representing approximately 6.2% and 12.3% of the 15,251,863 rentable square feet of our
retail portfolio are scheduled to expire in 2016 and 2017, respectively (not taking into account any renewal options), and an
additional 7.0% of the rentable square feet of the assets in portfolios was vacant. We cannot assure you that leases will be
renewed or that our assets will be re-leased on terms equal to or better than the current terms, or at all. We also may not be able
to lease space which is currently not occupied on acceptable terms and conditions, if at all. In addition, some of our tenants
have leases that include early termination provisions that permit the lessee to terminate all or a portion of its lease with us after
a specified date or upon the occurrence of certain events with little or no liability to us. We may be required to offer substantial
rent abatements, tenant improvements, early termination rights or below-market renewal options to retain these tenants or
attract new ones. It is possible that, in order to lease currently vacant space, or space that may become vacant, we will be
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required to make rent or other concessions to tenants, accommodate requests for renovations, make tenant improvements or and
other improvements or provide additional services to our tenants. As a result, we may have to make significant capital or other
expenditures in order to retain tenants whose leases expire or to attract new tenants. Portions of our assets may remain vacant
for extended periods of time. If the rental rates for our assets decrease, our existing tenants do not renew their leases or we do
not re-lease a significant portion of our available space and space for which leases will expire, our financial condition, cash
flows and results of operations could be adversely affected.
One of our tenants, AT&T, is party to three leases with us and generated a significant portion of our revenue for the year
ended December 31, 2015. The original terms of such leases expire in 2016, 2017 and 2019, and there is a strong possibility
that AT&T will not renew any or all of the leases. If the spin-off of the Highlands portfolio, which includes the leased
properties, does not occur, and AT&T elects not to renew any or all of the leases, our financial condition, cash flows and
results of operations would be adversely affected.
For the year ended December 31, 2015, approximately 15.8% of our total annualized rental income (excluding student housing)
was generated by three single-tenant assets leased to affiliates of AT&T. The original terms of the leases, with approximately
1.7 million, 1.5 million and 0.3 million rentable square feet, will expire in 2016, 2017 and 2019, respectively. These assets are
included in the non-core asset portfolio that we intend to spin off in the second quarter of 2016, subject to conditions and
approvals, including, among others, the registration statement on Form 10 of Highlands REIT, Inc. being declared effective by
the SEC and final approval of the spin-off and related transactions by our board of directors. We cannot assure you that the
spin-off will occur.
AT&T did not renew the Hoffman Estates, Illinois lease, which has an original term that expires in August 2016, during the
contractual renewal option period. In addition, the original term of the St. Louis, Missouri AT&T lease expires in September
2017, and the renewal option for this lease expires in September 2016. AT&T may not exercise its renewal option for this lease
or its lease in Cleveland, Ohio, with an original term expiring in September 2019. The characteristics of the properties and/or
market conditions are likely to make these assets difficult to re-lease and, consequently, difficult to sell. If AT&T does not
renew, the potential difficulty of securing new tenants is likely to make the loans difficult to refinance. Additionally, if AT&T
does not renew and if we are unable to re-let the Hoffman Estates and St. Louis assets, we expect that we may be unable to
make mortgage payments and may default under their loan agreements.
If the spin-off does not occur, and AT&T elects not to renew any one or more of these leases, and if we are unable to re-let the
space as leases expire, or if we are required to make significant capital expenditures for such assets, our financial condition,
cash flows and results of operations would be adversely affected.
We may be required to make significant expenditures to improve our properties in order to retain and attract tenants.
In order to retain tenants whose leases are expiring or to attract replacement tenants, we may be required to provide rent or
other concessions, accommodate requests for renovations, build-to-suit remodeling and other improvements or provide
additional services. As a result, we may have to pay for significant leasing costs or tenant improvements. Additionally, if we
have insufficient capital reserves, we may need to raise capital to fund these expenditures. If we are unable to do so, we may
be unable to fund the necessary or desirable improvements to our properties. This could result in non-renewals by tenants upon
the expiration of their leases or an inability to attract new tenants, which would result in declines in revenues from operations
and adversely affect our cash flows and results of operations.
Furthermore, deferring necessary improvements to a property may cause the property to suffer from a greater risk of
obsolescence or a decline in value, or a greater risk of decreased cash flow as a result of fewer potential tenants being attracted
to the property. If this happens, we may not be able to maintain projected rental rates for affected properties, and our results of
operations may be negatively impacted.
Any difficulties in obtaining capital necessary to make tenant improvements, pay leasing commissions and make capital
improvements at our assets could materially and adversely affect our financial condition and results of operations.
Ownership of real estate is a capital intensive business that requires significant capital expenditures to operate, maintain and
renovate assets. Access to the capital that we need to lease, maintain and renovate existing assets is critical to the success of our
business. We may not be able to fund tenant improvements, pay leasing commissions or fund capital improvements at our
existing assets solely from cash provided from our operating activities. As a result, our ability to fund tenant improvements, pay
leasing commissions or fund capital improvements through retained earnings may be restricted. Consequently, we may have to
rely upon the availability of debt, net proceeds from the dispositions of our assets or equity capital to fund tenant
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improvements, pay leasing commissions or fund capital improvements. The inability to do so could impair our ability to
compete effectively and harm our business.
We are subject to risks from natural disasters and severe weather.
Natural disasters and severe weather such as earthquakes, wildfires, tornadoes, hurricanes, blizzards, hailstorms or floods may
result in significant damage to our properties, disrupt operations at our properties and adversely affect both the value of our
properties and the ability of our tenants and operators to make their scheduled rent payments to us. The extent of our casualty
losses and loss in operating income in connection with such events is a function of the severity of the event and the total
amount of exposure in the affected area. These losses may not be insured or insurable at commercially reasonable rates. When
we have a geographic concentration, a single catastrophe or destructive weather event affecting a region may have a significant
negative effect on our financial condition and results of operations. As a result, our operating and financial results may vary
significantly from one period to the next. We also are exposed to the risk of an increased need for the maintenance and repair
of our buildings due to inclement weather.
We may obtain only limited warranties when we purchase a property and would have only limited recourse if our due
diligence did not identify any issues that lower the value of our property.
The seller of a property often sells the property to us in its "as is" condition on a "where is" basis and "with all faults," without
any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only
limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The
purchase of properties with limited warranties increases the risk that we may lose some of or all our invested capital in the
property, as well as the loss of rental income from that property.
Actions of our joint venture partners could negatively impact our performance.
With respect to our joint venture investments, we are not in a position to exercise sole decision-making authority regarding the
property or the joint venture. Consequently, our joint venture investments may involve risks not present with other methods of
investing in real estate. For example, our joint venture partner may have economic or business interests or goals which are or
which become inconsistent with our economic or business interests or goals or may take action contrary to our instructions or
requests or contrary to our policies or objectives. We have experienced these events from time to time with our former joint
venture partners, which in some cases has resulted in litigation. An adverse outcome in any lawsuit could have a material effect
on our business, financial condition or results of operations. In addition, any litigation increases our expenses and prevents our
officers and directors from focusing their time and effort on our core strategic holdings and business plans. Our relationships
with our joint venture partners are contractual in nature. These agreements may restrict our ability to sell our interest when we
desire or on advantageous terms and may be terminated or dissolved and, in each event, we may not continue to own or operate
the interests or assets underlying the relationship or may need to purchase the interests or assets at an above-market price to
continue ownership. Such joint venture investments may involve other risks not otherwise present with a direct investment in
real estate, including, for example:
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the possibility that our joint venture partner might become bankrupt;
the possibility that the investment may require additional capital that we or our joint venture partner does not have,
which lack of capital could affect the performance of the investment or dilute our interest if our joint venture partner
were to contribute our share of the capital;
the possibility that our joint venture partner in an investment might breach a loan agreement or other agreement or
otherwise, by action or inaction, act in a way detrimental to us or the investment;
the possibility that we may incur liabilities as the result of the action taken by our joint venture partner; or
that such joint venture partner may exercise buy/sell rights that force us to either acquire the entire investment, or
dispose of our share, at a time and price that may not be consistent with our investment objectives.
Our investments in equity and debt securities involve special risks and may lose value.
As of December 31, 2015, we owned investments in real estate-related equity and debt securities with an aggregate market
value of $177.4 million. Real estate-related equity securities are always unsecured and subordinated to other obligations of the
issuer. Investments in real estate-related equity securities are subject to numerous risks including: (1) limited liquidity in the
secondary trading market in the case of unlisted or thinly traded securities; (2) substantial market price volatility resulting from,
among other things, changes in prevailing interest rates in the overall market or related to a specific issuer, as well as changing
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investor perceptions of the market as a whole, REIT or real estate securities in particular or the specific issuer in question; (3)
subordination to the liabilities of the issuer; (4) the possibility that the earnings of the issuer may be insufficient to meet the
issuer’s debt service obligations or to pay distributions; and (5) with respect to investments in real estate-related preferred
equity securities, the operation of mandatory sinking fund or call or redemption provisions during periods of declining interest
rates that could motivate the issuer to redeem the securities. In addition, investments in real estate-related securities involve
special risks relating to the particular issuer of the securities, including the financial condition and business outlook of the
issuer, as well as the risks inherent with real estate-related investments discussed herein.
The prices of some of the securities we have invested in have declined since our initial purchase, and in certain cases we have
sold these investments at a loss. As of March 17, 2016, we owned approximately 5% of the outstanding common stock of
Xenia, which had a market value of $15.45 per share as of such date. Xenia is a publicly-traded company and, therefore, its
stock price is subject to market fluctuations and may decline.
An increase in real estate taxes may decrease our income from properties.
From time to time, the amount we pay for property taxes increases as either property values increase or assessment rates are
adjusted. Increases in a property’s value or in the assessment rate result in an increase in the real estate taxes due on that
property. If we are unable to pass the increase in taxes through to our tenants, our net operating income for the property will
decrease.
Uninsured losses or premiums for insurance coverage may adversely affect a stockholder’s returns.
Various types of catastrophic losses, like windstorms, earthquakes and floods, and losses from foreign terrorist activities may
not be insurable or may not be economically insurable. Even when insurable, these policies may have high deductibles and/or
high premiums. Lenders may require such insurance. Our failure to obtain such insurance could constitute a default under loan
agreements, and/or our lenders may force us to obtain such insurance at unfavorable rates, which could materially and
adversely affect our profitability and revenues.
In the event of a substantial loss, our insurance coverage may not be sufficient to cover the full current market value or
replacement cost of our lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all
or a portion of the capital we have invested in an asset, as well as the anticipated future revenue from the asset. In that event,
we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the asset. Inflation,
changes in building codes and ordinances, environmental considerations and other factors might also keep us from using
insurance proceeds to replace or renovate an asset after it has been damaged or destroyed. Under those circumstances, the
insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed property,
which could materially and adversely affect our profitability.
In addition, insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage
against property and casualty claims. With the enactment of the Terrorism Risk Insurance Program Reauthorization Act of
2007, United States insurers cannot exclude conventional, chemical, biological, nuclear and radiation terrorism losses. These
insurers must make terrorism insurance available under their property and casualty insurance policies; however, this legislation
does not regulate the pricing of such insurance. In many cases, mortgage lenders have begun to insist that commercial property
owners purchase coverage against terrorism as a condition of providing mortgage loans. Such insurance policies may not be
available at a reasonable cost, which could inhibit our ability to finance or refinance our assets. In such instances, we may be
required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We
may not have adequate coverage for such losses, which could materially and adversely affect our revenues and profitability.
We could incur significant, material costs related to government regulation and litigation with respect to environmental
matters, which could materially and adversely affect our revenues and profitability.
Our assets are subject to various U.S. federal, state and local environmental laws that impose liability for contamination. Under
these laws, governmental entities have the authority to require us, as the current owner of an asset, to perform or pay for the
clean-up of contamination (including hazardous substances, asbestos and asbestos-containing materials, waste or petroleum
products) at, on, under or emanating from the asset and to pay for natural resource damages arising from such contamination.
Such laws often impose liability without regard to whether the owner or operator or other responsible party knew of, or caused
such contamination, and the liability may be joint and several. Because these laws also impose liability on persons who owned
an asset at the time it became contaminated, it is possible we could incur cleanup costs or other environmental liabilities even
after we sell assets. Contamination at, on, under or emanating from our assets also may expose us to liability to private parties
for costs of remediation and/or personal injury or property damage. In addition, environmental laws may create liens on
contaminated sites in favor of the government for damages and costs it incurs to address such contamination. If contamination
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is discovered on our assets, environmental laws also may impose restrictions on the manner in which the assets may be used or
businesses may be operated, and these restrictions may require substantial expenditures. Moreover, environmental
contamination can affect the value of an asset and, therefore, an owner’s ability to borrow funds using the asset as collateral or
to sell the asset on favorable terms or at all. Furthermore, persons who sent waste to a waste disposal facility, such as a landfill
or an incinerator, may be liable for costs associated with cleanup of that facility.
In addition, our assets are subject to various federal, state, and local environmental, health and safety laws and regulations that
address a wide variety of issues, including, but not limited to, storage tanks, air emissions from emergency generators, storm
water and wastewater discharges, lead-based paint, mold and mildew, and waste management. Some of our assets may handle
and use hazardous or regulated substances and wastes as part of their operations, which substances and wastes are subject to
regulation. Our assets incur costs to comply with these environmental, health and safety laws and regulations and could be
subject to fines and penalties for non-compliance with applicable requirements.
Environmental laws in the U.S. also require that owners or operators of buildings containing asbestos properly manage and
maintain the asbestos, adequately inform or train those who may come into contact with asbestos and undertake special
precautions, including removal or other abatement, if that asbestos is disturbed during building renovation or demolition. These
laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may
allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos. Some of
our assets may contain asbestos-containing building materials.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the
moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or
irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor
sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants
above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other
reactions. As a result, the presence of significant mold or other airborne contaminants at any of our assets could require us to
undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected asset
or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to
liability to third parties if property damage or personal injury occurs.
Liabilities and costs associated with environmental contamination at, on, under or emanating from our assets, defending against
claims related to alleged or actual environmental issues, or complying with environmental, health and safety laws could be
material and could materially and adversely affect us. We can make no assurances that changes in current laws or regulations or
future laws or regulations will not impose additional or new material environmental liabilities or that the current environmental
condition of our assets will not be affected by our operations, the condition of the assets in the vicinity of our assets, or by third
parties unrelated to us. The discovery of material environmental liabilities at our assets could subject us to unanticipated
significant costs, which could significantly reduce or eliminate our profitability and the cash available for distribution to our
stockholders.
Compliance or failure to comply with the Americans with Disabilities Act and other safety regulations and requirements
could result in substantial costs.
Under the Americans with Disabilities Act of 1990 and the Accessibility Guidelines promulgated thereunder, which we refer to
collectively as the ADA, all public accommodations must meet various federal requirements related to access and use by
disabled persons. Compliance with the ADA’s requirements could require removal of access barriers, and non-compliance
could result in the U.S. government imposing fines or in private litigants winning damages.
Our assets are also subject to various federal, state and local regulatory requirements, such as state and local fire and life safety
requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. We do not know
whether existing requirements will change or whether compliance with future requirements would require significant
unanticipated expenditures that would affect our cash flow and results of operations. If we incur substantial costs to comply
with the ADA or other safety regulations and requirements, it could materially and adversely affect our revenues and
profitability.
Risks Related to our Retail Assets
Our retail properties face considerable competition for the tenancy of our lessees and the business of retail shoppers.
There are numerous shopping venues that compete with our retail properties in attracting retailers to lease space and shoppers
to patronize their properties. In addition, our retail tenants face changing consumer preferences and increasing competition
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from other forms of retailing, such as e-commerce websites and catalogues as well as other retail centers located within the
geographic market areas of our retail properties that compete with our properties for customers. All these factors may
adversely affect our tenants’ cash flows and, therefore, their ability to pay rent. To the extent that our tenants do not pay their
rent or do not pay on a timely basis, it could have a negative impact on our financial condition and result of operations.
Retail conditions may adversely affect our income and our ability to make distributions to our stockholders.
A retail property’s revenues and value may be adversely affected by a number of factors, many of which apply to real estate
investment generally, but which also include trends in the retail industry and perceptions by retailers or shoppers of the safety,
convenience and attractiveness of the retail property. Our properties are located in public places, and any incidents of crime or
violence, including acts of terrorism, could result in a reduction of business traffic to tenant stores in our properties. Any such
incidents may also expose us to civil liability or harm our reputation. In addition, to the extent that the investing public has a
negative perception of the retail sector, the value of our retail properties may be negatively impacted.
An economic downturn could have an adverse impact on the retail industry generally. Slow or negative growth in the retail
industry could result in defaults by retail tenants, which could have an adverse impact on our business, financial condition
or result of operations.
An economic downturn could have an adverse impact on the retail industry generally. As a result, the retail industry could face
reductions in sales revenues and increased bankruptcies. Adverse economic conditions may result in an increase in distressed
or bankrupt retail companies, which in turn would result in an increase in defaults by tenants at our commercial properties.
Additionally, slow economic growth could hinder new entrants into the retail market, which may make it difficult for us to fully
lease our real properties. Tenant defaults and decreased demand for retail space would have an adverse impact on the value of
our retail properties and our results of operations.
We may be restricted from re-leasing space at our retail properties.
Leases with retail tenants may contain provisions giving the particular tenant the exclusive right to sell particular types of
merchandise or provide specific types of services within the particular retail center. These provisions may limit the number and
types of prospective tenants interested in leasing space in a particular retail property.
Our revenue will be impacted by the success and economic viability of our anchor retail tenants. Our reliance on single or
significant tenants in certain buildings may decrease our ability to lease vacated space and adversely affect the returns on
your investment.
In the retail sector, a tenant occupying all or a large portion of the gross leasable area of a retail center, commonly referred to as
an anchor tenant, may become insolvent, may suffer a downturn in business or may decide not to renew its lease. Any of these
events would result in a reduction or cessation in rental payments to us and would adversely affect our financial condition. A
lease termination by an anchor tenant also could result in lease terminations or reductions in rent by other tenants whose leases
may permit cancellation or rent reduction if another tenant’s lease is terminated. Similarly, the leases of some anchor tenants
may permit the anchor tenant to transfer its lease to another retailer. The transfer to a new anchor tenant could reduce customer
traffic in the retail center and thereby reduce the income generated by that retail center. A transfer of a lease to a new anchor
tenant could also allow other tenants to make reduced rental payments or to terminate their leases in accordance with lease
terms. If we are unable to re-lease the vacated space to a new anchor tenant, we may incur additional expenses in order to
remodel the space to be able to re-lease the space to more than one tenant.
Our retail leases may contain co-tenancy provisions, which would have an adverse effect on our operation of such retail
properties if exercised.
With respect to any retail properties we own or acquire, we may enter into leases containing co-tenancy provisions. Co-tenancy
provisions may allow a tenant to exercise certain rights if, among other things, another tenant fails to open for business, delays
its opening or ceases to operate, or if a percentage of the property’s gross leasable space or a particular portion of the property
is not leased or subsequently becomes vacant. A tenant exercising co-tenancy rights may be able to abate minimum rent,
reduce its share or the amount of its payments for common area operating expenses and property taxes or cancel its lease.
Risks Associated with Debt Financing
Volatility in the financial markets and challenging economic conditions could adversely affect our ability to secure debt
financing on attractive terms and our ability to service any future indebtedness that we may incur.
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The domestic and international commercial real estate debt markets could become very volatile as a result of, among other
things, the tightening of underwriting standards by lenders and credit rating agencies. This could result in less availability of
credit and increasing costs for what is available. If the overall cost of borrowing increases, either by increases in the index rates
or by increases in lender spreads, the increased costs may result in lower overall economic returns and potentially reducing
future cash flow available for distribution. If these disruptions in the debt markets were to persist, our ability to borrow funds to
finance activities related to real estate assets could be negatively impacted. In addition, we may find it difficult, costly or
impossible to refinance indebtedness that is maturing.
Further, economic conditions could negatively impact commercial real estate fundamentals and result in declining values in our
real estate portfolio and in the collateral securing any loan investments we may make, which could have various negative
impacts. Specifically, the value of collateral securing any loan we hold could decrease below the outstanding principal amounts
of such loans.
Borrowings may reduce the funds available for distribution and increase the risk of loss since defaults may cause us to lose
the properties securing the loans.
We have acquired, and will continue to acquire, real estate assets by assuming existing financing or borrowing new monies.
We may borrow money for other purposes to, among other things, satisfy the requirement that we distribute at least 90% of our
“REIT annual taxable income,” subject to certain adjustments, or as is otherwise necessary or advisable to assure that we
qualify as a REIT for federal income tax purposes. Over the long term, however, payments required on any amounts we borrow
reduce the funds available for, among other things, capital expenditures for existing assets or distributions to our stockholders
because cash otherwise available for these purposes is used to pay principal and interest on this debt.
If there is a shortfall between the cash flow from an asset and the cash flow needed to service mortgage debt on an asset, then
the amount of cash flow from operations available for distributions to stockholders may be reduced. In addition, incurring
mortgage debt increases the risk of loss since defaults on indebtedness secured by an asset may result in lenders initiating
foreclosure actions. In such a case, we could lose the asset securing the loan that is in default, thus reducing the value of your
investment. For tax purposes, a foreclosure is treated as a sale of the asset or assets for a purchase price equal to the outstanding
balance of the debt secured by the asset or assets. If the outstanding balance of the debt exceeds our tax basis in the asset or
assets, we would recognize taxable gain on the foreclosure action and we would not receive any cash proceeds. We also may
fully or partially guarantee any funds that subsidiaries borrow to operate assets. In these cases, we will likely be responsible to
the lender for repaying the loans if the subsidiary is unable to do so. If any mortgage contains cross-collateralization or cross-
default provisions, more than one asset may be affected by a default.
If we are unable to borrow at favorable rates, we may not be able to refinance existing loans at maturity.
If we are unable to borrow money at favorable rates, or at all, we may be unable to refinance existing loans at maturity. Further,
we may enter into loan agreements or other credit arrangements that require us to pay interest on amounts we borrow at
variable or “adjustable” rates. Increases in interest rates will increase our interest costs. If interest rates are higher when we
refinance our loans, our expenses will increase, thereby reducing our cash flow. Further, during periods of rising interest rates,
we may be forced to sell one or more of our assets earlier than anticipated in order to repay existing loans, which may not
permit us to maximize the return on the particular assets being sold.
Our existing or future debt agreements will contain covenants that restrict certain aspects of our operations, and our failure
to comply with those covenants could materially and adversely affect us.
The mortgages on our existing assets, and any future mortgages likely will, contain customary covenants such as those that
limit our ability, without the prior consent of the lender, to further mortgage the applicable asset or to discontinue insurance
coverage even if we believe that the insurance premiums are greater than the risk of loss being insured against. In addition,
such loans contain negative covenants that, among other things, preclude certain changes of control, inhibit our ability to incur
additional indebtedness or, under certain circumstances, restrict cash flow necessary to make distributions to our stockholders.
Any credit facility or secured loans that we may enter into likely will contain customary financial covenants, restrictions,
requirements and other limitations with which we must comply. Our continued ability to borrow under any credit facility that
we may obtain will be subject to compliance with our financial and other covenants, including covenants relating to debt
service coverage ratios, leverage ratios, and liquidity and net worth requirements, and our ability to meet these covenants will
be adversely affected if our financial condition and cash flows are materially adversely affected or if general economic
conditions deteriorate.
In addition, our failure to comply with these covenants, as well as our inability to make required payments, could cause a
default under the applicable agreement, which could result in the acceleration of the debt and require us to repay such debt with
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capital obtained from other sources, which may not be available to us or may be available only on unattractive terms.
Furthermore, if we default on secured debt, lenders can take possession of the asset or assets securing such debt. In addition,
agreements may contain specific cross-default provisions with respect to specified other indebtedness, giving the lenders the
right to declare a default on its debt and to enforce remedies, including acceleration of the maturity of such debt upon the
occurrence of a default under such other indebtedness. If we default on any of our agreements, it could have a material adverse
effect on our financial condition, cash flows or results of operations.
Our mortgage agreements contain certain provisions that may limit our ability to sell our properties.
In order to assign or transfer our rights and obligations under certain of our mortgage agreements, we generally must obtain the
consent of the lender, pay a fee equal to a fixed percentage of the outstanding loan balance and pay any costs incurred by the
lender in connection with any such assignment or transfer.
These provisions of our mortgage agreements may limit our ability to sell our properties which, in turn, could adversely impact
the price realized from any such sale. To the extent we receive lower sale proceeds, we could experience a material adverse
effect on our business, financial condition and results of operations and our ability to make distributions to stockholders.
Covenants applicable to current or future debt, such as those in our credit line and mortgages, could restrict our ability to
make distributions to our stockholders and, as a result, we may be unable to make distributions necessary to qualify as a
REIT, which could materially and adversely affect us and the value of our common stock.
In order to continue to qualify as a REIT, we generally are required to distribute at least 90% of our REIT taxable income,
determined without regard to the dividends paid deduction and excluding net capital gain, each year to our stockholders. To the
extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income, we will be
subject to U.S. federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4%
nondeductible excise tax if the actual amount that we distribute to our stockholders in a calendar year is less than a minimum
amount specified under the Code. If, as a result of covenants applicable to our current or future debt, we are restricted from
making distributions to our stockholders, we may be unable to make distributions necessary for us to avoid U.S. federal
corporate income and excise taxes and maintain our qualification as a REIT, which could materially and adversely affect us.
Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distribution to
our stockholders.
We have obtained, and may continue to enter into mortgage indebtedness that does not require us to pay principal for all or a
portion of the life of the debt instrument. During the period when no principal payments are required, the amount of each
scheduled payment is less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan is not
reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal required during this
period. After the interest-only period, we may be required either to make scheduled payments of principal and interest or to
make a lump-sum or “balloon” payment at or prior to maturity. These required principal or balloon payments will increase the
amount of our scheduled payments and may increase our risk of default under the related mortgage loan if we do not have
funds available or are unable to refinance the obligation. In addition, we may be forced to sell one or more of our properties or
investments in real estate at times that may not permit us to realize the return on the investments we would have otherwise
realized.
Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to make
distributions to our stockholders.
As of December 31, 2015, approximately $210.5 million of our mortgages payable and $110.0 million of our line of credit debt
bore interest at variable rates. Increases in interest rates on variable rate debt that has not otherwise been hedged through the
use of swap agreements reduce the funds available for other needs, including distribution to our stockholders. As of December
31, 2015, approximately $1.6 billion of our total indebtedness bore interest at fixed rates. As fixed-rate debt matures, we may
not be able to borrow at rates equal to or lower than the rates on the expiring debt. In addition, if rising interest rates cause us
to need additional capital to repay indebtedness, we may be forced to sell one or more of our properties or investments in real
estate at times that may not permit us to realize the return on the investments we would have otherwise realized.
Increases in interest rates would increase our interest expense on any variable rate debt, as well as any debt that must be
refinanced at higher interest rates at the time of maturity. Our future earnings and cash flows could be adversely affected due to
the increased requirement to service our debt and could reduce the amount we are able to distribute to our stockholders.
To hedge against interest rate fluctuations, we use derivative financial instruments, which may be costly and ineffective.
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From time to time, we use derivative financial instruments to hedge exposures to changes in interest rates on certain loans
secured by our assets. Our derivative instruments currently consist of interest rate swap contracts but may, in the future,
include, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our actual hedging
decisions are determined in light of the facts and circumstances existing at the time of the hedge. There is no assurance that our
hedging strategy will achieve our objectives. We may be subject to costs, such as transaction fees or breakage costs, if we
terminate these arrangements.
To the extent that we use derivative financial instruments to hedge against interest rate fluctuations, we are exposed to credit
risk, basis risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the
terms of the derivative contract. Basis risk occurs when the index upon which the contract is based is more or less variable
than the index upon which the hedged asset or liability is based, thereby making the hedge less effective. Finally, legal
enforceability risks encompass general contractual risks including the risk that the counterparty will breach the terms of, or fail
to perform its obligations under, the derivative contract. A counterparty could fail, shut down, file for bankruptcy or be unable
to pay out contracts. The business failure of a hedging counterparty with whom we enter into a hedging transaction will most
likely result in a default. Default by a party with whom we enter into a hedging transaction may result in the loss of unrealized
profits and force us to cover our resale commitments, if any, at the then-current market price. Additionally, it may not always
be possible to dispose of or close out a hedging position without the consent of the hedging counterparty, and we may not be
able to enter into an offsetting contract to cover our risk. We cannot provide assurance that a liquid secondary market will exist
for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which
could result in losses.
Further, the REIT provisions of the Code may limit our ability to hedge the risks inherent to our operations. We may be unable
to manage these risks effectively.
We may be contractually obligated to purchase property even if we are unable to secure financing for the acquisition.
We typically finance a portion of the purchase price for each property that we acquire. However, to ensure that our offers are as
competitive as possible, we generally do not enter into contracts to purchase property that include financing contingencies.
Thus, we may be contractually obligated to purchase a property even if we are unable to secure financing for the acquisition.
In this event, we may choose to close on the property by using cash on hand, which would result in less cash available for other
purposes, including funding operating costs or paying distributions to our stockholders. Alternatively, we may choose not to
close on the acquisition of the property and default on the purchase contract. If we default on any purchase contract, we could
lose our earnest money, become subject to liquidated or other contractual damages and remedies and suffer reputational harm in
the commercial real estate market, which could make future sellers less likely to accept our bids or cause them to require a
higher purchase price or more onerous contractual terms.
Our special purpose property-owning subsidiaries may default under non-recourse mortgage loans.
Some of our assets are or will be held in special-purpose property-owning subsidiaries. In the future, such special purpose
property-owning subsidiaries may default and/or send notices of imminent default on non- recourse mortgage loans where the
relevant asset is or will be suffering from cash shortfalls on operating expenses, leasing costs and/or debt service obligations.
Any default by our special purpose property-owning subsidiaries under non-recourse mortgage loans would give the special
servicers the right to accelerate the payment on the loans and the right to foreclose on the asset underlying such loans. There are
several potential outcomes on the default of a non-recourse mortgage loan, including foreclosure, a deed-in-lieu of foreclosure,
a cooperative short sale, or a negotiated modification to the terms of the loan. There is no assurance that we will be able to
achieve a favorable outcome on a cooperative or timely basis on any defaulted mortgage loan.
Risks Related to Our Common Stock
Since InvenTrust shares are not currently traded on a national stock exchange, there is no established public market for our
shares and you may not be able to sell your shares.
Our shares of common stock are not listed on a national securities exchange. There is no established public trading market for
our shares and no assurance that one may develop. Our charter prohibits any persons or groups from owning more than 9.8%
(in value or number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of our stock or more
than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of our
common stock unless exempted prospectively or retroactively by our board of directors. This may inhibit investors from
purchasing a large portion of our shares. Our charter also does not require our directors to seek stockholder approval to
liquidate our assets by a specified date, nor does our charter require our directors to list our shares for trading on a national
exchange by a specified date or provide any other type of liquidity to our stockholders. There is no assurance the board will
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pursue a listing or other liquidity event. In addition, even if our board decides to seek a listing of our shares of common stock,
there is no assurance that we will satisfy the listing requirements or that our shares will be approved for listing. If and when a
listing occurs there is no guarantee you will be able to sell your common stock at a price equal to your initial investment value
or the current estimated share value.
The estimated value per share of our common stock is based on a number of assumptions and estimates that may not be
accurate or complete and is also subject to a number of limitations.
On February 24, 2015, we announced an estimated value of our common stock equal to $4.00 per share. The audit committee
of our board of directors engaged Real Globe Advisors, LLC ("Real Globe"), an independent third-party real estate advisory
firm, to estimate the per share value of our common stock on a fully diluted basis as of February 4, 2015. As with any
methodology used to estimate value, the methodology employed by Real Globe and the recommendations made by us were
based upon a number of estimates and assumptions that may not have been accurate or complete. Further, different parties
using different assumptions and estimates could have derived a different estimated value per share, which could be significantly
different from our estimated value per share. The estimated per share value does not represent: (i) the price at which our
shares would trade at a national securities exchange, (ii) the amount per share a stockholder would obtain if he, she or it tried to
sell his, her or its shares or (iii) the amount per share stockholders would receive if we liquidated our assets and distributed the
proceeds after paying all our expenses and liabilities. Accordingly, with respect to the estimated value per share, we can give
no assurance that:
•
•
•
•
a stockholder would be able to resell his, her or its shares at this estimated value;
a stockholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation
of our assets and settlement of our liabilities or a sale of the Company;
our shares would trade at a price equal to or greater than the estimated value per share if we listed them on a national
securities exchange; or
the methodology used to estimate our value per share would be acceptable to FINRA or that the estimated value per
share will satisfy the applicable annual valuation requirements under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code with respect to employee benefit plans subject to ERISA and other
retirement plans or accounts subject to Section 4975 of the Code.
InvenTrust is deferring the publication of a new estimated share value until closer proximity to the spin-off of Highlands and
the closing of the student housing sale. We expect the value of our shares of common stock to be lower immediately following
the spin-off of Highlands, as the value of our stock will no longer reflect the value of the Highlands portfolio.
There is no assurance that we will be able to continue paying cash distributions or that distributions will increase over time.
Historically we have paid, and we intend to continue to pay, regular cash distributions to our stockholders. Following the
completion of the Xenia Spin-Off, our board of directors analyzed and reviewed our distribution rate and announced a new
distribution rate of $0.13 per share on an annualized basis, which represents a decrease from the monthly distribution rate that
we paid immediately prior to the Xenia Spin-Off. A number of factors were considered in establishing the new distribution rate.
Prior to the Xenia Spin-Off, Xenia generated a substantial portion of our cash flows from operations and as a result, our
previous distribution rate was not sustainable after the Xenia Spin-Off. In addition, our board of directors determined that it is
in the best interest of the company to retain additional operating cash flow in order to accumulate an appropriate level of capital
reserves to enable the Company to tailor and grow its retail and student housing segments, consistent with our strategy and
objectives at that time, as well as to address future lease maturities and disposition plans related to several significant properties
in our non-core segment.
Our board of directors will analyze and review our distribution rate in connection with the anticipated spin-off of Highlands
and the student housing sale. We expect distribution payments to decrease because the University House assets produced
significant cash flow for us. We expect to announce a new distribution rate correlated to the cash generated from the remaining
portfolio of assets after the closing of the student housing sale.
There are many factors that can affect the availability and timing of cash distributions, such as our ability to earn positive yields
on our real estate assets, the yields on securities in which we invest and our operating expense levels, as well as many other
variables. Our portfolio strategy may also affect our ability to pay our cash distributions if we are not able to reinvest the
capital we receive from our property dispositions in a reasonable amount of time into assets that generate cash flow yields
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similar to or greater than those of the properties sold. There is no assurance that we will be able to continue paying distributions
at the current level or that the amount of distributions will increase, or not continue to decrease, over time. Even if we are able
to continue paying distributions, the actual amount and timing of distributions is determined by our board of directors in its
discretion and typically depends on the amount of funds available for distribution, which depends on items such as current and
projected cash requirements and tax considerations. As a result, our distribution rate and payment frequency may vary from
time to time.
Funding distributions from sources other than cash flow from operating activities may negatively impact our ability to
sustain or pay future distributions and result in us having less cash available for other uses, such as property purchases.
If our cash flow from operating activities is not sufficient to fully fund the payment of distributions, the level of our
distributions may not be sustainable and some of or all our distributions will be paid from other sources. For the year ended
December 31, 2015, distributions were paid from cash flow from operations, distributions from unconsolidated entities and
gain on sales of properties.
We may pay distributions from sources other than cash flow from operations or funds from operations, including funding such
distributions from external financing sources, which may be available only at commercially unattractive terms, if at all. To the
extent that the aggregate amount of cash distributed in any given year exceeds the amount of our current and accumulated
earnings and profits for the same period, the excess amount will be deemed a return of capital for federal income tax purposes,
rather than a return on capital. Furthermore, in the event that we are unable to fund future distributions from our cash flows
from operating activities, the value of your shares upon any listing of our stock, the sale of our assets or any other liquidity
event may be materially adversely affected.
At any time that we are not generating cash flow from operations sufficient to cover the current distribution rate, we may
determine to pay lower distributions, or to fund all or a portion of our future distributions from other sources. If we utilize
borrowings for the purpose of funding all or a portion of our distributions, we will incur additional interest expense. We have
not established any limit on the extent to which we may use alternate sources of cash for distributions, except that, in
accordance with the law of the State of Maryland and our organizational documents, generally, we may not make distributions
that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business, (ii) cause our total
assets to be less than the sum of our total liabilities, or (iii) jeopardize our ability to maintain our qualification as a REIT for so
long as the board of directors determines that it is in our best interests to continue to qualify as a REIT. Distributions that
exceed cash flow from operations may not be sustainable at current levels, or at all.
Risks Related to Our Organization and Structure
Stockholders have limited control over changes in our policies and operations.
Our board of directors determines our major policies, including our investment policies and strategies and policies regarding
financing, debt and equity capitalization, REIT qualification and distributions. Our board of directors may amend or revise
certain of these and other policies without a vote of the stockholders.
Stockholders’ interest in us will be diluted if we issue additional shares.
Stockholders do not have preemptive rights with respect to any shares issued by us in the future. Our charter authorizes our
board of directors, without stockholder approval, to amend the charter from time to time to increase or decrease the aggregate
number of shares of stock or the number of shares of stock of any class or series that the Company has authority to issue.
Future issuances of common stock reduce the percentage of our shares owned by our current stockholders who do not
participate in future stock issuances. Stockholders are not entitled to vote on whether or not we issue additional shares. In
addition, depending on the terms and pricing of an additional offering of our shares and the value of our properties, our
stockholders may experience dilution in the value of their shares. Further, our board could issue stock on terms and conditions
that subordinate the rights of the holders of our current common stock or have the effect of delaying, deferring or preventing a
change in control in us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all
our assets) that might provide a premium price for our stockholders.
Increases in market interest rates may reduce demand for our common stock and result in a decline in the value of our
common stock.
The value of our common stock may be influenced by the distribution yield on our common stock (i.e., the amount of our
quarterly distributions as a percentage of the fair market value of our common stock) relative to market interest rates. An
increase in market interest rates, which are currently low compared to historical levels, may lead prospective purchasers of our
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common stock to expect a higher distribution yield, which we may not be able, or may choose not, to provide. Higher interest
rates would also likely increase our borrowing costs and decrease our operating results and cash available for distribution.
Thus, higher market interest rates could cause the value of our common stock to decline.
Stockholders’ returns may be reduced if we are required to register as an investment company under the Investment
Company Act.
We are not registered, and do not intend to register our company or any of our subsidiaries, as an investment company under
the Investment Company Act of 1940, as amended (the "Investment Company Act"). If we or any of our subsidiaries become
obligated to register as an investment company, the registered entity would have to comply with regulation under the
Investment Company Act with respect to capital structure (including the registered entity’s ability to use borrowings),
management, operations, transactions with affiliated persons (as defined in the Investment Company Act) and portfolio
composition, including disclosure requirements and restrictions with respect to diversification and industry concentration, and
other matters. Compliance with the Investment Company Act may not be feasible as it would limit our ability to make certain
investments and require us to significantly restructure our operations and business plan. The costs we would incur and the
limitations that would be imposed on us as a result of such compliance and restructuring would negatively affect the value of
our common stock, our ability to make distributions and the sustainability of our business and investment strategies.
We believe that neither we nor any subsidiaries we own fall within the definition of an investment company under Section
3(a)(1) of the Investment Company Act because we primarily engage in the business of acquiring and owning real property,
through our wholly or majority owned subsidiaries, each of which has at least 60% of its assets in real property. The company
intends to conduct its operations, directly and through wholly or majority-owned subsidiaries, so that neither the company nor
any of its subsidiaries is registered or will be required to register as an investment company under the Investment Company
Act. Section 3(a)(1) of the Investment Company Act, in relevant part, defines an investment company as (i) any issuer that is,
or holds itself out as being, engaged primarily in the business of investing, reinvesting or trading in securities, or (ii) any issuer
that is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and
owns, or proposes to acquire, "investment securities" having a value exceeding 40% of the value of its total assets (exclusive of
government securities and cash items) on an unconsolidated basis (the "40% Test"). The term "investment securities" generally
includes all securities except government securities and securities of majority-owned subsidiaries that are not themselves
investment companies and are not relying on the exemption from the definition of investment company under Section 3(c)(1)
or Section 3(c)(7) of the Investment Company Act. We and our subsidiaries are primarily engaged in the business of investing
in real property and, as such, we believe we and our subsidiaries should fall outside of the definition of an investment company
under Section 3(a)(1)(A) of the Investment Company Act.
Accordingly, we believe that neither we nor any of our wholly and majority-owned subsidiaries are considered investment
companies under either Section 3(a)(1)(A) or Section 3(a)(1)(C) of the Investment Company Act. We believe we and our
wholly owned or majority owned subsidiaries are also able to rely on the exemption provided by Section 3(c)(5)(C) of the
Investment Company Act. To rely upon Section 3(c)(5)(C) of the Investment Company Act as it has been interpreted by the
SEC staff, an entity would have to invest at least 55% of its total assets in "mortgage and other liens on and interests in real
estate," which we refer to as "qualifying real estate investments" and maintain an additional 25% of its total assets in qualifying
real estate investments or other real estate-related assets. The remaining 20% of the entity’s assets can consist of miscellaneous
assets. These criteria may limit what we buy, sell and hold.
We classify our assets for purposes of Section 3(c)(5)(C) based in large measure upon no-action letters issued by the SEC staff
and other interpretive guidance provided by the SEC and its staff. The no-action positions are based on factual situations that
may be substantially different from the factual situations we may face, and a number of these no-action positions were issued
more than 20 years ago. Pursuant to this guidance, and depending on the characteristics of the specific investments, certain
mortgage-backed securities, other mortgage-related instruments, joint venture investments and the equity securities of other
entities may not constitute qualifying real estate assets, and therefore, we may limit our investments in these types of assets.
The SEC or its staff may not concur with the way we classify our assets. Future revisions to the Investment Company Act or
further guidance from the SEC or its staff may cause us to no longer be in compliance with the exemption from the definition
of an "investment company" provided by Section 3(c)(5)(C) and may force us to re-evaluate our portfolio and our investment
strategy. (e.g., in 2011 the SEC staff published a Concept Release in which it reviewed and questioned certain interpretative
positions taken under Section 3(c)(5)(C)). To the extent that the SEC or its staff provides more specific or different guidance,
we may be required to adjust our strategy accordingly. Any additional guidance from the SEC or its staff could provide
additional flexibility to us, or it could further inhibit our ability to pursue the strategies we have chosen.
A change in the value of any of our assets could cause us to fall within the definition of "investment company" and negatively
affect our ability to be free from registration and regulation under the Investment Company Act. To avoid being required to
register the company or any of its subsidiaries as an investment company under the Investment Company Act, we may be
21
unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. Sales may
be required under adverse market conditions, and we could be forced to accept a price below that which we would otherwise
consider acceptable. In addition, we may have to acquire additional income or loss generating assets that we might not
otherwise have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to
acquire and would be important to our investment strategy. Any such selling, acquiring or holding of assets driven by
Investment Company Act considerations could negatively affect the value of our common stock, our ability to make
distributions and the sustainability of our business and investment strategies.
If we or our subsidiaries were required to register as an investment company but failed to do so, we or the applicable subsidiary
would be prohibited from engaging in our or its business, and criminal and civil actions could be brought against us or the
applicable subsidiary. If we or any of our subsidiaries were deemed an unregistered investment company, we or the applicable
subsidiary could be subject to monetary penalties and injunctive relief and we or the applicable subsidiary could be unable to
enforce contracts with third parties and third parties could seek to obtain rescission of transactions undertaken during the period
we or the applicable subsidiary were deemed an unregistered investment company, unless the court found that under the
circumstances, enforcement (or denial of rescission) would produce a more equitable result than no enforcement (or grant of
rescission) and would not be inconsistent with the Investment Company Act.
Our rights and the rights of our stockholders to take action against our directors and officers are limited.
Under Maryland law generally, a director is required to perform his or her duties in good faith, in a manner he or she
reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use
under similar circumstances. Under Maryland law, directors are presumed to have acted in accordance with this standard of
conduct. In addition, our charter eliminates the liability of our directors and officers to us and our stockholders for money
damages, except for liability resulting from:
•
•
actual receipt of an improper benefit or profit in money, property or services; or
active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to
the cause of action adjudicated.
Our charter and bylaws obligate us, to the maximum extent permitted by Maryland law in effect from time to time, to
indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to any present or former
director or officer who is made or threatened to be made a party to the proceeding by reason of his or her service to us in that
capacity. As a result, we and our stockholders may have more limited rights against our directors and officers than might
otherwise exist absent the current provisions in our charter and bylaws.
Our charter places limits on the amount of common stock that any person may own.
In order for us to qualify as a REIT under the Code, no more than 50% of the outstanding shares of our common stock may be
beneficially owned, directly or indirectly, by five or fewer individuals at any time during the last half of each taxable year .
Unless exempted by our board of directors, prospectively or retroactively, our charter prohibits any persons or groups from
owning more than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of the outstanding shares
of our stock or more than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of the outstanding
shares of our common stock unless exempted prospectively or retroactively by our board of directors. These provisions may
have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction such as a
merger, tender offer or sale of all or substantially all of our assets that might involve a premium price for holders of our
common stock.
Our charter permits our board of directors to issue preferred stock on terms that may subordinate the rights of the holders
of our current common stock or discourage a third party from acquiring us.
Our board may classify or reclassify any unissued shares of common or preferred stock into other classes or series of stock and
establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications, and terms or conditions of redemption of the stock and may amend our charter from time to time to
increase or decrease the aggregate number of shares or the number of shares of any class or series that we have authority to
issue without stockholder approval. Thus, our board of directors could authorize us to issue shares of preferred stock with terms
and conditions that could subordinate the rights of the holders of our common stock or shares of preferred stock or common
stock that could have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary
transaction such as a merger, tender offer or sale of all or substantially all of our assets, that might provide a premium price for
holders of our common stock.
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Certain provisions of Maryland law could inhibit changes in control.
Certain provisions of the Maryland General Corporation Law (“MGCL”), may have the effect of deterring a third party from
making a proposal to acquire us or of impeding a change in our control under circumstances that otherwise could provide the
holders of our common stock with the opportunity to benefit from a sale of our common stock, including:
•
•
"business combination" provisions that, subject to limitations, prohibit certain business combinations between us and
an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or
more of the voting power of our outstanding voting stock or an affiliate or associate of ours who was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of our then outstanding stock at any time within the
two-year period immediately prior to the date in question) for five years after the most recent date on which the
stockholder becomes an interested stockholder, and thereafter impose fair price and/or supermajority stockholder
voting requirements on these combinations; and
"control share" provisions that provide that "control shares" of our company (defined as voting shares that, when
aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing
ranges of voting power in electing directors) acquired in a "control share acquisition" (defined as the direct or indirect
acquisition of ownership or control of issued and outstanding control shares) have no voting rights except to the extent
approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the
matter, excluding all interested shares.
As permitted by Maryland law, we have elected, by resolution of our board of directors, to opt out of the business combination
provisions of the MGCL, provided that such business combination has been approved by our board of directors (including a
majority of directors who are not affiliated with the interested stockholder), and, pursuant to a provision in our bylaws, to
exempt any acquisition of our stock from the control share provisions of the MGCL. However, our board of directors may by
resolution elect to repeal the exemption from the business combination provisions of the MGCL and may by amendment to our
bylaws opt into the control share provisions of the MGCL at any time in the future.
Certain provisions of the MGCL permit our board of directors, without stockholder approval and regardless of what is currently
provided in our charter or bylaws, to adopt certain mechanisms, some of which (for example, a classified board) we do not
have. These provisions may have the effect of limiting or precluding a third party from making an acquisition proposal for us or
of delaying, deferring or preventing a change in our control under circumstances that otherwise could provide the holders of
our common stock with the opportunity to benefit from a sale of our common stock.
If our board of directors were to elect to be subject to the provision of Subtitle 8 providing for a classified board or the business
combination provisions of the MGCL or if the provisions of our bylaws opting out of the control share acquisition provisions of
the MGCL were amended or rescinded, these provisions of the MGCL could have anti-takeover effects.
Our board of directors may change our investment policies without stockholder approval, which could alter the nature of
your investment.
Our investment policies may change over time. The methods of implementing our investment policies may also vary, as new
investment techniques are developed. Our investment policies, the methods for implementing them, and our other objectives,
policies and procedures may be altered by a majority of the directors without the approval of our stockholders. As a result, the
nature of your investment could change without your consent. A change in our investment strategy may, among other things,
increase our exposure to interest rate risk, default risk and commercial real property market fluctuations, all of which could
materially and adversely affect our ability to achieve our investment objectives.
The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay
distributions and make additional investments.
We have deposited our cash and cash equivalents in several banking institutions in an attempt to minimize exposure to the
failure of any one of these entities. However, the Federal Deposit Insurance Corporation ("FDIC") generally only insures
limited amounts per depositor per insured bank. At December 31, 2015, we had cash and cash equivalents and restricted cash
deposited in interest-bearing transaction accounts at certain financial institutions exceeding these federally insured levels. If
any of the banking institutions in which we have deposited funds ultimately fails, we may lose our deposits over the federally
insured levels. The loss of our deposits could reduce the amount of cash we have available to distribute or invest.
23
Federal Income Tax Risks
Failure to remain qualified as a REIT would cause us to be taxed as a regular corporation, which would substantially
reduce funds available for distributions to our stockholders.
Our qualification as a REIT depends on our ability to continue to meet requirements regarding our organization and ownership,
distributions of our income, the nature and diversification of our income and assets as well as other tests imposed by the Code.
We cannot assure you that our actual operations for any one taxable year will satisfy these requirements. Further, new
legislation, regulations, administrative interpretations or court decisions could significantly affect our ability to qualify as a
REIT or the federal income tax consequences of our qualification as a REIT. If we fail to qualify as a REIT in any taxable year,
we will face serious tax consequences that will substantially reduce the funds available for distributions to our stockholders
because:
• we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income and would
be subject to U.S. federal income tax at regular corporate rates;
• we could be subject to the U.S. federal alternative minimum tax and possibly increased state and local taxes; and
•
unless we are entitled to relief under certain U.S. federal income tax laws, we could not re-elect REIT status until the
fifth calendar year after the year in which we failed to qualify as a REIT.
In addition, if we fail to qualify as a REIT, we will no longer be required to make distributions. As a result of all these factors,
our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and it would adversely affect
the value of our common stock.
REIT distribution requirements could adversely affect our liquidity and may force us to borrow funds or sell assets during
unfavorable market conditions.
To satisfy the REIT distribution requirements, we may need to borrow funds on a short-term basis or sell assets sooner than
anticipated, even if the then-prevailing market conditions are not favorable for these borrowings or sales. Our cash flows from
operations may be insufficient to fund required distributions as a result of differences in timing between the actual receipt of
income and the recognition of income for U.S. federal income tax purposes, or the effect of non-deductible capital
expenditures, the creation of reserves or required debt service or amortization payments. The insufficiency of our cash flows to
cover our distribution requirements could have an adverse impact on our ability to raise short- and long-term debt or sell equity
securities in order to fund distributions required to maintain our qualification as a REIT.
Even if we continue to qualify as a REIT, we may face other tax liabilities that reduce our cash flows.
Even if we continue to qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our
income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a
foreclosure, and state or local income, property and transfer taxes. In addition, our taxable REIT subsidiaries (“TRSs”) are
subject to regular corporate federal, state and local taxes. Any of these taxes would decrease cash available for distributions to
stockholders.
Failure to make required distributions would subject us to federal corporate income tax.
In order to continue to qualify as a REIT, we generally are required to distribute at least 90% of our REIT taxable income,
determined without regard to the dividends paid deduction and excluding any net capital gain, each year to our stockholders
(the “90% Distribution Requirement”). To the extent that we satisfy the 90% Distribution Requirement, but distribute less than
100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed taxable
income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our
stockholders in a calendar year is less than a minimum amount specified under the Code.
The prohibited transactions tax may limit our ability to dispose of our properties, and we could incur a material tax liability
if the Internal Revenue Service (the "IRS") successfully asserts that the 100% prohibited transaction tax applies to some or
all of our past or future dispositions.
A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other
dispositions of assets, other than foreclosure property, held primarily for sale to customers in the ordinary course of business.
We may be subject to the prohibited transactions tax equal to 100% of net gain upon a disposition of an asset. As part of our
plan to refine our portfolio, we have selectively disposed of certain of our properties in the past and intend to make additional
24
dispositions of our assets in the future. Although a safe harbor to the characterization of the sale of property by a REIT as a
prohibited transaction is available, not all of our past dispositions have qualified for that safe harbor and some or all of our
future dispositions may not qualify for that safe harbor. We believe that our past dispositions will not be treated as prohibited
transactions, and we intend to avoid disposing of property that may be characterized as held primarily for sale to customers in
the ordinary course of business. To avoid the prohibited transaction tax, we may choose not to engage in certain sales of our
assets or may conduct such sales through a TRS, which would be subject to federal, state and local income taxation. Moreover,
no assurance can be provided that the IRS will not assert that some or all of our future dispositions are subject to the 100%
prohibited transactions tax. If the IRS successfully imposes the 100% prohibited transactions tax on some or all of our
dispositions, the resulting tax liability could be material.
We may fail to qualify as a REIT if the IRS successfully challenges the valuation of our common stock used for purposes of
our DRP.
In order to satisfy the 90% Distribution Requirement, the dividends we paid during our 2014 and prior taxable years must not
have been "preferential." For our 2014 and prior taxable years and for any future taxable year in which we do not qualify as a
"publicly offered REIT" (i.e., a REIT required to file annual and periodic reports with the SEC), a dividend determined to be
preferential will not qualify for the dividends paid deduction. To have avoided paying preferential dividends, we must have
treated every stockholder of a class of stock with respect to which we made a distribution the same as every other shareholder
of that class, and we must not have treated any class of stock other than according to its dividend rights as a class. For
example, if certain shareholders received a distribution that was more or less than the distributions received by other
stockholders of the same class, the distribution would be preferential. If any part of a distribution was preferential, none of that
distribution would be applied towards satisfying the 90% Distribution Requirement.
We suspended our DRP in August 2014, but we may reactivate our DRP in the future. Stockholders who participated in our
DRP received distributions in the form of shares of our common stock rather than in cash. Immediately prior to the suspension
of our DRP, the purchase price per share under our DRP was equal to 100% of the "market price" of a share of our common
stock. Because our common stock was not, and is not yet, listed for trading, for these purposes, "market price" means the fair
market value of a share of our common stock, as estimated by us. In the past, our DRP has offered participants the opportunity
to acquire newly-issued shares of our common stock at a discount to the "market price." Pursuant to an IRS ruling, the
prohibition on preferential dividends does not prohibit a REIT from offering shares under a distribution reinvestment plan at
discounts of up to 5% of fair market value, but a discount in excess of 5% of the fair market value of the shares would be
considered a preferential dividend. Any discount we have offered in the past was intended to fall within the safe harbor for
such discounts set forth in the ruling published by the IRS. However, the fair market value of our common stock has not been
susceptible to a definitive determination. If the purchase price under our DRP is deemed to have been at more than a 5%
discount at any time, we would be treated as having paid one or more preferential dividends. Similarly, we would be treated as
having paid one or more preferential dividends if the IRS successfully asserted that the value of the common stock distributions
paid to stockholders participating in our DRP exceeded on a per-share basis the cash distribution paid to our other stockholders,
which could occur if the IRS successfully asserted that the fair market value of our common stock exceeded the "market value"
used for purposes of calculating the distributions under our DRP. If we are determined to have paid preferential dividends as a
result of our DRP, we would likely fail to qualify as a REIT.
The stock ownership limit imposed by the Code for REITs and our charter may restrict our business combination
opportunities and you may be restricted from acquiring or transferring certain amounts of our common stock.
The stock ownership restrictions of the Code for REITs and the 9.8% stock ownership limit in our charter may restrict our
business combination opportunities and restrict your ability to acquire or transfer certain amounts of our common stock.
In order to continue to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, beneficially or
constructively, more than 50% in value of our issued and outstanding stock at any time during the last half of a taxable year.
Attribution rules in the Code determine if any individual or entity beneficially or constructively owns our capital stock under
this requirement. To help insure that we satisfy that test, our charter restricts the acquisition and ownership of shares of our
capital stock. However, these ownership limits might delay or prevent a transaction or a change in our control or other business
combination opportunities.
Our charter authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT.
Unless exempted by our board of directors (prospectively or retroactively), our charter prohibits any persons or groups from
owning more than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of the outstanding shares
of our stock or more than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of the outstanding
shares of our common stock unless exempted prospectively or retroactively by our board of directors. Our board of directors
may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of the 9.8% stock
25
ownership limit would result in our failing to qualify as a REIT. These restrictions on transferability and ownership will not
apply, however, if our board of directors determines that it is no longer in our best interest to attempt to, or continue to, qualify
as a REIT or that compliance is no longer required in order for us to qualify as a REIT.
If our leases are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT.
To qualify as a REIT, we must satisfy two gross income tests, pursuant to which specified percentages of our gross income
must be passive income such as rent. For the rent we receive under our lease to be treated as qualifying income for purposes of
the gross income tests, the leases must be respected as true leases for federal income tax purposes and must not be treated as
service contracts, joint ventures or some other type of arrangement. There are no controlling Treasury regulations, published
rulings or judicial decisions involving leases with terms substantially the same as our former hotel leases that discuss whether
such leases constitute true leases for federal income tax purposes. We believe that all our leases, including our former hotel
leases, will be respected as true leases for federal income tax purposes. There can be no assurance, however, that the IRS will
agree with this characterization. If a significant portion of our leases were not respected as true leases for federal income tax
purposes, we would not be able to satisfy either of the two gross income tests and we would likely lose our REIT status.
We may fail to qualify as a REIT as a result of our investments in joint ventures and other REITs.
We have owned, and intend to continue to own, limited partner or non-managing member interests in partnerships and limited
liability companies that are joint ventures. In addition, we have owned, and intend to continue to own, significant equity
ownership interests in other REITs. If a partnership or limited liability company in which we own an interest takes or expects
to take actions that could jeopardize our qualification as a REIT or require us to pay tax, we may be forced to dispose of our
interest in such entity. In addition, it is possible that a partnership or limited liability company could take an action which
could cause us to fail a REIT gross income or asset test, and that we would not become aware of such action in time to dispose
of our interest in the partnership or limited liability company or take other corrective action on a timely basis. Similarly, if one
of the REITs in which we own or have owned a significant equity interest were to fail to qualify as a REIT, we would likely fail
to satisfy one or more of the REIT gross income and asset tests. If we failed to satisfy a REIT gross income or asset test as a
result of an investment in a joint venture or another REIT, we would fail to continue to qualify as a REIT unless we are able to
qualify for a statutory REIT "savings" provisions, which may require us to pay a significant penalty tax to maintain our REIT
qualification.
If our former hotel managers did not qualify as "eligible independent contractors", we would fail to qualify as a REIT.
Rent paid by a lessee that is a "related party tenant" of ours will not be qualifying income for purposes of the two gross income
tests applicable to REITs. Prior to the disposition of our hotel portfolio, we leased our hotels to certain of our TRSs. A TRS
will not be treated as a "related party tenant," and will not be treated as directly operating a lodging facility, which is prohibited,
to the extent that hotels that a TRS leases are managed by an "eligible independent contractor."
We believe that the rent paid by our TRS that leased our hotels was qualifying income for purposes of the REIT gross income
tests and that our TRS qualified to be treated as "taxable REIT subsidiaries" for federal income tax purposes, but there can be
no assurance that the IRS will not challenge this treatment or that a court would not sustain such a challenge. If the IRS
successfully challenged this treatment, we would likely fail to satisfy the asset tests applicable to REITs and a significant
portion of our income would fail to qualify for the gross income tests. If we failed to satisfy either the asset or gross income
tests, we would likely lose our REIT qualification for federal income tax purposes, unless we qualified for certain statutory
relief provisions.
If our former hotel managers did not qualify as "eligible independent contractors," we may be deemed to have failed to qualify
as a REIT. Each of the hotel management companies that entered into a management contract with our TRSs that leased our
hotels must have qualified as an "eligible independent contractor" under the REIT rules in order for the rent paid to us by TRSs
to be qualifying income for gross income tests. Among other requirements, in order to qualify as an eligible independent
contractor, (i) a manager must be actively engaged in the trade or business of operating hotels for third parties at the time the
manger enters into a management contract with a TRS lessee and (ii) the manager must not own more than 35% of our
outstanding shares (by value) and no person or group of persons can own more than 35% of our outstanding shares and the
ownership interests of the manager. Although we believe that all our former hotel managers qualified as eligible independent
contractors, no complete assurance can be provided that the IRS will not successfully challenge that position.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum tax rate applicable to "qualified dividend income" payable to U.S. stockholders that are taxed at individual rates
is 20%. Dividends payable by REITs, however, are generally not eligible for the reduced rates on qualified dividend income.
26
The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual
rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations
that pay dividends treated as qualified dividend income, which could adversely affect the value of the shares of REITs,
including our common stock.
Complying with REIT requirements may limit our ability to hedge effectively.
The REIT provisions of the Code may limit our ability to hedge the risks inherent to our operations. Under current law, any
income that we generate from derivatives or other transactions intended to hedge our interest rate risk with respect to
borrowings made, or to be made, to acquire or carry real estate assets generally will not constitute gross income for purposes of
the 75% and 95% income requirements applicable to REITs. In addition, any income from certain other qualified hedging
transactions would generally not constitute gross income for purposes of both the 75% and 95% income tests. However, we
may be required to limit the use of hedging techniques that might otherwise be advantageous, which could result in greater
risks associated with interest rate or other changes than we would otherwise incur.
The ability of our board of directors to revoke our REIT qualification without stockholder approval may cause adverse
consequences to our stockholders.
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of
our stockholders, if it determines that it is no longer in our best interest to attempt to, or continue to qualify as a REIT. If we
cease to be a REIT, we would become subject to U.S. federal income tax on our taxable income and would no longer be
required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return
to our stockholders.
We may be subject to adverse legislative or regulatory tax changes that could reduce the value of our common stock.
At any time, the U.S. federal income tax laws governing REITs or the administrative interpretations of those laws may be
amended. We cannot predict when or if any new U.S. federal income tax law, regulation, or administrative interpretation, or any
amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or
become effective and any such law, regulation, or interpretation may take effect retroactively. We and our stockholders could be
adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 31, 2015, we owned interests in retail, student housing, and non-core properties. We owned an interest in 129
properties, excluding our development properties, located in 28 states.
General
The following table sets forth information regarding our ten largest individual tenants in descending order based on annualized
rent paid in 2015, excluding our student housing properties. Annualized rent is computed as revenue for the last month of the
period multiplied by twelve months. Average rent per square foot is computed as annualized rent divided by the total occupied
square footage at the end of the period. Annualized rent includes the effect of rent abatements, lease inducements and straight-
line rent GAAP adjustments. Physical occupancy is defined as the percentage of total gross leasable ("GLA") area actually
used or occupied by a tenant. Economic occupancy is defined as the percentage of total gross leasable area for which a tenant
is obligated to pay rent under the terms of its lease agreement, regardless of the actual use or occupation by that tenant of the
area being leased.
27
Tenant Name
AT&T (office) (a)
The Geo Group, Inc. (a)
Ross Dress for Less
Lockheed Martin (a)
Best Buy
Publix
Petsmart
Bed Bath & Beyond
Michael's
Dick's Sporting Goods
Type
Non-core
Non-core
Retail
Non-core
Retail
Retail
Retail
Retail
Retail
Retail
Totals
Total Annualized
Rental Income
2015
(in thousands)
Percent of
Total Annualized
Income
Gross
Leasable
Area
Percentage of
Gross Leasable
Area
$44,327
9,850
8,503
7,206
6,941
5,818
5,474
4,626
4,123
3,888
$100,756
15.8%
3.5%
3.0%
2.6%
2.5%
2.1%
1.9%
1.6%
1.5%
1.4%
3,404,451
301,029
823,765
314,196
491,785
620,233
416,678
446,449
343,243
345,073
7,506,902
16.2%
1.4%
3.9%
1.5%
2.3%
3.0%
2.0%
2.1%
1.6%
1.6%
(a) The leases associated with these tenants will be part of Highlands REIT, Inc.
As described above, our top tenant, AT&T, is party to three leases representing approximately 15.8% of our total annualized
rental income (excluding student housing). The original terms of these leases expire in 2016, 2017, and 2019, as described in
more detail below.
One of these properties, with a lease expiration in August 2016 and approximately 1.7 million square feet, is in Hoffman
Estates, Illinois ("AT&T-Hoffman Estates"), which is in the greater metro Chicago market. AT&T did not renew this lease
during the contractual renewal option period. The second property, with a lease expiration in September 2017 and
approximately 1.5 million square feet is in St. Louis, Missouri ("AT&T-St. Louis"). The renewal option for the AT&T-St.
Louis lease expires in September 2016. The third property, with a lease expiration in September 2019 and approximately
460,000 square feet is in Cleveland, Ohio.
There is a strong possibility that AT&T may not renew any or all of its leases. The three non-core properties leased to AT&T are
included in the non-core asset portfolio that we intend to spin off in the second quarter of 2016, subject to conditions and
approvals. See "Item 1. Business - General - Anticipated Spin-Off of Assets Included in Our Non-Core Segment" for more
information regarding the spin-off and the risk factors related to the spin-off and the AT&T leases in "Item 1A. Risk Factors."
As of December 31, 2015, two of the properties leased to AT&T were in hyper-amortization under our loan agreements by
virtue of the occurrence of the applicable "Anticipated Repayment Date" (as defined in the applicable loan agreement). As a
result, rental payments less certain expenses must be used to pay down the principal amount of the loan and are not available
cash. It is possible that other properties may be subject to such hyper-amortization payments in the future.
The following sections set forth certain summary information about the character of the properties that we owned at
December 31, 2015. Certain of our properties are encumbered by mortgages, totaling $1.8 billion as of December 31, 2015.
Additional detail about the properties can be found on Schedule III – Real Estate and Accumulated Depreciation.
28
Retail Segment
As of December 31, 2015, our retail segment consisted of 97 properties, with an average of approximately 157,200 square feet
per property. The properties are located principally in primary or secondary markets. Of our gross leasable area,
approximately 45% of our properties are located in the south Atlantic region of the United States and 24% of our properties are
located in the southwestern region of the United States, including 19% in Texas.
We own the following types of retail centers:
• Community or neighborhood centers, which are generally open air and designed for tenants that offer a wide array of
types of merchandise including apparel and other soft goods. Typically, community centers contain large anchor stores
and a significant presence of national retail tenants. Our neighborhood shopping centers are generally smaller open air
centers with a grocery store anchor and/or drugstore, and other small service type retailers.
•
Power centers are generally larger and consist of several anchors, such as department stores, off-price stores,
warehouse clubs or stores that offer a large selection of merchandise. Typically, the number of specialty tenants is
limited and most are national or regional in scope.
We have not experienced bankruptcies or receivable write-offs in our retail portfolio that have materially impacted our results
of operations. Our retail business is not highly dependent on specific retailers or specific retail industries, nor is it subject to
lease roll over concentration. We believe this minimizes risk to the portfolio of significant revenue variances over time.
The following table reflects the types of properties within our retail segment as of December 31, 2015.
Property type
Community &
Neighborhood Center
Power Center
Number
of
Properties
Total GLA
(Sq. Ft.)
Economic
Occupancy
Total Number
of
Financially
Active Leases
Total
Annualized
Rent ($)
(in thousands)
Average Rent
per Square
Foot ($)
54
43
97
4,858,624
10,393,239
15,251,863
90%
95%
93%
871
1,144
2,015
$66,200
134,634
$200,834
$15.07
$13.70
$14.12
The following table represents lease expirations for the retail segment:
Lease Expiration Year
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
MTM
Thereafter
Number of
Expiring
Leases
GLA of
Expiring
Leases
(Sq. Ft.)
Annualized
Rent of
Expiring
Leases ($)
(in thousands)
Percent of
Total GLA
Percent of
Total
Annualized
Rent
Expiring
Rent per
Square
Foot ($)
250
385
313
290
323
128
50
54
53
55
48
66
943,732
1,873,762
1,873,770
2,349,603
2,022,790
1,187,351
820,305
765,557
712,050
522,623
132,162
1,019,107
$14,752
31,206
28,988
31,700
29,373
16,332
9,709
11,115
8,387
7,602
2,379
11,210
2,015
14,222,812
$202,753
6.6%
13.2%
13.2%
16.5%
14.3%
8.3%
5.8%
5.4%
5.0%
3.7%
0.9%
7.2%
100%
7.3%
15.4%
14.3%
15.6%
14.6%
8.1%
4.8%
5.5%
4.1%
3.7%
1.2%
5.5%
100%
$15.63
16.65
15.47
13.49
14.52
13.75
11.84
14.52
11.78
14.55
18.00
11.00
$14.26
29
Comparable
Renewal Leases
(a)
Comparable
New Leases (a)
Non-
Comparable
Renewal and
New Leases
Total
Anchor Tenants
Comparable
Renewal Leases
(a)
Comparable
New Leases (a)
Non-
Comparable
Renewal and
New Leases
Total
Non-anchor tenants
Comparable
Renewal Leases
(a)
Comparable
New Leases (a)
Non-
Comparable
Renewal and
New Leases
Total
37
—
5
42
We believe the percentage of leases expiring annually over the next five years will allow us to capture an appropriate portion of
future market rent increases while allowing us to manage any potential re-leasing risk. For purposes of preparing the table, we
have not assumed that contractual lease options contained in certain of our leases and which have not yet been exercised as of
December 31, 2015 will in fact be exercised.
The following table represents lease spread metrics for leases that commenced in 2015 compared to expiring leases for the prior
tenant in the same unit:
No. of
Leases
Commenced
as of
All Tenants
Dec 31, 2015 GLA SF
New
Contractual
Rent per Square
Foot ($PSF) (b)
Prior
Contractual
Rent ($PSF)
(b)
% Change
over Prior
Contract Rent
(b)
Weighted
Average
Lease Term
Tenant
Improvement
Allowance
($PSF)
Lease
Commissions
($PSF)
235
1,858,930
$12.74
$12.11
5.20%
23
62,724
23.47
21.80
7.66%
54
312
188,857
2,110,511
18.37
$13.09
n/a
$12.43
n/a
5.31%
1,313,708
$9.27
$9.03
2.66%
—
$—
$—
—%
5.42
8.88
8.33
5.79
5.75
—
$0.44
22.12
15.96
$2.48
$0.08
9.75
6.57
$0.95
$0.40
$0.10
$—
$—
75,223
1,388,931
$12.39
$9.27
n/a
$9.03
n/a
2.66%
10.19
5.99
$4.99
$0.64
$4.69
$0.35
198
545,222
$21.10
$19.56
7.87%
23
62,724
$23.47
$21.80
7.66%
49
270
113,634
721,580
$22.33
$21.34
n/a
$19.79
n/a
7.83%
4.64
8.88
7.11
5.40
$0.56
$22.12
$23.23
$6.00
$0.03
$9.75
$7.82
$2.10
(a) Comparable lease is defined as a lease that meets all of the following criteria: same unit, square footage of unit remains
unchanged or within 10% of prior unit square footage, consistent rent structure, and, for new leases, leased within one year of
the prior tenant.
(b) Non-comparable leases are not included in totals.
During the year ended December 31, 2015, 75 new leases and 237 renewals commenced with gross leasable area totaling
2,110,511 square feet, of which 258 were comparable. For our comparable new leases, base rent increased by 7.66% from prior
base rent, from $21.80 to $23.47 per square foot. The weighted average term for comparable new leases was 8.88 years, with
tenant improvement allowances and commissions at $22.12 and $9.75 per square foot, respectively. Our comparable renewal
leases saw rent growth of 5.20%, increasing from $12.11 to $12.74 per square foot. The weighted average term was 5.42 years,
with tenant improvement allowances and lease commissions at $0.44 and $0.08 per square foot, respectively.
The 54 non-comparable leases commenced with rents starting at $18.37 in year 1 and had a weighted average term of 8.33
years. Tenant improvement allowances and lease commissions were $15.96 and $6.57 per square foot, respectively.
30
Tenant improvement allowances were primarily given for our new leases. Lease commissions were consistent across the new
lease activity. As of December 31, 2014, we had GLA totaling 1,325,891 square feet set to expire in 2015, of which 1,135,857
square feet was renewed. This achieved a retention rate of 86%.
Student Housing Segment
Our student housing portfolio consists of residential and mixed-use communities located close to or on university campuses and
some communities in urban infill locations. Our portfolio includes communities designed as high-rise buildings, clusters of
mid-rise buildings, garden-style and cottage-style apartments. These communities include outdoor amenities such as
swimming pools, grilling areas, volleyball courts, putting greens, and rooftop decks. Indoor amenities include study lounges,
coffee bars, fitness centers, and multimedia lounges. The properties are leased on a per-bed basis and are typically one year
leases commencing in the fall season in conjunction with the beginning of the school year.
The following table reflects the types of properties within our student housing segment as of December 31, 2015. These properties
are included in the student housing portfolio sale transaction that we expect to complete in the second quarter of 2016. See "Item 1.
Business - General - Entry into Agreement to Sell Student Housing Platform" for more information.
Property Type
Mid-rise
High-rise
Cottage style
Garden style
Total
Number of
Properties
Leasable Beds
Total No. of Beds
Occupied
Average Rent per
Bed
Average Physical
Occupancy
11
3
2
2
18
6,512
2,079
1,257
1,191
11,039
6,146
2,033
1,152
1,150
10,481
$764
1,025
598
603
779
94%
98%
92%
97%
95%
31
Non-Core Segment
Our non-core segment comprises multi-tenant office and triple net properties, such as distribution centers, correctional facilities
and single-tenant office properties. We intend to dispose of substantially all of our non-core assets through the Highlands spin-
off, which we expect to occur in the second quarter of 2016. See "Item 1. Business - General - Anticipated Spin-Off of Assets
Included in Our Non-Core Segment" for more information.
The following table reflects the types of properties within our non-core segment as of December 31, 2015.
Property type
Multi-tenant office
Triple net
Number
of
Properties
5
9
14
Total GLA
(Sq. Ft.)
1,388,899
4,341,277
5,730,176
Economic
Occupancy
(a)
Total Number of
Financially
Active Leases
Total
Annualized
Rent ($)
(in thousands)
Average Rent
per Square
Foot ($)
77%
100%
94%
16
9
25
$22,255
58,111
$80,366
$20.84
$13.39
$14.86
(a) Actual use is less than economic square footage.
The following table represents lease expirations for the non-core segment:
Lease Expiration
Year
Number of
Expiring
Leases
GLA of
Expiring
Leases
(Sq. Ft.)
Annualized
Rent of
Expiring
Leases ($)
(in thousands)
Percent of
Total GLA
Percent of
Total
Annualized
Rent
Expiring
Rent/Square
Foot ($)
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Month to Month
Thereafter
8
3
3
3
1
1
1
1
—
—
2
2
25
2,231,713
1,545,679
225,160
278,646
301,029
189,764
41,690
24,981
—
—
80,923
489,649
5,409,234
$32,158
18,762
5,983
4,646
9,850
4,938
1,145
655
—
—
896
2,113
$81,146
41.3%
28.6%
4.2%
5.2%
5.6%
3.5%
0.8%
0.5%
—%
—%
1.5%
9.1%
100%
39.6%
23.1%
7.4%
5.7%
12.1%
6.1%
1.4%
0.8%
—%
—%
1.1%
2.6%
100%
$14.41
12.14
26.57
16.67
32.72
26.02
27.46
26.22
—
—
11.07
4.32
$15.00
Leases expiring in 2016 and 2017 represent approximately 39.6% and 23.1%, respectively, of our total annualized rental
income of our non-core segment. In 2016 and 2017, the original terms of leases on two properties occupied by AT&T expire,
as described in more detail below. There is a strong possibility that AT&T may not renew these leases. The non-core properties
leased to AT&T are included in the non-core asset portfolio that we intend to spin off in the second quarter of 2016, subject to
conditions and approvals. See "Item 1. Business - General - Anticipated Spin-Off of Assets Included in Our Non-Core
Segment" for more information regarding the spin-off and the risk factors related to the spin-off and the AT&T leases in "Item
1A. Risk Factors."
As of December 31, 2015, AT&T-Hoffman Estates has one tenant, AT&T, whose economic occupancy is 100% of the
approximately 1.7 million square feet. Its annualized base rent is $23.8 million, or $14.10 per square foot. The original term of
the lease for this asset expires in August 2016. AT&T did not renew this lease during the contractual renewal period. An
easement to an area with communications equipment for the benefit of AT&T will continue past the expiration of the lease. If
AT&T does not renew, the characteristics of the asset and market conditions are likely to make this asset difficult to re-lease
and, consequently, difficult to sell. To the extent we are able to re-lease this asset, the capital improvements, tenant
improvements and leasing costs would likely be significant. As of December 31, 2015, the principal amount of indebtedness on
AT&T-Hoffman Estates is approximately $124.7 million and the net book value is approximately $93.3 million. This asset is
currently in hyper-amortization under the loan agreement and, as a result, rental payments less certain expenses are used to pay
down the principal amount of the loan. If AT&T does not renew, the potential difficulty of securing a new tenant is likely to
32
make the loan difficult to refinance. Additionally, if AT&T does not renew and if we are unable to re-let the asset, we expect
that we may be unable to make mortgage payments and may default under the loan agreement.
As of December 31, 2015, AT&T-St. Louis has one tenant, AT&T, whose economic occupancy is 100% of the approximately
1.5 million square feet. Its annualized base rent is $16.2 million, or $11.11 per square foot. The lease has four five-year renewal
options. If AT&T does not exercise its renewal option during the contractual renewal period, which expires in September 2016,
the original term of the lease will expire in September 2017. If AT&T does not renew its lease, the market conditions are likely
to make this asset difficult to re-lease and, consequently, difficult to sell. If AT&T does not elect to renew, to the extent we are
able to re-lease this asset, the capital improvements, tenant improvements and leasing costs would likely be significant. As of
December 31, 2015, the principal amount of indebtedness on this asset is approximately $112.7 million and the net book value
is approximately $71.4 million. If AT&T does not renew, the potential difficulty of securing a new tenant is likely to make the
loan difficult to refinance. Additionally, if AT&T were to elect not to renew and if we are unable to re-let the asset, we expect
that we may be unable to make mortgage payments and may default under the loan agreement. Furthermore, if AT&T fails to
renew, then one year prior to the expiration of the lease or upon notice by AT&T that they have elected not to renew, whichever
is earlier, all rental payments, less certain expenses, will be "swept" and held by the lender pursuant to the loan agreement.
Moreover, on January 1, 2017, the asset will go into hyper-amortization under the loan agreement.
Item 3. Legal Proceedings
We are subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While
the resolution of these matters cannot be predicted with certainty, we believe, based on currently available information, that the
final outcome of such matters will not have a material adverse effect on our financial statements.
Item 4. Mine Safety Disclosures
Not applicable.
33
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Market Information
Our shares of common stock are not listed on a national securities exchange and there is not otherwise an established public
trading market for our shares. We publish an estimated per share value of our common stock to assist broker dealers that sold
our common stock in our initial and follow-on "best efforts" offerings to comply with the rules published by the Financial
Industry Regulatory Authority ("FINRA"). On February 24, 2015, we announced an estimated value of our common stock as
of February 4, 2015 equal to $4.00 per share.
The audit committee of our board of directors ("Audit Committee") engaged Real Globe Advisors, LLC ("Real Globe"), an
independent third-party real estate advisory firm, to estimate the per share value of our common stock on a fully diluted basis
as of February 4, 2015. Real Globe has extensive experience estimating the fair values of commercial real estate. The report
furnished to the Audit Committee by Real Globe complies with the reporting requirements set forth under Standard Rule 2-2(a)
of the Uniform Standards of Professional Appraisal Practice and is certified by a member of the Appraisal Institute with the
MAI designation. The Real Globe report, dated February 11, 2015, reflects values as of February 4, 2015. Real Globe does not
have any direct or indirect interests in any transaction with us or in any currently proposed transaction to which we are a party,
and there are no conflicts of interest between Real Globe, on one hand, and ourselves or any of our directors, on the other.
To estimate our per share value, Real Globe utilized the "net asset value" or "NAV" method which is based on the fair value of
real estate, real estate related investments and all other assets, less the fair value of total liabilities. The fair value estimate of
our real estate assets is equal to the sum of its individual real estate values. Generally, Real Globe estimated the value of the
Company’s wholly-owned core and non-core real estate and real estate-related assets, using a discounted cash flow, or "DCF",
of projected net operating income, less capital expenditures, for each property, for the ten-year period ending January 31, 2025,
and applying a market supported discount rate and capitalization rate. For all other assets, including cash, other current assets,
certain non-core assets, joint ventures, land developments, and marketable securities, fair value was determined separately. Real
Globe also estimated the fair value of the Company’s long-term debt obligations, including the current liabilities, by comparing
market interest rates to the contract rates on the Company’s long-term debt and discounting to present value the difference in
future payments. Real Globe determined NAV in a manner consistent with the definition of fair value under GAAP set forth in
Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 820 Fair Value Measurements
and Disclosures.
Net asset value per share was estimated by subtracting the fair value of our total liabilities from the fair value of our total assets
and dividing the result by the number of common shares outstanding on a fully diluted basis as of February 4, 2015. Real Globe
then applied a discount rate and capitalization rate sensitivity analysis on the weighted average terminal capitalization and
discount rates used to value all wholly owned real estate assets, resulting in a value range equal to $3.85 - $4.18 per share. The
mid-point in that range was $4.00.
On February 17, 2015, the Audit Committee met to review and discuss Real Globe’s report. Following this review, the Audit
Committee unanimously adopted a resolution accepting the Real Globe analysis. The Audit Committee also unanimously
adopted a resolution recommending an estimate of per share value as of February 4, 2015 equal to $4.00 per share. At a full
meeting of our board of directors held on February 18, 2015, the Audit Committee made a recommendation to the board that
we publish an estimate of per share value as of February 4, 2015 equal to $4.00 per share. The board unanimously adopted this
recommendation of estimated per share value, which estimated value assumes a weighted average exit capitalization rate equal
to 6.63% and a discount rate equal to 7.68%.
As with any methodology used to estimate value, the methodology employed by Real Globe and the recommendations made by
the Company were based upon a number of estimates and assumptions that may not be accurate or complete. Further, different
parties using different assumptions and estimates could derive a different estimated value per share, which could be
significantly different from our estimated value per share. The estimated per share value does not take into account transaction
costs we would incur to dispose of the assets nor does it represent (i) the amount at which our shares would trade at a national
securities exchange, (ii) the amount a stockholder would obtain if he or she tried to sell his or her shares or (iii) the amount
stockholders would receive if we liquidated our assets and distributed the proceeds after paying all of our expenses and
liabilities. Accordingly, with respect to the estimated value per share, we can give no assurance that:
•
a stockholder would be able to resell his or her shares at this estimated value;
34
•
•
•
a stockholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation of our
assets and settlement of our liabilities or a sale of the Company;
our shares would trade at a price equal to or greater than the estimated value per share if we listed them on a national
securities exchange; or
the methodology used to estimate our value per share would be acceptable to FINRA or that the estimated value per
share will satisfy the applicable annual valuation requirements under the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and the Internal Revenue Code of 1986, as amended (the "Code") with respect to
employee benefit plans subject to ERISA and other retirement plans or accounts subject to Section 4975 of the Code.
The estimated value per share was approved by our board on February 18, 2015 and reflects the fact that the estimate was
calculated at a moment in time. The value of our shares has likely changed over time and will be influenced by changes to the
value of our individual assets as well as changes and developments in the real estate and capital markets. Stockholders should
not rely on the estimated value per share in making a decision to buy or sell shares of our common stock.
As previously announced, we are deferring the publication of a new estimated share value until closer proximity to the spin-off
of Highlands and the closing of the student housing sale, which are expected to occur in the second quarter of 2016. We have
engaged an independent, third-party valuation firm to assist in the valuation. The valuation firm will provide a detailed
explanation of the valuation method, analysis and process used to estimate a new per share value. We expect the value of our
shares of common stock to be lower immediately following the spin-off of Highlands, as the value of our stock will no longer
reflect the value of the Highlands portfolio. Once the new estimated share value is determined, we will disclose to stockholders
how it was calculated and determined.
Stockholders
As of March 17, 2016, we had 171,866 stockholders of record.
Distributions
We have been paying cash distributions since October 2005. During the years ended December 31, 2015 and 2014, we
declared cash distributions, which are paid in arrears to stockholders, totaling $138.6 million and $436.9 million, respectively.
During the years ended December 31, 2015 and 2014, we paid cash distributions of $146.5 million and $438.9 million,
respectively. For Federal income tax purposes for the years ended December 31, 2015 and 2014, 92% and 12% of the
distributions paid constituted a return of capital in the applicable year, respectively. The remaining portion of the distributions
paid constituted ordinary income.
On February 3, 2015, we completed the Xenia Spin-Off, which at the time owned 46 premium full service, lifestyle and urban
upscale hotels and two hotels in development, through the pro rata taxable distribution of 95% of the outstanding common
stock of Xenia to holders of record of our common stock as of the close of business on January 20, 2015, the record date. Each
holder of record of our common stock received one share of Xenia’s common stock for every eight shares of our common stock
held at the close of business on the record date. In lieu of fractional shares, our stockholders received cash. On February 4,
2015, Xenia’s common stock began trading on the NYSE under the ticker symbol "XHR." In connection with the Xenia Spin-
Off, we entered into certain agreements that, among other things, provided a framework for our transitional relationship with
Xenia as two separate companies. For more information, see "Part III, Item 13. Certain Relationships and Transactions, and
Director Independence."
Following the Xenia Spin-Off, our board of directors analyzed and reviewed our distribution rate, and on February 24, 2015,
we announced that our board reduced our annual distribution rate from $0.50 per share of common stock to $0.13 per share of
common stock.
A number of factors were considered in establishing the new distribution rate. Xenia generated a substantial portion of our cash
flows from operations and as a result, our previous distribution rate was not sustainable after the Xenia Spin-Off. In addition,
our board of directors determined that it is in the best interests of the Company to retain additional operating cash flow in order
to accumulate an appropriate level of capital reserves to enable us to tailor and grow our retail and student housing platforms,
consistent with our strategy and objectives, as well as to address future lease maturities and disposition plans related to several
properties in our non-core portfolio.
Our board of directors will analyze and review our distribution rate in connection with the spin-off of Highlands and the student
housing sale. We expect distribution payments to decrease because the University House assets produced significant cash flow
for us. We expect to announce a new distribution rate correlated to the cash generated from the remaining portfolio of assets
after the closing of the student housing sale.
35
Notification Regarding Payments of Distributions
Stockholders should be aware that the method by which a stockholder has chosen to receive his or her distributions affects the
timing of the stockholder's receipt of those distributions. Specifically, under our transfer agent's payment processing
procedures, distributions are paid in the following manner:
(1) those stockholders who have chosen to receive their distributions via ACH wire transfers receive their distributions on
the distribution payment date (as determined by our board of directors);
(2) those stockholders who have chosen to receive their distributions by paper check are typically mailed those checks on
the distribution payment date, but sometimes paper checks are mailed on the day following the distribution payment date;
and
(3) for those stockholders holding shares through a broker or other nominee, the distributions payments are wired, or paper
checks are mailed, to the broker or other nominee on the day following the distribution payment date.
All stockholders who hold shares directly in record name may change at any time the method through which they receive their
distributions from our transfer agent, and those stockholders will not have to pay any fees to us or our transfer agent to make
such a change. Accordingly, each stockholder may select the timing of receipt of distributions from our transfer agent by
selecting the method above that corresponds to the desired timing for receipt of the distributions. Because all stockholders may
elect to have their distributions sent via ACH wire on the distribution payment date, we treat all of our stockholders, regardless
of the method by which they have chosen to receive their distributions, as having constructively received their distributions
from us on the distribution payment date for federal income tax purposes.
Stockholders who hold shares directly in record name and who would like to change their distribution payment method should
complete a "Change of Distribution Election Form." The form is available on our website under "Investor Relations-Forms
page."
We note that the payment method for stockholders who hold shares through a broker or nominee is determined by the broker or
nominee. Similarly, the payment method for stockholders who hold shares in a tax-deferred account, such as an IRA, is
generally determined by the custodian for the account. Stockholders that currently hold shares through a broker or other
nominee and would like to receive distributions via ACH wire or paper check should contact their broker or other nominee
regarding their processes for transferring shares to record name ownership. Similarly, stockholders who hold shares in a tax-
deferred account may need to hold shares outside of their tax-deferred accounts to change the method through which they
receive their distributions. Stockholders who hold shares through a tax-deferred account and who would like to change the
method through which they receive their distributions should contact their custodians regarding the transfer process and should
consult their tax advisor regarding the consequences of transferring shares outside of a tax-deferred account.
Recent Sales of Unregistered Securities
None.
36
Item 6. Selected Financial Data
The following table shows our consolidated selected financial data relating to our consolidated historical financial condition
and results of operations. Such selected data should be read in conjunction with "Part II, Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes
appearing elsewhere in this report (dollar amounts are stated in thousands, except per share amounts).
Balance Sheet Data:
Total assets
Debt (a)
Operating Data:
Total income
Total interest and dividend income
Net income (loss) attributable to Company
Net income (loss) per common share, basic and
diluted
Common Stock Distributions:
Distributions declared to common stockholders
Distributions paid to common stockholders
Distributions declared per weighted average
common share
Distributions paid per weighted average common
share
Supplemental Measures:
Funds from operations (b)
Modified net operating income (c)
Cash Flow Data:
Cash flows provided by operating activities
Cash flows (used in) provided by investing
activities
Cash flows used in financing activities
Other Information:
Weighted average number of common shares
outstanding, basic and diluted
As of and for the year ended December 31,
2015
2014
2013
2012
2011
$4,213,419
$1,878,653
$7,497,316
$1,991,608
$9,662,464 $10,759,884
$3,641,552
$6,006,146
$10,919,190
$5,902,712
$450,044
$11,774
$3,464
$452,474
$12,713
$486,642
$456,285
$18,855
$244,048
$909,661
$23,377
($69,338)
$920,385
$22,860
($316,253)
$0.01
$0.55
$0.27
($0.08)
($0.37)
$138,614
$146,510
$436,875
$438,875
$450,106
$449,253
$440,031
$439,188
$429,599
$428,650
$0.16
$0.17
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$0.50
$247,245
$318,693
$442,512
$311,556
$459,607
$314,537
$476,713
$311,130
$443,460
$352,848
$194,734
$340,335
$422,813
$456,221
$397,949
($164,274)
($560,325)
$1,922,890
($1,849,312)
$922,624
($1,246,979)
($118,162)
($335,443)
($286,896)
($160,597)
861,830,627
878,064,982
899,842,722
879,685,949
858,637,707
(a) Debt as of the years ended December 31, 2014 and 2013 excludes debt of discontinued operations and debt associated with assets
held for sale, respectively.
(b) The National Association of Real Estate Investment Trusts ("NAREIT"), an industry trader group, has promulgated a standard
known as FFO, or Funds from Operations. As defined by NAREIT, FFO is net income (loss) in accordance with GAAP excluding
gains (or losses) resulting from dispositions of properties, plus depreciation and amortization and impairment charges on depreciable
property, after adjustments for unconsolidated partnerships and joint ventures in which we hold an interest, and extraordinary items.
We have adopted the NAREIT definition in our calculation of NAREIT FFO Applicable to Common Shares as management
considers FFO a widely accepted and appropriate measure of performance for REITs.
In calculating FFO, impairment charges of depreciable real estate assets are added back even though the impairment charge may
represent a permanent decline in value due to decreased operating performance of the applicable property. Further, because gains
and losses from sales of property are excluded from FFO, it is consistent and appropriate that impairments, which are often early
recognition of losses on prospective sales of property, also be excluded. If evidence exists that a loss reflected in the investment of
an unconsolidated entity is due to the write-down of depreciable real estate assets, these impairment charges are added back to FFO.
The methodology is consistent with the concept of excluding impairment charges of depreciable assets or early recognition of losses
on sale of depreciable real estate assets held by the Company.
37
We believe that FFO is a better measure of our properties’ operating performance because FFO excludes non-cash items from GAAP
net income. FFO is neither intended to be an alternative to "net income" nor to "cash flows from operating activities" as determined
by GAAP as a measure of our capacity to pay distributions. Other REITs may use alternative methodologies for calculating similarly
titled measures, which may not be comparable to our calculation of NAREIT FFO Applicable to Common Shares. FFO is calculated
as follows:
Year ended December 31,
2014
2013
2015
$
3,464 $
162,412
486,642 $
331,683
Funds from Operations:
Net income attributable to Company
Add: Depreciation and amortization related to investment properties
Depreciation and amortization related to investment in
unconsolidated entities
Provision for asset impairment, continuing operations
Provision for asset impairment, discontinued operations
Impairment of investment in unconsolidated entities, continuing
operations
Impairment of investment in unconsolidated entities,
discontinued operations
Loss on contribution of real estate to an
unconsolidated joint venture
Less: Gains from property sales and transfer of assets
Gains from sales reflected in equity in earnings of unconsolidated
entities
Gains from sales of investment in unconsolidated entities,
continuing operations
Gains from sales of investment in unconsolidated entities,
discontinued operations
13,143
108,154
—
—
—
12,919
40,682
11,839
326
—
244,048
383,969
34,766
201,014
51,692
5,528
1,004
—
456,563
2,792
2,571
488
459,607
39,247
80,774
4,665
8,464
—
—
360,934
78,705
64,816
4,508
442,512 $
NAREIT FFO Applicable to Common Shares
$
247,245 $
The table below reflects additional information related to certain items that significantly impact the comparability of our FFO
and net income or significant non-cash items from the periods presented:
Amortization of above/below market leases
Amortization of mark to market debt discounts
(Gain) loss on extinguishment of debt, continuing operations
Loss on extinguishment of debt, discontinued operations
Straight-line rental income
Acquisition costs
Gain on extinguishment of debt reflected in equity in earnings of
unconsolidated entities
$
Gain on notes receivable
Impairment on securities
Stock-based compensation expense
Year ended December 31,
2014
2013
2015
(1,907) $
4,955
4,568
—
24
1,374
—
(4,098)
—
2,515
(273) $
5,919
(34,515)
76,495
(3,326)
1,529
—
—
—
—
(2,659)
5,929
472
18,305
(8,147)
2,987
(5,709)
(5,534)
1,052
—
38
(c) We believe modified net operating income provides comparability across periods when evaluating our financial condition and
operating performance. Modified net operating income reflects the income from operations excluding lease termination
income and GAAP rent adjustments (such as straight line rent and above/below market lease amortization) in order to provide a
comparable presentation of operating activity across periods. Net operating income excludes interest expense, depreciation and
amortization, general and administrative expenses, net income of noncontrolling interest, and other investment income from
corporate investments.
The following table reflects a reconciliation of modified net operating income to the net income attributable to the Company on
the consolidated statements of operations and other comprehensive income.
For the year ended
December 31,
2014
2013
2015
Retail modified net operating income
Student housing modified net operating income
Non-core modified net operating income
Modified net operating income, total segments
Retail adjustments to modified net operating income
Student housing adjustments to modified net operating income
Non-core adjustments to modified net operating income
Adjustments, total segments (1)
Net operating income, total segments
Non-allocated expenses (2)
Other income and expenses (3)
Equity in earnings of unconsolidated entities (4)
Provision for asset impairment
Net income (loss) from continuing operations
Net income from discontinued operations
Less: net income attributable to noncontrolling interests
$
186,197 $
54,113
78,383
318,693
4,767
129
(2,025)
2,871
321,564
(228,619)
(21,613)
35,493
(108,154)
(1,329)
4,808
(15)
Net income attributable to Company
$
3,464 $
179,657 $
41,491
90,408
311,556
5,619
287
(1,703)
4,203
315,759
(220,674)
44,569
137,531
(80,774)
196,411
290,247
(16)
486,642 $
189,023
35,087
90,427
314,537
6,430
373
(170)
6,633
321,170
(253,351)
(67,135)
8,517
(195,680)
(186,479)
430,543
(16)
244,048
(1) Includes adjustments for items that affect the comparability of, and were excluded from, the same store and total results.
Such adjustments include lease termination income and GAAP rent adjustments (such as straight line rent and above/below
market lease amortization).
(2) Non-allocated expenses consist of general and administrative expenses, business management fee, and depreciation and
amortization.
(3) Other income and expenses consist of interest and dividend income, gain on sale of investment properties, gain (loss) on
extinguishment of debt, other income, interest expense, and income tax expense.
(4) Equity in earnings of unconsolidated entities includes the gain, (loss) and (impairment) on investment in unconsolidated
entities, net.
39
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Part
II, Item 6. Selected Financial Data" and our consolidated financial statements included in this annual report. In addition to
historical data, this discussion contains forward-looking statements about our business, operations and financial performance based
on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those
discussed in the forward-looking statements as a result of various factors, including but not limited to those discussed in "Special
Note Regarding Forward-Looking Statements" and "Part I, Item 1A. Risk Factors" included elsewhere in this annual report.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis relates to the years ended December 31, 2015, 2014 and 2013 and as of December 31,
2015 and 2014. You should read the following discussion and analysis along with our consolidated financial statements and the
related notes included in this report.
Overview
We have been implementing our strategy of focusing our portfolio as described in more detail below under "Highlights in 2015
and Recent Developments". As of December 31, 2015, our portfolio comprises 129 properties, excluding development
properties, representing 15.3 million square feet of retail space, 11,039 student housing beds and 5.7 million square feet of non-
core space.
On a consolidated basis, substantially all of our revenues and cash flows from operations for the year ended December 31, 2015
were generated by collecting rental payments from our tenants, distributions from unconsolidated entities and dividend income
earned from investments in marketable securities. Our largest cash expenses relate to the operation of our properties and the
interest expense on our mortgages. Our property operating expenses include, but are not limited to: real estate taxes, regular
repair and maintenance, utilities, and insurance (some of which are recoverable).
In evaluating our financial condition and operating performance, management focuses on the following financial and non-
financial indicators, discussed in further detail herein:
•
•
Funds from Operations ("FFO"), a supplemental non-GAAP (U.S. generally accepted accounting principles, or
"GAAP") measure to net income determined in accordance with GAAP;
Property net operating income ("NOI"), which excludes interest expense, depreciation and amortization, general and
administrative expenses, net income of noncontrolling interest, and other investment income from corporate
investments;
• Modified net operating income, which reflects the income from operations excluding lease termination income and
GAAP rent adjustments;
• Cash flow from operations as determined in accordance with GAAP;
• Economic and physical occupancy and rental rates;
• Leasing activity and lease rollover;
• Management of operating expenses;
• Management of general and administrative expenses;
• Debt maturities and leverage ratios; and
• Liquidity levels.
40
Highlights in 2015 and Recent Developments
Distributions, including the Spin-off of Lodging Subsidiary, Xenia Hotels & Resorts, Inc.
On February 3, 2015, we completed the Xenia Spin-Off, which at the time owned 46 premium full service, lifestyle and urban
upscale hotels and two hotels in development, through the pro rata taxable distribution of 95% of the outstanding common
stock of Xenia to holders of record of our common stock as of the close of business on January 20, 2015, the record date. Each
holder of record of our common stock received one share of Xenia’s common stock for every eight shares of our common stock
held at the close of business on the record date. In lieu of fractional shares, our stockholders received cash. On February 4,
2015, Xenia’s common stock began trading on the NYSE under the ticker symbol "XHR." In connection with the Xenia Spin-
Off, we entered into certain agreements that, among other things, provided a framework for our transitional relationship with
Xenia as two separate companies. For more information, see "Part III, Item 13. Certain Relationships and Transactions, and
Director Independence."
Following the Xenia Spin-Off, our board of directors analyzed and reviewed our distribution rate, and on February 24, 2015,
we announced that our board reduced our annual distribution rate from $0.50 per share of common stock to $0.13 per share of
common stock.
A number of factors were considered in establishing the new distribution rate. Xenia generated a substantial portion of our cash
flows from operations and as a result, our previous distribution rate was not sustainable after the Xenia Spin-Off. In addition,
our board of directors determined that it is in the best interests of the Company to retain additional operating cash flow in order
to accumulate an appropriate level of capital reserves to enable us to tailor and grow our retail and student housing platforms,
consistent with our strategy and objectives, as well as to address future lease maturities and disposition plans related to several
properties in our non-core portfolio.
Anticipated Spin-Off of Assets Included in Our Non-Core Segment
On December 23, 2015, we announced our intent to spin off assets included in our non-core segment through the pro-rata
distribution of 100% of the outstanding shares of common stock of Highlands REIT, Inc. ("Highlands"), a wholly-owned
subsidiary of InvenTrust that was formed to hold a number of our remaining non-core assets. Highlands has filed a preliminary
registration statement on Form 10 with the Securities and Exchange Commission ("SEC") in connection with the proposed
spin-off. Through this spin-off, we expect Highlands to be better-positioned to provide stockholders with a return of their
investment by liquidating and distributing net proceeds from the non-core portfolio in a value-maximizing manner.
Upon completion of the proposed separation and distribution from InvenTrust, Highlands will be an independent, self-
managed, non-traded REIT with a dedicated management team focused on preserving, protecting and maximizing the total
value of its portfolio. Highlands’ portfolio is expected to consist of seven single- and multi-tenant office assets, two industrial
assets, six retail assets, two correctional facilities, four parcels of unimproved land and one bank branch.
We currently expect the spin-off to be completed in the second quarter of 2016. The completion of the spin-off will be subject
to conditions and approvals, including, among others, the registration statement on Form 10 being declared effective by the
SEC and final approval of the spin-off and related transactions by our board of directors. See "Item 1. Business - General -
Anticipated Spin-Off of Assets Included in Our Non-Core Segment" for more information.
Financing Activities
On November 5, 2015, we entered into a term loan credit agreement for a $300 million unsecured credit facility with a
syndicate of seven lenders led by Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith, Incorporated and PNC
Capital Markets LLC as joint lead arrangers. The accordion feature allows us to increase the size of the unsecured term loan
credit facility to $600 million, subject to certain conditions.
The term loan credit facility consists of two tranches: a five-year tranche maturing on January 15, 2021, and a seven-year
tranche maturing on November 5, 2022. The credit facility can be drawn for one year from the agreement date, after which the
unused portion of the credit facility will terminate. The credit facility is subject to maintenance of certain financial covenants.
Interest rates are based on the Company's total leverage ratio. Based upon the Company's total leverage ratio at December 31,
2015, the five-year tranche bears an interest rate of LIBOR plus 1.30% and the seven-year tranche bears an interest rate of
LIBOR plus 1.60%. As of December 31, 2015, we had $110 million outstanding under the term loan credit facility.
On February 3, 2015, we entered into an amended and restated credit agreement for a $300 million unsecured revolving line of
credit with KeyBank National Association, JP Morgan Chase Bank National Association and other financial institutions. The
accordion feature allows us to increase the size of our unsecured line of credit up to $600 million, subject to certain conditions.
41
The unsecured revolving line of credit matures on February 2, 2019 and contains one 12-month extension option that we may
exercise upon payment of an extension fee equal to 0.15% of the commitment amount on the maturity date and subject to
certain other conditions. The unsecured revolving line of credit bears interest at a rate equal to LIBOR plus 1.40% and requires
the maintenance of certain financial covenants. As of December 31, 2015, the full $300 million remained available under the
unsecured revolving line of credit.
Name Change to InvenTrust Properties Corp.
On April 16, 2015, we announced that we changed our name to InvenTrust Properties Corp. Following the completion of the
self-management transactions in 2014 and the Spin-Off of our lodging segment in 2015, we determined it was an appropriate
time to change our name and develop a brand that is consistent with our strategy. Our new name is consistent with our multi-
tenant retail strategy to bring innovation to the way we operate our retail properties.
Joint Venture Activity
We increased our equity in IAGM Retail Fund I, LLC with a contribution of approximately $32.3 million in 2015, which was
used to purchase two retail properties: The Highlands of Flower Mound in Flower Mound, Texas and Price Plaza in Katy,
Texas. Additionally, as part of wind-down activities, we recognized $11.8 million from the sale of assets within two joint
ventures and also received nonrecurring distributions that are in excess of the investments' carrying value by $17.8 million for
the year ended December 31, 2015, which was recognized in equity in earnings of unconsolidated entities.
On September 30, 2015, we were admitted as a member to Downtown Railyard Venture, LLC ("DRV"), which is a joint
venture established in order to develop and sell a land development. Simultaneously, we structured and closed the sale of a
non-core land development to DRV, which for accounting purposes is treated as a contribution of the land development to DRV
in exchange for an equity interest of $46.2 million in DRV (the foregoing transaction is referred to as the "Railyards
Transaction"). We account for the joint venture under the equity method of accounting. We recognized a loss of $12.9 million
for the year ended December 31, 2015 on the Railyards Transaction due to the difference between the carrying value of the land
and the fair value of the retained equity interest in the joint venture. Prior to the Railyards Transaction, we recorded an
impairment of $92.2 million to write the land down to its fair value for the year ended December 31, 2015.
Acquisitions and Dispositions
We acquired four retail properties and three student housing properties during the year ended December 31, 2015 for a gross
acquisition price of $323.7 million. We also placed into service two student housing developments and the second tower of an
already existing student housing property during the year ended December 31, 2015.
We sold five non-core properties, a portfolio of eleven retail assets, and one parcel of land for an aggregate gross disposition
price of $196.6 million during the year ended December 31, 2015.
Recent Developments
Entry into Agreement to Sell Student Housing Platform
On January 4, 2016, we announced that we entered into a definitive purchase agreement with UHC Acquisition Sub LLC, a
subsidiary of a joint venture formed between Canada Pension Plan Investment Board, GIC and Scion Communities Investors
LLC, under which the joint venture’s subsidiary will acquire our student housing platform, University House. The agreement’s
gross all-cash value is $1.4 billion. Under the terms of the agreement, the final net proceeds will be determined at the closing of
the transaction following the determination of several events and closing considerations. During the period between signing and
closing, University House has agreed, among other things, to conduct its business in the ordinary course, not acquire or dispose
of any material properties and to continue to develop its development properties in accordance with existing development
plans. The parties made customary representations, warranties and covenants in the agreement.
The transactions contemplated by the agreement, which are expected to close in the second quarter of 2016, are subject to
customary closing conditions. The agreement contains provisions pursuant to which the closing may be deferred until up to
July 5, 2016 in order to obtain certain third-party consents. The agreement provides that either the Company or acquiror may
terminate the agreement at any time prior to the closing pursuant to customary termination rights. Upon certain events of
termination, our sole recourse is an $85 million reverse break-up fee to be funded by the joint venture partners. For a more-
detailed summary of the terms of the agreement, see our Current Report on Form 8-K filed with the SEC on January 4, 2016.
42
Outlook
We believe that the fundamentals in the retail segment continue to be favorable in our target markets. Our grocery-anchored
and necessity-based community and neighborhood centers brings consumers to our well-located properties, while our larger-
format power center retailers continue to adapt their business models to embrace e-commerce and appeal to the consumers on-
going focus on value. We see on-going retailer demand for these assets, further supporting our key market approach. With
limited new development and increasing, but controlled, retailer expansion, we believe retail rental rates in our target markets
will continue to rise.
As we execute our portfolio strategy throughout 2016, we expect our occupancy rate will increase, driving modest rental
income growth across the platform. We have also launched a coordinated program to increase rental income by maximizing re-
development opportunities and identifying sites in our current retail portfolio where we can develop pad sites to increase
rentable square footage. As part of these efforts, we have transitioned from a broker centric to a direct leasing staff. Our
leasing staff is actively seeking to lease space at favorable rates, while establishing more favorable tenant mix and identifying
complimentary uses to maximize tenant performance at our properties complementing our leasing efforts. Our property
management team is focused on maintaining strong tenant relationships and controlling expenses.
Following our transition to self-management, we have made a significant commitment to enhancing our operational leadership
team with key senior hires in asset management, leasing and property management, as well as making meaningful investments
in technology systems and staff. In addition, we continue to enhance our local market service and expertise through the
expansion of regional offices to better support our targeted acquisition strategy.
Our portfolio is geographically diverse, with concentrations in key growth markets that benefit from higher rates of job and
population growth. While, a significant portion of our retail platform is located in Texas and Oklahoma, we continue to see
fundamental strength in these markets despite the recent weakness in the region’s energy business. To date, we have not
experienced a negative impact with respect to our retailers in these markets and believe that the long term nature of the retail
leases, combined with the national platform of most anchor or big box retailers, mitigates any short- to medium-term impact
these markets and retailers may experience.
As we continue to execute on our key markets strategy, we will opportunistically sell non-strategic retail properties and exit
markets that are low growth, lack sufficient asset concentration and do not provide a favorable opportunity to build significant
concentration. This will serve to hone our strategy and provide capital that can be redeployed into our target asset class.
Our disposition activity, including the pending sale of our student housing platform and non-core and non-strategic retail assets,
could cause us to experience dilution in operating performance during the period we dispose of properties. We intend to
redeploy a portion of the sales proceeds into select multi-tenant retail assets in 2016, which we believe will enhance the overall
value of our platform.
We believe that our debt maturities over the next five years are manageable, and while we anticipate interest rates will rise over
the long term, we expect low interest rates to prevail throughout 2016. We will fund our distributions with cash flow from
operations as well as from unconsolidated entities and a portion of the proceeds from our property sales.
Following the close of the sale of our student housing platform, we expect distribution payments will decrease, as these assets
produced significant cash flow and will no longer be a part of our portfolio. The dilution associated with the sale will continue
until the sales proceeds are reinvested. We expect to announce a new distribution rate correlated to the cash generated from the
remaining portfolio of assets after the closing of the student housing sale.
43
Results of Operations
General
Consolidated Results of Operations
This section describes and compares our results of operations for the years ended December 31, 2015, 2014 and 2013. We
generate most of our net income from property operations. In order to evaluate our overall portfolio, management analyzes the
operating performance of all properties from period to period and properties we have owned and operated for the same period
during each year. Investment properties owned for the entire years ended December 31, 2015 and 2014 and December 31, 2014
and 2013, respectively, are referred to herein as same store properties.
Comparison of the years ended December 31, 2015, 2014 and 2013
Net (loss) income from continuing operations
Net income from discontinued operations
Net income attributable to Company
Net income per common share, basic and diluted
(in thousands)
Year ended
December 31, 2015
($1,329)
4,808
3,464
$0.01
Year ended
December 31, 2014
$196,411
290,247
486,642
$0.55
Year ended
December 31, 2013
($186,479)
430,543
244,048
$0.27
Our net income attributable to the company decreased $483.2 million for the year ended December 31, 2015 compared to the
same period in 2014 primarily due to the following:
•
•
•
•
•
a decrease in income from discontinued operations of $285.4 million from December 31, 2014 to 2015. We had fewer
dispositions qualify as discontinued operations for the year ended December 31, 2015 compared to 2014;
an increase in impairment expense of $27.4 million from December 31, 2014 to 2015. For the year ended December
31, 2015, we recognized impairment expense on two retail assets totaling $16.0 million and an impairment of $92.2
million related to a non-core land development in the Railyards Transaction. For the year ended December 31, 2014,
we impaired five properties for a total impairment expense of $80.8 million;
a loss of $12.9 million was recognized on the Railyards Transaction during the year ended December 31, 2015.
a gain on unconsolidated entities of $64.8 million related to the termination of one of our retail unconsolidated entities,
and our share of gains from property sales of $78.7 million in one unconsolidated entity for the year ended December
31, 2014. For the year ended December 31, 2015 we recognized no such activity on our unconsolidated entities; and
decreases in gain on sale of investment properties of $32.6 million and gain on extinguishment of debt of $39.1
million when comparing the years ended December 31, 2015 to 2014.
Our net income attributable to the company increased $242.6 million for the year ended December 31, 2014 compared to the
same period in 2013 primarily due to the following:
•
•
•
•
a decrease in impairment expense of $114.9 million from December 31, 2013 to 2014, largely as a result of an
impairment taken on one non-core property in 2013 of $147.5 million;
a gain on unconsolidated entities of $67.8 million related to the termination of one of our retail unconsolidated entities,
and our share of gains from property sales of $78.7 million in one unconsolidated entity. For the year ended
December 31, 2013 we recognized no such activity on our unconsolidated entities; and
increases in gain on sale of investment properties of $59.2 million and gain on extinguishment of debt of $35.0 million
when comparing the years ended December 31, 2014 to 2013.
offset by a decrease in income from discontinued operations of $140.3 million, from December 31, 2013 to 2014. We
had fewer dispositions qualify as discontinued operations for the year ended December 31, 2014 compared to 2013;
A detailed discussion of our financial performance is outlined on the following pages.
44
Operating Income and Expenses:
Year ended
December 31,
2015
Year ended
December 31,
2014
(in thousands)
Year ended
December 31,
2013
2015 Increase
(decrease)
from 2014
2014 Increase
(decrease)
from 2013
Income:
Rental income
Tenant recovery income
Other property income
Operating expenses:
Property operating
expenses
Real estate taxes
Depreciation and
amortization
Provision for asset
impairment
General and administrative
expenses
Business management fee
$370,662
69,668
9,714
77,610
50,870
150,401
108,154
78,218
—
$377,067
66,046
9,361
91,111
45,604
153,737
80,774
64,332
2,605
$377,876
71,207
7,202
84,735
50,380
167,071
195,680
48,318
37,962
Property Income and Operating Expenses
($6,405)
3,622
353
(13,501)
5,266
($809)
(5,161)
2,159
6,376
(4,776)
(3,336)
(13,334)
27,380
(114,906)
13,886
(2,605)
16,014
(35,357)
Rental income consists of basic monthly rent, straight-line rent adjustments, amortization of acquired above and below market
leases, other property income, and percentage rental income recorded pursuant to tenant leases. Tenant recovery income
consists of reimbursements for real estate taxes, common area maintenance costs, management fees, and insurance costs. Other
property income consists of lease termination fees and other miscellaneous property income. Property operating expenses
consist of regular repair and maintenance, management fees, utilities, and insurance (some of which are recoverable from the
tenant).
Property income decreased $2.4 million for the year ended December 31, 2015 compared to the same period in 2014 largely as
a result of:
•
•
the disposition of 21 non-core and 13 retail properties in 2014, and five non-core and eleven retail properties in 2015,
which reflects a decrease of $34.3 million in property income;
offset by the acquisition of three retail properties and one student housing property in 2014, and in 2015, the
acquisition of four retail properties, two student housing properties, and the completion of two student housing
developments and the completion of a second tower on a third student housing property placed in service in the third
quarter. These acquisitions and assets placed in service reflect an increase of $26.7 million in property income.
Property operating expenses decreased $13.5 million for the year ended December 31, 2015 compared to the same period in
2014 largely as a result of:
•
•
•
•
the disposition of 21 non-core and 13 retail properties in 2014, and five non-core and eleven retail properties in 2015,
which reflects a decrease of $6.1 million in property operating expenses;
a one-time repair expense of $5.8 million incurred at one of our student housing properties during the year ended
December 31, 2014 that was not incurred in 2015;
our self-management transactions, which eliminated the property management fee paid to Inland American Holdco
Management LLC and was replaced by direct property costs related to payroll and overhead, there was a decrease of
approximately $6.2 million in retail property operating expenses and a $3.0 million in non-core property operating
expenses;
offset by the purchase of three retail properties and one student housing property in 2014, and in 2015, the purchase of
four retail properties, two student housing properties, and the completion of two student housing developments and the
45
completion of a second tower on a third student housing property placed in service in the third quarter. These
acquisitions and assets placed in service reflect an increase of $6.8 million in property operating expenses.
Total property income decreased $3.8 million for the year ended December 31, 2014 compared to the same period in 2013
largely as a result of:
•
•
•
the disposition of 21 non-core and 13 retail properties in 2014 that did not qualify as discontinued operations,
reflecting a decrease of $17.6 million in property income;
the contribution of fourteen assets to a joint venture in 2013, reflecting a decrease of $12.5 million in property income;
offset by the acquisition of three retail properties and one student housing property in 2014, and in 2013, the
acquisition of four retail properties and three student housing properties, one student housing property placed in
service, and the consolidation of assets from a previously unconsolidated joint venture on December 31, 2013. These
acquisitions and assets placed in service reflect an increase of $25.9 million in property income.
Property operating expenses increased $6.4 million for the year ended December 31, 2014 compared to the same period in 2013
largely as a result of:
•
•
•
•
the acquisition of three retail properties and one student housing property in 2014, and, in 2013, four retail properties
and three student housing properties, one student housing property placed in service, and the consolidation of assets
from a previously unconsolidated joint venture on December 31, 2013. These acquisitions and assets placed in service
reflect an increase of $6.0 million in property operating expenses;
a one-time repair expense of $5.8 million incurred at one of our student housing properties during the year ended
December 31, 2014 that was not incurred in 2013;
offset by the disposition of 21 non-core and 13 retail properties in 2014 that did not qualify as discontinued operations,
reflecting a decrease of $2.3 million in property operating expenses; and
the contribution of fourteen assets to a joint venture in 2013, reflecting a decrease of $1.8 million in property operating
expenses.
Provision for Asset Impairment
• During the year ended December 31, 2015, we recorded a provision for asset impairment on three assets. During third
quarter 2015, we completed the Railyards Transaction. See "- Highlights in 2015 and Recent Developments" for more
information regarding the Railyards Transaction. As a result of our analysis performed at the time of the Railyards
Transaction, we determined the property was impaired and therefore, it was written down to fair value. This resulted
in an asset impairment charge of $92.2 million. Also during the year ended December 31, 2015, we identified certain
properties which may have a reduction in the expected holding period and reviewed the probability that we would
dispose of these assets. As a result of our analysis, we identified two retail properties for the year ended December
31, 2015 that we determined were impaired and subsequently written down to fair value. As a result, we recorded a
provision for asset impairment of $15.9 million with respect to these retail assets during the fourth quarter 2015.
Overall, we recorded a provision for asset impairment of $108.2 million for continuing operations to reduce the book
value of certain investment properties to their fair values for the year ended December 31, 2015. There was no
provision for asset impairment for discontinued operations for the year ended December 31, 2015.
•
•
For the year ended December 31, 2014, we identified certain properties which may have a reduction in the expected
holding period and reviewed the probability that we would dispose of these assets. As a result of our analysis, we
identified four non-core properties for the year ended December 31, 2014 that we determined were impaired and
subsequently written down to fair value. All six properties were sold by December 31, 2014. Additionally, one
property, AT&T-St. Louis, which was previously classified as held for sale as of December 31, 2013, was re-classified
as held and used and was re-measured at the lesser of the carrying value or fair value as of May 8, 2014, resulting in
an impairment charge to this asset of $71.6 million. This asset was not evaluated for impairment at the date it was
classified as held for sale as the asset was included in a larger portfolio. Overall, we recorded a provision for asset
impairment of $80.8 million for continuing operations and $4.7 million for discontinued operations, to reduce the book
value of certain investment properties to their fair values for the year ended December 31, 2014.
For the year ended December 31, 2013, we identified certain properties which may have a reduction in the expected
holding period and reviewed the probability that we would dispose of these assets. As part of our analysis, we
46
identified one large single tenant office property, AT&T-Hoffman Estates, in which we were exploring a potential
disposition. After we began exploring a potential sale of the property, we became aware of circumstances in which the
tenant was considering vacating the space. Although the original term of the lease does not expire until August 2016,
we analyzed various leasing and sale scenarios for the single tenant property. Based on the probabilities assigned to
such scenarios, it was determined the property was impaired and therefore, written down to fair value. As a result, we
recorded a provision for asset impairment of $147.5 million, with respect to this asset, during the second quarter 2013.
Overall, we recorded a provision for asset impairment of $201.0 million for continuing operations and $51.7 million
for discontinued operations, to reduce the book value of certain investment properties to their fair values for the year
ended December 31, 2013. Offsetting the impairment charges, due to a change in the amount of an impaired note's
expected future cash flows, we reduced the note's impairment allowance, resulting in a gain of $5.3 million.
General Administrative Expenses and Business Management Fee
•
•
From the year ended December 31, 2014 to 2015, the general and administrative expenses increased $13.9 million
from $64.3 million to $78.2 million, respectively. After the completion of the self-management transaction in 2014,
we incurred costs associated with the internalization of functions previously performed by the Business Manager or its
related parties and additional one-time set up costs. Internalized functions include IT, human resources and property
management and have resulted in an increase in employee salaries and other implementation costs, which are reflected
in the general and administrative expenses. As part of a company reorganization, we eliminated certain roles,
including an executive separation, and incurred severance costs of approximately $4.3 million for the year ended
December 31, 2015. We also incurred amortization costs of $2.5 million associated with our long term incentive
program during the year ended December 31, 2015.
From the year ended December 31, 2013 to 2014, the increase in general and administrative expenses increased $16.0
million from $48.3 million to $64.3 million, respectively, was the result of an increase in expenses primarily related to
professional fees associated with our transition to self-management and additional legal costs, some of which were
associated with the SEC investigation and related derivative investigation.
• We incurred a business management fee of $0.0 million, $2.6 million and $38.0 million for the years ended December
31, 2015, 2014 and 2013, respectively. On March 12, 2014, we entered into a series of agreements and amendments to
existing agreements with affiliates of the Inland Group pursuant to which the Company began the process of becoming
entirely self-managed (collectively, the "Self-Management Transactions"). Refer to Part II. Item 8. "Note 6.
Transactions with Related Parties." The Company no longer pays a business manager fee as of January 31, 2014.
Non-Operating Income and Expenses:
Interest and dividend income
Gain on sale of investment
properties
Gain (loss) on extinguishment of
debt
Other income
Interest expense
Loss on contribution to joint venture
Equity in earnings of unconsolidated
entities
Gain, (loss) and (impairment) of
investment in unconsolidated
entities, net
Realized gain on sale of marketable
securities, net
Net income from discontinued
operations
Year ended
December 31,
2015
Year ended
December 31,
2014
(in thousands)
Year ended
December 31,
2013
$18,855
14,001
(472)
3,627
(133,454)
$12,713
73,232
34,515
2,669
(120,668)
—
—
2015 Increase
(decrease)
from 2014
2014 Increase
(decrease)
from 2013
($939)
(32,550)
(39,083)
16,778
(26,096)
(12,919)
($6,142)
59,231
34,987
(958)
(12,786)
—
$11,774
40,682
(4,568)
19,447
(94,572)
(12,919)
35,167
81,179
11,474
(46,012)
69,705
326
56,352
(2,957)
(56,026)
59,309
20,459
43,025
31,539
(22,566)
11,486
4,808
290,247
430,543
(285,439)
(140,296)
47
Gain on sale of investment properties
In line with our early adoption of the new accounting standard governing discontinued operations, ASU No. 2014-08, effective
January 1, 2014, only disposals representing a strategic shift that has (or will have) a major effect on our results and operations
would qualify as discontinued operations. For the years ended December 31, 2015 and 2014, the operations reflected in
discontinued operations include the net lease assets that were classified as held for sale at December 31, 2013, the select service
lodging properties classified as held for sale at September 17, 2014, and the properties included in the Xenia Spin-Off. All
other asset disposals are now included as a component of income from continuing operations, except for those assets classified
as discontinued operations prior to our adoption of the new accounting standard governing discontinued operations. Properties
sold prior to the January 1, 2014 adoption of ASU No. 2014-08 remain classified as discontinued operations.
• During the year ended December 31, 2015, the gain on sale of investment properties decreased $32.6 million, from
$73.2 million at December 31, 2014 to $40.7 million at December 31, 2015. This decrease was a result of a decrease
in property sales that did not qualify as discontinued operations. In 2014 and 2015, the Company sold 37 and 16
properties, respectively, that did not qualify as discontinued operations.
• During the year ended December 31, 2014, the gain on sale of investment properties increased $59.2 million, from
$14.0 million at December 31, 2013 to $73.2 million at December 31, 2014. The gain on sale of properties of $14.0
million for the year ended December 31, 2013 is primarily attributed to the contribution of 14 properties to the IAGM
joint venture. We have an equity interest in the IAGM joint venture and therefore a continued ownership interest in
the properties. As such, we treated this disposition as a partial sale, recognizing a gain on sale in continuing
operations on the consolidated statements of operations and comprehensive income. The gain on sale of properties of
$73.2 million for the year ended December 31, 2014 reflects property sales that did not qualify as discontinued
operations.
Gain (loss) on extinguishment of debt
• Loss on extinguishment of debt of $4.6 million incurred during the year ended December 31, 2015 primarily relates to
a loss of $5.8 million on debt extinguished on the sale of eleven grocery anchored retail centers in the Dallas-Fort
Worth area on November 25, 2015. These losses were offset by a gain of $2.7 million on debt extinguishment related
to one non-core property sold during the year ended December 31, 2015.
• Gain on extinguishment of debt of $34.5 million at December 31, 2014 was primarily due to the gain on extinguishment of
debt of $34.2 million for three properties we surrendered to the lender in 2014.
• The loss on extinguishment of debt at December 31, 2013 relates to activity on properties still held by the Company or
sold subsequent to our adoption of ASU No. 2014-08. Properties classified as discontinued operations in 2013 are
included as discontinued operations on the consolidated statement of operations as they were classified as
discontinued operations prior to our adoption of ASU No. 2014-08.
Other income
• Other income of $19.4 million for the year ended December 31, 2015 was primarily due to $7.3 million received in net
proceeds from the derivative lawsuit, $6.2 million in income recognized after proceeds received on two note
receivables were higher than the previously impaired carrying balances, and property management fee income
received from the IAGM joint venture that was previously paid to Inland American Holdco Management LLC.
• Other income of $2.7 million and $3.6 million for the years ended December 31, 2014 and 2013, respectively, relates
to miscellaneous income and expenses.
Interest expense
•
•
Interest expense from continuing operations decreased for the year ended December 31, 2015 compared to 2014 with
balances of $94.6 and $120.7 million, respectively. Additional interest expense of $4.5 and $91.0 million was
reflected in discontinued operations for the years ended December 31, 2015 and 2014, respectively. In total, interest
expense decreased for the year ended December 31, 2015 compared to 2014 with balances of $99.1 and $211.6
million, respectively. This was primarily due to the decrease in the principal amount of our total debt as of
December 31, 2015 compared to 2014 with balances of $1.9 and $3.2 billion, respectively.
Interest expense from continuing operations decreased for the year ended December 31, 2014 compared to 2013 with
balances of $120.7 and $133.5 million, respectively. Additional interest expense of $91.0 and $151.7 million was
48
reflected in discontinued operations for the years ended December 31, 2014 and 2013, respectively. In total, interest
expense decreased for the year ended December 31, 2014 compared to 2013 with balances of $211.6 and $285.2
million, respectively. This was primarily due to the decrease in the principal amount of our total debt (including
mortgages, line of credit, and mortgages of assets classified as discontinued operations) as of December 31, 2014
compared to 2013 with balances of $3.2 to $4.9 billion, respectively.
• Our weighted average interest rate on total outstanding debt was 4.94%, 4.63%, and 5.09% per annum for the years
ended December 31, 2015, 2014 and 2013, respectively.
Loss on contribution to joint venture
• On September 30, 2015, we completed the Railyards Transaction. See "- Highlights in 2015 and Recent
Developments" for more information regarding the Railyards Transaction. We recognized a loss of $12.9 million for
the year ended December 31, 2015 on the Railyards Transaction due to the difference between the carrying value of
the land and the fair value of the retained equity interest in the joint venture.
Equity in earnings of unconsolidated entities
Our equity in earnings of unconsolidated entities includes our share of the unconsolidated entity's operating income or loss.
Also included in this amount are any one-time adjustments associated with the transactions of the unconsolidated entity.
•
•
•
For the year ended December 31, 2015, the equity in earnings of unconsolidated entities of $35.2 million was
primarily a result of recognizing $11.9 million from the sale of assets within two joint ventures and receiving
nonrecurring distributions that are in excess of the investments' carrying value by $17.8 million.
For the year ended December 31, 2014, the equity in earnings of unconsolidated entities of $81.2 million was
primarily a result of preferred distributions from one unconsolidated entity of $3.1 million and our share of a gain on
the property sales of $78.7 million in one unconsolidated entity.
For the year ended December 31, 2013, the equity in earnings of unconsolidated entities of $11.5 million was
primarily a result of our share of a gain on the property sales of $3.0 million in one unconsolidated entity and our share
of a gain on the extinguishment of debt of $5.7 million in one unconsolidated entity.
Gain, (loss) and (impairment) of investment in unconsolidated entities, net
•
•
•
For the year ended December 31, 2015, we recognized a gain of $0.3 million on the dissolution of one joint venture
subsequent to the receipt of the final cash distribution from the joint venture's wind down activities.
For the year ended December 31, 2014, we recognized a gain of $64.8 million on the termination of one of our retail
unconsolidated entities and an impairment of $8.5 million on one of our industrial unconsolidated entities.
For the year ended December 31, 2013, we recorded an impairment of $5.5 million on one of our unconsolidated
entities and recorded a gain on the termination of two of our unconsolidated entities of $2.6 million. Of the gain
recorded in 2013, $4.4 million related to one previously unconsolidated entity which was purchased from the
Company's joint venture partner in 2013.
Realized gain and (impairment) on marketable securities, net
•
•
•
For the year ended December 31, 2015, we recognized a $20.5 million net realized gain as a result of sales.
For the year ended December 31, 2014, we recognized a $43.0 million net realized gain as a result of sales.
For the year ended December 31, 2013, there was a $1.1 million impairment charge on one equity security which was
offset by a $32.6 million net realized gain as a result of sales.
Discontinued Operations
In line with our early adoption of the new accounting standard governing discontinued operations, only disposals representing a
strategic shift that has (or will have) a major effect on our results and operations would qualify as discontinued operations.
Discontinued operations for the year ended December 31, 2015 include the assets included in the Xenia Spin-Off. Discontinued
operations for the year ended December 31, 2014 include the net lease assets previously classified as held for sale on the
49
consolidated balance sheet as of December 31, 2013 and the entire lodging segment, including hotels sold during the year
ended December 31, 2014 and the assets included in the Xenia Spin-Off. Discontinued operations for the year ended
December 31, 2013 include the assets noted in the paragraph above as well as properties sold prior to our adoption of ASU No.
2014-08.
•
•
•
For the year ended December 31, 2015, we recorded net income of $4.8 million from discontinued operations, as a
result of the Xenia spin-off. Of this net income from discontinued operations, approximately $1.3 million related to
normal operating activities for the year ended December 31, 2015.
For the year ended December 31, 2014, we recorded net income of $290.2 million from discontinued operations,
which primarily included a gain on sale of properties of $287.7 million, a loss on extinguishment of debt of $76.5
million, and provision for asset impairment of $4.7 million. Discontinued operations generated operating income of
$177.5 million for the year ended December 31, 2013.
For the year ended December 31, 2013, we recorded net income of $430.5 million from discontinued operations,
which primarily included a gain on sale of properties of $442.6 million, a loss on extinguishment of debt of $18.3
million, and a provision for asset impairment of $51.7 million. Discontinued operations generated operating income
of $163.0 million for the year ended December 31, 2013.
50
Segment Reporting
We have been implementing our strategy of focusing our remaining retail portfolio, primarily through the Xenia Spin-Off, the
anticipated spin off of Highlands, and the anticipated sale of our student housing platform. As a retail company, our strategy
will be to tailor and grow our retail platform. Our objective has been, and will continue to be, maximizing stockholder value
over the long term.
We evaluate segment performance primarily based on net operating income and modified net operating income. Net operating
income of the segments excludes interest expense, depreciation and amortization, general and administrative expenses, net
income of noncontrolling interest and other investment income from corporate investments. Modified net operating income
reflects the income from operations excluding lease termination income and U.S. generally accepted accounting principles
("GAAP") rent adjustments in order to provide a comparable presentation of operating activity across periods. Modified net
operating income and net operating income is calculated and reconciled to GAAP net income in "Part II, Item 8. Note 13 to the
Consolidated Financial Statements" and "Part II, Item 6. Selected Financial Data".
An analysis of results of operations by segment is below. The tables contained throughout summarize certain key operating
performance measures for the years ended December 31, 2015, 2014 and 2013. The rental rates reflected in retail and non-core
are inclusive of rent abatements, lease inducements and straight-line rent GAAP adjustments, and exclusive of tenant
improvements and lease commissions. The rental rates reflected for student housing are inclusive of rent concessions.
Economic occupancy, shown for our retail and non-core segments, is defined as the percentage of total gross leasable area
("GLA") for which a tenant is obligated to pay rent under the terms of its lease agreement, regardless of the actual use or
occupation by that tenant of the area being leased. Physical occupancy, shown for our student housing segment, is defined as
the percentage of occupied beds compared to the total number of leasable beds.
Number of
Properties
Gross Leasable Area /
No. of Beds
Average
Occupancy (a)
Retail:
Community and neighborhood centers
Power centers
Total retail (b)
Student Housing:
Mid-rise
High-rise
Cottage style
Garden style
Total student housing
Non-core:
Multi-tenant office
Triple net
Total non-core (b)
Total number of wholly owned properties (c)
IAGM Retail Fund I, LLC ("IAGM")
Retail joint venture, 55% ownership (d)
15th & Walnut Owner, LLC ("Eugene")
Student housing joint venture, 62% ownership (d)
Total number of joint venture
and wholly owned properties
54
43
97
11
3
2
2
18
5
9
14
129
15
1
145
4,858,624 Square feet
10,393,239 Square feet
15,251,863 Square feet
6,512 Beds
2,079 Beds
1,257 Beds
1,191 Beds
11,039 Beds
1,388,899 Square feet
4,341,277 Square feet
5,730,176 Square feet
3,254,435 Square feet
240 Beds
90%
95%
93%
94%
98%
92%
97%
95%
77%
100%
94%
93%
96%
(a) Retail, non-core, and IAGM occupancy are shown as economic occupancy and does not necessarily reflect actual use by our
tenants. Student housing and Eugene occupancy are shown as physical occupancy.
(b) At December 31, 2014, the Company owned 108 retail properties. During 2015, the Company sold eleven retail properties
and purchased four retail properties. Additionally, the Company combined four properties previously counted as separate
properties with the adjacent shopping centers, resulting in a reduction to our retail property count. The Company believes
this provides a more accurate reflection of retail properties owned. As a result, the Company owned 97 retail properties at
December 31, 2015. The Company also combined one outparcel previously counted as a non-core property with the related
51
shopping center, resulting in a reduction to our non-core property count. The operations of this outparcel have been moved to
retail segment reporting.
(c) Wholly owned properties are defined as those properties consolidated by the Company and not accounted for as an
unconsolidated entity.
(d) These entities are not consolidated by the Company and the equity method of accounting is used to account for these
investments. At December 31, 2015, the Company combined four properties previously counted as separate properties with
the adjacent shopping centers, resulting in a reduction to the IAGM property count.
Same Store
In order to evaluate our overall portfolio, management analyzes the operating performance of properties on a same store basis,
which is defined as those properties that we have owned and operated for the entirety of both periods being compared. A total
of 115 of our investment properties met our same store criteria for the years ended December 31, 2015 and 2014. A total of 108
of our investment properties met our same store criteria for the years ended December 31, 2014 and 2013. Properties are
classified as same store once they have been owned and operated for the entirety of both periods presented and are fully
operational. This same store analysis allows management to monitor the operations of our existing properties for comparable
periods to determine the effects of our acquisitions and dispositions on net income.
Same Store Segment Modified Net Operating Income
The following tables compare our same store modified net operating income for the years ended December 31, 2015 and 2014
and December 31, 2014 and 2013.
(in thousands)
For the year ended December 31,
2015
2014
2015 Increase
from 2014
Average Occupancy
Dec. 31 2015 (a)
Average Occupancy
Dec. 31, 2014 (a)
167,130 $
39,428
78,223
284,781 $
158,987 $
34,585
73,273
266,845 $
8,143
4,843
4,950
17,936
93%
94%
94%
93%
92%
94%
(in thousands)
For the year ended December 31,
2014
2013
2014 Increase
from 2013
Average Occupancy
Dec. 31, 2014 (a)
Average Occupancy
Dec. 31 2013 (a)
156,005 $
21,506
71,619
249,130 $
153,134 $
26,870
71,986
251,990 $
2,871
(5,364)
(367)
(2,860)
93%
92%
94%
93%
94%
95%
Retail
Student housing
Non-core
Total
Retail
Student housing
Non-core
Total
$
$
$
$
(a) Economic occupancy, shown for the retail and non-core segments, is defined as the percentage of total gross leasable area
for which a tenant is obligated to pay rent under the terms of its lease agreement, regardless of the actual use or physical
occupation by that tenant of the area being leased. Physical occupancy is shown for the student housing segment.
52
Retail Segment
Our retail segment consists of multi-tenant retail properties, primarily community and neighborhood centers and power centers,
as described in "Part I, Item 2. Properties". As of December 31, 2015, we owned 97 retail properties consisting of 15,251,863
square feet. There were 89 retail same store properties for the years ended December 31, 2015 and 2014 and 86 retail same
store properties for the years ended December 31, 2014 and 2013.
A significant focus in our retail segment will be to continue to maximize the performance of the portfolio by accretive
acquisitions in key markets and select dispositions of properties that are in markets that we do not believe offer the same
opportunities for growth. We will support our key market approach by expanding our regional offices and further embedding
leasing and operations staff in these respective markets, which we believe will provide us with stronger local market knowledge
and enhanced tenant relationships. This will continue in 2016 as we source acquisitions in key markets.
IAGM Retail Fund I, LLC ("IAGM") is a joint venture partnership between the Company and PGGM Private Real Estate Fund
("PGGM"). The joint venture was formed with the purpose of acquiring and managing retail properties in Texas and Oklahoma
and sharing in the profits and losses from those properties and its activities. As of December 31, 2015, IAGM consists of 15
retail assets representing 3.3 million gross leasable square feet and has economic occupancy of 93%. The Company is
responsible for the management and leasing of the retail properties included in the IAGM joint venture. The Company
accounts for its investment in the IAGM joint venture using the equity method.
The following table reflects activity for retail properties owned as of December 31, 2015.
Retail segment
Economic occupancy (a)
Rent per square foot (b)
Investment in properties, undepreciated (in thousands)
Retail segment, with IAGM joint venture properties:
Economic occupancy (a)
Rent per square foot (b)
2015
93%
$14.12
$2,528,620
As of December 31,
2014
93%
$13.92
$2,540,768
2013
93%
$13.72
$2,652,236
93%
$14.39
93%
$14.20
92%
$14.04
(a) Economic occupancy is defined as the percentage of total gross leasable area for which a tenant is obligated to pay rent
under the terms of its lease agreement, regardless of the actual use or occupation by that tenant of the area being leased. Actual
use may be less than economic square footage. Prior year economic occupancy excludes properties sold or classified as
discontinued operations.
(b) Rent per square foot is computed as annualized rent divided by the total occupied square footage at the end of the period.
Annualized rent is computed as revenue for the last month of the period multiplied by twelve months. Annualized rent includes
the effect of rent abatements, lease inducements and straight-line rent GAAP adjustments. Prior year rent per square foot
excludes properties sold or classified as discontinued operations.
53
Comparison of Years Ended December 31, 2015 and 2014
The following table represents operating information for the total retail segment and the same store retail segment, which
consists of properties acquired prior to January 1, 2014. The properties in the same store portfolio were owned for the entire
years ended December 31, 2015 and 2014. Activity in the non-same store row for the years ended December 31, 2015 and
2014 includes properties acquired after January 1, 2014 and properties sold in 2015 and 2014 that did not qualify as
discontinued operations.
For the year ended December 31, 2015 compared to the same period in 2014, on a same store basis, the retail modified net
operating income increased by $8.1 million, or 5.1%, up to $167.1 million from $159.0 million, respectively. As a result of our
self-management transactions, which eliminated the property management fee paid to Inland American Holdco Management
LLC and was replaced by direct property costs related to payroll and overhead, there was a decrease of approximately $6.2
million in property operating expenses. Contractual rental rate increases have contributed to an increase of rental income for
the year ended December 31, 2015 compared to the same period in 2014.
For the year ended December 31, 2015 compared to the same period in 2014, total retail modified net operating income
increased $6.5 million, or 3.6%, up to $186.2 million from $179.7 million, respectively. This increase is primarily a result of
the purchase of three retail properties in 2014, four retail properties in 2015, and is offset by the sale of thirteen retail properties
in 2014 and an eleven property retail portfolio in 2015.
Retail
No. of same store properties
Operating revenues
Rental income
Tenant recovery income
Other property income
Total income
Operating expenses
Property operating expenses
Real estate taxes
Total operating expenses
Modified same store NOI (a)
Modified non-same store NOI (a)
Modified retail net operating income (a)
$
Adjustments (b)
GAAP adjustments to rental income
Termination fee income
Total adjustments
Net operating income, retail
$
(in thousands)
For the years ended
December 31, 2015 December 31, 2014
89
89
Increase
(Decrease)
Variance
$
182,304 $
55,464
1,523
239,291
37,597
34,564
72,161
167,130
19,067
186,197 $
3,691
1,076
4,767
190,964 $
179,697 $
53,449
2,783
235,929
44,141
32,801
76,942
158,987
20,670
179,657 $
4,416
1,203
5,619
185,276 $
2,607
2,015
(1,260)
3,362
(6,544)
1,763
(4,781)
8,143
(1,603)
6,540
(725)
(127)
(852)
5,688
1.5%
3.8%
(45.3)%
1.4%
(14.8)%
5.4%
(6.2)%
5.1%
(7.8)%
3.6%
(16.4)%
(10.6)%
(15.2)%
3.1%
(a) Modified net operating income reflects the income from operations excluding lease termination income and GAAP rent
adjustments in order to provide a comparable presentation of operating activity across periods.
(b) Includes adjustments for items that affect the comparability of, and were excluded from, the same store results. Such
adjustments include lease termination income and GAAP rent adjustments, such as straight-line rent and above/below market
lease amortization.
54
Comparison of Years Ended December 31, 2014 and 2013
The following table represents operating information for the total retail segment and the same store retail segment, which
consists of properties acquired prior to January 1, 2013. The properties in the same store portfolio were owned for the entire
years ended December 31, 2014 and 2013. Activity in the non-same store row for the years ended December 31, 2014 and
2013 includes properties acquired after January 1, 2013, properties sold in 2014 and 2013 that did not qualify as discontinued
operations, and those properties contributed to the IAGM joint venture.
For the year ended December 31, 2014 compared to the same period in 2013, on a same store basis, the retail segment modified
net operating income increased by $2.9 million, or 1.9%, up to $156.0 million from $153.1 million, respectively. The portfolio
had stable occupancy from 2013 to 2014 as well as a slight increase in rents per square foot, from $13.58 at December 31, 2013
to $13.74 at December 31, 2014.
For the year ended December 31, 2014 compared to the same period in 2013, total retail segment modified net operating
income decreased $9.4 million, or 5.0%, down to $179.7 million from $189.0 million, respectively. This decrease is primarily
a result of the contribution of thirteen properties to IAGM in April 2013 and one property in July 2013. A full quarter of
operations from these properties are included in net operating income for the year ended December 31, 2013.
Retail
No. of same store properties
Operating revenues
Rental income
Tenant recovery income
Other property income
Total income
Operating expenses
Property operating expenses
Real estate taxes
Total operating expenses
Modified same store NOI (a)
Modified non-same store NOI (a)
Modified retail net operating income (a)
$
Adjustments (b)
GAAP adjustments to rental income
Termination fee income
Total adjustments
Net operating income, retail
$
(in thousands)
For the years ended
December 31, 2014 December 31, 2013
86
86
Increase
(Decrease)
Variance
$
175,557 $
51,938
2,756
230,251
42,310
31,936
74,246
156,005
23,652
179,657 $
4,416
1,203
5,619
185,276 $
174,308 $
52,505
2,126
228,939
43,874
31,931
75,805
153,134
35,889
189,023 $
5,155
1,275
6,430
195,453 $
1,249
(567)
630
1,312
(1,564)
5
(1,559)
2,871
(12,237)
(9,366)
(739)
(72)
(811)
(10,177)
0.7%
(1.1)%
29.6%
0.6%
(3.6)%
0.0%
(2.1)%
1.9%
(34.1)%
(5.0)%
(14.3)%
(5.6)%
(12.6)%
(5.2)%
(a) Modified net operating income reflects the income from operations excluding lease termination income and GAAP rent
adjustments in order to provide a comparable presentation of operating activity across periods.
(b) Includes adjustments for items that affect the comparability of, and were excluded from, the same store results. Such
adjustments include lease termination income and GAAP rent adjustments, such as straight-line rent and above/below market
lease amortization.
55
Student Housing Segment
As of December 31, 2015, we owned 18 student housing assets consisting of 11,039 beds. There were 12 student housing same
store properties for the years ended December 31, 2015 and 2014 and 9 student housing same store properties for the years
ended December 31, 2014 and 2013.
In January 2016, we announced that we entered into an agreement to sell our student housing portfolio. We expect to complete
this transaction in the second quarter of 2016. See "Item 1. Business - General - Entry into Agreement to Sell Student Housing
Platform" for more information. Pending the closing of the transaction, University House agreed to conduct its business in the
ordinary course, not acquire or dispose of any material properties and to continue to develop its development properties in
accordance with existing development plans.
Our rental rates in student housing rose in 2015 compared to 2014 due to favorable market conditions as well as the addition of
one property in December 2014, two properties placed in service during third quarter 2015, the completion of a second tower
on an existing property also placed in service during third quarter 2015, and two properties purchased in fourth quarter 2015.
Student housing industry fundamentals continue to improve. We delivered three projects on time and on budget during third
quarter 2015 with an average occupancy of approximately 95%. Furthermore, new deliveries are being absorbed quickly and
pre-leasing percentages are predicted to be higher going forward than in recent years. Rent per bed and occupancy increased in
2015, largely driven by the positive supply-and-demand environment in most markets.
Our joint venture, 15th & Walnut Owner, LLC ("Eugene"), is a partnership between the Company and Gerding Edlen Investors,
LLC. ("GE"). The joint venture was formed with the purpose to develop, construct, and manage a student housing community
on the campus of the University of Oregon in Eugene, Oregon, named "UH Arena District". UH Arena District consists of 240
beds and is at 96% physical occupancy as of December 31, 2015. The Company is responsible for the management and leasing
of this student housing asset. This entity is not consolidated by the Company and the equity method of accounting is used to
account for this investment. UH Arena District is not included in the agreement to sell our student housing portfolio. On
February 26, 2016, GE purchased our share in Eugene.
The following table reflects activity for student housing properties owned as of December 31, 2015.
Student Housing segment
Physical occupancy (a)
End of month scheduled rent per bed per month (b)
Investment in properties, undepreciated (in thousands)
Student Housing segment, with 15th & Walnut joint venture
Physical occupancy (a)
End of month scheduled rent per bed per month (b)
2015
95%
$779
$1,042,924
As of December 31,
2014
93%
$725
$724,827
2013
92%
$695
$710,211
95%
$776
92%
$725
91%
$695
(a) Physical occupancy is defined as a percentage of the number of beds, excluding models, for which a bed is being physically
occupied. The percentage is based on a weighted daily average for the period. Prior year physical occupancy excludes
properties sold or classified as discontinued operations. Physical occupancy excludes student housing "turn," generally a two
week move-in period typically during the month of August.
(b) End of month scheduled rent per student housing bed per month is defined as average net rental income for the period
divided by the average occupied units for the same period. Average net rental income is defined as actual rent charged less
concessions. Average occupied units are defined as physical occupancy multiplied by total number of beds (excluding
models). Prior year rent per bed per month excludes properties classified as sold or discontinued operations.
56
Comparison of Years Ended December 31, 2015 and 2014
The following table represents operating information for the total student housing segment and the same store student housing
segment, which consists of properties acquired prior to January 1, 2014. The properties in the same store portfolio were owned
for the entire years ended December 31, 2015 and 2014. Activity in the non-same store row for the years ended December 31,
2015 and 2014 includes properties acquired after January 1, 2014 and properties sold in 2015 and 2014 that did not qualify as
discontinued operations.
For the year ended December 31, 2015 compared to the same period in 2014, on a same store basis, the student housing
modified net operating income increased by $4.8 million, or 14.0%, up to $39.4 million from $34.6 million, respectively. This
increase is primarily related to one-time repair expenses of $5.8 million incurred at one of our properties during the year ended
December 31, 2014 that was not incurred in 2015. Occupancy at same store student housing properties increased from 92% at
December 31, 2014 to 94% at December 31, 2015. Same store student housing rent per bed rates also increased from $737 at
December 31, 2014 to $752 at December 31, 2015.
For the year ended December 31, 2015 compared to the same period in 2014, total student housing modified net operating
income increased $12.6 million, or 30.4%, up to $54.1 million from $41.5 million, respectively. These increases are a result of
one property purchased during fourth quarter 2014, two properties placed in service during third quarter 2015, the completion
of a second tower on an existing property also placed in service during third quarter 2015, two properties purchased during
fourth quarter 2015, and an increase in rental rates from $725 rent per bed at December 31, 2014 to $779 rent per bed at
December 31, 2015.
Student Housing
No. of same store properties
Operating revenues
Rental income
Tenant recovery income
Other property income
Total income
Operating expenses
Property operating expenses
Real estate taxes
Total operating expenses
Modified same store NOI (a)
Modified non-same store NOI (a)
Modified student housing net operating
income (a)
Adjustments (b)
GAAP adjustments to rental income
Total adjustments
Net operating income, student housing
(in thousands)
For the years ended
December 31, 2015 December 31, 2014
12
12
Increase
(Decrease)
Variance
$
$
$
61,401 $
641
3,552
65,594
21,549
4,617
26,166
39,428
14,685
59,702 $
527
3,326
63,555
25,903
3,067
28,970
34,585
6,906
1,699
114
226
2,039
(4,354)
1,550
(2,804)
4,843
7,779
2.8%
21.6%
6.8%
3.2%
(16.8)%
50.5%
(9.7)%
14.0%
112.6%
54,113 $
41,491 $
12,622
30.4%
129
129
54,242 $
287
287
41,778 $
(158)
(158)
12,464
(55.1)%
(55.1)%
29.8%
(a) Modified net operating income reflects the income from operations excluding GAAP rent adjustments in order to provide a
comparable presentation of operating activity across periods.
(b) Includes adjustments for items that affect the comparability of, and were excluded from, the same store results. Such
adjustments include GAAP rent adjustments such as straight-line rent.
57
Comparison of Years Ended December 31, 2014 and 2013
The following table represents operating information for the total student housing segment and the same store student housing
segment, which consists of properties acquired prior to January 1, 2013. The properties in the same store portfolio were owned
for the entire years ended December 31, 2014 and 2013. Activity in the non-same store row for the years ended December 31,
2014 and 2013 includes properties acquired after January 1, 2013 and properties sold in 2014 and 2013 that did not qualify as
discontinued operations.
For the year ended December 31, 2014 compared to the same period in 2013, on a same store basis, the student housing
modified net operating income decreased by $5.4 million, or 20.0%, down to $21.5 million from $26.9 million, respectively.
This decrease is primarily related to one-time repair expenses of $5.8 million incurred at one of our properties during the year
ended December 31, 2014 that was not incurred in 2013. Occupancy at same store student housing properties decreased from
94% at December 31, 2013 to 92% at December 31, 2014. Same store student housing rent per bed rates remained stable,
reflecting rent per bed of $702 at December 31, 2013 and rent per bed of $703 at December 31, 2014.
For the year ended December 31, 2014 compared to the same period in 2013, total student housing modified net operating
income increased $6.4 million, or 18.3%, up to $41.5 million from $35.1 million, respectively. These increases are a result of
three properties purchased and one placed in service in 2013. Total student housing rent per bed rates increased from $695 at
December 31, 2013 to $725 at December 31, 2014.
Student Housing
No. of same store properties
Operating revenues
Rental income
Tenant recovery income
Other property income
Total income
Operating expenses
Property operating expenses
Real estate taxes
Total operating expenses
Modified same store NOI (a)
Modified non-same store NOI (a)
Modified student housing net operating
income (a)
Adjustments (b)
GAAP adjustments to rental income
Total adjustments
Net operating income, student housing
(in thousands)
For the years ended
December 31, 2014 December 31, 2013
9
9
Increase
(Decrease)
Variance
$
$
$
41,564 $
428
2,619
44,611
21,068
2,037
23,105
21,506
19,985
41,824 $
455
2,232
44,511
14,804
2,837
17,641
26,870
8,217
(260)
(27)
387
100
6,264
(800)
5,464
(5,364)
11,768
(0.6)%
(5.9)%
17.3%
0.2%
42.3%
(28.2)%
31.0%
(20.0)%
143.2%
41,491 $
35,087 $
6,404
18.3%
287
287
41,778 $
373
373
35,460 $
(86)
(86)
6,318
(23.1)%
(23.1)%
17.8%
(a) Modified net operating income reflects the income from operations excluding GAAP rent adjustments in order to provide a
comparable presentation of operating activity across periods.
(b) Includes adjustments for items that affect the comparability of, and were excluded from, the same store results. Such
adjustments include GAAP rent adjustments such as straight-line rent.
58
Developments
We have student housing development projects that are in various stages of development which are funded by borrowings
secured by the properties and our equity investments or contributions. Specifically identifiable direct development and
construction costs are capitalized, including, where applicable, salaries and related costs, real estate taxes and interest incurred
in developing the property.
The properties under development and all amounts set forth below are as of December 31, 2015.
Location
(City, State)
Birmingham,
AL
Austin, TX
No. of Beds
327 Beds
504 Beds
Norman, OK
917 Beds
Name
The Venue at the
Ballpark
UH Austin
UH Norman
UH College
Avenue
(in thousands)
Total Costs
Incurred to
Date ($)
(a)
Total
Estimated
Costs ($)
(b)
Remaining
Costs to be
funded by
InvenTrust ($)
(c)
Note
Payable as of
Dec. 31
2015 ($)
Estimated
Placed in
Service Date
(d) (e)
$28,079
20,531
18,579
$39,354
53,542
86,724
$—
—
11,777
10,410
$11,243
Q2 2016
1
—
—
Q3 2016
Q3 2017
Q3 2017
Clemson, SC
418 Beds
2,929
38,259
(a) The Total Costs Incurred to Date represent total costs incurred for the development, including the acquisition cost of the
land and building, excluding capitalized interest.
(b) The Total Estimated Costs represent 100% of the development’s estimated costs, including the acquisition cost of the
land and building, if any, and excluding capitalized interest. The Total Estimated Costs are subject to change upon, or
prior to, the completion of the development and include amounts required to lease the property.
(c) We anticipate funding remaining development, to the extent any remains, through construction financing secured by the
properties and equity contributions.
(d) The Estimated Placed in Service Date represents the date the certificate of occupancy is currently anticipated to be
obtained.
(e) Leasing activities do not begin until six to nine months prior to the placed in service date.
59
Non-core Segment
As of December 31, 2015, we owned 14 non-core properties consisting of 5,730,176 square feet. There were 14 non-core same
store properties for the years ended December 31, 2015 and 2014 and 13 non-core same store properties for the years ended
December 31, 2014 and 2013. Our non-core segment comprises multi-tenant office and triple net properties, such as
distribution centers, correctional facilities and single-tenant office properties. On December 23, 2015, we announced our intent
to spin off assets included in our non-core segment, as well as other non-strategic assets, as part of Highlands as further
described in "- Highlights in 2015 and Recent Developments." The spin-off of Highlands is expected to occur in the next one
to two months, subject to certain conditions and approvals.
The following table reflects activity for non-core properties owned as of December 31, 2015.
Non-core segment
Economic occupancy (a)
Rent per square foot (b)
Investment in properties, undepreciated (in thousands) (c)
2015
94%
$14.86
$750,348
As of December 31,
2014
94%
$14.83
$804,435
2013
95%
$14.79
$2,402,799
(a) Economic occupancy is defined as the percentage of total gross leasable area for which a tenant is obligated to pay rent
under the terms of its lease agreement, regardless of the actual use or occupation by that tenant of the area being leased. Actual
use is less than economic square footage. Prior year economic occupancy excludes properties sold or classified as discontinued
operations.
(b) Rent per square foot is computed as annualized rent divided by the total occupied square footage at the end of the period.
Annualized rent is computed as revenue for the last month of the period multiplied by twelve months. Annualized rent includes
the effect of rent abatements, lease inducements and straight-line rent GAAP adjustments. Prior year rent per square foot
excludes properties sold or classified as discontinued operations.
(c) The decrease from 2013 to 2014 of our investment in properties relates to the sale of assets in the ordinary course of
business pursuant to the Company's business strategy and objectives.
60
Comparison of Years Ended December 31, 2015 and 2014
The following table represents operating information for the total non-core segment and the same store non-core segment,
which consists of properties acquired prior to January 1, 2014. The properties in the same store portfolio were owned for the
entire years ended December 31, 2015 and 2014. Activity in the non-same store row for the years ended December 31, 2015
and 2014 includes properties acquired after January 1, 2014 and properties sold in 2015 and 2014 that did not qualify as
discontinued operations.
For the year ended December 31, 2015 compared to the same period in 2014, on a same store basis, the non-core modified net
operating income increased by $5.0 million, or 6.8%, up to $78.2 million from $73.3 million, respectively. As a result of our
self-management transactions, which eliminated the property management fee paid to Inland American Holdco Management
LLC and was replaced by direct property costs related to payroll and overhead, there was a decrease of approximately $3.0
million in property operating expenses. Rental rates stayed consistent, increasing slightly to $14.86 per square foot at
December 31, 2015 compared to $14.83 per square foot at December 31, 2014. In addition, other property income increased
$0.9 million as a result of overtime HVAC usage at one property.
For the year ended December 31, 2015 compared to the same period in 2014, total non-core modified net operating income
decreased $12.0 million, or 13.3%, down to $78.4 million from $90.4 million, respectively. This decrease is the result of five
properties sold subsequent to December 31, 2014 that did not qualify as discontinued operations.
Non-core
No. of same store properties
Operating revenues
Rental income
Tenant recovery income
Other property income
Total income
Operating expenses
Property operating expenses
Real estate taxes
Total operating expenses
Modified same store NOI (a)
Modified non-same store NOI (a)
Modified non-core net operating income (a) $
Adjustments (b)
GAAP adjustments to rental income
Total adjustments
Net operating income, non-core
$
(in thousands)
For the years ended
December 31, 2015 December 31, 2014
14
14
Increase
(Decrease)
Variance
$
82,855 $
4,528
1,320
88,703
6,123
4,357
10,480
78,223
160
78,383 $
(2,025)
(2,025)
76,358 $
81,808 $
4,471
450
86,729
8,870
4,586
13,456
73,273
17,135
90,408 $
(1,703)
(1,703)
88,705 $
1,047
57
870
1,974
(2,747)
(229)
(2,976)
4,950
(16,975)
(12,025)
(322)
(322)
(12,347)
1.3%
1.3%
193.3%
2.3%
(31.0)%
(5.0)%
(22.1)%
6.8%
(99.1)%
(13.3)%
18.9%
18.9%
(13.9)%
(a) Modified net operating income reflects the income from operations excluding GAAP rent adjustments in order to provide a
comparable presentation of operating activity across periods.
(b) Includes adjustments for items that affect the comparability of, and were excluded from, the same store results. Such
adjustments include GAAP rent adjustments, such as straight-line rent and above/below market lease amortization.
61
Comparison of Years Ended December 31, 2014 and 2013
The following table represents operating information for the total non-core segment and the same store non-core segment,
which consists of properties acquired prior to January 1, 2013. The properties in the same store portfolio were owned for the
entire years ended December 31, 2014 and 2013. Activity in the non-same store row for the years ended December 31, 2014
and 2013 includes properties acquired after January 1, 2013 and those properties sold in 2014 and 2013 that did not qualify as
discontinued operations.
For the year ended December 31, 2014 compared to the same period in 2013, on a same store basis, the non-core modified net
operating income decreased by $0.4 million, or 0.5%, down to $71.6 million from $72.0 million, respectively. For the year
ended December 31, 2014 compared to the same period in 2013, total non-core modified net operating income remained stable,
with a year over year change of 0.02%.
Non-core
No. of same store properties
Operating revenues
Rental income
Tenant recovery income
Other property income
Total income
Operating expenses
Property operating expenses
Real estate taxes
Total operating expenses
Modified same store NOI (a)
Modified non-same store NOI (a)
Modified non-core net operating income (a) $
Adjustments (b)
GAAP adjustments to rental income
Total adjustments
Net operating income, non-core
$
(in thousands)
For the years ended
December 31, 2014 December 31, 2013
13
13
Increase
(Decrease)
Variance
$
80,050 $
4,063
450
84,563
8,699
4,245
12,944
71,619
18,789
90,408 $
(1,703)
(1,703)
88,705 $
79,846 $
4,456
361
84,663
8,232
4,445
12,677
71,986
18,441
90,427 $
(170)
(170)
90,257 $
204
(393)
89
(100)
467
(200)
267
(367)
348
(19)
(1,533)
(1,533)
(1,552)
0.3%
(8.8)%
24.7%
(0.1)%
5.7%
(4.5)%
2.1%
(0.5)%
1.9%
(0.02)%
901.8%
901.8%
(1.7)%
(a) Modified net operating income reflects the income from operations excluding GAAP rent adjustments in order to provide a
comparable presentation of operating activity across periods.
(b) Includes adjustments for items that affect the comparability of, and were excluded from, the same store results. Such
adjustments include GAAP rent adjustments, such as straight-line rent and above/below market lease amortization.
Other Non-core Activity
As part of our restructure and foreclosure of a note receivable, we began overseeing as the secured lender certain roadway and
utility infrastructure projects that will provide access to the approximately 205 acre Sacramento Railyards ("Railyards")
property. The Railyards property is located immediately adjacent to, and to the north of, Sacramento’s central business district.
The infrastructure projects were planned, approved, and funded prior to the foreclosure of a note from Stan Thomas. The
Railyards property is the subject of a collaborative planning and infrastructure funding effort of various federal, state, and local
municipalities and its development is scheduled to be completed in phases during the years 2014-2030. We sold a parcel of land
to the State of California for $10.0 million on October 2, 2014. On September 30, 2015, we completed the Railyards
Transaction. See "- Highlights in 2015 and Recent Developments" for more information regarding the Railyards Transaction.
Prior to the Railyards Transaction, we recorded an impairment of $92.2 million to write the Railyards down to its fair value for
the year ended December 31, 2015. As a result of the difference between the carrying value of the Railyards and the fair value
of our equity interest in the joint venture, we recorded a loss of $12.9 million on the Railyards Transaction during the year
ended December 31, 2015. We will retain our equity in the joint venture in our portfolio and it will not be included in the
Highlands portfolio.
62
Critical Accounting Policies and Estimates
General
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in
certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes.
This section discusses those critical accounting policies and estimates. These judgments often result from the need to make
estimates about the effect of matters that are inherently uncertain. GAAP requires information in financial statements about
accounting principles, methods used and disclosures pertaining to significant estimates. This discussion addresses our judgment
pertaining to known trends, events or uncertainties which were taken into consideration upon the application of those policies.
Acquisitions
We allocate the purchase price of each acquired business between tangible and intangible assets at full fair value at the date of
the transaction. Such tangible and intangible assets include land, building and improvements, acquired above market and below
market leases, in-place lease value, customer relationships (if any), and any assumed financing that is determined to be above
or below market terms. Any additional amounts are allocated to goodwill as required, based on the remaining purchase price in
excess of the fair value of the tangible and intangible assets acquired and liabilities assumed. The allocation of the purchase
price is an area that requires judgment and significant estimates.
We expense acquisition costs of all transactions as incurred. All costs related to finding, analyzing and negotiating a transaction
are expensed as incurred as a general and administrative expense, whether or not the acquisition is completed.
Impairment
We assess the carrying values of the respective long-lived assets, whenever events or changes in circumstances indicate that the
carrying amounts of these assets may not be fully recoverable, such as a reduction in the expected holding period of the asset. If
it is determined that the carrying value is not recoverable because the undiscounted cash flows do not exceed carrying value,
we are required to record an impairment loss to the extent that the carrying value exceeds fair value. The valuation and possible
subsequent impairment of investment properties is a significant estimate that can and does change based on our continuous
process of analyzing each property and reviewing assumptions about uncertain inherent factors, as well as the economic
condition of the property at a particular point in time.
We also evaluate our equity method investments for impairment indicators. The valuation analysis considers the investment
positions in relation to the underlying business and activities of our investment and identifies potential declines in fair value.
An impairment loss should be recognized if a decline in value of the investment has occurred that is considered to be other than
temporary, without ability to recover or sustain operations that would support the value of the investment.
Cost Capitalization and Depreciation Policies
Our policy is to review all expenses paid and capitalize any items which are deemed to be an upgrade or a tenant improvement.
These costs are capitalized and included in the investment properties classification as an addition to buildings and
improvements.
Buildings and improvements are depreciated on a straight-line basis based upon estimated useful lives of 30 years for buildings
and improvements, and 5-15 years for site improvements and furniture, fixtures and equipment. Tenant improvements are
depreciated on a straight-line basis over the life of the related lease as a component of depreciation and amortization expense.
The portion of the purchase price allocated to acquired above market leases and acquired below market leases is amortized on a
straight-line basis over the life of the related lease as an adjustment to net rental income. Acquired in-place lease costs and
other leasing costs are amortized on a straight-line basis over the life of the related lease as a component of amortization
expense.
Cost capitalization and the estimate of useful lives requires our judgment and includes significant estimates that can and do
change based on our process which periodically analyzes each property and on our assumptions about uncertain inherent
factors.
Dispositions
The Company accounts for dispositions in accordance with Financial Accounting Standards Board ("FASB") Accounting
Standards Codification ('"ASC") 360-20, Real Estate Sales. The Company recognizes gain in full when real estate is sold,
provided (a) the profit is determinable, that is, the collectability of the sales price is reasonably assured or the amount that will
not be collectible can be estimated, and (b) the earnings process is virtually complete, that is, the seller is not obliged to
perform significant activities after the sale to earn the profit.
63
In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity, which includes amendments that change the requirements for reporting discontinued operations and
require additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic
shift that has (or will have) a major effect on the entity’s results and operations would qualify as discontinued operations. In
addition, ASU 2014-08 expands the disclosure requirements for disposals that meet the definition of a discontinued operation
and requires entities to disclose information about disposals of individually significant components that do not meet the
definition of discontinued operations. ASU No. 2014-08 is effective for interim and annual reporting periods in fiscal years
that begin after December 15, 2014. We have elected to early adopt ASU No. 2014-08, effective January 1, 2014.
For the year ended December 31, 2015, the operations reflected in discontinued operations are related to the assets included in
the Xenia Spin-Off. For the years ended December 31, 2014 and 2013, the operations reflected in discontinued operations are
related to the net lease assets that were classified as held for sale at December 31, 2013, the entire lodging segment, including
the hotels sold during the year ended December 31, 2014, the assets included in the Xenia Spin-Off, and any assets classified as
discontinued operations prior to our adoption of ASU No. 2014-08, effective January 1, 2014. All other asset disposals are now
included as a component of income from continuing operations.
Investment in Marketable Securities
We classify our investment in securities in one of three categories: trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those
securities in which we have the ability and intent to hold the security until maturity. All securities not included in trading or
held-to-maturity are classified as available-for-sale. Investments in securities at December 31, 2015 and 2014 consists of
common and preferred stock investments and investments in real estate related bonds that are all classified as available-for-sale
securities and are recorded at fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from
earnings and reported as a separate component of comprehensive income until realized. Realized gains and losses from the sale
of available-for-sale securities are determined on a specific identification basis. A decline in the market value of any available-
for-sale security below cost that is deemed to be other than temporary, results in a reduction in the carrying amount to fair
value. The impairment is charged to earnings and a new cost basis for the security is established. When a security is impaired,
management considers whether we have the ability and intent to hold the investment for a time sufficient to allow for any
anticipated recovery in market value and considers whether evidence indicating the cost of the investment is recoverable
outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the
severity and duration of the impairment, changes in value subsequent to period end and forecasted performance of the investee.
Revenue Recognition
We commence revenue recognition on our leases based on a number of factors. In most cases, revenue recognition under a
lease begins when the lessee takes possession of or controls the physical use of the leased asset. Generally, this occurs on the
lease commencement date. The determination of who is the owner, for accounting purposes, of the tenant improvements
determines the nature of the leased asset and when revenue recognition under a lease begins. If we are the owner, for
accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins
when the lessee takes possession of the finished space, typically when the improvements are substantially complete. If we
conclude we are not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased
asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives
which reduces revenue recognized over the term of the lease. In these circumstances, we begin revenue recognition when the
lessee takes possession of the unimproved space for the lessee to construct their own improvements. We consider a number of
different factors to evaluate whether it or the lessee is the owner of the tenant improvements for accounting purposes. These
factors include:
• whether the lease stipulates how and on what a tenant improvement allowance may be spent;
• whether the tenant or landlord retains legal title to the improvements;
•
•
the uniqueness of the improvements;
the expected economic life of the tenant improvements relative to the length of the lease; and
• who constructs or directs the construction of the improvements.
The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment. In
making that determination, we consider all of the above factors. No one factor, however, necessarily establishes its
determination.
64
We recognize rental income on a straight-line basis over the term of each lease. The difference between rental income earned
on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent
receivable and is included as a component of accounts and rents receivable in the accompanying consolidated balance sheets.
Due to the impact of the straight-line basis, rental income generally is greater than the cash collected in the early years and
decreases in the later years of a lease. We periodically review the collectability of outstanding receivables. Allowances are
taken for those balances that we deem to be uncollectible, including any amounts relating to straight-line rent receivables.
Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period the
applicable expenses are incurred. We make certain assumptions and judgments in estimating the reimbursements at the end of
each reporting period. We do not expect the actual results to significantly differ from the estimated reimbursement.
We will recognize lease termination income if there is a signed termination letter agreement, all of the conditions of the agreement
have been met, collectability is reasonably assured and the tenant is no longer occupying the property. Upon early lease termination,
we will provide for losses related to unrecovered intangibles and other assets.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective, although it will not
affect the accounting for rental related revenues. The new standard is effective for the Company on January 1, 2017. Early
application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We
are evaluating the effect that ASU No. 2014-09 will have on our consolidated financial statements and related disclosures. We
have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
In February 2016, the FASB issued ASU 2016-02, Leases, amending the existing accounting standards for lease accounting,
including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting.
ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018, and early adoption of is
permitted as of the standard’s issuance date. The new standard requires a modified retrospective transition approach for all
leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are
assessing whether the new standard will have a material effect on our financial position or results of operations.
Consolidation
We evaluate our investments in limited liability companies and partnerships to determine whether such entities may be a
variable interest entity ("VIE"). If the entity is a VIE, the determination of whether we are the primary beneficiary must be
made. We will consolidate a VIE if we are deemed to be the primary beneficiary, as defined in FASB ASC 810, Consolidation.
The equity method of accounting is applied to entities in which we are not the primary beneficiary as defined FASB ASC 810,
or the entity is not a VIE and we do not have effective control, but can exercise influence over the entity with respect to its
operations and major decisions.
In February 2015, the FASB issued ASU 2015-02, Consolidation. This update includes amendments that change the
requirements for evaluating limited partnerships and similar entities for consolidation. Under the new guidance, limited
partnerships and similar entities will be considered variable interest entities ("VIEs") unless a scope exception applies. As
such, entities that consolidate limited partnerships and similar entities that are considered to be VIEs will be subject to VIE
primary beneficiary disclosure requirements, and entities that do not consolidate a VIE will be subject to the disclosure
requirements that apply to variable interest holders other than the primary beneficiary. The new guidance also eliminates three
of the six criteria for determining if fees paid to a decision maker or service provider are considered to be variable interest in a
VIE and changes the criteria used to determine if variable interests in a VIE held by related parties of a reporting entity require
the reporting entity to consolidate the VIE. This standard will be effective for financial statements issued by public companies
for annual and interim reporting periods beginning after December 15, 2015. We are continuing to evaluate this guidance;
however, we do not expect its adoption to have a significant impact on the consolidated financial statements.
Income Taxes
We operate in a manner intended to enable each entity to qualify as a REIT under Sections 856 through 860 of the Code. Under
those sections, a REIT that distributes at least 90% of its “REIT taxable income” determined without regard to the deduction for
dividends paid and by excluding any net capital gain to its stockholders each year and that meets certain other conditions will
not be taxed on that portion of its taxable income which is distributed to its stockholders. If we fail to distribute the required
amount of income to our stockholders, or fail to meet the various REIT requirements, without the benefit of certain relief
provisions, we may fail to qualify as a REIT and substantial adverse tax consequences may result. Even if we qualify for
taxation as a REIT, we may be subject to certain state and local taxes on our income, property, or net worth, and to federal
65
income and excise taxes on our undistributed taxable income. In addition, taxable income from non-REIT activities managed
through taxable REIT subsidiaries is subject to federal, state and local income taxes.
Share Based Compensation
In accordance with FASB ASC Topic 718, Accounting for Share Based Compensation, companies are required to recognize in
the income statement the grant-date fair value of stock options and other equity based compensation issued to employees.
Under Topic 718, the way an award is classified will affect the measurement of compensation cost. Equity classified awards are
measured at grant date fair value, and amortized on a straight-line basis over the vesting period of the stock and are not
subsequently re-measured. Liability classified awards are measured at the grant date and are subsequently re-measured at the
end of each period. The fair value of the non-vested stock awards for the purposes of recognizing stock-based compensation
expense is the estimated market price of our common stock on the grant date. At December 31, 2015, we had two stock based
compensation plans, which are discussed in "Note 15. Stock-Based Compensation". The compensation cost is based on awards
that are expected to vest and has been reduced for estimated forfeitures.
66
Liquidity and Capital Resources
As of December 31, 2015, we had $203.3 million of cash and cash equivalents. We continually evaluate the economic and
credit environment and its impact on our business. We believe we are appropriately positioned to have significant liquidity to
utilize in executing our strategy.
Short-Term Liquidity and Capital Resources
On a short-term basis, our principal demands for funds are to pay our operating, corporate, and transaction readiness expenses,
as well as property capital expenditures, make distributions to our stockholders, and pay interest and principal payments on our
current indebtedness. We expect to meet our short term liquidity requirements from cash flow from operations and
distributions from our joint venture investments.
Strategic transactions that we are pursuing may reduce our cash flows from operations. On December 23, 2015, we announced
our intent to spin off assets included in our non-core segment as part of Highlands as further described in "- Highlights in 2015
and Recent Developments." The spin-off of Highlands is expected to occur in the second quarter of 2016, subject to certain
conditions and approvals. On January 4, 2016, we announced an agreement to sell our student housing platform as further
described in "-Highlights in 2015 and Recent Developments." The closing of our student housing platform sale is also
expected to occur in the second quarter of 2016. This disposition activity will cause us to experience dilution in our operating
performance during the period we dispose of properties and prior to reinvestment.
Long-Term Liquidity and Capital Resources
After the Highlands spin-off and the sale of our student housing platform, our objectives are to maximize revenue generated by
our existing properties, to further enhance the value of our retail segment to produce attractive current yield and long-term risk-
adjusted returns to our stockholders and to generate sustainable and predictable cash flow from our operations to distribute to
our stockholders. We believe the repositioning and growing of our retail properties will increase our operating cash flows.
Our principal demands for funds have been and will continue to be:
•
•
•
•
•
•
to pay our expenses and the operating expenses of our properties;
to make distributions to our stockholders;
to service or pay-down our debt;
to fund capital expenditures and leasing related costs;
to invest in properties and portfolios of properties; and
to fund development investments.
Generally, our cash needs have been and will be funded from:
•
•
•
•
•
•
cash flows from our investment properties;
income earned on our investment in marketable securities;
distributions from our joint venture investments;
proceeds from sales of properties and marketable securities;
proceeds from borrowings on properties; and
proceeds from our line of credit.
We may, from time to time, seek to retire or purchase additional amounts of our outstanding equity and/or debt securities
through cash purchases for other securities. Such repurchases or exchanges, if any, will depend on our liquidity requirements,
contractual restrictions, and other factors. The amounts involved may be material.
67
Acquisitions and Dispositions of Real Estate Investments
During the year ended December 31, 2015, we acquired four retail and two student housing properties and placed in service
two student housing properties and the second tower on an existing student housing property. During the year ended December
31, 2014, we acquired three retail properties, one student housing properties, one lodging property, and a land parcel associated
with a lodging property. These 2015 and 2014 acquisitions were funded with available cash, disposition proceeds, and
mortgage indebtedness. We invested net cash of approximately $318.3 million and $308.3 million during the years ended
December 31, 2015 and 2014 for these acquisitions, respectively.
During the year ended December 31, 2015, we disposed of five non-core and eleven retail properties for $196.6 million. On
February 3, 2015, we also completed the spin-off of our subsidiary, Xenia, which at the time owned 46 premium full service,
lifestyle and urban upscale hotels and two hotels in development through the pro rata taxable distribution of 95% of the
outstanding common stock of Xenia to holders of record of our common stock as of the close of business on January 20, 2015,
the record date. During the year ended December 31, 2014, we sold 313 properties, including 185 bank branches, 55 lodging
properties, 32 industrial properties, 27 retail properties, 13 office properties, and one student housing property for $2,012.0
million.
Distributions
We declared cash distributions to our stockholders per weighted average number of shares outstanding during the period from
January 1, 2015 to December 31, 2015 totaling $138.6 million or $0.16 per share. During the year ended December 31, 2015,
we paid cash distributions of $146.5 million. These cash distributions were paid with $194.7 million from our cash flow from
operations, $10.9 million provided by distributions from unconsolidated entities, as well as $40.7 million from gain on sales of
properties.
The following chart summarizes the sources of our cash used to pay distributions. Our primary source of cash is cash flow
provided by operating activities from our investments as presented in our cash flow statement. We also include distributions
from unconsolidated entities to the extent that the underlying real estate operations in these entities generate these cash flows.
Gain on sales of properties relate to net profits from the sale of certain properties. Our presentation is not intended to be an
alternative to our consolidated statements of cash flow and does not present all the sources and uses of our cash.
The following table presents a historical view of our distribution coverage.
2015
2014
2013
2012
2011
Cash flow provided by operations
Distributions from unconsolidated entities
Gain on sales of properties (a)
Distributions paid (b)
$
194,734 $
10,884
40,682
(146,510)
340,335 $
33,891
360,934
(438,875)
422,813 $
20,121
456,563
(449,253)
Excess
$
99,790 $
296,285 $
450,244 $
456,221 $
31,710
40,691
(439,188)
89,434 $
397,949
33,954
6,141
(428,650)
9,394
(a) Excludes gains reflected on impaired values and excludes gain/loss on transfer of assets.
(b) Distributions paid for the year ended December 31, 2015 reflect two months at the $0.50 per share annualized distribution rate
and the remaining months at the $0.13 per share annualized distribution rate. This reduction in the annualized distribution rate
is a result of the Xenia Spin-Off. Xenia generated a substantial portion of our cash flows from operations and as a result, our
previous distribution rate was not sustainable after the Xenia Spin-Off. Beginning in the third quarter, we moved to quarterly
distributions. The distributions declared in the third and fourth quarters were paid in the month subsequent to quarter end.
The following table presents a historical summary of distributions declared, distributions paid and distributions reinvested.
Distributions declared
Distributions paid
Distributions reinvested
2015
2014
2013
2012
2011
$
138,614 $
146,510
—
436,875 $
438,875
95,832
450,106 $
449,253
181,630
440,031 $
438,188
191,785
429,599
428,650
199,591
On February 3, 2015, we completed the Xenia Spin-Off, which at the time owned 46 premium full service, lifestyle and urban
upscale hotels and two hotels in development, through the pro rata taxable distribution of 95% of the outstanding common
68
stock of Xenia to holders of record of our common stock as of the close of business on January 20, 2015, the record date. Each
holder of record of our common stock received one share of Xenia’s common stock for every eight shares of our common stock
held at the close of business on the record date. In lieu of fractional shares, our stockholders received cash. On February 4,
2015, Xenia’s common stock began trading on the NYSE under the ticker symbol "XHR." In connection with the Xenia Spin-
Off, we entered into certain agreements that, among other things, provided a framework for our transitional relationship with
Xenia as two separate companies. These agreements were terminated later in 2015. For more information, see "Part III, Item
13. Certain Relationships and Transactions, and Director Independence."
Following the Xenia Spin-Off, our board of directors analyzed and reviewed our distribution rate, and on February 24, 2015,
we announced that our board reduced our annual distribution rate from $0.50 per share of common stock to $0.13 per share of
common stock. Our board of directors will analyze and review our distribution rate in connection with the spin-off of
Highlands and the student housing sale. We expect distribution payments to decrease because the University House assets
produced significant cash flow for us. We expect to announce a new distribution rate correlated to the cash generated from the
remaining portfolio of assets after the closing of the student housing sale.
Borrowings
The table below presents the principal amount, weighted average interest rates and maturity date (by year) on our mortgage
debt as of December 31, 2015.
Maturing mortgage debt :
Fixed rate (a)
Variable rate
Total
Weighted average interest
rate on mortgage debt:
Fixed rate
Variable rate
2016
2017
2018
2019
2020
Thereafter
Total
$ 197,652
77,551
$ 275,203
$ 589,187
11,244
$ 600,431
$
65,823
121,683
$ 187,506
— $
—
— $
7,925
—
7,925
$ 703,156
—
$ 703,156
$ 1,563,743
210,478
$ 1,774,221
5.76%
2.50%
5.49%
2.42%
4.37%
2.12%
—%
—%
3.21%
—%
5.12%
—%
5.30%
2.27%
(a) Includes $47.0 million of variable rate mortgage debt that has been swapped to a fixed rate as of December 31, 2015.
The debt maturity excludes mortgages discounts associated with debt assumed at acquisition of which a discount of $5.6
million, net of accumulated amortization, is outstanding as of December 31, 2015. Of the total outstanding debt for all years at
December 31, 2015, approximately $47.3 million is recourse to the Company.
As of December 31, 2015, we had approximately $275.2 million and $600.4 million in mortgage debt maturing in 2016 and
2017, respectively.
69
Summary of Cash Flows
Cash provided by operating activities
Cash (used in) provided by investing activities
Cash used in financing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, at beginning of year
Cash and cash equivalents, at end of year
Year ended December 31,
2014
2015
194,734 $
(164,274)
(560,325)
(529,865)
733,150
203,285 $
340,335 $
1,922,890
(1,849,312)
413,913
319,237
733,150 $
2013
422,813
922,624
(1,246,979)
98,458
220,779
319,237
$
$
Cash provided by operating activities was $194.7 million, $340.3 million and $422.8 million for the years ended December 31,
2015, 2014 and 2013, respectively, and was generated primarily from operating income from property operations, and interest
and dividends. Cash provided by operating activities decreased for the year ended December 31, 2015 mainly due to the
disposition of 62 properties, including the Spin-off of Xenia. Cash provided by operations was further reduced by lender pre-
payment penalties of $5.8 million related to the disposition of eleven grocery anchored retail assets in the Dallas-Fort Worth
area. For the year ended December 31, 2014, cash provided by operations was reduced by a decrease in accrued liabilities,
including prepaid rental income from our tenants and accrued interest payable as well as by lender pre-payment penalties of
$65.7 million due to the disposition of our select service hotel portfolio. For the year ended December 31, 2013, cash provided
by operations was reduced by lender pre-payment penalties of $17.3 million primarily due to the disposition of our
conventional multi-family properties.
Cash (used in) provided by investing activities was $(164.3) million, $1,922.9 million and $922.6 million for the years ended
December 31, 2015, 2014 and 2013, respectively. The decrease in cash provided by investing activities from the year ended
December 31, 2014 to December 31, 2015 was primarily due to a decrease in proceeds from sale of properties from $2,012.0
million at December 30, 2014 to $196.6 million at December 31, 2015. In 2014, we received proceeds from the sale of 313
properties compared to 2015, where we received proceeds from the sale of 16 properties and one land parcel. These
dispositions were offset by the acquisition of 7 properties in 2015. The increase in cash provided by investing activities from
the years ended December 31, 2013 to December 31, 2014 was primarily due to the proceeds from the sale of 313 properties in
2014. The sales of properties in 2014 resulted in gains on sale of properties of $287.7 million for the year ended December 31,
2014. These dispositions were offset by the acquisition of 6 properties in 2014. In 2013, the Company sold 313 properties,
resulting in gains on sale of properties of $442.6 million for the year ended December 31, 2013. These dispositions were offset
by the acquisition of 21 properties in 2013.
Cash used in financing activities was $560.3 million, $1,849.3 million and $1,247.0 million for the years ended December 31,
2015, 2014 and 2013, respectively. The decrease in cash used in financing activities from December 31, 2014 to December 31,
2015 was primarily due to the elimination of our share repurchase program in 2015 which resulted in a decrease in shares
repurchased by $403.9 million, a decrease in distributions paid of $292.4 million following the Xenia Spin-Off, and a decrease
in payoffs of debt of $956.5 million. Offsetting these decreases, for the year ended December 31, 2015, we contributed $165.9
million to Xenia as well as contributed $130.1 million held by the lodging properties to Xenia. The increase in cash used in
financing activities from December 31, 2013 to December 31, 2014 was primarily due to the decrease in proceeds from debt by
$685 million.
We consider all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements
with a maturity of three months or less, at the date of purchase, to be cash equivalents. We maintain our cash and cash
equivalents at financial institutions. The combined account balances at one or more institutions periodically exceed the Federal
Depository Insurance Corporation ("FDIC") insurance coverage and, as a result, there is a concentration of credit risk related to
amounts on deposit in excess of FDIC insurance coverage.
70
Off Balance Sheet Arrangements
Contractual Obligations
The table below presents, on a consolidated basis, obligations and commitments to make future payments under debt
obligations (including interest of $358.2 million) and lease agreements as of December 31, 2015 (dollar amounts are stated in
thousands).
Long-Term Debt Obligations
Ground Lease Payments
Payments due by period
Total
Less than
1 year
1-3 years
4-5 years
More than
5 years
$
$
2,242,792 $
54,258 $
373,342 $
396 $
1,110,353 $
1,671 $
165,799 $
1,124 $
593,298
51,067
Of the total long-term debt obligations, approximately $47.3 million is recourse to the Company.
Unconsolidated Real Estate Joint Ventures
Unconsolidated joint ventures are those where we have substantial influence over but do not control the entity. We account for
our interest in these ventures using the equity method of accounting. For additional discussion of our investments in joint
ventures, see "Part II, Item 8. Note 5 to the Consolidated Financial Statements." Our ownership percentage and related
investment in each joint venture is summarized in the following table (dollar amounts are stated in thousands).
Joint Venture
IAGM Retail Fund I, LLC
Downtown Railyard Venture, LLC
15th & Walnut Owner, LLC
Other unconsolidated entities
Ownership %
Investment at
December 31, 2015
55%
(a)
62%
Various
$131,362
45,081
4,195
1,873
$182,511
(a) Our ownership percentage in Downtown Railyards Venture, LLC is based upon a waterfall calculation outlined in the joint
venture operating agreement.
Inflation
A number of our leases contain provisions designed to partially mitigate any adverse impact of inflation. With respect to
current economic conditions and governmental fiscal policy, inflation may become a greater risk. Our leases typically require
the tenant to pay its share of operating expenses, including common area maintenance, real estate taxes and insurance. By
sharing these costs with our tenants, we may reduce our exposure to increases in costs and operating expenses resulting from
inflation. A portion of our leases also include clauses enabling us to receive percentage rents based on a tenant’s gross sales
above predetermined levels or escalation clauses which are typically related to increases in the Consumer Price Index or similar
inflation indices.
Subsequent Events
On December 23, 2015, we announced the spin-off of assets included in the non-core segment through the pro-rata distribution
of 100% of the outstanding shares of common stock of Highlands REIT, Inc. ("Highlands"), a wholly-owned subsidiary of
InvenTrust that was formed to hold a number of non-core assets. Highlands has filed a preliminary registration statement on
Form 10 with the Securities and Exchange Commission ("SEC") in connection with the proposed spin-off. On February 5,
2015, Highlands filed a new preliminary registration statement on Form 10 with the SEC in replacement of the initial filing.
On January 3, 2016, we executed a definitive purchase agreement with UHC Acquisition Sub LLC, a subsidiary of a joint
venture formed between Canada Pension Plan Investment Board, GIC and Scion Communities Investors LLC, under which the
joint venture’s subsidiary will acquire our student housing platform, University House. The agreement’s gross all-cash value is
$1.4 billion. Under the terms of the agreement, the final net proceeds will be determined at the closing of the transaction
following the determination of several events and closing considerations.
On February 26, 2016, we sold our interest in our student housing joint venture, Eugene, to our joint venture partner for
proceeds of $5.4 million.
71
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risk associated with changes in interest rates both in terms of variable-rate debt and the price of new
fixed-rate debt upon maturity of existing debt and for acquisitions. We are also subject to market risk associated with our
marketable securities investments.
Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to
lower our overall borrowing costs. If market rates of interest on all of the floating rate debt as of December 31, 2015
permanently increased by 1%, the increase in interest expense on the floating rate debt would decrease future earnings and cash
flows by approximately $2.1 million. If market rates of interest on all of the floating rate debt as of December 31, 2015
permanently decreased by 1%, the decrease in interest expense on the floating rate debt would increase future earnings and
cash flows by approximately $2.1 million.
With regard to our variable rate financing, we assess interest rate cash flow risk by continually identifying and monitoring
changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging
opportunities. We maintain risk management control systems to monitor interest rate cash flow risk attributable to both of our
outstanding or forecasted debt obligations as well as our potential offsetting hedge positions. The risk management control
systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of
changes in interest rates on our future cash flows.
We monitor interest rate risk using a variety of techniques, including periodically evaluating fixed interest rate quotes on all
variable rate debt and the costs associated with converting the debt to fixed rate debt. Also, existing fixed and variable rate
loans that are scheduled to mature in the next year or two are evaluated for possible early refinancing and or extension due to
consideration given to current interest rates. Refer to our Borrowings table in Item 7 of this Annual Report on Form 10-K for
mortgage debt principal amounts and weighted average interest rates by year and expected maturity to evaluate the expected
cash flows and sensitivity to interest rate changes.
We may use financial instruments to hedge exposures to changes in interest rates on loans secured by our properties. To the
extent we do, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the
terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates
credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not
possess credit risk. In the alternative, we seek to minimize the credit risk in derivative instruments by entering into transactions
with what we believe are high-quality counterparties. Market risk is the adverse effect on the value of a financial instrument
that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing
and monitoring parameters that limit the types and degree of market risk that may be undertaken.
The following table summarizes interest rate swap contracts outstanding as of December 31, 2015 and 2014 (dollar amounts stated
in thousands):
Date Entered
Effective Date
End Date
Pay
Fixed
Rate
Receive Floating
Rate Index
Notional
Amount
Fair Value as of
December 31,
2015
Fair Value as of
December 31,
2014
December 8, 2015 December 10, 2015 December 1, 2019
December 8, 2015 December 10, 2015 December 1, 2019
1.353%
1.351%
1 month LIBOR $
1 month LIBOR
January 23, 2014 February 14, 2014
March 1, 2021
2.405%
1 month LIBOR
January 6, 2014
January 2, 2014
January 15, 2015
4.68%
1 month LIBOR
44,000 $
66,000
47,000
N/A
$
157,000 $
— $
—
(1,941)
—
(1,941) $
—
—
(1,737)
(7)
(1,744)
We have, and may in the future enter into, derivative positions that do not qualify for hedge accounting treatment. The gains or
losses resulting from marking-to-market, these derivatives at the end of each reporting period are recognized as an increase or
decrease in "interest expense" on our consolidated statements of income. In addition, we are, and may in the future be, subject
to additional expense based on the notional amount of the derivative positions and a specified spread over LIBOR.
Equity Price Risk
We are exposed to equity price risk as a result of our investments in marketable equity securities. Equity price risk is based on
volatility of equity prices and the values of corresponding equity indices.
Other than temporary impairments on our investments in marketable securities were $0.0 for the years ended December 31, 2015
and 2014 compared to $1.1 million for the year ended December 31, 2013. We believe that our investments will continue to generate
72
dividend income and we could continue to recognize gains on sale. However, due to general economic and credit market
uncertainties it is difficult to project where the REIT market and our portfolio will perform in 2016.
Although it is difficult to project what factors may affect the prices of equity sectors and how much the effect might be, the table
below illustrates the impact of a 10% increase and a 10% decrease in the price of the equities held by us would have on the value of
the total assets and the book value of the Company as of December 31, 2015 (dollar amounts stated in thousands).
Equity securities
Cost
$136,562
Fair Value
$175,127
Hypothetical 10% Decrease in
Market Value
Hypothetical 10% Increase in
Market Value
$157,614
$192,640
73
INVENTRUST PROPERTIES CORP.
(A Maryland Corporation)
Index
Item 8. Consolidated Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets at December 31, 2015 and 2014
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31,
2015, 2014 and 2013
Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
Real Estate and Accumulated Depreciation (Schedule III)
Schedules not filed:
Page
75
76
77
78
79
82
123
All schedules other than the ones listed in the Index have been omitted as the required information is inapplicable or the
information is presented in the financial statements or related notes.
74
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
InvenTrust Properties Corp.:
We have audited the accompanying consolidated balance sheets of InvenTrust Properties Corp. and subsidiaries (the Company) as of
December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive income, changes in equity,
and cash flows for each of the years in the three-year period ended December 31, 2015. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement schedule III. These consolidated financial statements
and financial statement schedule III are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements and financial statement schedule III based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
InvenTrust Properties Corp. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule III, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth herein.
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method for accounting for
discontinued operations in 2014 due to the adoption of Accounting Standards Update 2014-08, Reporting Discontinued Operations
and Disclosures of Disposals of Components of an Entity.
/s/ KPMG LLP
Chicago, Illinois
March 18, 2016
75
INVENTRUST PROPERTIES CORP.
Consolidated Balance Sheets
(Dollar amounts in thousands, except share amounts)
Assets
Investment properties
Land
Building and other improvements
Construction in progress
Total
Less accumulated depreciation
Net investment properties
Cash and cash equivalents
Restricted cash and escrows
Investment in marketable securities
Investment in unconsolidated entities
Accounts and rents receivable (net of allowance of $2,418 and $5,658)
Intangible assets, net
Deferred costs and other assets
Assets of discontinued operations
Total assets
Liabilities
Debt
Accounts payable and accrued expenses
Distributions payable
Intangible liabilities, net
Other liabilities
Liabilities of discontinued operations
Total liabilities
Commitments and contingencies
Stockholder's Equity
Preferred stock, $.001 par value, 40,000,000 shares authorized, none
outstanding
Common stock, $.001 par value, 1,460,000,000 shares authorized,
862,205,672 and 861,824,777 shares issued and outstanding as of
December 31, 2015 and 2014, respectively
Additional paid in capital
Accumulated distributions in excess of net loss
Accumulated comprehensive income
Total Company stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
$
$
$
$
As of December 31,
2015
2014
774,040 $
3,285,698
72,122
4,131,860
(663,865)
3,467,995
203,285
16,499
177,431
182,511
44,653
71,131
46,796
3,118
4,213,419 $
1,878,653 $
92,447
28,013
42,688
22,858
57
2,064,716
770,220
3,030,645
265,303
4,066,168
(598,440)
3,467,728
598,904
32,950
154,753
122,203
40,798
89,705
59,476
2,930,799
7,497,316
1,991,608
79,368
35,909
43,258
24,595
1,325,749
3,500,487
—
—
862
6,066,583
(3,956,032)
37,290
2,148,703
—
2,148,703
4,213,419 $
861
7,755,471
(3,820,882)
57,599
3,993,049
3,780
3,996,829
7,497,316
See accompanying notes to the consolidated financial statements.
76
INVENTRUST PROPERTIES CORP.
Consolidated Statements of Operations and Comprehensive Income
(Dollar amounts in thousands, except per share amounts)
Income
Rental income
Tenant recovery income
Other property income
Total income
Expenses
General and administrative expenses
Property operating expenses
Real estate taxes
Depreciation and amortization
Business management fee
Provision for asset impairment
Total expenses
Operating (loss) income
Interest and dividend income
Gain on sale of investment properties
Gain (loss) on extinguishment of debt
Other income
Interest expense
Loss on contribution to joint venture
Equity in earnings of unconsolidated entities
Gain, (loss) and (impairment) of investment in unconsolidated
entities, net
Realized gain and (impairment), net, on sale of marketable
securities, net
Income (loss) from continuing operations before income taxes
Income tax expense
Net (loss) income from continuing operations
Net income from discontinued operations
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to Company
Net income (loss) per common share, from continuing
operations, basic and diluted
Net income per common share, from discontinued operations,
basic and diluted
Net income per common share, basic and diluted
Weighted average number of common shares outstanding, basic
and diluted
Comprehensive income:
Net income attributable to Company
Unrealized gain on investment securities
Unrealized gain (loss) on derivatives
Reclassification adjustment for amounts recognized in net
income
$
$
$
$
$
$
$
$
$
Comprehensive (loss) income attributable to the Company
$
2015
Year Ended December 31,
2014
2013
370,662 $
69,668
9,714
450,044
78,218
77,610
50,870
150,401
—
108,154
465,253
(15,209) $
11,774
40,682
(4,568)
19,447
(94,572)
(12,919)
35,167
377,067 $
66,046
9,361
452,474
64,332
91,111
45,604
153,737
2,605
80,774
438,163
14,311 $
12,713
73,232
34,515
2,669
(120,668)
—
81,179
377,876
71,207
7,202
456,285
48,318
84,735
50,380
167,071
37,962
195,680
584,146
(127,861)
18,855
14,001
(472)
3,627
(133,454)
—
11,474
326
56,352
(2,957)
20,459
587
(1,916)
(1,329) $
4,808
3,479 $
(15)
3,464 $
— $
0.01 $
0.01 $
43,025
197,328
(917)
196,411 $
290,247
486,658 $
(16)
486,642 $
0.22
$
$
0.33
0.55 $
31,539
(185,248)
(1,231)
(186,479)
430,543
244,064
(16)
244,048
(0.21)
0.48
0.27
861,830,627
878,064,982
899,842,722
3,464 $
299
(1,276)
(19,332)
(16,845) $
486,642 $
30,930
(2,634)
(41,825)
473,113 $
244,048
17,622
(70)
(30,838)
230,762
See accompanying notes to the consolidated financial statements.
77
.
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S
INVENTRUST PROPERTIES CORP.
Consolidated Statements of Cash Flows
(Dollar amounts in thousands)
Year Ended December 31,
2014
2015
2013
$
3,479 $
486,658 $
244,064
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Amortization of above and below market leases, net
Amortization of debt premiums, discounts, and financing costs
Straight-line rental income
Loss on extinguishment of debt
Gain on sale of investment properties, net
Loss on contribution to unconsolidated joint venture
Provision for asset impairment
Equity in earnings of unconsolidated entities
Distributions from unconsolidated entities
(Gain), loss and impairment of investment in unconsolidated
entities, net
Realized gain on sale of marketable securities
Impairment of investments in securities
Non-cash share based compensation
Other non-cash adjustments, net
Changes in assets and liabilities:
Accounts and rents receivable
Deferred costs and other assets
Accounts payable and accrued expenses
Other liabilities
Prepayment penalties and defeasance costs
Net cash flows provided by operating activities
Cash flows from investing activities:
Purchase of investment properties
Acquired in-place and market lease intangibles, net
Payments to acquire goodwill
Capital expenditures and tenant improvements
Investment in development projects
Proceeds from sale of investment properties, net
Purchase of marketable securities
Proceeds from sale of marketable securities
Consolidation of joint venture
Proceeds from the sale of and return of capital from
unconsolidated entities
Distributions from unconsolidated entities
Contributions to unconsolidated entities
Payment of leasing and franchise fees
Payments received from notes receivable
$
79
162,412
(1,907)
7,708
24
4,568
(40,682)
12,919
108,154
(35,167)
5,544
(326)
(20,459)
—
2,481
—
(8,099)
9,088
(2,181)
(7,244)
(5,578)
194,734 $
(307,116)
(11,146)
—
(27,192)
(115,686)
196,583
—
58,369
—
40,269
10,884
(35,326)
(4,895)
12,549
331,683
(273)
13,202
(3,326)
41,980
(360,934)
—
85,439
(80,886)
8,282
(60,860)
(43,025)
—
—
—
1,503
(1,407)
6,632
(18,654)
(65,679)
340,335 $
(289,977)
(18,299)
—
(66,623)
(108,986)
2,011,978
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118,995
(2,944)
275,149
33,891
(39,843)
(4,586)
559
383,969
(2,659)
14,730
(8,147)
18,777
(456,563)
—
247,372
(11,958)
7,217
3,473
(32,591)
1,052
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(4,404)
348
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(4,753)
(17,307)
422,813
(1,172,127)
(12,457)
(10,918)
(66,640)
(60,203)
2,101,277
(3,686)
106,143
2,705
40,243
20,121
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(5,700)
10,226
INVENTRUST PROPERTIES CORP.
Consolidated Statements of Cash Flows
(Dollar amounts in thousands)
Restricted escrows and other assets
Other (assets) liabilities
Net cash flows (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from distribution reinvestment program
Shares repurchased
Distributions paid
Proceeds from debt and notes payable
Payoffs of debt
Principal payments of mortgage debt
Payoffs of margin securities debt, net
Payment of loan fees and deposits
Contributions from noncontrolling interests, net
Settlement of put/call arrangement
Payments for contingent consideration
Preferred stock redemption
Cash contribution to Xenia Hotels & Resorts, Inc.
Property level cash contribution to Xenia Hotels & Resorts, Inc
Net cash flows used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, at beginning of year
Cash and cash equivalents, at end of year
$
$
$
$
Year Ended December 31,
2014
2015
2013
21,609 $
(3,176)
(164,274) $
—
—
(146,510)
408,928
(495,562)
(26,810)
—
(4,434)
152
—
—
(125)
(165,884)
(130,080)
(560,325) $
(529,865)
733,150
203,285 $
(2,844 ) $
16,420
1,922,890 $
95,832
(403,926)
(438,875)
503,132
(1,452,099)
(38,693)
(59,681)
(1,377)
2,028
(47,762)
(7,891)
—
—
—
(1,849,312 ) $
413,913
319,237
733,150 $
(12,194)
(8,941)
922,624
181,630
(40,006)
(449,253)
1,187,646
(1,978,075)
(48,931)
(79,461)
(12,124)
1,595
—
(10,000)
—
—
—
(1,246,979)
98,458
220,779
319,237
See accompanying notes to the consolidated financial statements.
80
INVENTRUST PROPERTIES CORP.
Consolidated Statements of Cash Flows
(Dollar amounts in thousands)
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest of $7,107,
$7,892, and $7,607 for 2015, 2014, and 2013, respectively
$
95,294 $
212,172
$
270,683
Year Ended December 31,
2014
2015
2013
Supplemental schedule of non-cash investing and financing activities:
Net equity distributed to Xenia Hotels & Resorts, Inc. (net of cash
contributed)
Property surrendered in extinguishment of debt
Mortgage assumed by buyers upon disposal of properties
Land contributed to an unconsolidated entity
Properties contributed to an unconsolidated entity, net of related
payables
Consolidation of assets from joint venture
Assumption of mortgage debt at consolidation of joint venture
Liabilities assumed at consolidation of joint venture
$
1,484,872 $
—
—
46,174
—
—
—
—
—
$
83,822
657,339
—
—
21,833
11,967
446
—
5,289
7,683
—
99,092
89,164
88,503
5,616
See accompanying notes to the consolidated financial statements.
81
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
1. Organization
InvenTrust Properties Corp. (formerly known as Inland American Real Estate Trust, Inc.) (the “Company”), was formed on
October 4, 2004 (inception) to acquire and manage a diversified portfolio of commercial real estate, primarily retail properties
and multi-family (both conventional and student housing), office, industrial and lodging properties, located in the United States.
For the year ended December 31, 2015, the Company had four segments: retail, lodging, student housing, and non-core.
Prior to 2015, the Company was party to a business management agreement with Inland American Business Manager and
Advisor, Inc. (the "Business Manager") pursuant to which it served as the Company's business manager, with responsibility for
overseeing and managing its day-to-day operations, under the supervision of the Company's board of directors. The Company
was also party to property management agreements with each of its property managers (the "Property Managers").
On March 12, 2014, the Company began the process of becoming fully self-managed by terminating its business management
agreement, hiring all of the employees of the Business Manager and acquiring the assets of its Business Manager necessary to
perform the functions previously performed by the Business Manager. Similarly, as of March 12, 2014, certain functions
performed by the Property Managers, such as property-level accounting, lease administration, leasing, marketing and
construction functions, were transitioned to the Company. The self-management transactions were completed on December 31,
2014 when the Company acquired the assets of its property managers and hired substantially all of its employees and the
remaining property management functions were transitioned to the Company.
On February 3, 2015, the Company completed the spin-off (the "Spin-Off") of its lodging subsidiary, Xenia Hotels & Resorts,
Inc. ("Xenia"), through a taxable pro-rata distribution by the Company of 95% of the outstanding common stock of Xenia to
holders of record of the Company’s common stock as of the close of business on January 20, 2015 (the “Record Date”). Each
holder of record of the Company’s common stock received one share of Xenia’s common stock for every eight shares of the
Company’s common stock held at the close of business on the Record Date. In lieu of fractional shares, stockholders of the
Company received cash. On February 4, 2015, Xenia's common stock began trading on the New York Stock Exchange
("NYSE") under the ticker symbol "XHR". In connection with the Spin-Off, the Company entered into certain agreements that,
among other things, provide a framework for the Company’s relationship with Xenia after the Spin-Off, including a Separation
and Distribution Agreement, a Transition Services Agreement, an Employee Matters Agreement and an Indemnity Agreement.
Following the Spin-Off, the Company no longer has a lodging segment. Therefore, the 46 lodging assets included in the Spin-
Off have been classified as discontinued operations as the Spin-Off represents a strategic shift that has had a major effect on the
Company's operations and financial results. The assets and liabilities of these 46 lodging assets are classified as assets and
liabilities of discontinued operations on the consolidated balance sheet at December 31, 2015 and 2014. The operations of
these 46 lodging assets have been classified as income from discontinued operations on the consolidated statement of
operations and comprehensive income for the years ended December 31, 2015, 2014 and 2013.
On December 23, 2015, the Company filed a preliminary registration statement in contemplation of spinning-off assets
included in its non-core segment as well as other non-strategic assets. See "Note 17. Subsequent Events" for further discussion.
The accompanying consolidated financial statements include the accounts of the Company, as well as all wholly-owned subsidiaries
and consolidated joint venture investments. Wholly-owned subsidiaries generally consist of limited liability companies (LLCs) and
limited partnerships (LPs). The effects of all significant intercompany transactions have been eliminated.
Each property is owned by a separate legal entity which maintains its own books and financial records and each entity's assets
are not available to satisfy the liabilities of other affiliated entities, except as otherwise disclosed in "Note 10. Debt".
At December 31, 2015, the Company owned 129 properties, of which the operating activity is reflected in continuing operations
on the consolidated statements of operations and comprehensive income for the years ended December 31, 2015, 2014 and
2013. Comparatively, at December 31, 2014, the Company owned 188 properties of which 46 lodging assets were included in
the Spin-Off and classified as assets of discontinued operations.
82
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
The breakdown, by segment, of the 129 owned properties at December 31, 2015 is as follows:
Segment
Retail
Student Housing
Non-core
Property Count
97
18
14
2. Summary of Significant Accounting Policies
Square Feet / Beds
(unaudited)
15,251,863 Square Feet
11,039 Beds
5,730,176 Square Feet
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles ("GAAP") and require 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 consolidated financial statements and
the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Revenue Recognition
The Company commences revenue recognition on its leases based on a number of factors. In most cases, revenue recognition
under a lease begins when the lessee takes possession of or controls the physical use of the leased asset. Generally, this occurs
on the lease commencement date. The determination of who is the owner, for accounting purposes, of the tenant improvements
determines the nature of the leased asset and when revenue recognition under a lease begins. If the Company is the owner, for
accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins
when the lessee takes possession of the finished space, typically when the improvements are substantially complete. If the
Company concludes it is not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the
leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease
incentives which reduces revenue recognized over the term of the lease. In these circumstances, the Company begins revenue
recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements. The
Company considers a number of different factors to evaluate whether it or the lessee is the owner of the tenant improvements
for accounting purposes. These factors include:
• whether the lease stipulates how and on what a tenant improvement allowance may be spent;
• whether the tenant or landlord retains legal title to the improvements;
•
•
the uniqueness of the improvements;
the expected economic life of the tenant improvements relative to the length of the lease; and
• who constructs or directs the construction of the improvements.
The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment. In
making that determination, the Company considers all of the above factors. No one factor, however, necessarily establishes its
determination.
Rental income is recognized on a straight-line basis over the term of each lease. The difference between rental income earned
on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable
and is included as a component of accounts and rents receivable in the accompanying consolidated balance sheets.
The Company records lease termination income if there is a signed termination agreement, all of the conditions of the
agreement have been met, the tenant is no longer occupying the property and amounts due are considered collectible.
The Company defers recognition of contingent rental income (i.e. percentage/excess rent) until the specified target that triggers
the contingent rental income is achieved.
83
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
Consolidation
The Company evaluates its investments in limited liability companies and partnerships to determine whether such entities may
be a variable interest entity ("VIE"). If the entity is a VIE, the determination of whether the Company is the primary beneficiary
must be made. The primary beneficiary determination is based on a qualitative assessment as to whether the entity has (i) power
to direct significant activities of the VIE and (ii) an obligation to absorb losses or the right to receive benefits that could be
potentially significant to the VIE. The Company will consolidate a VIE if it is deemed to be the primary beneficiary, as defined
in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, Consolidation. The equity
method of accounting is applied to entities in which the Company is not the primary beneficiary as defined in FASB ASC 810,
or the entity is not a VIE and the Company does not have effective control, but can exercise influence over the entity with
respect to its operations and major decisions.
Reclassifications
Certain reclassifications have been made to the 2014 and 2013 consolidated financial statements to conform to the 2015
presentations. These reclassifications primarily represent reclassifications of revenue and expenses to discontinued operations
on the consolidated statements of operations and comprehensive income for the years ended December 31, 2014 and 2013 and
reclassifications of assets and liabilities to discontinued operations on the consolidated balance sheet as of December 31, 2014.
Capitalization and Depreciation
Real estate is reflected at cost less accumulated depreciation. Ordinary repairs and maintenance are expensed as incurred.
Depreciation expense is computed using the straight line method. Building and other improvements are depreciated based upon
estimated useful lives of 30 years for building and improvements and 5-15 years for furniture, fixtures and equipment and site
improvements.
Tenant improvements are amortized on a straight line basis over the lesser of the life of the tenant improvement or the lease
term as a component of depreciation and amortization expense.
Leasing fees are amortized on a straight-line basis over the life of the related lease as a component of depreciation and
amortization expense.
Loan fees are amortized on a straight-line basis, which approximates the effective interest method, over the life of the related
loan as a component of interest expense.
Direct and indirect costs that are clearly related to the construction and improvements of investment properties are capitalized.
Costs incurred for property taxes and insurance are capitalized during periods in which activities necessary to get the property
ready for its intended use are in progress. Interest costs are also capitalized during such periods. Additionally, the Company
treats investments accounted for by the equity method as assets qualifying for interest capitalization provided (1) the investee
has activities in progress necessary to commence its planned principal operations and (2) the investee’s activities include the
use of such funds to acquire qualifying assets.
Investment Properties Held for Sale
In determining whether to classify an investment property as held for sale, the Company considers whether: (i) management has
committed to a plan to sell the investment property; (ii) the investment property is available for immediate sale, in its present
condition; (iii) the Company has initiated a program to locate a buyer; (iv) the Company believes that the sale of the investment
property is probable; (v) the Company has received a significant non-refundable deposit for the purchase of the property;
(vi) the Company is actively marketing the investment property for sale at a price that is reasonable in relation to its fair value;
and (vii) actions required for the Company to complete the plan indicate that it is unlikely that any significant changes will be
made to the plan.
If all of the above criteria are met, the Company classifies the investment property as held for sale. On the day that these criteria
are met, the Company suspends depreciation on the investment properties held for sale, including depreciation for tenant
84
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
improvements and additions, as well as on the amortization of acquired in-place leases. The investment properties and liabilities
associated with those investment properties that are held for sale are classified separately on the consolidated balance sheets for
the most recent reporting period and recorded at the lesser of the carrying value or fair value less costs to sell. Additionally, if
the sale represents a strategic shift that has (or will have) a major effect on the entity's results and operations, the operations for
the periods presented are classified on the consolidated statements of operations and comprehensive income as discontinued
operations for all periods presented.
Disposition of Real Estate
The Company accounts for dispositions in accordance with FASB ASC 360-20, Real Estate Sales. The Company recognizes
gain in full when real estate is sold, provided (a) the profit is determinable, that is, the collectability of the sales price is
reasonably assured or the amount that will not be collectible can be estimated, and (b) the earnings process is virtually
complete, that is, the seller is not obliged to perform significant activities after the sale to earn the profit.
In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which includes amendments that
change the requirements for reporting discontinued operations and require additional disclosures about discontinued operations.
Under the new guidance, only disposals representing a strategic shift that has (or will have) a major effect on the entity’s results
and operations would qualify as discontinued operations. In addition, ASU 2014-08 expands the disclosure requirements for
disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of
individually significant components that do not meet the definition of discontinued operations. ASU No. 2014-08 is effective
for interim and annual reporting periods in fiscal years that begin after December 15, 2014. The Company has elected to early
adopt No. ASU 2014-08, effective January 1, 2014.
For the year ended December 31, 2015, the operations reflected in discontinued operations are related to the assets included in
the Xenia Spin-Off. For the years ended December 31, 2014 and 2013, the operations reflected in discontinued operations are
related to the net lease assets that were classified as held for sale at December 31, 2013, the entire lodging segment, including
the hotels sold during the year ended December 31, 2014, the assets included in the Xenia Spin-Off, and any assets classified as
discontinued operations prior to the Company's adoption of ASU No. 2014-08, effective January 1, 2014. All other asset
disposals are now included as a component of income from continuing operations.
Impairment
The Company assesses the carrying values of the respective long-lived assets, whenever events or changes in circumstances
indicate that the carrying amounts of these assets may not be fully recoverable, such as a reduction in the expected holding
period of the asset. If it is determined that the carrying value is not recoverable because the undiscounted cash flows do not
exceed carrying value, the Company records an impairment loss to the extent that the carrying value exceeds fair value. The
valuation and possible subsequent impairment of investment properties is a significant estimate that can and does change based
on the Company's continuous process of analyzing each property and reviewing assumptions about uncertain inherent factors,
as well as the economic condition of the property at a particular point in time.
The use of projected future cash flows and related holding period is based on assumptions that are consistent with the estimates
of future expectations and the strategic plan the Company uses to manage its underlying business. However assumptions and
estimates about future cash flows and capitalization rates are complex and subjective. Changes in economic and operating
conditions and the Company’s ultimate investment intent that occur subsequent to the impairment analyses could impact these
assumptions and result in future impairment charges of the real estate properties.
On a periodic basis, management assesses whether there are any indicators that the carrying value of the Company’s
investments in unconsolidated entities may be other than temporarily impaired. To the extent impairment has occurred, the loss
is measured as the excess of the carrying value of the investment over the fair value of the investment. The fair value of the
underlying investment includes a review of expected cash flows to be received from the investee.
85
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
Derivative Instruments
In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company limits these risks
by following established risk management policies and procedures including the use of derivatives to hedge interest rate risk on
debt instruments.
The Company has a policy of only entering into contracts with established financial institutions based upon their credit ratings
and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to
hedge, the Company has not sustained a material loss from those instruments nor does it anticipate any material adverse effect
on its net income or financial position in the future from the use of derivatives.
The Company recognizes all derivatives in the balance sheet at fair value. Additionally, the fair value adjustments will affect
either equity or net income depending on whether the derivative instruments qualify as a hedge for accounting purposes and, if
so, the nature of the hedging activity. When the terms of an underlying transaction are modified, or when the underlying
transaction is terminated or completed, all changes in the fair value of the instrument are marked-to-market with changes in
value included in net income each period until the instrument matures. Any derivative instrument used for risk management that
does not meet the criteria for hedge accounting is marked-to-market each period in the income statement. The Company does
not use derivatives for trading or speculative purposes.
Marketable Securities
The Company classifies its investment in securities in one of three categories: trading, available-for-sale, or held-to-maturity.
Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities
are those securities in which the Company has the ability and intent to hold the security until maturity. All securities not
included in trading or held-to-maturity are classified as available-for-sale. Investment in securities at December 31, 2015 and
2014 consists of common and preferred stock investments and investments in real estate related bonds that are all classified as
available-for-sale securities and are recorded at fair value. Unrealized holding gains and losses on available-for-sale securities
are excluded from earnings and reported as a separate component of comprehensive income until realized. Realized gains and
losses from the sale of available-for-sale securities are determined on a specific identification basis. A decline in the market
value of any available-for-sale security below cost that is deemed to be other than temporary, results in a reduction in the
carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. When
a security is impaired, the Company considers whether it has the ability and intent to hold the investment for a time sufficient to
allow for any anticipated recovery in market value and considers whether evidence indicating the cost of the investment is
recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the
impairment, the severity and duration of the impairment, changes in value subsequent to period end and forecasted performance
of the investee.
Acquisition of Real Estate
The Company typically allocates the purchase price of each acquired business (as defined in the accounting guidance related to
business combinations, Accounting Standards Codification 805 - Business Combinations) between tangible and intangible
assets at full fair value at the date of the transaction. Such tangible and intangible assets include land, building and
improvements, acquired above market and below market leases, in-place lease value, customer relationships (if any), and any
assumed financing that is determined to be above or below market terms. Any additional amounts are allocated to goodwill as
required, based on the remaining purchase price in excess of the fair value of the tangible and intangible assets acquired and
liabilities assumed. The allocation of the purchase price is an area that requires judgment and significant estimates.
The Company engages a third party to assist in the allocation of the purchase price to land, building, and other assets as stated
above. The Company determines whether any financing assumed is above or below market based upon comparison to similar
financing terms for similar investment properties. The Company allocates a portion of the purchase price to the estimated
acquired in-place lease costs based on estimated lease execution costs for similar leases as well as lost rent payments during
assumed lease up period when calculating as if vacant fair values. The Company also evaluates each acquired lease based upon
current market rates at the acquisition date and considers various factors including geographical location, size and location of
leased space within the investment property, tenant profile, and the credit risk of the tenant in determining whether the acquired
86
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
lease is above or below market lease costs. After an acquired lease is determined to be above or below market, the Company
allocates a portion of the purchase price to such above or below acquired lease costs based upon the present value of the
difference between the contractual lease rate and the estimated market rate. For below market leases with fixed rate renewals,
renewal periods are included in the calculation of below market in-place lease values. The determination of the discount rate
used in the present value calculation is based upon the “risk free rate” and current interest rates. This discount rate is a
significant factor in determining the market valuation which requires judgment of subjective factors such as market knowledge,
economics, demographics, location, visibility, age and physical condition of the property.
The Company expenses acquisition costs of all transactions as incurred. All costs related to finding, analyzing and negotiating a
transaction are expensed as incurred as a general and administrative expense, whether or not the acquisition is completed.
Cash and Cash Equivalents
The Company considers all demand deposits, money market accounts and investments in certificates of deposit and repurchase
agreements purchased with a maturity of three months or less, at the date of purchase, to be cash equivalents. The Company
maintains its cash and cash equivalents at financial institutions. The combined account balances at one or more institutions
periodically exceed the Federal Depository Insurance Corporation ("FDIC") insurance coverage and, as a result, there is a
concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company believes that the
risk is not significant, as the Company does not anticipate the financial institutions’ non-performance.
Restricted Cash and Escrows
Restricted escrows consist of cash held in escrow comprised of lenders’ restricted escrows of $14,634 and $23,915, post-
acquisition escrows of $93 and $1,963 as of December 31, 2015 and 2014, respectively. As of December 31, 2015 and 2014, the
restricted cash balance was $1,772 and $7,072, respectively.
Goodwill
The excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired (including identified
intangible assets) and liabilities assumed was recorded as goodwill. Goodwill has been recognized and allocated to specific
properties in the Company's lodging segment since each individual hotel property is an operating segment and considered a
reporting unit. The Company tests goodwill for impairment annually or more frequently if events or changes in circumstances
indicate impairment.
In accordance with FASB ASC 350, Intangibles - Goodwill and Other, the Company tested goodwill for impairment by making
a qualitative assessment of whether it is more likely than not the reporting unit's fair value is less than its carrying amount
before application of the two-step goodwill impairment test. The two-step goodwill test was not performed for those assets
where it was concluded that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount.
For those reporting units where this was not the case, the two step procedure detailed below was followed in order to determine
goodwill impairment.
In the first step, the Company compared the estimated fair value of each property with goodwill to the carrying value of the
property’s assets, including goodwill. The fair value is based on estimated future cash flow projections that utilize discount and
capitalization rates, which are generally unobservable in the market place (Level 3 inputs), but approximate the inputs the
Company believes would be utilized by market participants in assessing fair value. The estimates of future cash flows are based
on a number of factors including the historical operating results, known trends, and market/economic conditions. If the carrying
amount of the property’s assets, including goodwill, exceeds its estimated fair value, the second step of the goodwill
impairment test is performed to measure the amount of impairment loss, if any. In this second step, if the implied fair value of
goodwill is less than the carrying amount of goodwill, an impairment charge is recorded in an amount equal to that excess. The
Company recorded no goodwill impairment for the years ended December 31, 2015, 2014 and 2013.
Income Taxes
The Company is qualified and has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue
Code of 1986, as amended, for federal income tax purposes commencing with the tax year ending December 31, 2005. Since
87
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal income tax on taxable
income that is distributed to stockholders. A REIT is subject to a number of organizational and operational requirements,
including a requirement that it currently distributes at least 90% of its REIT taxable income (subject to certain adjustments) to
its stockholders (the "90% Distribution Requirement"). If the Company fails to qualify as a REIT in any taxable year, without
the benefit of certain relief provisions, the Company will be subject to federal and state income tax on its taxable income at
regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state
and local taxes on its income, property or net worth and federal income and excise taxes on its undistributed income.
The Company has elected to treat certain of its consolidated subsidiaries, and may in the future elect to treat newly formed
subsidiaries, as taxable REIT subsidiaries pursuant to the Internal Revenue Code. Taxable REIT subsidiaries may participate in
non-real estate related activities and/or perform non-customary services for tenants and are subject to federal and state income
tax at regular corporate tax rates. The Company’s hotels are leased to certain of the Company’s taxable REIT subsidiaries.
Lease revenue from these taxable REIT subsidiaries and its wholly-owned subsidiaries is eliminated in consolidation.
The Company accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributed to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are expected to be recovered or settled.
Deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on
consideration of available evidence, including future reversal of existing taxable temporary differences, future projected taxable
income, and tax-planning strategies. In assessing the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences
become deductible. The Company's analysis in determining the deferred tax asset valuation allowance involves management
judgment and assumptions.
Share Based Compensation
In accordance with FASB ASC Topic 718, Accounting for Share Based Compensation, companies are required to recognize in
the income statement the grant-date fair value of stock options and other equity based compensation issued to employees.
Under Topic 718, the way an award is classified will affect the measurement of compensation cost. Equity classified awards are
measured at grant date fair value, and amortized on a straight-line basis over the vesting period of the stock and are not
subsequently re-measured. Liability classified awards are measured at the grant date and are subsequently re-measured at the
end of each period. The fair value of the non-vested stock awards for the purposes of recognizing stock-based compensation
expense is the estimated market price of the Company's common stock on the grant date. At December 31, 2015, the Company
had two stock based compensation plans, which are discussed in "Note 15. Stock-Based Compensation". The compensation
cost is based on awards that are expected to vest and has been reduced for estimated forfeitures.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective, although it will not
affect the accounting for rental related revenues. ASU No. 2014-09, as issued, was to be effective for financial statements
issued for fiscal years and interim periods beginning after December 31, 2016. In April 2015, the FASB approved an
amendment to the ASU, deferring the effective date one year to annual reporting periods beginning after December 15, 2017 for
public entities. The standard permits the use of either the retrospective or cumulative effect transition method. Early adoption is
prohibited. The Company is evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and
related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its
ongoing financial reporting.
In February 2015, the FASB issued ASU 2015-02, Consolidation. This update includes amendments that change the
requirements for evaluating limited partnerships and similar entities for consolidation. Under the new guidance, limited
88
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
partnerships and similar entities will be considered variable interest entities ("VIEs") unless a scope exception applies. As such,
entities that consolidate limited partnerships and similar entities that are considered to be VIEs will be subject to VIE primary
beneficiary disclosure requirements, and entities that do not consolidate a VIE will be subject to the disclosure requirements
that apply to variable interest holders other than the primary beneficiary. The new guidance also eliminates three of the six
criteria for determining if fees paid to a decision maker or service provider are considered to be variable interest in a VIE and
changes the criteria used to determine if variable interests in a VIE held by related parties of a reporting entity require the
reporting entity to consolidate the VIE. This standard will be effective for financial statements issued by public companies for
annual and interim reporting periods beginning after December 15, 2015. The Company is continuing to evaluate this
guidance; however, the Company does not expect its adoption to have a significant impact on the consolidated financial
statements.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which 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. The recognition and measurement guidance for debt issuance costs
are not affected. Subsequently, in August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of
Debt Issuance Costs Associated with Line-of-Credit Arrangements, which allows an entity to present the costs related to
securing a line-of-credit arrangement as an asset, regardless of whether there are any outstanding borrowings. Upon adoption,
the Company will apply the new guidance on a retrospective basis and adjust the balance sheet of each individual period
presented to reflect the period-specific effects of applying the new guidance. ASU 2015-03 and ASU 2015-15 are effective for
the Company beginning January 1, 2016. The Company is continuing to evaluate this guidance; however, the Company does
not expect its adoption to have a significant impact on the consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which
requires that if the initial accounting for a business combination is incomplete as of the end of the reporting period in which the
acquisition occurs, the acquirer records provisional amounts based on information available at the acquisition date. This
guidance is effective for the Company beginning January 1, 2016. The Company is continuing to evaluate this guidance;
however, the Company does not expect its adoption to have a significant impact on the consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities which
revises an entity’s accounting related to: (i) the classification and measurement of investments in equity securities; (ii) the
presentation of certain fair value changes for financial liabilities measured at fair value; and (iii) amends certain disclosure
requirements associated with the fair value of financial instruments, including eliminating the requirement for public business
entities to disclose the method and significant assumptions used to estimate the fair value for financial instruments measured at
amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2017. The Company is continuing to evaluate this guidance; however, the Company does not expect its adoption to have a
significant impact on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, amending the existing accounting standards for lease accounting,
including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting.
ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018, and early adoption of is
permitted as of the standard’s issuance date. The new standard requires a modified retrospective transition approach for all
leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The
Company is assessing whether the new standard will have a material effect on its financial position or results of operations.
89
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
3. Acquired Properties
The Company records identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination at
fair value. The Company acquired seven properties, including four retail and three student housing properties for the year
ended December 31, 2015 for a gross acquisition price of $323,700. The student housing property acquired in the second
quarter, Bishops Landing, has been demolished and the land will be used for a new student housing development. The table
below reflects acquisition activity for the year ended December 31, 2015.
Segment
Retail
Retail
Retail
Retail
Retail, subtotal
Property
The Shops at Walnut Creek
Westpark Shopping Center
Rio Pinar Plaza
Sonterra Village
Date
4/10/2015
5/12/2015
11/24/2015
12/16/2015
Student Housing
Student Housing
Student Housing
Bishops Landing (a)
UH Tuscaloosa
UH Baton Rouge
Student Housing, subtotal
4/27/2015
10/1/2015
10/19/2015
Total
Gross
Acquisition Price
Square Feet / Beds
(unaudited)
216,334 Square Feet
176,935 Square Feet
124,283 Square Feet
42,492 Square Feet
(a)
592 Beds
847 Beds
$
$
$
$
$
57,100
33,400
34,000
21,500
146,000
12,500
56,600
108,600
177,700
323,700
(a) The Company has recorded the assets of the Bishops Landing acquisition as construction in progress on the consolidated
balance sheet as of December 31, 2015.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed for the year ended
December 31, 2015, as listed above.
Land
Building
Furniture, fixtures, and equipment
Construction in progress
Total fixed assets
Net other assets and liabilities
Total
2015 Acquisitions
$
$
$
42,273
253,017
5,708
12,500
313,498
10,202
323,700
The Company placed in service two student housing properties and completed an addition on a third student housing property
during the year ended December 31, 2015. The following table summarizes the assets placed in service during the year ended
December 31, 2015.
Land
Building
Total fixed assets
2015 Assets
Placed in Service
$
$
17,745
130,767
148,512
90
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
For properties acquired and assets placed in service during the year ended December 31, 2015, the Company recorded revenue
of $15,292 for the year ended December 31, 2015. The Company recorded property net income of $3,146, excluding related
expensed acquisition costs, for the year ended December 31, 2015.
The Company acquired six properties, including three retail, one lodging, one retail parcel adjacent to a hotel owned by the
Company, and one student housing property for the year ended December 31, 2014 for a gross acquisition price of $309,760.
The table below reflects acquisition activity for the year ended December 31, 2014.
Segment
Retail
Retail
Retail
Retail, subtotal
Property
Suncrest Village
Plantation Grove
Quebec Square
Date
2/13/2014
2/13/2014
12/18/2014
Student Housing
University House Denver
12/19/2014
Student Housing, subtotal
Lodging
Lodging, retail parcel
Aston Waikiki Beach Hotel (a)
Key West - Bottling Court
2/28/2014
11/25/2014
Lodging, subtotal
Total
Gross
Acquisition Price
14,050
12,100
52,250
78,400
Square Feet / Beds / Rooms
(unaudited)
93,358 Square Feet
73,655 Square Feet
207,561 Square Feet
352 Beds
645 Rooms
13,332 Square Feet
40,960
40,960
183,000
7,400
190,400
309,760
$
$
$
$
$
(a) Aston is the registered trademark of Aston Hotels & Resorts LLC and is the exclusive property of its owner.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed for the year ended
December 31, 2014, as listed above.
Land
Building
Furniture, fixtures, and equipment
Total fixed assets
Below market ground lease
Net other assets and liabilities
Total
2014 Acquisitions
$
$
$
35,178
226,394
27,416
288,988
9,516
11,256
309,760
For properties acquired during the year ended December 31, 2014, the Company recorded revenue of $37,937 for the year
ended December 31, 2014 and recorded property net income of $7,015, excluding related expensed acquisition costs, for the
year ended December 31, 2014.
During the years ended December 31, 2015, 2014 and 2013, the Company incurred $1,374, $1,529, and $2,987, respectively, of
acquisition and transaction costs that were recorded in general and administrative expenses on the consolidated statements of
operations and comprehensive income.
91
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
4. Disposed Properties
The Company sold five non-core properties, eleven retail properties, and one land parcel during the year ended December 31,
2015 for an aggregate gross disposition price of $196,600. The Company sold 313 properties and surrendered one non-core and
three retail properties to the lender (in satisfaction of non-recourse debt) for the year ended December 31, 2014 for an aggregate
gross disposition price of $2,732,250. The Company sold 313 properties and surrendered one retail property to the lender (in
satisfaction of non-recourse debt) for the year ended December 31, 2013 for an aggregate gross disposition price of $2,039,060.
For the years ended December 31, 2015, 2014 and 2013, the Company had generated net proceeds from the sale of properties of
$196,583, $2,011,978, and $2,101,277, respectively.
The following properties were sold during the year ended December 31, 2015. These properties have been included in
continuing operations on the consolidated statement of operations and comprehensive income for the years ended December 31,
2015, 2014 and 2013.
Segment
Non-core
Non-core
Non-core
Non-core
Non-core
Property
Las Plumas
Citizens - Manchester
SunTrust - Winston Salem
Tech II
Fremont
Non-core, subtotal
Date
4/1/2015
7/9/2015
7/30/2015
7/31/2015
10/27/2015
Gross
Disposition Price
27,500
8,200
1,900
14,300
11,300
63,200
$
$
Square Feet
(unaudited)
240,000 Square Feet
148,000 Square Feet
10,188 Square Feet
166,758 Square Feet
108,600 Square Feet
Retail
Tom Thumb Portfolio - 11 properties
11/25/2015
Retail, subtotal
132,000
132,000
$
756,870 Square Feet
Raleigh Hillsboro, land parcel
2/20/2015 $
1,400
Total
$
196,600
For the years ended December 31, 2015, 2014 and 2013, the Company recorded a gain on sale of investment properties of
$40,682, $73,232, and $14,001, respectively, in continuing operations.
92
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
In line with the Company's adoption of the new accounting standard governing discontinued operations during the year ended
December 31, 2014, only disposals representing a strategic shift that have (or will have) a major effect on results and operations
would qualify as discontinued operations. On February 3, 2015, the Company completed the spin-off of its lodging subsidiary,
Xenia Hotels & Resorts, Inc. The 46 assets included in the Spin-Off have been classified as discontinued operations as the
Spin-Off represents a strategic shift that has had a major effect on the Company's operations and financial results. The assets
and liabilities of these 46 assets are classified as assets and liabilities of discontinued operations on the consolidated balance
sheet at December 31, 2014. The operations of these 46 assets have been classified as income from discontinued operations on
the consolidated statements of operations and comprehensive income for the years ended December 31, 2015, 2014, and 2013.
The major classes of assets and liabilities of discontinued operations as of December 31, 2015 and December 31, 2014 were as
follows:
Assets
Investment properties:
Land
Building and other improvements
Construction in progress
Total
Less accumulated depreciation
Net investment properties
Cash and cash equivalents
Restricted cash and escrows
Accounts and rents receivable (net of allowance of $0 and $251)
Intangible assets, net
Deferred costs and other assets (a)
Total assets of discontinued operations
Liabilities
Debt
Accounts payable and accrued expenses
Intangible liabilities, net
Other liabilities (b)
Total liabilities of discontinued operations
As of
December 31, 2015
December 31, 2014
$
$
$
— $
—
—
—
—
—
—
—
—
—
3,118
3,118 $
—
—
—
57
57 $
338,313
2,710,647
39,736
3,088,696
(505,986)
2,582,710
134,245
87,296
26,502
64,541
35,505
2,930,799
1,199,027
88,356
4,212
34,154
1,325,749
(a) Deferred costs and other assets at December 31, 2015 primarily include receivables from Xenia related to hotel reserve escrows
and tax reimbursements.
(b) Other liabilities at December 31, 2015 include tax liabilities related to hotel properties payable by the Company.
93
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
For the year ended December 31, 2015, the operations reflected in discontinued operations, shown in the table below, reflect the
operations of the 46 lodging properties associated with the Spin-Off. For the years ended December 31, 2014 and 2013, the
operations reflected in discontinued operations, shown in the table below, reflect the operations of the 46 lodging properties
associated with the Spin-Off, the 52 select service lodging properties sold on November 17, 2014, the three stand-alone lodging
properties sold in 2014, the portfolio of 223 net lease properties sold in 2014, and all properties sold prior to the Company's
adoption of ASU No. 2014-08 on January 1, 2014. All other property disposals are now included as a component of income
from continuing operations, consistent with the Company's adoption of ASU No. 2014-08.
Year ended December 31,
2014
2013
2015
Revenues
Depreciation and amortization expense
Other expenses
Provision for asset impairment
Operating income from discontinued operations
Interest expense, income taxes, and other miscellaneous income
Gain on sale of properties, net
Loss on extinguishment of debt (1)
Loss on transfer of assets
$
68,682 $
11,934
55,425
—
1,323
3,485
—
—
—
Net income from discontinued operations
$
4,808 $
1,169,037 $
177,900
808,977
4,665
177,495
(98,455)
287,702
(76,495)
—
290,247 $
1,092,766
216,895
661,180
51,692
162,999
(156,712)
442,577
(18,305)
(16)
430,543
(1) During the year ended December 31, 2014, the Company prepaid $105,331 of mortgage debt secured by ten properties through
defeasance. The Company incurred $8,288 in costs to defease these loans, which are included in loss on extinguishment of
debt. These costs were paid into an escrow account, which was beyond the reach of the Company's creditors, to cover principal
and interest payments upon loan maturity. These properties were sold prior to December 31, 2014.
Net cash (used in) provided by operating activities from the properties classified as discontinued operations was $(5,799),
$207,832, and $295,294 for the years ended December 31, 2015, 2014 and 2013, respectively. Net cash (used in) provided by
investing activities from the properties classified as discontinued operations was $(2,945), $1,353,305 and $(381,904) for the
years ended December 31, 2015, 2014 and 2013.
During the year ended December 31, 2013, the Company contributed fourteen properties to a joint venture. As a result of this
contribution, the Company recognized a gain on sale of $12,783, which is included in gain on sale of investment properties on
the consolidated statements of operations and comprehensive income for the year ended December 31, 2013.
94
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
5. Investment in Partially Owned Entities
Consolidated Entities
During the fourth quarter 2013, the Company entered into two joint ventures to each develop a lodging property. The Company
had ownership interests of 75% in each joint venture. These entities were considered VIEs as defined in FASB ASC 810
because the entities did not have enough equity to finance their activities without additional subordinated financial support.
The Company determined it had the power to direct the activities of the VIEs that most significantly impacted the VIEs'
economic performance, as well as the obligation to absorb losses of the VIE that could have potentially been significant to the
VIE or the right to receive benefits from the VIEs that could have potentially been significant to the VIEs. As such, the
Company had a controlling financial interest and was considered the primary beneficiary of each of these entities. Therefore,
these entities were consolidated by the Company and are included as part of assets and liabilities of discontinued operations on
the consolidated balance sheet at December 31, 2014. These joint ventures were included in the Spin-Off on February 3, 2015
and are no longer part of the Company.
For those VIEs where the Company was the primary beneficiary, the following were the liabilities of the consolidated VIEs
which were not recourse to the Company, and the assets that could have been used only to settle those obligations.
Net investment properties
Other assets
Total assets
Mortgages, notes and margins payable
Other liabilities
Total liabilities
Net assets
Unconsolidated Entities
$
$
39,736
December 31, 2015 December 31, 2014
— $
—
—
—
—
—
— $
41,054
13,375
1,318
(21,214)
(27,679)
(6,465)
The entities listed below are owned by the Company and other unaffiliated parties in joint ventures. Net income, distributions
and capital transactions for these properties are allocated to the Company and its joint venture partners in accordance with the
respective partnership agreements.
These entities are not consolidated by the Company and the equity method of accounting is used to account for these
investments. Under the equity method of accounting, the net equity investment of the Company and the Company’s share of net
income or loss from the unconsolidated entity are reflected in the consolidated balance sheets and the consolidated statements
of operations and comprehensive income.
Entity
IAGM Retail Fund I, LLC (a)
Downtown Railyard Venture, LLC (b)
15th & Walnut Owner, LLC (c)
Other unconsolidated entities
Cobalt Industrial REIT II (d)
Description
Retail shopping centers
Land development
Student housing
Various real estate investments
Industrial portfolio
Carrying Value of
Investment at December 31,
Ownership %
2015
2014
55%
(b)
62%
Various
36%
$
$
131,362 $
45,081
4,195
1,873
—
182,511 $
109,273
—
4,740
704
7,486
122,203
(a) On April 17, 2013, the Company entered into a joint venture, IAGM Retail Fund I, LLC ("IAGM"), with PGGM Private
Real Estate Fund ("PGGM"), for the purpose of acquiring, owning, managing, supervising, and disposing of properties
95
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
and sharing in the profits and losses from those properties and its activities. The Company initially contributed 13
multi-tenant retail properties totaling 2,109,324 square feet from its portfolio to IAGM for an equity interest of $96,788,
and PGGM contributed $79,190. The gross disposition price was $409,280. On July 1, 2013, the Company contributed
another multi-tenant retail property for a gross disposition price of $34,350. The Company treated these dispositions as
a partial sale, and the activity related to the disposed properties remains in continuing operations on the consolidated
statements of operations and comprehensive income, since the Company has an equity interest in IAGM, and therefore
the Company has continued ownership interest in the properties. The Company recognized a gain on sale of $12,783
for the year ended December 31, 2013, which is included in other income on the consolidated statements of operations
and comprehensive income, and recorded an equity investment basis adjustment of $15,625. The Company amortizes
the basis adjustment over 30 years consistent with the depreciation of the investee's underlying assets.
The Company is the managing member of IAGM, responsible for the day-to-day activities and earns fees for venture
management, property management, leasing and other services provided to IAGM. The Company analyzed the joint
venture agreement and determined that it was not a variable interest entity. The Company also considered PGGM's
participating rights under the joint venture agreement and determined that PGGM has the ability to participate in major
decisions, which equates to shared decision making ability. As such, the Company has significant influence but does
not control IAGM. Therefore, this joint venture is unconsolidated and accounted for using the equity method of
accounting.
(b) On September 30, 2015, the Company was admitted as a member to Downtown Railyard Venture, LLC ("DRV"), which
is a joint venture established in order to develop and sell a land development. Simultaneously, the Company structured
and closed the sale of a non-core land development to DRV, which for accounting purposes is treated as a contribution
of the land development to DRV in exchange for an equity interest of $46,174 in DRV (the foregoing transaction is
referred to as the "Railyards Transaction"). The Company recorded a loss of $12,919 on the Railyards Transaction
during the third quarter due to the difference between the carrying value of the land and the fair value of the equity
interest. The Company's ownership percentage in DRV is based upon a waterfall calculation outlined in the operating
agreement. The joint venture partner is the developer and managing member of DRV, responsible for the day-to-day
activities and earns fees for managing the venture. The Company analyzed the joint venture agreement and determined
that DRV is not a variable interest entity. The Company also considered the participating rights under the joint venture
agreement and determined that both partners have the ability to participate in major decisions, which equates to shared
decision making ability. As such, both partners have significant influence but do not control DRV. Therefore, the
Company does not consolidate this entity and accounts for its investment in the entity under the equity method of
accounting. During the fourth quarter, the Company received return of capital proceeds of $4,092 related to the sale of a
land parcel and contributed $3,000 in capital to the joint venture.
(c) On February 4, 2013, the Company entered into a joint venture agreement with Gerding Edlen Investors, LLC ("GE") in
order to develop, construct and manage a student housing community on the campus of the University of Oregon in
Eugene, Oregon, which was completed later in 2013 and is now fully operational. The joint venture is known as 15th &
Walnut Owner, LLC ("Eugene"). The Company contributed $5,200 for an equity stake of 62%. The Company analyzed
the joint venture and determined it is a VIE because the entity did not have enough equity to finance its activities
without additional subordinated financial support. The Company also considered its participating rights under the joint
venture agreement and determined that such participating rights also required the agreement of GE, which equates to
shared decision making ability, and therefore the Company did not have the power to direct the activities of the VIE that
most significantly impacted the VIE's economic performance. As such, the Company has significant influence but does
not control Eugene. Therefore, the Company does not consolidate this entity and accounts for its investment in the
entity under the equity method of accounting. Subsequent to December 31, 2015, GE purchased the Company's
partnership interest in the joint venture. See "Note 17. Subsequent Events" for further discussion.
(d) On June 29, 2007, the Company entered into a joint venture, Cobalt Industrial REIT II (“Cobalt”), to invest $149,000 in
shares of common beneficial interest. The Company analyzed the venture and determined that it was not a VIE. The
Company also considered its participating rights under the joint venture agreement and determined that such
participating rights also required the agreement of Cobalt, which equated to shared decision making ability, and
therefore did not give the Company control over the venture. As such, the Company had significant influence but did
not control Cobalt. Therefore, the Company did not consolidate this entity, rather the Company accounted for its
96
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
investment in the entity under the equity method of accounting. On December 18, 2014, Cobalt sold all of its real estate
assets, and the Company recognized its share of the gain on the sale of the assets in equity in earnings for the year ended
December 31, 2014. The Company also recorded receipt of a cash dividend from the joint venture as a result of the
sale. The Company assessed its remaining interest in the joint venture against expected future distributions from
Cobalt, recognizing an other than temporary impairment of $8,464 at December 31, 2014. During the year ended
December 31, 2015, the Company received the final distribution from Cobalt. Accordingly, the Company recorded a
gain of $326 on the closing of the fund, as the distributions received in 2015 exceeded the Company's book value of the
asset at the time the final distribution was received.
On February 21, 2014, the Company purchased its partners' interest in one joint venture, which resulted in the Company
obtaining control of the venture. Therefore, as of December 31, 2014, the Company consolidated this entity, recorded the assets
and liabilities of the joint venture at fair value, and recorded a gain of $4,509 on the purchase of this investment during the year
ended December 31, 2014. This gain is included as part of discontinued operations on the consolidated statement of operations
and comprehensive income for the year ended December 31, 2014. This asset was included in the select service lodging
portfolio sold on November 17, 2014.
During the year ended December 31, 2015, the Company recorded no impairment on its unconsolidated entities and recorded a
gain of $326 on the termination of one unconsolidated entity. During the year ended December 31, 2014, the Company
recorded an impairment of $8,464 on one unconsolidated entity and recorded a gain on the termination of one unconsolidated
entity of $64,816. During the year ended December 31, 2013, the Company recorded an impairment of $5,528 on one of its
previously unconsolidated entities and recorded a gain on the termination of two of its unconsolidated entities of $2,571. Of the
gain recorded during the year ended December 31, 2013, $4,411 of the gain recorded in 2013 related to one previously
unconsolidated entity which was purchased from the Company's joint venture partner in 2013.
During the year ended December 31, 2014, the Company recorded a gain on the termination of one unconsolidated entity of
$4,508 in discontinued operations. During the year ended December 31, 2013 the Company recorded an impairment of $1,004
and a gain of $488 on one of its previously unconsolidated entities included in discontinued operations.
Combined Financial Information
The following tables present the combined financial information for the Company’s investments in unconsolidated entities.
Balance Sheets
Assets:
Real estate assets, net of accumulated depreciation
Other assets
Total Assets
Liabilities and equity:
Mortgage debt
Other liabilities
Equity
Total liabilities and equity
Company’s share of equity
Net excess of the net book value of underlying assets over the cost of investments
(net of accumulated amortization of $1,630 and $1,085, respectively)
Carrying value of investments in unconsolidated entities
December 31, 2015 December 31, 2014
$
$
663,249 $
99,895
763,144
325,822
79,642
357,680
763,144
196,506
(13,995)
182,511 $
606,053
186,220
792,273
416,374
72,994
302,905
792,273
136,743
(14,540)
122,203
97
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
Operating Results
Revenues
Expenses:
For the year ended December 31,
2014
2013
2015
$
69,017 $
195,257 $
214,582
Interest expense and loan cost amortization
Depreciation and amortization
Operating expenses, ground rent and general and administrative
expenses
Total expenses
Net income before gain on sale of real estate
Gain on sale of real estate
Net income
Company's share of net income, net of excess basis depreciation of
$520, $513, and $562
$
$
15,666
23,928
22,017
61,611
7,406
35,462
42,868 $
45,587
66,249
77,306
189,142
6,115
218,626
224,741 $
52,349
70,024
74,510
196,883
17,699
8,128
25,827
17,396 $
81,179
$
11,474
Equity in earnings of unconsolidated entities on the consolidated statement of operations and comprehensive income of $35,167
for the year ended December 31, 2015 includes nonrecurring distributions from the sale of assets within two joint ventures that
are in excess of the investments' carrying value by $17,771 for the year ended December 31, 2015.
The unconsolidated entities had total third party mortgage debt of $325,822 at December 31, 2015 that matures as follows:
Year
2016
2017
2018
2019
2020
Thereafter
Amount
31,120
—
204,028
16,250
—
74,424
325,822
$
$
Of the total outstanding debt related to assets held by the Company's unconsolidated entities, approximately $23,000 is recourse
to the Company and $1,000 is recourse to the IAGM joint venture. It is anticipated that the joint ventures will be able to repay
or refinance all of their debt on a timely basis.
98
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
6. Transactions with Related Parties
As of January 1, 2015, the Company is no longer a related party to The Inland Group, Inc. (the "Inland Group") as described below.
On March 12, 2014, the Company entered into a series of agreements and amendments to existing agreements with affiliates of
the Inland Group pursuant to which the Company began the process of becoming entirely self-managed (collectively, the "Self-
Management Transactions"). On March 12, 2014, as part of the Self-Management Transactions, the Company, the Business
Manager, Inland American Lodging Advisor, Inc., a wholly owned subsidiary of the Business Manager ("ILodge"), the Property
Manager, Inland American Industrial Management LLC ("Inland Industrial"), Inland American Office Management LLC
("Inland Office") and Inland American Retail Management LLC ("Inland Retail"), their parent, Inland American Holdco
Management LLC ("Holdco") and collectively with Inland Industrial, Inland Office and Inland Retail, and Eagle I Financial
Corp. ("Eagle") entered into a Master Modification Agreement (the "Master Modification Agreement") pursuant to which the
Company agreed with the Business Manager to terminate the management agreement with the Business Manager, hired all of
the Business Manager’s employees and acquired the assets or rights necessary to conduct the functions previously performed
for the Company by the Business Manager. The Company also hired certain Property Manager employees and assumed
responsibility for performing significant property management activities. The Company assumed certain limited liabilities of
the Business Manager and the Property Managers, including accrued liabilities for employee holiday, sick and vacation time for
those Business Manager and Property Manager employees who became employees of the Company and liabilities arising after
the closing of the Master Modification Agreement under leases and contracts assigned to the Company. The Company did not
assume, and the Business Manager is obligated to indemnify the Company against, any liabilities related to the pre-closing
operations of the Business Manager. Eagle, an indirect wholly owned subsidiary of the Inland Group, guaranteed the Business
Manager’s indemnity and other obligations under the Master Modification Agreement. The Company did not pay an
internalization fee or self-management fee in connection with the Master Modification Agreement but reimbursed the Business
Manager and Property Managers for specified transaction related expenses and employee payroll costs. The Company entered
into a consulting agreement with Inland Group affiliates for a term of three months at $200 per month, which the Company
elected not to renew pursuant to its terms.
Concurrently, as part of the Self-Management Transactions, the Company entered into an Asset Acquisition Agreement (the
"Asset Acquisition Agreement") with the Property Managers and Eagle, pursuant to which the Company agreed to terminate the
management agreements with the Property Managers at the end of 2014, hire certain of the remaining Property Manager
employees and acquire the assets or rights necessary to conduct the remaining functions performed for the Company by the
Property Managers. The Company agreed to assume certain limited liabilities, including accrued liabilities for employee
holiday, sick and vacation time for Property Manager employees that became Company employees and liabilities arising after
the closing of the Asset Acquisition Agreement under leases and other contracts that the Company assumed in the transaction.
The Company did not assume any liabilities related to the pre-closing operations of the Property Managers, and it did not pay
an internalization fee or self-management fee in connection with the Asset Acquisition Agreement. The Company consummated
the transactions contemplated thereby on December 31, 2014.
Also on March 12, 2014, as part of the Self-Management Transactions, the Company entered into separate Amended and
Restated Master Management Agreements (collectively, the “Amended Property Management Agreements”) with each of the
Property Managers (excluding Holdco), pursuant to which the Property Managers continued to provide property management
services to the Company through December 31, 2014, other than the property-level accounting, lease administration, leasing,
marketing and construction functions that the Company began performing pursuant to the Master Modification Agreement. The
Company transitioned the remaining property management functions on December 31, 2014. Many of the employees of the
Company's former Business Manager and former Property Managers are now directly employed by the Company. The
Amended Property Management Agreements terminated on December 31, 2014 pursuant to their terms.
99
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
The following table summarizes the Company’s related party transactions for the years ended December 31, 2015, 2014 and 2013.
For the years ended
December 31,
2014
2015
2013
Unpaid amounts as of
December 31,
2015
2014
General and administrative:
General and administrative
reimbursement (a)
Investment advisor fee (b)
Total general and administrative to related
parties
Property management fees (c)
Business manager fee (d)
Loan placement fees (e)
$
$
$
— $
—
— $
— $
—
—
6,259 $
1,158
7,417 $
12,182 $
2,605
224
15,751 $
1,667
17,418 $
21,818 $
37,962
519
$
—
—
—
$
— $
—
—
331
80
411
75
—
—
(a) In connection with the closing of the Master Modification Agreement and termination of the business management
agreement on March 12, 2014, the Company reimbursed the Business Manager for compensation and other ordinary
course out-of-pocket expenses, which totaled approximately $3,401. In addition, the Company reimbursed the
Property Managers approximately $249 for compensation and out-of-pocket expenses incurred between January 1,
2014 and March 12, 2014 for the Property Manager employees the Company hired at closing to approximate the
economics as though the Company had hired such employees on January 1, 2014. These costs are reflected in general
and administrative reimbursements above.
In addition, the Company had directly retained affiliates of the Business Manager to provide back-office services that
were provided to the Company through the Business Manager prior to the termination of the business management
agreement. These service agreements were generally terminable without penalty by either party upon 60 days’ notice.
These costs are reflected in general and administrative reimbursements above. During the year ended December 31,
2015, the Company sent termination notices for agreements with those affiliates of the Business Manager which
provided information technology and investor services to the Company. During the year ended December 31, 2015,
the Company sent a termination notice for the agreement with those affiliates of the Business Manager which provided
human resource and property tax services to the Company. The Business Manager and its related parties were entitled
to reimbursement for general and administrative expenses of the Business Manager and its related parties relating to
the Company’s administration.
Unpaid amounts of $411 as of December 31, 2014 are included in accounts payable and accrued expenses on the
consolidated balance sheet.
(b) The Company paid a related party of the Business Manager to purchase and monitor its investment in marketable
securities. The Company terminated this agreement during the year ended December 31, 2015.
(c) As part of the Self-Management Transactions, select Property Management fees charged to the Company were reduced
effective January 1, 2014 to reflect, among other things, the hiring of the Property Manager employees and the
services that were no longer being performed by the Property Managers. The Amended Property Management
Agreements reduced the property management fees charged in respect of most of the Company’s multi-tenant retail
properties from 4.50% of gross income generated by the applicable property to 3.50% for the first six months of 2014
and to 3.25% for the last six months of 2014, and reduced fees charged in respect of the Company’s multi-tenant office
properties from 3.75% of gross income generated by the applicable property to 3.50% for the first six months of 2014
and to 3.25% for the last six months of 2014. The Company also agreed to assume responsibility for the
compensation-related expenses of the Property Manager employees hired by the Company effective March 1, 2014.
The property managers, entities owned principally by individuals who were related parties of the Business Manager,
are entitled to receive property management fees up to a certain percentage of gross operating income (as defined).
For the year ended December 31, 2013, the management fees by property type are as follows: (i) for any bank branch
100
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
facility (office or retail), 2.50% of the gross income generated by the property; (ii) for any multi-tenant industrial
property, 4.00% of the gross income generated by the property; (iii) for any multi-family property, 3.75% of the gross
income generated by the property; (iv) for any multi-tenant office property, 3.75% of the gross income generated by
the property; (v) for any multi-tenant retail property, 4.50% of the gross income generated by the property; (vi) for any
single-tenant industrial property, 2.25% of the gross income generated by the property; (vii) for any single-tenant
office property, 2.90% of the gross income generated by the property; and (viii) for any single-tenant retail property,
2.90% of the gross income generated by the property.
Unpaid amounts of $75 as of December 31, 2014 are included in other liabilities on the consolidated balance sheet.
In addition to these fees, the property managers received reimbursements of payroll costs for property level
employees. The Company reimbursed the property managers and other affiliates $0, $5,848 and $11,019 for the years
ended December 31, 2015, 2014 and 2013, respectively.
(d) In connection with the closing of the Master Modification Agreement and termination of the business management
agreement, the Company paid a business management fee for January 2014, which totaled approximately $3,333. The
Company did not pay a business management fee subsequent to January 31, 2014. Pursuant to the letter agreement
dated May 4, 2012, the business management fee was reduced for investigation costs exclusive of legal fees incurred
in conjunction with the SEC matter. The Master Modification Agreement contained a ninety-day reconciliation of
certain payments and reimbursements, including the January 2014 business management fee. The reconciliation was
completed during the year ended December 31, 2014, which resulted in $728 of SEC-related investigation costs and an
adjusted January 2014 business management fee expense of $2,605. Pursuant to the March 12, 2014 Self-
Management Transactions, the May 4, 2012 letter agreement by the Business Manager has been terminated.
The Company incurred a business management fee of $37,962 for the year ended December 31, 2013, under the terms
of its Business Manager Agreement, which was terminated March 12, 2014. After the Company’s stockholders
received a non-cumulative, non-compounded return of 5.00% per annum on their "invested capital", the Company paid
its Business Manager an annual business management fee of up to 1.00% of the “average invested assets,” payable
quarterly in an amount equal to 0.25% of the average invested assets as of the last day of the immediately preceding
quarter. For the year ended December 31, 2013 average invested assets were $10,742,053. The Company incurred a
business management fee of $37,962, which was equal to 0.37% of average invested assets for the year ended
December 31, 2013. Pursuant to the letter agreement dated May 4, 2012, the business management fee was reduced in
each particular quarter for investigation costs exclusive of legal fees incurred in conjunction with the SEC matter.
During the year ended December 31, 2013, the Company incurred $2,038 of investigation costs, resulting in a business
management fee expense of $37,962 for the year ended December 31, 2013.
(e) The Company paid a related party of the Business Manager 0.2% of the principal amount of each loan placed for the
Company. Such costs were capitalized as loan fees and amortized over the respective loan term.
As of December 31, 2014, the Company had deposited $376 in Inland Bank and Trust, a subsidiary of Inland Bancorp, Inc., an
affiliate of The Inland Real Estate Group, Inc. As of January 1, 2015, the Company is no longer a related party to the Inland
Group as described above.
101
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
7. Investment in Marketable Securities
Investment in marketable securities of $177,431 and $154,753 at December 31, 2015 and 2014, respectively, consists primarily
of preferred and common stock investments in other REITs and certain real estate related bonds which are classified as
available-for-sale securities and recorded at fair value. The cost basis net of impairments of available-for-sale securities was
$138,318 and $95,480 at December 31, 2015 and 2014, respectively. The Company's investment in marketable securities
includes a 5% ownership of the outstanding common stock of Xenia. The Company held an investment in Xenia securities
reported at its fair value of $86,919 as of December 31, 2015. The cost basis of the Xenia securities held by the Company was
$80,748 as of December 31, 2015, which is equal to approximately 5% of the net equity, at historical cost basis, contributed to
Xenia at the time of the Spin-Off.
Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported as a separate
component of comprehensive income until realized. The Company has net accumulated comprehensive income related to its
marketable securities portfolio of $39,113, $59,273 and $71,369, which includes gross unrealized losses of $2,242, $1,328 and
$3,189 as of December 31, 2015, 2014 and 2013, respectively. Securities with gross unrealized losses have a related fair value
of $10,712 and $11,502 as of December 31, 2015 and 2014, respectively.
The Company’s policy for assessing recoverability of its available-for-sale securities is to record a charge against net earnings
when the Company determines that a decline in the fair value of a security drops below the cost basis and believes that decline
to be other-than-temporary. Factors in the assessment of other-than-temporary impairment include determining whether (1) the
Company has the ability and intent to hold the security until it recovers, and (2) the length of time and degree to which the
security’s price has declined. During the years ended December 31, 2015 and 2014, the Company recorded no impairment
compared to an impairment of $1,052 for the year ended December 31, 2013 for other-than-temporary declines on certain
available-for-sale securities, which is included as a component of realized gain (loss) and (impairment) on securities, net on the
consolidated statements of operations and comprehensive income.
Dividend income is recognized when earned. During the years ended December 31, 2015, 2014 and 2013, dividend income of
$10,149, $11,497 and $16,926 was recognized and is included in interest and dividend income on the consolidated statements
of operations and comprehensive income.
102
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
8. Leases
Operating Leases
Minimum lease payments to be received under operating leases, excluding student housing properties and assuming no expiring
leases are renewed, are as follows:
For the year ending December 31,
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Thereafter
Total
Minimum Lease
Payments
$269,164
216,959
167,280
130,814
92,521
64,789
47,004
37,379
26,711
18,317
90,733
$1,161,671
The remaining lease terms range from one year to sixty-three years. The majority of the revenue from the Company’s properties
consists of rents received under long-term operating leases. Some leases provide for the payment of fixed base rent paid
monthly in advance, and for the reimbursement by tenants to the Company for the tenant’s pro rata share of certain operating
expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and
certain building repairs paid by the landlord and recoverable under the terms of the lease. Under these leases, the landlord pays
all expenses and is reimbursed by the tenant for the tenant’s pro rata share of recoverable expenses paid. Certain other tenants
are subject to net leases which provide that the tenant is responsible for fixed base rent as well as all costs and expenses
associated with occupancy. Under net leases where all expenses are paid directly by the tenant rather than the landlord, such
expenses are not included in the consolidated statements of operations and comprehensive income. Under leases where all
expenses are paid by the landlord, subject to reimbursement by the tenant, the expenses are included within property operating
expenses and reimbursements are included in tenant recovery income on the consolidated statements of operations and
comprehensive income.
103
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
9. Intangible Assets
The following table summarizes the Company’s identified intangible assets and intangible liabilities as of December 31, 2015
and 2014.
Intangible assets:
Acquired in-place lease
Acquired above market lease
Other intangible assets
Accumulated amortization
Intangible assets, net
Intangible liabilities:
Acquired below market lease
Accumulated amortization
Intangible liabilities, net
Balance as of December 31,
2015
2014
302,247 $
26,270
2,800
(260,186)
71,131 $
69,163 $
(26,475)
42,688 $
300,689
33,687
2,800
(247,471)
89,705
68,013
(24,755)
43,258
$
$
$
$
The portion of the purchase price allocated to acquired above market lease costs and acquired below market lease costs are
amortized on a straight line basis over the life of the related lease, including the respective renewal period for below market
lease costs with fixed rate renewals, as an adjustment to other revenues. Amortization pertaining to the above market lease costs
was applied as a reduction to other revenues. Amortization pertaining to the below market lease costs was applied as an increase
to other revenues. The portion of the purchase price allocated to acquired in-place lease intangibles is amortized on a straight
line basis over the life of the related lease and is recorded as amortization expense. The portion of the purchase price allocated
to acquired below market ground lease is amortized on a straight line basis over the life of the related lease and is recorded as
amortization expense.
The following table summarized the amortization related to acquired above and below market lease costs and acquired in-place
lease intangibles for the years ended December 31, 2015, 2014 and 2013.
Amortization of:
Acquired above market lease costs
Acquired below market lease costs
Net rental income increase
Acquired in-place lease intangibles
Other intangible assets
For the years ended December 31,
2014
2013
2015
$
$
$
$
(2,804) $
4,700
1,896 $
24,921 $
933 $
(4,711) $
4,772
61 $
30,342 $
933 $
(3,093)
5,445
2,352
34,946
311
The following table presents the amortization during the next five years and thereafter related to intangible assets and liabilities
at December 31, 2015.
2016
2017
2018
2019
2020
Thereafter
Total
Amortization of:
Acquired above market lease costs $
Acquired below market lease costs
Net rental income increase
Acquired in-place lease intangibles
$
$
Other intangible asset
(2,234) $
4,341
2,107 $
(1,814) $
4,194
(1,370) $
4,028
2,380 $
2,658 $
(737) $
3,629
2,892 $
(419) $
3,217
2,798 $
(511) $
23,279
(7,085)
42,688
22,768 $
35,603
20,619
$
622
13,364 $
—
7,694 $
—
6,163 $
—
3,974
$
—
11,610 $
—
63,424
622
104
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
10. Debt
During the years ended December 31, 2015 and 2014, the following debt transactions occurred:
Balance at December 31, 2013
New financings
Paydown of debt
Assumed financings, net of discount
Extinguishment of debt
Amortization of discount/premium
Debt classified as discontinued operations
Balance at December 31, 2014
New financings
Paydown of debt
Extinguishment of debt
Amortization of discount/premium
Balance at December 31, 2015
Mortgages Payable
$
$
3,641,552
503,134
(358,450)
11,967
(614,900)
7,332
(1,199,027)
1,991,608
406,563
(26,060)
(498,322)
4,864
$
1,878,653
Mortgage loans outstanding as of December 31, 2015 and 2014 were $1,774,221 and $2,999,968 and had a weighted average
interest rate of 4.94% and 4.63% per annum, respectively. Of these mortgage loans outstanding at December 31, 2014,
approximately $1,200,688 related to liabilities of discontinued operations. Mortgage premium and discount, net, was a discount
of $5,568 and $9,333 as of December 31, 2015 and 2014. Of this net mortgage discount as of December 31, 2014, $1,661
related to liabilities of discontinued operations.
As of December 31, 2015, scheduled maturities for the Company’s outstanding mortgage indebtedness had various due dates
through August 2037, as follows:
For the year ended December 31,
As of
December 31, 2015
Weighted average
interest rate
2016
2017
2018
2019
2020
Thereafter
Total
$
$
275,203
600,431
187,506
—
7,925
703,156
1,774,221
4.84%
5.43%
2.91%
—%
3.21%
5.12%
4.94%
The Company is negotiating refinancing debt maturing in 2016. It is anticipated that the Company will be able to repay,
refinance or extend the debt maturing in 2016, and the Company believes it has adequate sources of funds to meet short term
cash needs related to these refinancings. Of the total outstanding debt for all years, approximately $47,335 is recourse to the
Company.
Some of the mortgage loans require compliance with certain covenants, such as debt coverage service ratios, investment
restrictions and distribution limitations. As of December 31, 2015, the Company was in compliance with all mortgage loan
requirements except one loan with a carrying value of $2,721 which matures in 2016. This loan is not cross collateralized with
any other mortgage loans or recourse to the Company. As of December 31, 2014, the Company was in compliance with all
105
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
mortgage loan requirements, with the exception of one lodging property which was closed for business during the fourth quarter
of 2014 due to earthquake damage. This property was included in the Spin-Off.
Credit Agreements
On November 5, 2015, the Company entered into a term loan credit agreement for a $300,000 unsecured credit facility with a
syndicate of seven lenders led by Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith, Incorporated and PNC
Capital Markets LLC as joint lead arrangers. The accordion feature allows the Company to increase the size of the unsecured
term loan credit facility to $600,000, subject to certain conditions.
The term loan credit facility consists of two tranches: a five-year tranche maturing on January 15, 2021, and a seven-year
tranche maturing on November 5, 2022. The credit facility can be drawn for one year from the agreement date, after which the
unused portion of the credit facility will terminate. The credit facility is subject to maintenance of certain financial covenants.
As of December 31, 2015, the Company was in compliance with all of the covenants and default provisions under the credit
agreement. Interest rates are based on the Company's total leverage ratio. Based upon the Company's total leverage ratio at
December 31, 2015, the five-year tranche bears an interest rate of LIBOR plus 1.30% and the seven-year tranche bears an
interest rate of LIBOR plus 1.60%. The Company had $190,000 available under the term loan as of December 31, 2015. As of
December 31, 2015, the interest rate of the term loan was 1.59%.
On February 3, 2015, the Company entered into an amended and restated credit agreement for a $300,000 unsecured revolving
line of credit with KeyBank National Association, JP Morgan Chase Bank National Association and other financial institutions.
The accordion feature allows the Company to increase the size of its unsecured line of credit up to $600,000, subject to certain
conditions. The unsecured revolving line of credit matures on February 2, 2019 and contains one twelve-month extension
option that the Company may exercise upon payment of an extension fee equal to 0.15% of the commitment amount on the
maturity date and subject to certain other conditions. The unsecured revolving line of credit bears interest at a rate equal to
LIBOR plus 1.40% and requires the maintenance of certain financial covenants. As of December 31, 2015, the Company was
in compliance with all of the covenants and default provisions under the credit agreement. The Company had $300,000
available under the revolving line of credit as of December 31, 2015.
In 2013, the Company entered into a credit agreement with KeyBank National Association, JP Morgan Chase Bank National
Association and other financial institutions to provide for a senior unsecured credit facility in the aggregate amount of
$500,000. The credit facility consisted of a $300,000 senior unsecured revolving line of credit and a total outstanding term loan
of $200,000. As of December 31, 2014, the interest rates of the revolving line of credit and unsecured term loan were 1.60%
and 1.67%, respectively. Upon closing the credit agreement, the Company borrowed the full amount of the term loan which
remained outstanding as of December 31, 2014 and was repaid during the year ended December 31, 2015. As of December 31,
2014, the Company had $300,000 available under the revolving line of credit. This credit agreement was refinanced on
February 3, 2015, as described above.
106
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
11. Fair Value Measurements
In accordance with ASC 820, Fair Value Measurement and Disclosures, the Company defines fair value based on the price that
would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The Company uses a fair value hierarchy that prioritizes observable and
unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described
below:
• Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
• Level 2 - Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and
liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or
other inputs that are observable or can be corroborated by observable market data.
• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
The Company has estimated the fair value of its financial and non-financial instruments using available market information and
valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree
of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that
would be realized upon disposition.
For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each major
category of assets and liabilities is presented below:
Fair Value Measurements at December 31, 2015
Using Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
Using Significant
Other Observable
Inputs
(Level 2)
Using Significant
Other Unobservable
Inputs
(Level 3)
175,127 $
—
175,127 $
— $
— $
— $
2,304
2,304 $
(1,941) $
(1,941) $
—
—
—
—
—
Fair Value Measurements at December 31, 2014
Using Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
Using Significant
Other Observable
Inputs
(Level 2)
Using Significant
Other Unobservable
Inputs
(Level 3)
151,062 $
—
151,062 $
— $
— $
— $
3,691
3,691 $
(1,744) $
(1,744) $
—
—
—
—
—
$
$
$
$
$
$
$
$
Available-for-sale real estate equity securities
Real estate related bonds
Total assets
Derivative interest rate instruments
Total liabilities
Available-for-sale real estate equity securities
Real estate related bonds
Total assets
Derivative interest rate instruments
Total liabilities
Level 1
At December 31, 2015 and 2014, the fair value of the available for sale real estate equity securities have been estimated based
upon quoted market prices for the same or similar issues when current quoted market prices are available. Unrealized gains or
107
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
losses on investment are reflected in unrealized gain (loss) on investment securities in comprehensive income on the
consolidated statements of operations and comprehensive income.
Level 2
To calculate the fair value of the real estate related bonds and the derivative interest rate instruments, the Company primarily
uses quoted prices for similar securities and contracts. For the real estate related bonds, the Company reviews price histories for
similar market transactions. For the derivative interest rate instruments, the Company uses inputs based on data that is observed
in the forward yield curve which is widely observable in the marketplace. The Company also incorporates credit valuation
adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in
the fair value measurements which utilizes Level 3 inputs, such as estimates of current credit spreads. However, as of
December 31, 2015 and 2014, the Company has assessed that the credit valuation adjustments are not significant to the overall
valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified
in Level 2 of the fair value hierarchy. As of December 31, 2015 and 2014, the Company had entered into interest rate swap
agreements with a notional value of $157,000 and $51,283, respectively.
Level 3
At December 31, 2015 and 2014, the Company had no level three recurring fair value measurements.
Non-Recurring Measurements
The following table summarizes activity for the Company’s assets measured at fair value on a non-recurring basis. The
Company recognized certain non-cash gains and impairment charges to reflect the investments at their fair values for the years
ended December 31, 2015 and 2014. The asset groups that were reflected at fair value through this evaluation are:
As of December 31, 2015
As of December 31, 2014
Fair Value
Measurements Using
Significant
Unobservable Inputs
(Level 3)
Total
Impairment Loss
Investment properties
Investment in unconsolidated entities
Total
$126,842
—
$126,842
$108,154
—
$108,154
Investment Properties
Fair Value
Measurements
Using Significant
Unobservable Inputs
(Level 3)
Total
Impairment Loss
$137,723
7,486
$145,209
$80,774
8,464
$89,238
During the years ended December 31, 2015, 2014, and 2013, the Company identified certain properties which may have a
reduction in the expected holding period and reviewed the probability of these properties' disposition. The Company’s
estimated fair value relating to the investment properties’ impairment analysis was based on a comparison of purchase contracts
and ten-year discounted cash flow models, which included contractual inflows and outflows over a specific holding period. The
cash flows consist of observable inputs such as contractual revenues and unobservable inputs such as forecasted revenues and
expenses. These unobservable inputs are based on market conditions and the Company’s expected growth rates. During the
year ended December 31, 2015, capitalization rates ranging from 7.50% to 8.75% and discount rates ranging from 8.00% to
10.75% were utilized in the model and are based upon observable rates that the Company believes to be within a reasonable
range of current market rates. During the year ended December 31, 2014, capitalization rates ranging from 6.00% to 9.00% and
discount rates ranging from 6.75% to 9.50% were utilized in the model. During the year ended December 31, 2013,
capitalization rates ranging from 6.25% to 10.50% and discount rates ranging from 6.75% to 12.00% were utilized in the model
and are based upon observable rates that the Company believes to be within a reasonable range of current market rates.
The Company recorded an impairment of $15,987 on two retail properties for the year ended December 31, 2015 based on
purchase contracts. Also during the year ended December 31, 2015, the Company completed the Railyards Transaction. See
joint venture disclosure in "Note 5. Investment in Partially Owned Entities". The Company’s estimated fair value relating to the
108
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
investment property's impairment analysis was based on a third party independent appraisal obtained as of September 30, 2015.
The appraisal utilized a twelve-year discounted cash flow model, which includes inflows and outflows over a specific holding
period. The cash flows consist of unobservable inputs such as forecasted revenues and expenses. These unobservable inputs are
based on market conditions and expected growth rates. A discount rate of 14% was utilized in the model and is based upon
observable rates within a reasonable range of current market rates. It was determined the property was impaired and therefore
was written down to fair value. The Company recorded an impairment charge of $92,167 for this property during the year
ended December 31, 2015.
During the final closing of the net lease asset portfolio on May 8, 2014, the purchaser terminated the purchase agreement solely
with respect to the equity interest in a subsidiary owning a net lease asset, AT&T - St. Louis. As a result of the purchase
agreement termination, it was re-classified from held for sale to held and used and was re-measured at the lesser of the carrying
value or fair value as of May 8, 2014. The Company estimated fair value based on ten-year discounted cash flow models,
which included contractual inflows and outflows over a specific holding period. The cash flows consisted of observable inputs
such as contractual revenues and unobservable inputs such as forecasted revenues and expenses. These unobservable inputs are
based on market conditions. A capitalization rate of approximately 7.75% and a discount rate of approximately 8.00% were
utilized in the AT&T - St. Louis fair value model and are based on observable rates that the Company believes to be within a
reasonable range of current market rates. Based on the probabilities assigned to such scenarios, it was determined the asset's
fair value was less than the carrying value. Therefore the Company recorded an impairment charge of $71,599 during the year
ended December 31, 2014.
During the year ended December 31, 2013, the Company also identified one large single tenant office property, AT&T-Hoffman
Estates, in which it was exploring a potential disposition. After the Company began exploring a potential sale of the property, it
became aware of circumstances in which the tenant was considering vacating the space. Although the original term of the lease
does not expire until August 2016, the Company analyzed various leasing and sale scenarios for the single tenant property. The
Company’s estimated fair value relating to the investment property's impairment analysis was based on ten-year discounted
cash flow models, which includes contractual inflows and outflows over a specific holding period. The cash flows consist of
observable inputs such as contractual revenues and unobservable inputs such as forecasted revenues and expenses. These
unobservable inputs are based on market conditions and the Company’s expected growth rates. The capitalization rates ranging
from 6.25% to 7.75% and discount rates ranging from 7.00% to 8.50% were utilized in this model and are based upon
observable rates that the Company believes to be within a reasonable range of current market rates. Based on the probabilities
assigned to such scenarios, it was determined the property was impaired and therefore, written down to fair value. The
Company recorded an impairment charge of $147,480 for this asset during the year ended December 31, 2013.
For the years ended December 31, 2015, 2014 and 2013, the Company recorded an impairment of investment properties of
$108,154, $80,774 and $201,014, respectively, in continuing operations. During the year ended December 31, 2013, the
Company adjusted its notes receivable impairment allowance and recorded a gain of $5,334 for the year ended December 31,
2013, which has been included in provision for asset impairment on the consolidated statement of operations and
comprehensive income. Certain properties were impaired prior to disposition. There were no related impairment charges for
those properties included in discontinued operations for the year ended December 31, 2015. There were $4,665 and $51,692 in
related impairment charges included in discontinued operations for the years ended December 31, 2014 and 2013, respectively.
Investment in Unconsolidated Entities
During the year ended December 31, 2015, the Company identified no investment in an unconsolidated entity that may be other
than temporarily impaired.
During the year ended December 31, 2014, the Company identified one investment in an unconsolidated entity that may be
other than temporarily impaired. The Company's estimated fair value relating to the investment in the unconsolidated entity's
impairment analysis was based on the expected future distributions of the joint venture as the entity has sold all of the assets
included in the joint venture. As a result of this analysis, for the year ended December 31, 2014, the Company recorded an
impairment of $8,464 related to this unconsolidated entity.
During the year ended December 31, 2013, the Company identified certain investments in unconsolidated entities that may be
other than temporarily impaired. The Company's estimated fair value relating to the investment in unconsolidated entities'
109
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
impairment analysis was based on analyzing each joint venture partner's respective waterfall distribution, letters of intent or
purchase contracts, broker opinions of value, and expected future cash distributions of the Company's interest in the underlying
assets of the investment using a net asset value model. The net asset value model utilizes an income capitalization analysis and
consists of unobservable inputs such as forecasted net operating income and capitalization rates based on market conditions.
During the year ended December 31, 2013, capitalization rates ranging from 6.50% to 8.25% were utilized in the model and are
based upon observable rates that the Company believes to be within a reasonable range of current market rates. For the year
ended December 31, 2013, the Company recorded an impairment of investments in unconsolidated entities of $5,528.
Notes Receivable
For the year ended December 31, 2013, the Company determined that a re-evaluation of its notes receivable impairment
allowance was appropriate because there had been a significant change in the amount of an impaired note's expected future cash
flows. The Company assessed the note receivable impairment allowance by estimating the value of the underlying collateral
using comparable property sales, which are observable in the market. As a result, the Company adjusted its notes receivable
impairment allowance and recorded a gain of $5,334 for the year ended December 31, 2013, which has been included in
provision for asset impairment on the consolidated statement of operations and comprehensive income. There was no
impairment of notes receivable recorded during the years ended December 31, 2015 and 2014.
Consolidated Investments
During the year ended December 31, 2013, the Company entered into a definitive agreement with a joint venture partner to
purchase the partner's interest in the venture. This resulted in the Company obtaining control of the venture. Therefore, the
Company consolidated the entity by recording the assets and liabilities of the joint venture at fair value. The Company valued
the consolidating properties using broker opinions of value and a discounted cash flow model, including capitalization rates
between 7.0% and 7.5% and discount rates between 8.0% and 9.0%, which are based upon observable rates that the Company
believes to be within a reasonable range of current market rates. The Company estimated fair value of the debt by discounting
the future cash flows of each instrument at rates currently offered for similar debt instruments. These factors resulted in a loss
on a consolidated investment of $4,411 for the year ended December 31, 2013.
Financial Instruments Not Measured at Fair Value
The table below represents the fair value of financial instruments presented at carrying values in the consolidated financial
statements as of December 31, 2015 and 2014.
December 31, 2015
December 31, 2014
Carrying Value
Estimated Fair Value
Carrying Value
Estimated Fair Value
Mortgage and notes payable
Line of credit
$1,774,221
110,000
$1,789,464
110,000
$2,999,968
200,000
$3,022,002
200,000
The Company estimates the fair value of its debt instruments using a weighted average effective interest rate of 4.52% per
annum. The fair value estimate of the line of credit approximates the carrying value. The assumptions reflect the terms
currently available on similar borrowing terms to borrowers with credit profiles similar to the Company's. The Company has
determined that its debt instrument valuations are classified in Level 2 of the fair value hierarchy.
110
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
12. Income Taxes
The Company has elected and has operated so as to qualify to be taxed as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended (the "Code"), commencing with the tax year ended December 31, 2005. So long
as it qualifies as a REIT, the Company generally will not be subject to federal income tax on taxable income that is distributed
currently to stockholders. A REIT is subject to a number of organizational and operational requirements including a requirement
that it currently distribute at least 90% of its REIT taxable income (subject to certain adjustments) to its stockholders each year.
If the Company fails to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, the Company will
be subject to federal and state income tax on its taxable income at regular corporate tax rates and would not be able to re-elect
REIT during the four years following the year of the failure. Even if the Company qualifies for taxation as a REIT, the
Company may be subject to certain state and local taxes on its income, property or net worth and federal income and excise
taxes on its undistributed income. In addition, the Company owned substantially all of the outstanding stock of a subsidiary
REIT, MB REIT (Florida), Inc. ("MB REIT"), which the Company consolidates for financial reporting purposes but which is
treated as a separate REIT for federal income tax purposes. On December 15, 2015, MB REIT redeemed all of the outstanding
shares of its Series B Preferred Stock and became a wholly owned subsidiary of InvenTrust. At that time, MB REIT became a
Qualified REIT Subsidiary ("QRS") of the Company and ceased to be treated as a separate REIT for U.S. federal income tax
purposes. As a QRS, MB REIT is currently disregarded as a separate entity from the Company for federal income tax purposes.
All assets, liabilities and items of income, deduction and credit of MB REIT are treated for federal income tax purposes as those
of the Company.
The Company has elected to treat certain of its consolidated subsidiaries, and may in the future elect to treat newly formed
subsidiaries, as taxable REIT subsidiaries pursuant to the Code. Taxable REIT subsidiaries may participate in non-real estate
related activities and/or perform non-customary services for tenants and are subject to federal and state income tax at regular
corporate tax rates. The Company's hotels were leased to certain of the Company's taxable REIT subsidiaries. Lease revenue
from these taxable REIT subsidiaries and the Company's wholly-owned subsidiaries is eliminated in consolidation.
The components of income tax expense for the years ended December 31, 2015, 2014, and 2013 are as follows:
Current
Deferred
Income tax provision
from continuing
operations
Income tax provision
from discontinued
operations
Federal
$
1,273 $
—
2015
State
643 $
—
Total
Federal
2014
State
Total
Federal
2013
State
Total
1,916 $
609 $
308 $
917 $
—
—
—
—
339 $
22
870 $
1,209
—
22
$
1,273
$
643
$
1,916 $
609 $
308 $
917 $
361
$
870 $
1,231
$
(1,144) $
2,017
$
873 $
8,605 $
3,051 $
11,656 $
1,737
$
1,791 $
3,528
111
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
Deferred tax assets and liabilities are included within deferred costs and other assets and other liabilities in the consolidated
balance sheets, respectively. The components of the deferred tax assets and liabilities at December 31, 2015 and 2014 were as
follows:
Net operating loss
Deferred income
Basis difference on property
Depreciation expense
Miscellaneous
Total deferred tax assets
Less: Valuation allowance
Net deferred tax assets
Deferred tax liabilities
2015
2014
— $
—
71,515
—
—
71,515 $
(71,515)
— $
— $
6,471
1,833
48,403
1,066
593
58,366
(55,973)
2,393
—
$
$
$
$
Deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on
consideration of available evidence, including future reversal of existing taxable temporary differences, future projected taxable
income, and tax-planning strategies. In assessing the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences
become deductible. The Company has considered various factors, including future reversals of existing taxable temporary
differences, projected future taxable income and tax-planning strategies in making this assessment.
Based upon tax-planning strategies and projections for future taxable income over the periods in which the deferred tax assets
are deductible, management believes it is more likely than not that the Company will not realize the benefits of these deductible
differences. A valuation allowance of $71,515 has been recognized to reduce the deferred tax assets to zero at December 31,
2015. The amount of the deferred tax assets considered realizable, however, could be increased in the near term if estimates of
taxable income indicate the ability to realize the deferred tax assets.
Uncertain Tax Positions
The Company had no unrecognized tax benefits as of or during the three year period ended December 31, 2015. The Company
expects no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of
December 31, 2015. The Company has no material interest or penalties relating to income taxes recognized in the consolidated
statements of operations and comprehensive income for the years ended December 31, 2015, 2014 and 2013 or in the
consolidated balance sheets as of December 31, 2015 and 2014. As of December 31, 2015, the Company’s 2014, 2013, and
2012 tax years remain subject to examination by U.S. and various state tax jurisdictions.
Distributions
For federal income tax purposes, distributions may consist of ordinary income, qualifying dividends, return of capital, capital
gains or a combination thereof. Distributions to the extent of the Company’s current and accumulated earnings and profits for
federal income tax purposes are taxable to the recipient as ordinary dividends, qualified dividends or capital gain distributions.
Distributions in excess of these earnings and profits will constitute a non-taxable return of capital rather than a dividend and
will reduce the recipient’s basis in the shares.
112
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
A summary of the average taxable nature of the Company’s common distributions paid for each of the years in the three year
period ended December 31, 2015 is as follows:
For the year ended December 31,
2014
2013
2015
Ordinary income
Return of capital
Total distributions per share
$0.24
2.69
$2.93
$0.44
0.06
$0.50
$0.50
—
$0.50
113
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
13. Segment Reporting
For the year-ended December 31, 2015, the Company's portfolio strategy was to continue to focus on the retail and student
housing asset classes. The non-core segment includes multi-tenant office and triple-net properties. The Company evaluates
segment performance primarily based on net operating income. Net operating income of the segments exclude interest expense,
depreciation and amortization, general and administrative expenses, net income of noncontrolling interest and other investment
income from corporate investments. The non-segmented assets primarily include the Company’s cash and cash equivalents,
investment in marketable securities, construction in progress, investment in unconsolidated entities and notes receivable.
For the year ended December 31, 2015, approximately 13% of the Company’s rental revenue (excluding student housing) from
continuing operations, included in the non-core segment, was generated by three properties leased to AT&T, Inc. As a result of
the concentration of revenue generated from these properties, if AT&T were to cease paying rent or fulfilling its other monetary
obligations, the Company could have significantly reduced rental revenues or higher expenses until the defaults were cured or
the properties were leased to a new tenant or tenants.
The following table summarizes net operating income by segment as of and for the year ended December 31, 2015.
Total
Retail
Student
Housing
Non-core
Rental income
Straight line adjustment
Tenant recovery income
Other property income
Total income
Operating expenses
Net operating income
Non allocated expenses (a)
Other income and expenses (b)
Equity in earnings of unconsolidated entities (c)
Provision for asset impairment (d)
Net income from continuing operations
Income from discontinued operations
Less: net loss attributable to noncontrolling interests
Net income attributable to Company
Balance Sheet Data:
Real estate assets, net (e)
Non-segmented assets (f)
Total assets
$
$
$
$
$
$
$
368,791 $
1,871
69,668
9,714
450,044 $
128,480
321,564 $
(228,619)
(21,613)
35,493
(108,154)
(1,329)
4,808
(15)
3,464
3,467,004 $
746,415
4,213,419
203,047 $
3,767
63,907
3,474
274,195 $
83,231
190,964 $
80,692 $
129
674
4,805
86,300 $
32,058
54,242 $
85,052
(2,025)
5,087
1,435
89,549
13,191
76,358
2,006,253 $
924,225 $
536,526
Capital expenditures (g)
(a) Non allocated expenses consist of general and administrative expenses and depreciation and amortization.
(b) Other income and expenses consists of gain on sale of investment properties, loss on extinguishment of debt, loss on
contribution to joint venture, interest and dividend income, interest expense, other income, realized gain on sale of
marketable securities, net, and income tax expense.
13,477 $
1,514 $
$
9,910 $
2,053
(c) Equity in earnings of unconsolidated entities includes the gain of investment in unconsolidated entities.
(d) Total provision for asset impairment included $15,987 related to two retail properties, and $92,167 related to one non-core
development.
(e) Real estate assets include intangible assets, net of amortization.
(f) Construction in progress is included as non-segmented assets.
114
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
(g) Capital expenditures exclude capital expenditures related to the lodging properties included in the Spin-Off of Xenia.
115
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
The following table summarizes net operating income by segment as of and for the year ended December 31, 2014.
Total
Retail
Student
Housing
Non-core
Rental income
Straight line adjustment
Tenant recovery income
Other property income
Total income
Operating expenses
Net operating income
Non allocated expenses (a)
Other income and expenses (b)
Equity in earnings of unconsolidated entities (c)
Provision for asset impairment (d)
Net loss income continuing operations
Income from discontinued operations
Less: net income attributable to noncontrolling interests
Net income attributable to Company
Balance Sheet Data:
Real estate assets, net (e)
Non-segmented assets (f)
Total assets
Capital expenditures (g)
$
$
$
$
$
$
$
$
374,021 $
3,046
66,046
9,361
452,474 $
136,715
315,759 $
(220,674)
44,569
137,531
(80,774)
196,411
290,247
(16)
486,642
3,292,130 $
4,205,186
7,497,316
19,374 $
203,241 $
4,462
59,860
4,813
272,376 $
87,100
185,276 $
69,630 $
287
559
4,050
74,526 $
32,748
41,778 $
101,150
(1,703)
5,627
498
105,572
16,867
88,705
2,044,063 $
635,787 $
612,280
16,828 $
254 $
2,292
(a) Non allocated expenses consist of general and administrative expenses, business management fee and depreciation and
amortization.
(b) Other income and expenses consists of gain on sale of investment properties, gain on extinguishment of debt, interest
and dividend income, interest expense, other income, realized gain on sale of marketable securities, net, and income tax
expense.
(c) Equity in earnings of unconsolidated entities includes the gain, (loss) and (impairment) of investment in unconsolidated
entities.
(d) Total provision for asset impairment included $80,774 related to five non-core properties.
(e) Real estate assets include intangible assets, net of amortization.
(f) Construction in progress is included as non-segmented assets.
(g) Capital expenditures exclude capital expenditures related to the lodging properties included in the Spin-Off of Xenia.
116
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
The following table summarizes net operating income by segment as of and for the year ended December 31, 2013.
Total
Retail
Student
Housing
Non-core
Rental income
Straight line adjustment
Tenant recovery income
Other property income
Total income
Operating expenses
Net operating income
Non allocated expenses (a)
Other income and expenses (b)
Equity in loss of unconsolidated entities (c)
Provision for asset impairment (d)
Net loss from continuing operations
Income from discontinued operations
Less: net income attributable to noncontrolling interests
Net income attributable to Company
$
$
$
$
$
372,476 $
5,400
71,207
7,202
456,285 $
135,115
321,170 $
(253,351)
(67,135)
8,517
(195,680)
(186,479)
430,543
(16)
244,048
215,134 $
5,197
64,928
3,823
289,082 $
93,629
195,453 $
55,773 $
373
521
2,808
59,475 $
24,015
35,460 $
101,569
(170)
5,758
571
107,728
17,471
90,257
(a) Non allocated expenses consist of general and administrative expenses, business management fee and depreciation and
amortization.
(b) Other income and expenses consists of gain on sale of investment properties, loss on extinguishment of debt, interest
and dividend income, interest expense, other income, realized gain on sale and (impairment) of marketable securities,
net, and income tax expense.
(c) Equity in earnings of unconsolidated entities includes the gain, (loss) and (impairment) of investment in unconsolidated
entities.
(d) Total provision for asset impairment included $21,179 related to four retail properties, and $179,835 related to twelve
non-core properties. On December 31, 2013, the Company adjusted the impairment allowance for notes receivable for a
gain of $5,334.
117
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
14. Earnings (loss) Per Share and Equity Transactions
Basic earnings (loss) per share ("EPS") are computed using the two-class method by dividing net income (loss) by the weighted
average number of common shares outstanding for the period (the "common shares"). Diluted EPS is computed using the
treasury method if more dilutive, by dividing net income (loss) by the common shares plus potential common shares issuable
upon exercising options or other contracts. The following table reconciles the amounts used in calculating basic and diluted
income (loss) per share (in thousands, except weighted average share and per share amounts):
Net (loss) income from continuing operations
Less: Dividends on common stock
Less: Dividends on unvested restricted stock units
Less: Undistributed (income) loss allocated to unvested shares
Less: Net income attributable to noncontrolling interests
Undistributed loss
Add back: Dividends on common stock
Distributed and undistributed income (loss) from continuing operations - basic and
diluted
Income from discontinued operations allocated to common stockholders:
Weighted average shares outstanding:
Weighted average shares outstanding - basic and diluted
Basic and diluted income (loss) per share:
Income (loss) from continuing operations allocated common shareholders per
share:
$
$
$
$
$
Income from discontinued operations allocated common shareholders per share: $
Years Ended December 31,
2015
2014
2013
(1,329) $
(138,614)
—
—
(15)
(139,958) $
138,614
196,411 $
(436,875)
—
—
(16)
(240,480) $
436,875
(1,344) $
4,808 $
$
196,395
290,247 $
(186,479)
(450,106)
—
—
(16)
(636,601)
450,106
(186,495)
430,543
861,830,627
878,064,982
899,842,722
— $
0.01 $
0.22
$
0.33 $
(0.21)
0.48
Due to their anti-dilutive effect, the computation of diluted loss per share does not reflect the adjustments for the following
items (in thousands):
Net income (loss) allocated to common stockholders is not adjusted for:
Income allocated to unvested restricted stock units
Weighted average diluted shares are not adjusted for:
Effect of unvested restricted stock units
Years Ended December 31,
2015
2014
2013
$—
243
$—
—
$—
—
The Company completed a modified "Dutch Auction" tender offer for the purchase of up to $350,000 in value of shares of
common stock (the "Offer") on April 25, 2014. In accordance with rules promulgated by the SEC, the Company had the option
to increase the number of shares accepted for payment in the Offer by up to 2% of the outstanding shares without amending or
extending the Offer. To avoid any proration to the stockholders that tendered shares, the Company decided to increase the
number of shares accepted for payment in the Offer. On May 1, 2014, the Company accepted for purchase 60,665,233 shares of
common stock at a purchase price (without brokerage commissions) of $6.50 per share, for an aggregate purchase price of
$394,300, excluding fees and expenses relating to the Offer. The 60,665,233 shares accepted for purchase in the Offer
represented approximately 6.61% of the issued and outstanding shares of common stock at the time of purchase. Subsequent to
the purchase of approved Offer shares, the final number of shares purchased, allowing for corrections, was 60,761,166 for a
final aggregate purchase price of $394,900 as of December 31, 2014, excluding fees and expenses related to the Offer.
118
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
15. Stock-Based Compensation
Share Unit Plans
The Company has maintained the following three long-term incentive plans: (1) the Inland American Real Estate Trust, Inc.
2014 Share Unit Plan (the "Retail Plan"), with respect to the Company’s retail business; (2) the Xenia Hotels & Resorts, Inc.
2014 Share Unit Plan (the "Lodging Plan"), with respect to the Company’s lodging business; and (3) the Inland American
Communities Group, Inc. 2014 Share Unit Plan (the "Student Housing Plan"), with respect to the Company’s student housing
business (collectively, the "Share Unit Plans"). Each Share Unit Plan provides or provided, as applicable, for the grant of
"share unit" awards to eligible participants. The value of a "share unit" was determined based on a phantom capitalization of
the Company’s retail/non-core business, lodging business and student housing business, and does not necessarily correspond to
the value of a share of common stock of the Company, Xenia or University House, as applicable. Vesting of the share units
granted in 2014 and 2015 is conditioned upon the occurrence of a triggering event, such as a listing or a change in control of the
applicable business, and if no triggering event occurs within five years following the applicable grant date, then the share units
are forfeited. The Company does not recognize share based compensation expense with respect to the Share Unit Plans until
the occurrence of a triggering event.
On January 9, 2015, in connection with the spin-off of the lodging business, the Company terminated the Lodging Plan. No
new share unit awards will be made under the Lodging Plan, and the Lodging Plan will be maintained by Xenia going forward
with respect to awards outstanding as of the termination of the plan.
Effective June 19, 2015, in connection with the adoption of the Incentive Award Plan (as defined below) the Company
terminated the Retail Plan. Outstanding share unit awards granted under the Retail Plan with an aggregate grant date value of
$6,733 will remain outstanding and subject to the terms of the Retail Plan and the applicable award agreement. No new share
unit awards will be made under the Retail Plan. The Student Housing Plan has not been terminated and remains in effect.
During the year ended December 31, 2014, awards with an aggregate grant date value of $1,735 were granted and remain
outstanding under the Student Housing Plan. During the year ended December 31, 2015, additional awards with an aggregate
grant date value of $2,086 were granted and remain outstanding under the Student Housing Plan.
As a triggering event has not occurred with respect to the Company's retail, non-core or student housing businesses, the
Company did not recognize stock-based compensation expense related to the Retail Plan or the Student Housing Plan for the
years ended December 31, 2015 and 2014.
Incentive Award Plan
Effective as of June 19, 2015, the board of directors adopted and approved the InvenTrust Properties Corp. 2015 Incentive
Award Plan (the "Incentive Award Plan"), under which the Company may grant cash and equity incentive awards to eligible
employees, directors, and consultants. Under the 2015 Incentive Award Plan, the Company is authorized to grant up to
30,000,000 shares of the Company's common stock pursuant to awards under the plan. As of December 31, 2015, 28,310,375
shares were available for future issuance under the Incentive Award Plan. A summary of the Company's restricted stock unit
activity during the year ended December 31, 2015 is as follows:
Outstanding at January 1, 2015
Restricted stock units granted
Restricted stock units vested
Restricted stock units forfeited
Outstanding at December 31, 2015
Restricted Stock Units
Weighted Average Price at
Grant Date
—
1,689,625 $
(628,695)
(109,375)
951,555 $
—
4.00
4.00
4.00
4.00
As of December 31, 2015, there was $3,806 of total unrecognized compensation expense related to unvested stock-based
compensation arrangements granted under the Incentive Award Plan. The outstanding restricted stock units have vesting
schedules through December 2017. Stock-based compensation expense will be amortized on a straight-line basis over the
vesting period. During the year ended December 31, 2015, the Company recognized stock-based compensation expense of
$2,515 related to the Incentive Award Plan.
119
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
16. Commitments and Contingencies
In May 2012, the Company disclosed that the SEC had initiated a non-public, formal, fact-finding investigation to determine
whether there had been violations of certain provisions of the federal securities laws regarding the payment of fees to the
Company's former Business Manager and Property Managers, transactions with the Company's former affiliates, timing and
amount of distributions paid to the Company's investors, determination of property impairments, and any decision regarding
whether the Company would become a self-administered REIT (the "SEC Investigation"). After a multi-year investigation, on
March 24, 2015, the Staff of the SEC informed the Company that it had concluded its investigation and that, based on the
information received as of that date, it did not intend to recommend any enforcement action against the Company.
Shortly after the Company disclosed the existence of the SEC Investigation, the Company received three related demands
("Derivative Demands") by stockholders to conduct investigations regarding claims that the Company's officers, the Company's
board of directors, former Business Manager, and affiliates of the Company's former Business Manager breached their fiduciary
duties to the Company in connection with the matters that the Company disclosed were subject to the SEC Investigation.
Upon receiving the first of the Derivative Demands, on October 16, 2012, the full board of directors responded by authorizing
the independent directors to investigate the claims contained in the first Derivative Demand, any subsequent stockholder
demands, as well as any other matters the independent directors saw fit to investigate. Pursuant to this authority, the
independent directors formed a special litigation committee comprised solely of independent directors to review and evaluate
the alleged claims and to recommend to the full board of directors whether the maintenance of a derivative proceeding was in
the best interests of the Company. The special litigation committee engaged independent legal counsel and experts to assist in
the investigation.
On March 21, 2013, counsel for the stockholders who made the first Derivative Demand filed a derivative lawsuit in the Circuit
Court of Cook County, Illinois, on behalf of the Company. The court stayed the case - Trumbo v. The Inland Group, Inc. -
pending completion of the special litigation committee's investigation.
On December 8, 2014, the special litigation committee completed its investigation and issued its report and recommendation.
The special litigation committee concluded that there is no evidence to support the allegations of wrongdoing in the Derivative
Demands. Nonetheless, in the course of its investigation, the special litigation committee uncovered facts indicating that certain
then-related parties breached their fiduciary duties to the Company by failing to disclose to the independent directors certain
facts and circumstances associated with the payment of fees to its former Business Manager and Property Managers. The
special litigation committee determined that it is advisable and in the best interests of the Company to maintain a derivative
action against its former Business Manager, Property Managers, and Inland American Holdco Management LLC (the "Inland
Entities"). The special litigation committee found that it was not in the best interests of the Company to pursue claims against
any other entities or against any individuals.
On January 20, 2015, the board of directors adopted the report and recommendation of the special litigation committee in full
and authorized the Company to file a motion to realign the Company as the party plaintiff in Trumbo v. The Inland Group, Inc.,
and to take such further actions as are necessary to reject and dismiss claims related to allegations that the board of directors has
determined lack merit and to pursue claims against the Inland Entities for breach of fiduciary duties in connection with the
failure to disclose facts and circumstances associated with the payment of fees to related parties.
On March 2, 2015, counsel for the stockholders who made the second Derivative Demand filed a derivative lawsuit in the
Circuit Court of Cook County, Illinois, on behalf of the Company. The court entered an order consolidating the action with the
Trumbo case on March 26, 2015 (the "Consolidated Action"). On September 18, 2015, the parties entered into the Stipulation
and Agreement of Compromise, Settlement, and Release (the "Settlement") to resolve all matters related to the Derivative
Demands, including all claims raised in the Consolidated Action and the claims authorized by the Board. The Settlement calls
for a payment to the Company of $7,300 in net proceeds from Midwest Risk Management, LLC, as agent for the Inland
Entities. In addition, the Settlement releases the Company’s directors, officers, and former external managers and their
affiliates from any liability related to the allegations asserted in the demand letters and the Consolidated Action, and any
additional allegations investigated by the special litigation committee. The Settlement also results in the dismissal of the
Consolidated Action with prejudice.
120
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
On October 23, 2015, the Circuit Court of Cook County, Illinois approved the Settlement as fair, reasonable, adequate and in
the best interests of the Company and its stockholders. Under the terms of the Settlement, the settlement payment was remitted
to InvenTrust during the quarter ended December 31, 2015 when the time to appeal the court’s approval of the Settlement
expired. The Company has recorded the settlement payment as other income on the consolidated statement of operations and
comprehensive income for the year ended December 31, 2015.
The Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of
business. While the resolution of these matters cannot be predicted with certainty, the Company believes, based on currently
available information, that the final outcome of such matters will not have a material adverse effect on the Company's financial
statements.
17. Subsequent Events
On December 23, 2015, the Company announced the spin-off of assets included in the non-core segment through the pro-rata
distribution of 100% of the outstanding shares of common stock of Highlands REIT, Inc. ("Highlands"), a wholly-owned
subsidiary of InvenTrust that was formed to hold a number of non-core assets. Highlands has filed a preliminary registration
statement on Form 10 with the Securities and Exchange Commission ("SEC") in connection with the proposed spin-off. On
February 5, 2015, Highlands filed a new preliminary registration statement on Form 10 with the SEC in replacement of the
initial filing.
On January 3, 2016, the Company executed a definitive purchase agreement with UHC Acquisition Sub LLC, a subsidiary of a
joint venture formed between Canada Pension Plan Investment Board, GIC and Scion Communities Investors LLC, under
which the joint venture’s subsidiary will acquire the Company's student housing platform, University House. The agreement’s
gross all-cash value is $1,400,000. Under the terms of the agreement, the final net proceeds will be determined at the closing of
the transaction following the determination of several events and closing considerations.
On February 26, 2016, the Company sold its interest in its student housing joint venture, Eugene, to the joint venture partner for
proceeds of $5,400.
121
INVENTRUST PROPERTIES CORP.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
December 31, 2015, 2014 and 2013
18. Quarterly Supplemental Financial Information (unaudited)
The following represents the results of operations, for each quarterly period, during 2015 and 2014.
Total income
Net income from discontinued operations
Net income (loss)
Net income (loss) attributable to Company
Net income (loss) per common share,
basic and diluted (1)
Weighted average number of common shares
outstanding, basic and diluted (1)
Total income
Net income from discontinued operations
Net income
Net income attributable to Company
Net income per common share,
basic and diluted (1)
Weighted average number of common shares
outstanding, basic and diluted (1)
$
$
For the quarter ended
December 31,
2015
September 30,
2015
June 30,
2015
March 31,
2015
118,578 $
1,766
31,218
31,219
112,739 $
713
(95,639)
(95,647)
109,059 $
88
62,067
62,067
$0.05
($0.11)
$0.07
109,668
2,241
5,833
5,825
$—
861,847,987
861,824,777
861,824,777
861,824,777
For the quarter ended
December 31,
2014
September 30,
2014
June 30,
2014
March 31,
2014
109,154 $
81,954
294,120
294,120
110,732 $
24,357
52,560
52,552
114,099 $
49,904
9,497
9,489
$0.33
$0.06
$0.01
118,489
134,032
130,481
130,481
$0.15
861,824,777
861,627,855
876,951,378
912,594,434
(1) Quarterly income per common share amounts may not total to the annual amounts due to rounding and the changes in the
number of weighted common shares outstanding.
122
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138
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), our management, including our principal executive officer and our principal financial officer evaluated as of
December 31, 2015, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e)
and Rule 15d-15(e). Based on that evaluation, our principal executive officer and our principal financial officer concluded that
our disclosure controls and procedures, as of December 31, 2015, were effective for the purpose of ensuring that information
required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified
by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the principal
executive officer and our principal financial officer as appropriate to allow timely decisions regarding required disclosures.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management, including our principal executive officer and
principal financial officer, evaluated as of December 31, 2015, the effectiveness of our internal control over financial reporting
based on the framework in "Internal Control-Integrated Framework" issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013). Based on its evaluation, our management has concluded that we maintained effective
internal control over financial reporting as of December 31, 2015.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s
independent registered public accounting firm pursuant to the permanent deferral adopted by the Securities and Exchange
Commission that permits the Company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended December 31, 2015 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
139
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The following biographies set forth each director’s principal occupation and business, as well as the specific experience,
qualifications, attributes and skills that led to the conclusion by the board that he or she should serve as a member of our board.
J. Michael Borden, 79. Chairman of the board since December 2015, interim chairman from February 2015 to December
2015, and independent director since October 2004. Mr. Borden is president and chief executive officer of Rock Valley
Trucking Co., Inc., Rock Valley Leasing, Inc. and Hufcor Inc. Mr. Borden also served as the president and chief executive
officer of Freedom Plastics, Inc. through February 2009, at which time it filed a voluntary petition for a court-supervised
liquidation of all of its assets in the Circuit Court of Rock County, Wisconsin. Mr. Borden also is the chief executive officer of
Hufcor Asia Pacific in China and Hong Kong, Marashumi Corp. in Malaysia, Hufcor Australia Group, and F. P. Investments, a
real estate investment company. He currently serves on the board of directors of Dowco, Inc. and St. Anthony of Padua
Charitable Trust, is a trustee of The Nature Conservancy and is a regent of the Milwaukee School of Engineering. Mr. Borden
previously served as chairman of the board of the Wisconsin Workforce Development Board and as a member of the SBA
Advisory Council and the Federal Reserve Bank Advisory Council. He was named Wisconsin entrepreneur of the year in 1998.
Mr. Borden received a bachelor’s degree in accounting and finance from Marquette University, Milwaukee, Wisconsin. He
also attended a master of business administration program in finance at Marquette University.
Over the past 25 years, Mr. Borden’s various businesses have routinely entered into real estate transactions in the ordinary
course of business, allowing him to develop experience in acquiring, leasing, developing and redeveloping real estate assets.
Our board believes that this experience and his experience as a director on the board qualifies him to serve as chairman of the
board.
Thomas P. McGuinness, 60. Director since February 2015. Mr. McGuinness currently serves as our President and Chief
Executive Officer. He has served as our President since we initiated our self-management transactions in March 2014 and as
our Chief Executive Officer since November 2014. Prior to the self-management transactions, he served as our President and
principal executive officer since September 2012. Prior to that time, Mr. McGuinness was the President of our former property
manager. Mr. McGuinness is a licensed real estate broker in the State of Illinois and holds CLS and CSM accreditations from
the International Council of Shopping Centers. Mr. McGuinness previously served as the president of the Chicagoland
Apartment Association and as the regional vice president of the National Apartment Association. He also served on the board
of directors of the Apartment Building Owners and Managers Association, and was a trustee with the Service Employees’ Local
No. 1 Health and Welfare Fund and its Pension Fund.
Our board believes that, with over 35 years of experience in the commercial real estate industry and as a result of his
knowledge of the operations of our Company as its President and Chief Executive Officer, Mr. McGuinness is qualified to
serve as a director on the board.
Thomas F. Glavin, 56. Independent director since October 2007. Mr. Glavin is the owner of Thomas F. Glavin & Associates,
Inc., a certified public accounting firm that he started in 1988. In that capacity, Mr. Glavin specializes in providing accounting
and tax services to closely held companies. Mr. Glavin began his career at Vavrus & Associates, a real estate firm, located in
Joliet, Illinois, that owned and managed apartment buildings and health clubs. At Vavrus & Associates, Mr. Glavin was an
internal auditor responsible for reviewing and implementing internal controls. In 1984, Mr. Glavin began working in the tax
department of Touche Ross & Co., where he specialized in international taxation. In addition to his accounting experience,
Mr. Glavin also has been involved in the real estate business for nearly 20 years. Since 1997, Mr. Glavin has been a partner in
Gateway Homes, which has zoned, developed and manages a 440-unit manufactured home park in Frankfort, Illinois.
Mr. Glavin received his bachelor’s degree in accounting from Michigan State University in East Lansing, Michigan and a
master of science in taxation from DePaul University, Chicago, Illinois. Mr. Glavin is a member of the Illinois CPA Society and
the American Institute of Certified Public Accountants.
As a result of his financial experience, including over 29 years in the accounting profession, our board believes that Mr. Glavin
is able to provide valuable insight and advice with respect to our financial risk exposures, our financial reporting process and
our system of internal controls.
Paula Saban, 62. Independent director since October 2004. Ms. Saban has worked in the financial services and banking
industry for over 25 years. She began her career in 1978 with Continental Bank, which later merged into Bank of America.
From 1978 to 1990, Ms. Saban held various consultative sales roles in treasury management and in traditional lending areas.
She also managed client service teams and developed numerous client satisfaction programs. In 1990, Ms. Saban began
designing and implementing various financial solutions for clients with Bank of America’s Private Bank and Banc of America
Investment Services, Inc. Her clients included top management of publicly held companies and entrepreneurs. In addition to
140
managing a diverse client portfolio, she was responsible for client management and overall client satisfaction. She retired from
Bank of America in 2006 as a senior vice president/private client manager. In 1994, Ms. Saban and her husband started a
construction products company, Newport Distribution, Inc., of which she is secretary and treasurer, and a principal stockholder.
Ms. Saban received her bachelor’s degree from MacMurray College, Jacksonville, Illinois, and her master of business
administration from DePaul University, Chicago, Illinois. She holds Series 7 and 63 certifications from FINRA. She is a former
president of the Fairview Elementary School PTA and a former trustee of both the Goodman Theatre and Urban Gateways. She
served as the legislative chair of Illinois PTA District 37 and as liaison to the No Child Left Behind Task Force of School
District 54. Ms. Saban currently serves as a project-based development director at the Association of Interim Executives and
has previously served on the board of Hands On Suburban Chicago, a not-for-profit organization that matches community and
corporate volunteers of all ages and skills with opportunities to connect and serve.
In light of Ms. Saban’s experience in financial services and banking, among other things, our board believes that Ms. Saban has
the necessary experience and insight to serve on our board.
William J. Wierzbicki, 69. Independent director since October 2005. Mr. Wierzbicki is a registered professional planner in the
Province of Ontario, Canada, and is a member of the Ontario Professional Planners Institute. Mr. Wierzbicki is the sole
proprietor of “Planning Advisory Services,” a land-use planning consulting service providing consultation and advice to
various local governments, developers and individuals. Through Planning Advisory Services, Mr. Wierzbicki is the planner for
the Municipalities of Huron Shores and Township of Prince. Mr. Wierzbicki previously served as the coordinator of current
planning with the City of Sault Ste. Marie, Ontario. In that capacity, his expertise was in the review of residential, commercial
and industrial development proposals. Mr. Wierzbicki led the program to develop a new comprehensive zoning by-law for the
City of Sault Ste. Marie. Mr. Wierzbicki was the leader of the team that developed the Sault Ste. Marie industrial development
strategy. He has completed community development plans for Batchwana First Nation’s Rankin site and Pic Mobert First
Nations. He has also developed an official plan and comprehensive zoning by-law for the Township of Prince. He is presently
completing a peer review and redrafting of a comprehensive zoning by-law for the Municipality of Huron Shores.
Mr. Wierzbicki received an architectural technologist diploma from the Sault Ste. Marie Technical and Vocational School,
Ontario, Canada, and attended Sault College and Algoma University.
Our board believes that Mr. Wierzbicki’s experience and knowledge of the commercial real estate industry, including with real
estate development and land-use planning, qualifies him to serve on our board.
Executive Officers
In addition to Mr. McGuinness, whose biography is set forth above, the following individuals serve as our executive officers.
Anna Fitzgerald, 40. Ms. Fitzgerald has served as our Executive Vice President, Chief Accounting Officer since November
2014. She was our Executive Vice President, principal accounting officer and Treasurer from March to November 2014. Prior
to that time, Ms. Fitzgerald served as our principal accounting officer since February 2012. She also served as the Vice
President of Accounting of our former business manager from 2011 through March 2014 and worked as a consultant to the
Company from 2008 to 2010. Ms. Fitzgerald was previously employed by Equity Office Properties Trust, Inc. from 1999 to
2008, where she held various positions in accounting, financial reporting and treasury. She received a bachelor’s degree in
accounting and finance from Drake University. Ms. Fitzgerald is a certified public accountant.
Michael E. Podboy, 38. Mr. Podboy has served as our Executive Vice President - Chief Financial Officer, Chief Investment
Officer and Treasurer since November 2015. He served as our Executive Vice President - Chief Investment Officer from
November 2014 to November 2015 and as our Executive Vice President - Investments from March to November 2014. Mr.
Podboy also served as the Senior Vice President of Non-Core Asset Management from January 2012 through March 2014 and
the Vice President of Asset Management from May 2007 through December 2011, in each case for our former business
manager. Mr. Podboy worked in public accounting and was a senior manager in the real estate division for KPMG LLP. He
received a bachelor’s degree with a focus on accounting and computer science from the University of Saint Thomas in
Minnesota. Mr. Podboy also served as a trust manager for Cobalt Industrial REIT II, which focused on light industrial
properties, and is an Executive Committee member of the Company’s retail joint venture entity IAGM Retail Fund I, LLC.
Scott W. Wilton, 55. Mr. Wilton has served as our Executive Vice President, General Counsel and Secretary since March 2014
and as our Secretary since October 2004. Mr. Wilton served as Vice President of our former business manager from July 2013
to March 2014 and as Assistant Vice President and Senior Counsel of The Inland Real Estate Group, Inc. since 2006. Mr.
Wilton previously served as Secretary of Retail Properties of America, Inc. (formerly, Inland Western Retail Real Estate Trust,
Inc.), Inland Private Capital Corporation, Inland Retail Real Estate Trust, Inc. and Inland Retail Real Estate Advisory Services,
Inc. He joined the Inland Group in 1995. He received a bachelor’s degree in economics and history from the University of
141
Illinois at Urbana-Champaign and a J.D. from Loyola University in Chicago, Illinois. Early in his career, Mr. Wilton worked
for Williams, Rutstein, Goldfarb, Sibrava and Midura, Ltd., Chicago.
David F. Collins, 64. Mr. Collins has served as our Executive Vice President, Portfolio Management since January 2015 and
as our Senior Vice President of Asset Management and Leasing from October 2014 to January 2015. Prior to joining the
Company, Mr. Collins served as senior vice president of asset and property management for American Realty Capital Properties
from 2010 to October 2014. Prior to that time, he held roles as senior vice president of development/asset management for the
Carlyle Development Group, Inc. and as vice president of asset management for LaSalle Investment Management/Jones Lang
LaSalle. He received his bachelor’s degree in accounting from Arizona State University and attended a master’s degree in
business administration program at the University of Arizona.
Jonathan T. Roberts, 41. Mr. Roberts has served as our President of University House Communities Group, Inc. (formerly IA
Communities Group, Inc.) since 2010. Prior to that time, Mr. Roberts served as an Executive Vice President of University
House since its inception in May 2007. Mr. Roberts joined University House’s predecessor as a financial analyst in May 2002.
Mr. Roberts served a number of roles for University House’s predecessor between May 2002 and May 2007, including
financial analyst, finance manager, vice president of capital markets, managing director - capital markets and executive vice
president. Previously, Mr. Roberts served as a senior consultant for Ernst and Young, LLP and as a senior analyst for CoStar
Group. Mr. Roberts holds bachelor’s and master’s degrees in business administration from Texas Christian University.
Audit Committee
Our board has a separately-designated standing audit committee, which is comprised of three independent directors, Messrs.
Borden, Glavin, and Ms. Saban. The board has determined that Mr. Glavin, the chair of the committee, qualifies as an “audit
committee financial expert,” as defined by the SEC, and that each member of the committee is independent in accordance with
the standards set forth in the committee’s charter. The audit committee assists the board in fulfilling its oversight responsibility
relating to: (1) the integrity of our financial statements; (2) our compliance with legal and regulatory requirements; (3) the
qualifications and independence of the independent registered public accounting firm; (4) the adequacy of our internal controls;
and (5) the performance of our independent registered public accounting firm. The audit committee has adopted a written
charter, which is available on our website at www.inventrustproperties.com under the “Corporate Information - Governance
Documents” tab.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires each director, executive
officer and individual beneficially owning more than 10% of our common stock to file initial statements of beneficial
ownership (Form 3) and statements of changes in beneficial ownership (Forms 4 and 5) of our common stock with the SEC.
Executive officers, directors and greater than 10% beneficial owners are required by SEC rules to furnish us with copies of all
forms they file. Based solely on a review of the copies of these forms furnished to us during, and with respect to, the fiscal year
ended December 31, 2015, or written representations that no additional forms were required, we believe that all of our
executive officers and directors and persons that beneficially owned more than 10% of the outstanding shares of our common
stock complied with these filing requirements during the fiscal year ended December 31, 2015, except that the Form 3 for
David F. Collins was not filed on a timely basis. Mr. Collins was appointed as an an executive officer of the Company on
January 20, 2015 and the Form 3 was filed on June 23, 2015.
Code of Ethics
Our board has adopted a code of ethics and business conduct (the "Code of Ethics and Business Conduct") applicable to our
directors, officers and employees, which is available on our website at www.inventrustproperties.com through the "Corporate
Information - Governance Documents" tab. In addition, printed copies of the Code of Ethics and Business Conduct are
available to any stockholder, without charge, by writing us at InvenTrust Properties Corp., 2809 Butterfield Road, Suite 360,
Oak Brook, Illinois 60523, Attention: Investor Relations.
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Item 11. Executive Compensation
Director Compensation
Prior Director Compensation
Cash Compensation. On June 16, 2015, upon recommendation from our compensation committee, our board adopted the
InvenTrust Properties Corp. Director Compensation Program (the “Revised Director Compensation Program”), effective June
19, 2015. Under our director compensation program that was in effect during 2015 prior to the adoption of the Revised Director
Compensation Program, we paid each of our independent directors an annual fee of $30,000, plus $1,000 for each meeting of
the board attended in person and $500 for each meeting of the board attended by telephone. We also paid the chairperson of the
audit committee an annual fee of $10,000, and paid each member of the audit committee $1,000 for each meeting of the audit
committee attended in person and $500 for each meeting of the audit committee attended by telephone. We paid the chairperson
of every other committee, including any special committee, an annual fee of $5,000, and paid each member of such committee
$1,000 for each meeting of the committee attended in person and $500 for each meeting of the committee attended by
telephone. Under certain circumstances, our board determined that in consideration of the time and effort required of members
of a committee, certain fees were appropriate in addition to such member’s normal remuneration. For example, members of the
transaction committee, which was charged with, among things, overseeing the spin-off of our lodging business, received $7,500
per month for their service during the existence of the transaction committee. In addition, members of the special committee
formed to review, analyze and negotiate our self-management transactions received $22,500 for their services on the special
committee in 2015, which was in addition to the fees indicated above.
Equity Compensation. Prior to its suspension by our board on December 15, 2014, and subsequent termination on January 20,
2015, we maintained the Inland American Real Estate Trust, Inc. Amended and Restated Independent Director Stock Option
Plan. The plan generally provided for the grant of non-qualified stock options to purchase 3,000 shares of our common stock to
each independent director upon the director’s appointment. The plan also provided for subsequent grants of options to purchase
500 shares of our common stock on the date of each annual stockholder’s meeting to each independent director then in office.
On December 15, 2014, we suspended our independent director stock option plan and on January 20, 2015, we terminated the
plan. In addition, all options outstanding under the plan were canceled effective as of January 20, 2015, pursuant to agreements
that we entered into with each independent director holding outstanding options as of such date.
Revised Director Compensation Program
Cash Compensation. Under the Revised Director Compensation Program, effective as of January 1, 2015, each non-employee
director is entitled to receive an annual cash retainer of $65,000. No meeting fees are paid to our non-employee directors for
attending individual board or committee meetings. In addition, committee members and chairpersons and our Non-Executive
Chairman receive the following additional annual cash retainers (as applicable):
• Chair of Audit Committee: $23,000
• Chair of Compensation Committee: $17,500
• Chair of Nominating and Governance Committee: $12,000
• Non-Chair Audit Committee Member: $10,000
• Non-Chair Compensation Committee Member: $7,500
• Non-Chair Nominating and Governance Committee Member: $5,000
• Non-Executive Chairman: $30,000
Equity Compensation. In addition to the cash retainers, each non-employee director received an award of 27,500 restricted
stock units (“RSUs”) (valued at $110,000) on June 19, 2015, the effective date of the Revised Director Compensation Program.
These initial awards vested in full on December 15, 2015, the date of the first annual meeting of our stockholders following the
grant date, and were subject to the director’s continued service through the vesting date. Each award was settled partly in shares
of our common stock (75%) and partly in cash (25%). In addition, each non-employee director who is initially elected or re-
elected as a director at an annual meeting of our stockholders will be granted an award of RSUs with a value equal to $110,000.
These annual awards will vest in full on the date of the first annual meeting of our stockholders following the director’s
election or re-election, as applicable, subject to the director’s continued service on the vesting date.
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Business Expenses. Pursuant to the terms of the Revised Director Compensation Program and our standard expense
reimbursement policy, we reimburse each non-employee director for reasonable business expenses incurred by the director in
connection with his or her services to us, including, without limitation, expenses for continuing education programs.
Director Compensation Table
The following table provides additional detail regarding the 2015 compensation of our non-employee directors:
Name
J. Michael Borden
Thomas F. Glavin
Paula Saban
William J. Wierzbicki
Thomas F. Meagher(3)
Fees Earned or Paid
in Cash(1)
$154,500
$138,000
$130,000
$65,000
Stock Awards(2)
$110,000
$110,000
$110,000
$110,000
$16,000
$—
Total
$264,500
$248,000
$240,000
$175,000
$16,000
(1) Amounts reflect annual retainers, board and committee meeting fees and, if applicable, additional cash retainers described
above for committee and chair service, in each case, earned in 2015. For each of Messrs. Borden and Glavin and Ms.
Saban, committee retainers for 2015 include not only committee retainers for the three standing committees, but also fees
earned in 2015 for service on the transaction committee and the special litigation committee, which were $15,000 and
$22,500, respectively.
(2) Reflects RSUs granted under the Revised Director Compensation Program on June 19, 2015 to each director except Mr.
Meagher, who resigned from the board prior to such date. Amounts reflect the grant date fair value of the RSUs in
accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock
Compensation (“ASC Topic 718”). Additional details on accounting for stock-based compensation can be found in Note 2:
“Summary of Significant Accounting Policies-Stock-Based Compensation” and Note 15: “Stock-Based Compensation” of
our consolidated financial statements in this Annual Report on Form 10-K. The RSUs vested in full on December 15, 2015
and were settled prior to December 31, 2015.
(3) Mr. Meagher resigned as a director of the board and all other positions he held as a member of any committee of the board
effective April 21, 2015.
Compensation Committee Interlocks and Insider Participation
No member of our compensation committee was, during 2015, an officer, former officer or employee of the Company or any of
our subsidiaries. None of our executive officers served as a member of (i) the compensation committee of another entity in
which one of the executive officers of such entity served on our compensation committee or (ii) the compensation committee of
another entity in which one of the executive officers of such entity served as a member of our board.
Executive Compensation
Compensation Discussion and Analysis
This section discusses the principles underlying our policies and decisions with respect to the compensation of our executive
officers who are named in the “Summary Compensation Table” below and the principal factors relevant to an analysis of these
policies and decisions. In 2015, our “named executive officers” and their positions were as follows:
• Thomas P. McGuinness, President and Chief Executive Officer;
•
Jack Potts, former Executive Vice President, Chief Financial Officer and Treasurer;
• Michael E. Podboy, Executive Vice President, Chief Financial Officer, Chief Investment Officer and Treasurer;
•
Scott W. Wilton, Executive Vice President, General Counsel and Secretary;
• David F. Collins, Executive Vice President, Portfolio Management; and
•
Jonathan T. Roberts, President, University House Communities Group, Inc. (“University House”).
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Effective November 23, 2015, Mr. Potts resigned as Executive Vice President - Chief Financial Officer and Treasurer and as the
principal financial officer of InvenTrust and from all other officer, director or other positions he held with any subsidiary,
division or affiliate of the Company.
This section provides an overview of our executive compensation philosophy, the overall objectives of our executive
compensation program and each compensation component that we provided in 2015. Each of the key elements of our executive
compensation program is discussed in more detail below. The following discussion and analysis of compensation arrangements
of our named executive officers should be read together with the compensation tables and related disclosures set forth below.
Our executive compensation program is designed to provide a total compensation package intended to align executive
compensation with the Company’s performance and with stockholder interests, and to attract, motivate and retain talented and
experienced executive officers through competitive compensation arrangements relative to our peer group.
At our annual meeting of stockholders on December 15, 2015 (the “2015 Annual Meeting”), we provided our stockholders with
an advisory vote to approve the compensation of our named executive officers (the say-on-pay proposal). At the 2015 Annual
Meeting, our stockholders approved, on an advisory basis, the compensation of our named executive officers, with over 78% of
the votes cast in favor of the say-on-pay proposal. Our board and our compensation committee believe this affirms the
stockholders’ support of our approach to executive compensation, and do not plan to make any significant changes to our
approach in 2016. Our board and our compensation committee will continue to consider the outcome of our say-on-pay votes
when making future compensation decisions for the named executive officers. In addition, when determining how often to hold
future say-on-pay proposals to approve the compensation of our named executive officers, our board and our compensation
committee took into account the preference for a triennial vote expressed by our stockholders at the 2015 Annual Meeting, with
over 71% of the votes cast in favor of a triennial vote. Accordingly, our board and our compensation committee determined that
we will hold a say-on-pay proposal to approve the compensation of our named executive officers every three years. Our next
say-on-pay advisory vote is expected to be held at the 2018 annual meeting of stockholders.
Executive Summary
Summary of 2015 Financial and Operational Results
For the year ended December 31, 2015, we:
• Completed the spin-off and listing of Xenia Hotels & Resorts, Inc. (“Xenia”), our lodging platform, through a
taxable pro-rata distribution of 95% of the outstanding common stock of Xenia to holders of record of our
common stock as of the close of business on January 20, 2015, which we refer to herein as the Xenia Spin-Off.
• Demonstrated strong balance sheet management through entry into two new credit facilities, which significantly
increased our financial resources for both working capital and future debt maturities and are expected to lower
overall cost of financing.
• Changed our name to InvenTrust in order to highlight and develop a brand that was independent from our former
sponsor and distinguish ourselves in our core retail business.
• Worked towards the execution of our previously disclosed strategy to dispose of non-core assets through the pro-
rata distribution of 100% of the outstanding shares of common stock of Highlands REIT, Inc., a wholly owned
subsidiary of InvenTrust that was formed to hold a number of our non-core assets, to holders of our common
stock.
• Engaged in a robust evaluation process to maximize the value we receive for the sale of our student housing
platform, culminating in the entry into an agreement on January 3, 2016 to sell the platform for a gross all-cash
value of $1.4 billion, subject to final determination of net proceeds at the closing of the transaction.
•
Increased modified net operating income to $318.7 million, a 2.3% increase over the year ended December 31,
2014, inclusive of an increase in same store operating performance of $17.9 million, or 6.7%.
• Achieved funds from operations, as defined by NAREIT, of $247.2 million.
• Acquired seven new properties for a gross investment of $323.7 million, consisting of four retail properties and
three student housing properties.
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During the fiscal year ending December 31, 2015, our stockholders received dividends of $146.5 million, or $0.17 per share on
an annualized basis. In connection with the Xenia Spin-Off in February of 2015, stockholders received an additional
distribution of $2.4 billion or $2.76 per share. In addition to the Xenia Spin-Off, disposing of five non-strategic properties for a
gross disposition price of approximately $63.2 million and paying down approximately $495.6 billion of mortgage debt, we
ended 2015 well positioned to continue the execution of our portfolio strategy. As of December 31, 2015, our portfolio
consisted of a retail portfolio of $2.5 billion, undepreciated, that included 97 properties, a student housing portfolio of $1.0
billion, undepreciated, that included 18 properties, and non-core properties of approximately $750.3 million and 14 properties.
Consistent with our compensation philosophy to pay for performance, the annual cash bonuses of our named executive officers
for 2015 were tied to quantitative and qualitative performance metrics. See “Compensation Discussion and Analysis - Elements
of Executive Compensation - Annual Cash Bonuses” for a detailed discussion of our annual bonus programs and related
performance metrics.
Compensation Elements
Our executive compensation program for 2015 consisted of the following elements: base salary, annual cash bonus, equity-
based long-term incentive awards, retirement benefits and health/welfare benefits. Each of these elements taken separately, as
well as each of these elements taken as a whole, was necessary to support our overall compensation objectives. The following
table sets forth the key elements of our named executive officers’ compensation for 2015, along with the primary objective
associated with each element of compensation.
Compensation Element
Primary Objective
Base salary
Annual cash bonus
Long-term equity incentive compensation
Retirement savings - 401(k) plan
Health and welfare benefits
To compensate ongoing performance of job responsibilities and
provide a fixed minimum income level as a necessary tool in
attracting and retaining executives.
To incentivize the attainment of annual financial, operational and
personal objectives and individual contributions to the achievement
of those objectives.
To provide incentives that are linked directly to increases in the
value of the Company as a result of the execution of our long-term
plans.
To provide retirement savings in a tax-efficient manner.
To provide typical protections from health, dental, death and
disability risks.
The compensation committee believes that executive compensation should reflect the value created for our stockholders, while
supporting our operational goals and long-term business plans and strategies. In addition, the compensation committee believes
that such compensation should assist us in attracting and retaining key executives critical to our long-term success.
Good Governance and Best Practices
With respect to our executive compensation program, we are committed to staying apprised of current issues, emerging trends,
and best practices. To this end, when considering executive officer compensation packages for 2015, our compensation
committee worked with our independent compensation consultant, Exequity LLP, to conduct a comprehensive market analysis
of our executive compensation program and pay, and to generally align target direct compensation for our named executive
officers conservatively relative to the median of our or University House’s peer group, as applicable.
Our executive compensation programs and practices for 2015 included the following features, which we believe are mindful of
the concerns of our stockholders.
• The named executive officers were eligible to earn annual bonuses based upon achievement of specific annual
financial, operational and personal objectives that were designed to challenge the named executive officers to
strong performance.
• The named executive officers participated in equity-based incentive plans which provided incentives that are
linked directly to increases in the value of the Company.
• Our named executive officers participated in broad-based Company-sponsored benefits programs on the same
basis as other full-time employees.
• Our named executive officers participated in the same defined contribution retirement plan as other employees.
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• Exequity was retained directly by and reported to the compensation committee. Exequity did not have any prior
relationship with any of our named executive officers or members of the compensation committee when it was
initially retained in 2014.
• Our compensation committee, in conjunction with Exequity, developed comparative peer groups to analyze the
competitiveness of the total pay opportunity provided to our named executive officers.
• We did not provide our executive officers or other employees with tax gross-up payments, supplemental
retirement benefits or perquisites.
Pay for Performance
Our compensation program for 2015 was designed to align key financial and operational achievements with the annual cash
bonuses to our named executive officers. Annual cash bonuses were focused primarily on financial performance for 2015, as
well as individual performance. Under our annual bonus program for 2015, Messrs. McGuinness, Potts, Podboy, Wilton and
Collins were eligible to earn cash bonuses based on each of their individual performances in support of our financial,
operational, and cultural goals for 2015, as well as our achievement in 2015 of performance goals relating to adjusted funds
from operations (“AFFO”) (a supplemental non-GAAP financial measure described below).
Under our annual bonus program for employees of University House for 2015, Mr. Roberts was eligible to earn a cash bonus
based on his individual performance in support of University House’s financial, operational, and cultural goals for 2015, as well
as University House’s achievement in 2015 of performance goals relating to (i) adjusted EBITDA (a supplemental non-GAAP
financial measure defined as property net operating income less the student housing platform’s controllable general and
administrative expenses); and (ii) development management (a supplemental non-GAAP financial measure evaluated based on
adherence to a predetermined capital management budget and a qualitative assessment of timeliness of development projects).
Our compensation committee believes these annual targeted operational and financial goals align with our strategy to attain
long-term financial stability that will support sustained cash flows beneficial to our stockholders. Performance of each named
executive officer was not evaluated solely upon satisfaction of pre-determined performance goals, but was also evaluated
subjectively by the compensation committee. Depending on actual results, each named executive officer could earn a maximum
of 150% of his target bonus amount if the maximum performance targets were achieved or exceeded. In determining each
executive’s actual cash bonus under the applicable bonus program, each executive’s target bonus percentage was weighted
between each applicable performance metric based on the officer’s core responsibilities within the Company or University
House, as applicable.
Stockholder Interest Alignment
Equity awards granted in 2015 to Messrs. McGuinness, Potts, Podboy, Wilton and Collins included grants of RSU awards,
which vest over time based on the executive’s continued employment, and which entitle each executive to receive shares of our
common stock upon vesting of the RSU award. Equity awards granted in 2015 to Mr. Roberts included a grant of “share units,”
the value of which increases or decreases as the total equity value of our student housing business increases or decreases, and
which vests over time based on the executive’s continued employment as well as the occurrence of a change in control or the
occurrence of a listing event, such as an initial public offering or other listing of University House’s shares on a national
securities exchange (a “Listing Event”), of our student housing business. Our annual bonus program, combined with grants of
equity-based awards, creates a balanced focus on the achievement of short-term and long-term financial and operational goals.
Our compensation committee believes that this “at risk” compensation in the form of annual bonuses and long-term equity-
based incentives plays a significant role in aligning management’s interests with those of our stockholders.
Determination of Compensation
Roles of Our Compensation Committee and Chief Executive Officer in Compensation Decisions
Our board and our compensation committee are responsible for overseeing our executive compensation program and University
House’s executive compensation program, as well as determining and approving the ongoing compensation arrangements for
our named executive officers. Our compensation committee evaluates the individual performance and contributions of our
Chief Executive Officer. Our Chief Executive Officer evaluates the individual performance and contributions of each other
named executive officer, and reports to our compensation committee his recommendations regarding the other named executive
officers’ compensation.
Engagement of Compensation Consultant
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Our board, with the assistance of Exequity, designed a market-based compensation program for 2015 with the intent that it be
attractive to potential employees, manage retention risk, tie compensation to performance and align the interests of our officers
with the interests of our stockholders. Amended and restated employment agreements incorporating this compensation program
were entered into with each of our named executive officers in June 2015. In addition to these services, Exequity also advised
the compensation committee regarding the compensation to be paid to members of our board and, prior to the spin-off of Xenia,
the board of directors of Xenia. Exequity has not provided any other services to the Company. Our compensation committee
has determined that Exequity is independent and does not have any conflicts of interests with the Company.
Peer Group Review
With respect to the compensation packages offered to our named executive officers, the compensation committee reviewed
total cash and long-term compensation levels for executive officers of the Company and University House against those of each
entity’s peer group companies in an effort to set executive compensation at levels that will attract and motivate qualified
executives while rewarding performance based on corporate objectives. The compensation committee set compensation levels
for each executive officer on the basis of several factors, including the executive officer’s level of experience, competitive
market data applicable to the executive officer’s positions and functional responsibilities, promoting recruitment and retention,
the performance of the executive officer and the Company’s or University House’s annual and long-term performance, as
applicable.
The peer group used to set 2015 base salaries, bonus targets and long-term equity awards for Messrs. McGuinness, Potts,
Podboy, Wilton and Collins consisted of the following 15 similarly sized retail REITs:
Brixmor Property Group Inc.
Kimco Realty Corporation
Regency Centers Corporation
CBL & Associates Properties, Inc.
The Macerich Company
Retail Properties of America, Inc.
DDR Corporation
National Retail Properties
Taubman Centers, Inc.
Equity One, Inc.
Pennsylvania Real Estate
Investment Trust
Weingarten Realty Investment Trust
Federal Realty Investment Trust
Realty Income Corporation
WP Glimcher Inc.
The peer group used to set Mr. Roberts’ 2015 base salary, bonus target and long-term equity awards consisted of the following
12 similarly sized REITS in the student housing, residential and hotel business:
American Campus Communities Inc.
Education Realty Trust, Inc.
Post Properties Inc.
Associated Estates Realty Corp.
Felcor Lodging Trust Inc.
Ryman Hospitality Properties, Inc.
Chatham Lodging Trust
Hersha Hospitality Trust
Strategic Hotels & Resorts, Inc.
Chesapeake Lodging Trust
Pebblebrook Hotel Trust
Summit Hotel Properties, Inc.
Executive Compensation Philosophy and Objectives
The market for experienced management is highly competitive in our industry. One of our principal goals is to attract and retain
the most highly qualified executives to manage each of our business functions. We work with Exequity to understand
competitive pay practices within the REIT industry and to design executive compensation programs that fit our business
strategy and align the interests of our named executive officers with those of our shareholders. We seek to provide total
compensation to our executive officers that is competitive with the total compensation paid by comparable REITs and other real
estate companies in our peer group. Our executive compensation philosophy recognizes that, given that the market for
experienced management is highly competitive in our industry, a key to our success is our ability to attract and retain the most
highly-qualified executives to manage each of our business functions.
Elements of Executive Compensation Program
The following describes the primary components of our executive compensation program for each of our named executive
officers for 2015, the rationale for each component and how compensation amounts were determined.
Base Salary
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In 2015, we provided our named executive officers with a base salary to compensate them for services rendered to us or
University House, as applicable, during the fiscal year. The base salary payable to each named executive officer is intended to
provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. The base
salaries for each of the named executive officers for 2015 were determined based in part on the analysis by Exequity of the
compensation practices of companies in the Company’s and University House’s peer groups, as applicable. The following table
sets forth the annual base salaries for each of our named executive officers for 2015.
Name
2015 Annual Base Salary
Thomas P. McGuinness
Jack Potts
Michael E. Podboy
Scott W. Wilton
David F. Collins
Jonathan T. Roberts
$700,000
483,000
395,000
395,000
395,000
450,000(1)
(1) Effective November 16, 2015 and $375,000 prior to November 16.
Annual Cash Bonuses
In 2015, our named executive officers participated in annual bonus programs for employees of the Company or University
House, as applicable, under which each of the executives was eligible to receive an annual cash bonus based upon the
achievement of certain performance criteria. Target awards for the executives under the annual cash bonus programs were
specified in each of their respective amended and restated employment agreements, with threshold and maximum bonus levels
determined on an annual basis. The target bonus levels for our named executive officers for 2015 were:
Name
Thomas P. McGuinness
Jack Potts
Michael E. Podboy
Scott W. Wilton
David F. Collins
Jonathan T. Roberts
Target Annual Bonus
(% of annual base salary)
125%
90%
80%
80%
80%
80%
Annual Cash Bonuses for Messrs. McGuinness, Potts, Podboy, Wilton and Collins
Under the annual bonus program for Messrs. McGuinness, Potts, Podboy, Wilton and Collins, the 2015 performance goals
were: (1) adjusted funds from operations (“AFFO”), weighted at 75% of each executive’s target annual bonus opportunity, and
(2) individual performance, weighted at 25% of each executive’s target annual bonus opportunity. AFFO is a non-GAAP
financial measure and is defined as funds from operations consistent with the NAREIT definition, meaning net income
computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus depreciation and amortization and
impairment charges on depreciable property and after adjustments for unconsolidated partnerships and joint ventures in which
we hold an interest adjusted to exclude GAAP adjustments, such as straight-line rent and intangible lease amortization, general
and administrative costs associated with one-time transactions, such as student housing transaction readiness and Highlands
spin-off readiness, and adjusted for the change in timing of individual property dispositions.
The table below reflects the AFFO performance goals for Messrs. McGuinness, Potts, Podboy, Wilton and Collins for 2015.
The individual performance bonus component for each of Messrs. McGuinness, Potts, Podboy, Wilton and Collins was based
on a qualitative assessment of the executive’s individual performance.
2015 Annual Bonus Performance Measure
AFFO
Threshold
$153.0 million
Target
Maximum
$191.2 million $229.5 million
Under the 2015 bonus program for Messrs. McGuinness, Potts, Podboy, Wilton and Collins, with respect to the AFFO goal, no
bonus would be earned for performance below the threshold level, 50% of the executive’s bonus target would be earned for
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performance at the threshold level, 100% of the executive’s bonus target would be earned for performance at the target level
and 150% of the executive’s bonus target would be earned for performance at the maximum level (or above). Performance
between threshold and target and between target and maximum levels would be interpolated on a straight-line basis.
For 2015, the Company achieved AFFO of $192.502 million, which exceeded the target goal of $191.235 million. In
calculating AFFO for purposes of the bonus program, the Company adjusted the target to reflect timing of strategic dispositions
and actual GAAP adjustments. Therefore, each of Messrs. McGuinness, Podboy, Wilton and Collins were entitled to 101.7%
of their target bonus with respect to the AFFO performance metric. Our compensation committee determined that the individual
performances of each of Messrs. McGuinness, Podboy, Wilton and Collins for 2015 exceeded expectations, and therefore the
bonus amount attributable to each named executive officer’s individual performance exceeded their individual performance
target amount. Based on these results, bonuses were determined as follows:
Name
Thomas P. McGuinness
Michael E. Podboy
Scott W. Wilton
David F. Collins
AFFO
$667,406
241,029
241,029
241,029
Individual Performance 2015 Total Bonus
$262,500
110,600
94,800
89,270
$929,906
351,629
335,829
330,299
Mr. Potts was not entitled to an annual cash bonus because his employment terminated prior to payment of annual bonuses
under the 2015 bonus program.
Annual Cash Bonus for Mr. Roberts
Under the annual cash bonus program for employees of University House, including Mr. Roberts, the 2015 performance goals
were: (1) adjusted EBITDA, weighted at 50% of Mr. Roberts’ target annual bonus opportunity, (2) development management,
weighted at 30% of Mr. Roberts’ target annual bonus opportunity, and (3) individual performance, weighted at 20% of Mr.
Roberts’ target annual bonus opportunity. Adjusted EBITDA and development management are non-GAAP financial measures
and are defined as follows: adjusted EBITDA is property net operating income less the student housing platform’s controllable
general and administrative expenses, and development management as adherence to a predetermined capital management
budget (50%) and a qualitative assessment of timeliness of development projects (50%).
The table below reflects the quantitative performance goals for Mr. Roberts for 2015.
2015 Annual Bonus Performance Measure
Adjusted EBITDA
Development Management
Threshold
$38.2 million
$267.5 million
Target
$47.7 million
$243.1 million
Maximum
$57.3 million
$218.8 million
Under the 2015 bonus program for employees of University House, with respect to the adjusted EBITDA and development
management goals, no bonus would be earned for performance below the threshold level, 50% of the executive’s bonus target
would be earned for performance at the threshold level, 100% of the executive’s bonus target would be earned for performance
at the target level and 150% of the executive’s bonus target would be earned for performance at the maximum level (or above).
Performance between threshold and target and between target and maximum levels would be interpolated on a straight-line
basis.
For 2015, University House achieved adjusted EBITDA equal to $46.8 million, which was less than University House’s target
goal, as adjusted, of $47.7 million. In calculating adjusted EBITDA for purposes of the University House bonus program, the
Company adjusted for nonrecurring events. Therefore, Mr. Roberts was entitled to 95.3% of his target bonus with respect to the
adjusted EBITDA performance metric. University House also achieved a capital management budget of $240.1 million, which
was more favorable than University House’s target goal, and our compensation committee determined that individual
performance and timeliness of development management projects in 2015 exceeded expectations. Therefore, Mr. Roberts was
entitled to 108.1% of his target bonus with respect to the development management performance metrics, and the bonus amount
attributable to individual performance exceeded the target amount for that metric. Based on these results, Mr. Roberts’ bonus
was determined as follows:
Name
Adjusted EBITDA Development Management
Individual Performance 2015 Total Bonus
Jonathan T. Roberts
$171,557
$116,761
$86,400
$374,718
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Long-Term Equity-Based Incentive
The goals of our long-term equity-based awards granted in 2015 were to reward and encourage value creation through the
execution of our long-term business plans and, thereby, to align the interests of our officers, including our named executive
officers, with those of our stockholders by directly linking the value of RSUs granted to Messrs. McGuinness, Potts, Podboy,
Wilton and Collins with the value of the Company and share units granted to Mr. Roberts with the value of University House.
Incentive Award Plan
Effective as of June 19, 2015, our board adopted and approved the InvenTrust Properties Corp. 2015 Incentive Award Plan (the
“Incentive Award Plan”), under which we may grant cash and equity incentive awards to eligible service providers in order to
attract, motivate and retain the talent for which we compete. The Incentive Award Plan has not been approved by our
stockholders. The material terms of the Incentive Award Plan are summarized below.
Eligibility and Administration. Employees, consultants and directors of the Company and its subsidiaries are eligible to receive
awards under the Incentive Award Plan. The Incentive Award Plan is administered by our board with respect to awards to non-
employee directors and by our compensation committee with respect to other participants, each of which may delegate its
duties and responsibilities to committees of our directors and/or officers (referred to collectively as the “plan administrator”),
subject to certain limitations that may be imposed under Section 16 of the Exchange Act and/or stock exchange rules, as
applicable. The plan administrator has the authority to administer the Incentive Award Plan, including the authority to select
award recipients, determine the nature and amount of each award, and determine the terms and conditions of each award. The
plan administrator also has the authority to make all determinations and interpretations under, prescribe all forms for use with,
and adopt rules for the administration of, the Incentive Award Plan, subject to its express terms and conditions.
Size of Share Reserve; Limitations on Awards. The maximum aggregate number of shares that may be issued pursuant to
awards (including incentive stock options) under the Incentive Award Plan is 30,000,000 shares.
If any shares subject to an award under the Incentive Award Plan are forfeited, expire or are settled for cash, any shares subject
to such award may, to the extent of such forfeiture, expiration or cash settlement, be used again for new grants under the
Incentive Award Plan. However, the following shares may not be used again for grant under the Incentive Award Plan: (1)
shares tendered or withheld to satisfy grant or exercise price or tax withholding obligations associated with an award; (2) shares
subject to a stock appreciation right (“SAR”) that are not issued in connection with the stock settlement of the SAR on its
exercise; and (3) shares purchased on the open market with the cash proceeds from the exercise of options.
To the extent permitted under applicable securities exchange rules, if any, without stockholder approval, awards granted under
the Incentive Award Plan in connection with the assumption, replacement, conversion or adjustment of outstanding equity
awards in the context of a corporate acquisition or merger will not reduce the shares authorized for grant under the Incentive
Award Plan.
The maximum number of shares of common stock that may be subject to one or more awards granted to any one participant
pursuant to the Incentive Award Plan during any calendar year is 4,500,000 shares and the maximum amount that may be paid
under a cash award pursuant to the Incentive Award Plan to any one participant during any calendar year period is $10,000,000.
The maximum aggregate value, determined as of the grant date under applicable accounting standards, of awards that may be
granted to any non-employee director pursuant to the Incentive Award Plan during any calendar year is $500,000.
Awards. The Incentive Award Plan provides for the grant of stock options, restricted stock, dividend equivalents, stock
payments, RSUs, performance shares, other incentive awards and SARs. All awards under the Incentive Award Plan will be set
forth in award agreements, which will detail all terms and conditions of the awards, including any applicable vesting and
payment terms and post-termination exercise limitations. Awards will be settled in shares of our common stock or cash, as
determined by the plan administrator.
Stock Options. Stock options, including incentive stock options (“ISOs”) and nonqualified stock options (“NSOs”), provide for
the purchase of shares of our common stock in the future at an exercise price set on the grant date. The exercise price of a stock
option may not be less than 100% of the fair market value of the underlying share on the date of grant (or 110% in the case of
ISOs granted to certain significant stockholders), except with respect to certain substitute options granted in connection with a
corporate transaction. The term of a stock option may not be longer than ten years (or five years in the case of ISOs granted to
certain significant stockholders). Vesting conditions determined by the plan administrator may apply to stock options and may
include continued service, performance and/or other conditions. ISOs may only be granted under the Incentive Award Plan to
the extent that the requirements of Section 422 of the Internal Revenue Code (the “Code”) are complied with, including the
shareholder approval requirements under Treasury Regulation Section 1.422-2(b)(2).
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Restricted Stock Units. RSUs are contractual promises to deliver shares of our common stock (or the fair market value of such
shares in cash) in the future, which may also remain forfeitable unless and until specified vesting conditions are met. RSUs
generally may not be sold or transferred until vesting conditions are removed or expire. The shares underlying RSUs will not be
issued until the RSUs have vested, and recipients of RSUs generally will have no voting or dividend rights prior to the time the
RSUs are settled in shares, unless the RSU includes a dividend equivalent right (in which case the holder may be entitled to
dividend equivalent payments under certain circumstances). Delivery of the shares underlying the RSUs may be deferred under
the terms of the award or at the election of the participant, if the plan administrator permits such a deferral. On the settlement
date or dates, we will issue to the participant one unrestricted, fully transferable share of our common stock (or the fair market
value of one such share in cash) for each vested and nonforfeited RSU.
Restricted Stock. Restricted stock is an award of nontransferable shares of our common stock that remain forfeitable unless and
until specified vesting conditions are met. Vesting conditions applicable to restricted stock may be based on continuing service,
the attainment of performance goals and/or such other conditions as the plan administrator may determine. In general, restricted
stock may not be sold or otherwise transferred until all restrictions are removed or expire. With respect to restricted stock that is
subject to performance-based vesting conditions, dividends which are paid prior to vesting will only be paid out to the
participant to the extent that the performance-based vesting conditions are subsequently satisfied and the share of restricted
stock vests.
Stock Appreciation Rights. SARs entitle their holder, upon exercise, to receive an amount equal to the appreciation of the
shares subject to the award between the grant date and the exercise date. The exercise price of a SAR may not be less than
100% of the fair market value of the underlying share on the date of grant (except with respect to certain substitute SARs
granted in connection with a corporate transaction) and the term of a SAR may not be longer than ten years. Vesting conditions
determined by the plan administrator may apply to SARs and may include continued service, performance and/or other
conditions. SARs under the Incentive Award Plan will be settled in cash or shares of common stock, or in a combination of
both, as determined by the administrator.
Performance Shares. Performance shares are contractual rights to receive a range of shares of our common stock in the future
based on the attainment of specified performance goals, in addition to other conditions which may apply to these awards.
Conditions applicable to performance shares may be based on continuing service, the attainment of performance goals and/or
such other conditions as the plan administrator may determine.
Stock Payments. Stock payments are awards of fully vested shares of our common stock that may, but need not, be made in lieu
of base salary, bonus, fees or other cash compensation otherwise payable to any individual who is eligible to receive awards.
Other Incentive Awards. Other incentive awards are awards other than those enumerated in this summary that are denominated
in, linked to or derived from shares of our common stock or value metrics related to our shares, and may remain forfeitable
unless and until specified conditions are met. Other incentive awards may be linked to any specific performance criteria
determined by the plan administrator.
Dividend Equivalents. Dividend equivalents represent the right to receive the equivalent value of dividends paid on shares of
our common stock and may be granted alone or in tandem with awards other than stock options or SARs. Dividend equivalents
are credited as of dividend payment dates during the period between a specified date and the date such award terminates or
expires, as determined by the plan administrator. Dividend equivalents with respect to an award that is subject to performance-
based vesting will only be paid out to the participant to the extent that the performance-based vesting conditions are
subsequently satisfied and the award vests.
Performance Bonus Awards. Performance bonus awards are cash bonus awards that are granted subject to vesting and/or
payment based on the attainment of specified performance goals.
Certain Transactions. The plan administrator has broad discretion to take action under the Incentive Award Plan, as well as
make adjustments to the terms and conditions of existing and future awards, to prevent the dilution or enlargement of intended
benefits and facilitate necessary or desirable changes in the event of certain transactions and events affecting our common
stock, such as stock dividends, stock splits, mergers, acquisitions, consolidations and other corporate transactions. In addition,
in the event of certain non-reciprocal transactions with our stockholders known as “equity restructurings,” the plan
administrator will make equitable adjustments to the Incentive Award Plan and outstanding awards. In the event of a “change in
control” of the Company (as defined in the Incentive Award Plan), to the extent that awards will not be continued, converted,
assumed or replaced by the surviving or successor entity, such awards will become fully vested and exercisable immediately
prior to the closing of the transaction.
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Foreign Participants, Claw-Back Provisions, Transferability, and Participant Payments. The plan administrator may modify
award terms, establish subplans and/or adjust other terms and conditions of awards, subject to the share limits described above,
in order to facilitate grants of awards subject to the laws and/or stock exchange rules of countries outside of the United States.
All awards will be subject to the provisions of any claw-back policy implemented by us to the extent set forth in such claw-
back policy and/or in the applicable award agreement. With limited exceptions for estate planning, domestic relations orders,
certain beneficiary designations and the laws of descent and distribution, awards under the Incentive Award Plan are generally
non-transferable prior to vesting, and are exercisable only by the participant, unless otherwise provided by the plan
administrator. With regard to tax withholding, exercise price and purchase price obligations arising in connection with awards
under the Incentive Award Plan, the plan administrator may, in its discretion, accept cash or check, shares of our common stock
that meet specified conditions, a “market sell order” or such other consideration as it deems suitable.
Plan Amendment and Termination. Our board may amend or terminate the Incentive Award Plan at any time; however, except
in connection with certain changes in our capital structure, stockholder approval will be required for any amendment that
“reprices” any stock option or SAR or cancels any stock option or SAR in exchange for cash or another award when the option
or SAR price per share exceeds the fair market value of the underlying shares. In addition, no amendment, suspension or
termination of the Plan may, without the consent of the affected participant, impair any rights or obligations under any
previously-granted award, unless the award itself otherwise expressly so provides. No ISO may be granted pursuant to the
Incentive Award Plan after the tenth anniversary of the date on which our board adopted the Incentive Award Plan.
Additional REIT Restrictions. The Incentive Award Plan provides that no participant will be granted, become vested in the right
to receive or acquire or be permitted to acquire, or will have any right to acquire, shares under an award if such acquisition
would be prohibited by the restrictions on ownership and transfer of our stock contained in our charter or would impair our
status as a REIT.
Restricted Stock Unit Awards
Effective as of June 19, 2015, our compensation committee approved the following RSU awards (with dividend equivalents) to
each of Messrs. McGuinness, Potts, Podboy, Wilton and Collins (the “RSU Awards”) under the Incentive Award Plan and
pursuant to a restricted stock unit award agreement (the “RSU Award Agreement”).
Name
Thomas P. McGuinness
Jack Potts
Michael E. Podboy
Scott W. Wilton
David F. Collins
Number of RSUs
437,500
150,000
125,000
125,000
125,000
The RSUs vest as follows, subject to the executive’s continued service on each applicable vesting date: 33% on December 31,
2015, 33% on December 31, 2016 and 34% on December 31, 2017. If an executive’s service is terminated by us other than for
“cause,” by the executive for “good reason,” in either case, on the date of, or during the twenty-four month period following, a
change in control of the Company, or due to the executive’s death or “disability” (as defined in the RSU Award Agreement), the
RSUs will vest in full upon such termination. Upon an executive’s termination of service for any other reason, any then-
unvested RSUs will automatically be cancelled and forfeited by the executive. Any RSUs that become vested will be paid to the
executive in whole shares of our common stock within 60 days after the applicable vesting date.
Each RSU was granted in tandem with a corresponding dividend equivalent. Each dividend equivalent entitles the executive to
receive payments equal to the amount of the dividends paid on the share of common stock underlying the RSUs (whether
vested or unvested) to which the dividend equivalent relates.
Pursuant to the terms of the Severance Agreement and General Release, dated as of November 23, 2015, entered into with Mr.
Potts in connection with his termination of employment (the “Severance Agreement”), we agreed to accelerate the vesting of
50,000 RSUs previously granted to Mr. Potts which were otherwise scheduled to vest on December 31, 2015. Mr. Potts
forfeited the remaining portion of his RSU Award.
Additional information regarding the vesting terms and conditions applicable to all outstanding RSU awards held by our named
executive officers is set forth under the heading “- Potential Payments Upon Termination or Change in Control” below.
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Share Unit Plans
During 2014, we adopted the following three long-term incentive plans: (1) the Inland American Real Estate Trust, Inc. 2014
Share Unit Plan (the “Retail Plan”), with respect to our retail business; (2) the Xenia Hotels & Resorts, Inc. 2014 Share Unit
Plan (the “Lodging Plan”), with respect to our lodging business; and (3) the Inland American Communities Group, Inc. 2014
Share Unit Plan (the “Student Housing Plan”), with respect to our student housing business (collectively, the “Share Unit
Plans”). The purpose of the Share Unit Plans is (or was, as applicable) to enable us to attract and retain highly qualified
personnel who will contribute to our success and to provide incentives to participants that are linked directly to increases or
decreases in the value of the Company. On January 9, 2015, in connection with the spin-off of our lodging business, we
terminated the Lodging Plan. No new share unit awards will be made under the Lodging Plan, and the Lodging Plan will be
maintained by Xenia going forward with respect to awards outstanding as of the termination of the plan. Effective June 19,
2015, in connection with the adoption of the Incentive Award Plan, we also terminated the Retail Plan. Awards outstanding as
of the termination of the plan will remain outstanding and subject to the terms of the plan and the applicable award agreement.
No additional awards will be granted under the Retail Plan.
Each Share Unit Plan provides (or provided, as applicable) for the grant of “share unit” awards to eligible participants. The
value of a “share unit” was determined based on a phantom capitalization of our retail/non-core business, lodging business and
student housing business, and does not necessarily correspond to the value of a share of common stock of the Company, Xenia
or University House, as applicable. Similarly, vesting of the share units granted in 2014 and 2015 is conditioned upon the
occurrence of a triggering event, such as a Listing Event or a change in control of the applicable business, and if no triggering
event occurs within five years following the applicable grant date, then the share units are forfeited.
Employees, directors and consultants of the Company and its subsidiaries and affiliates were eligible to receive awards under
the Retail Plan. Employees, directors and consultants of Xenia and its subsidiaries and affiliates were eligible to receive awards
under the Lodging Plan. Employees, directors and consultants of University House and its subsidiaries and affiliates are eligible
to receive awards under the Student Housing Plan. Awards under the Share Unit Plans are generally non-transferable and non-
assignable, other than by will or the laws of descent and distribution. Certain executive officers received awards under all three
plans.
Subject to applicable vesting conditions, each share unit granted in 2014 and 2015 represents the right to receive a cash
payment or shares of common stock of the Company, Xenia, University House or an acquiror thereof, as applicable, in an
amount equal to the fair market value of the share unit on the date of the triggering event. The “fair market value” of a share
unit will be determined by the board of directors in good faith, and prior to a Listing Event of the applicable entity, will be
determined by reference to the third party valuation performed to estimate the value of a share unit on a fully diluted basis,
using methodologies and assumptions substantially similar to those used in prior valuations.
Share unit awards will vest and become payable on terms and conditions determined by the plan administrator and set forth in
the applicable award agreement, including by reference to certain change in control transactions or Listing Events. Participants
will be entitled to accrue dividend equivalents with respect to share unit awards solely to the extent provided under the terms of
an applicable award agreement. To the extent that any payment or benefit paid or distributed to a participant under a Share Unit
Plan or an applicable award agreement would be subject to an excise tax under Section 4999 of the Code, such payments and/or
benefits will be subject to a “best pay cap” reduction if such reduction would result in a greater net after-tax benefit to the
participant than receiving the full amount of such payments.
Each Share Unit Plan provides that a pool of share units will be available for awards issued thereunder. The initial share unit
pools for each plan were as follows: 342,255,525 Company share units for the Retail Plan, 241,298,214 Xenia share units for
the Lodging Plan, and 46,042,546 University House share units for the Student Housing Plan, and each pool may be increased
at the discretion of our board of directors at any time. The number of share units in each pool was established solely as a means
to enable us to measure the change in value over time of the share unit awards granted under each plan. The number of share
units subject to each award under the Share Unit Plans may be adjusted as determined necessary by the board of directors to
prevent dilution or enlargement of value as a result of intercompany transfers of cash, assets or debt between the Company,
Xenia and University House and their affiliates for no consideration or other similar transactions. In addition, in the event of
certain transactions and events affecting the share units, such as equity dividends or splits, reorganizations, recapitalizations,
mergers and other corporate transactions, the plan administrator, in its discretion, will make such adjustments as it deems
equitable to the applicable Share Unit Plan and the awards thereunder.
The Share Unit Plans and share unit awards may be amended, altered, cancelled or terminated by the plan administrator at any
time, provided that no change to the Share Unit Plans or any outstanding award may be made that would reasonably be
expected to have an adverse effect on the rights of a holder of an existing award without the consent of the affected holder.
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Share Unit Awards
In 2014, our named executive officers were granted awards under the Share Unit Plans in the form of “annual share unit”
awards, “contingency share unit” awards, and “transaction share unit” awards, as applicable. In 2015, Mr. Roberts was granted
an additional “annual share unit” award under the Student Housing Plan.
Each “annual share unit” award (an “Annual Share Unit Award”) other than the Annual Share Unit Award granted to Mr.
Roberts in 2015 will vest and be settled on the later to occur of (i) the date of a change in control or Listing Event with respect
to our lodging, student housing or retail/non-core business, as applicable, and (ii) the third anniversary of the vesting
commencement date of the award, subject to the executive’s continued employment through the applicable settlement date,
provided that in no event will the Annual Share Unit Awards vest or be settled unless such a change in control or Listing Event
occurs on or before the fifth anniversary of the vesting commencement date of the award. The Annual Share Unit Award
granted to Mr. Roberts in 2015 will vest on the later to occur of (i) with respect to one-third of the share units underlying the
Annual Share Unit Award, on the first three anniversaries of the vesting commencement date, and (ii) the date of a change in
control of the Company or University House, or a Listing Event with respect to the shares of common stock of University
House, subject to the executive’s continued employment through the applicable settlement date, provided that in no event will
the Annual Share Unit Awards vest or be settled unless such a change in control or Listing Event occurs on or before the fifth
anniversary of the vesting commencement date of the award. In the case of a Listing Event, the Annual Share Unit Award will
be settled in shares of common stock of our lodging, student housing or retail/non-core business, as applicable, and in the event
of a change in control, the Annual Share Unit Award will be settled in cash (or, if the acquiring entity is a publicly traded
company and the Annual Share Unit Award is converted into another form of equity award of the acquiring entity at the time of
the change in control, then the Annual Share Unit Award will be settled in shares of the acquiring entity).
The vesting and settlement of each “contingency share unit” award (a “Contingency Share Unit Award”) is contingent upon the
occurrence of a change in control or Listing Event with respect to our lodging, student housing or retail/non-core business, as
applicable, that occurs no later than the fifth anniversary of the applicable vesting commencement date. If a Listing Event
occurs, the Contingency Share Unit Award will vest and settle in three equal installments on each of the first three anniversaries
of the Listing Event, subject to the executive’s continued employment through each vesting date. If a qualifying change in
control occurs, 100% of the Contingency Share Unit Award will vest and settle on the one-year anniversary of the change in
control event, subject to the executive’s continued employment through the vesting date. The awards will be settled in shares or
cash in the same manner described above with respect to the Annual Share Unit Awards.
Because Messrs. McGuinness, Potts, Podboy and Wilton provide leadership to the entire Company, not just the retail business,
those executives received awards of share units in the student housing and lodging businesses in addition to their Annual Share
Unit Awards and one-time Contingency Share Unit Awards in the retail business. The one-time awards of student housing share
units and lodging share units are referred to as transaction share units and align the interests of Messrs. McGuinness, Potts,
Podboy and Wilton with the long-term success of the entire Company. Each “transaction share unit” award (a “Transaction
Share Unit Award”) will vest and settle upon the occurrence of a change in control or Listing Event of our lodging, student
housing or retail/non-core business, as applicable, that occurs no later than the fifth anniversary of the applicable vesting
commencement date. Upon the occurrence of a Listing Event or change in control, the executive will be entitled to a cash
payment equal to the fair market value of the share units subject to the Transaction Share Unit Award determined on the date of
the change in control or Listing Event, as applicable. Mr. Collins did not receive a Transaction Share Unit Award due to his
later start date with the Company.
Each of the share unit awards granted to the named executive officers during 2014 has a vesting commencement date of March
12, 2014. The additional Annual Share Unit Award granted to Mr. Roberts in 2015 has a vesting commencement date of
January 1, 2015. The value of each share unit granted in 2014 was equal to $10.00 at the time of grant and was determined by
reference to the third-party valuation performed for us as of December 31, 2013. The estimated value of each share unit
underlying the additional Annual Share Unit Award granted to Mr. Roberts in 2015 was $13.98 at the time of grant and was
determined by our compensation committee as discussed below.
On January 20, 2015, in connection with the change in the equity value of our lodging portfolio resulting from certain
intercompany transfers of assets and debt to and from Xenia that did not reflect Xenia’s actual performance, our compensation
committee approved an adjustment to the number of share units subject to all share unit awards outstanding under the Lodging
Plan to protect the value of the awards from dilution or enlargement attributable to such transfers.
On February 4, 2015, in connection with the spin-off of our lodging business, the Transaction Share Unit Awards relating to our
lodging business which were granted to Messrs. McGuinness, Potts, Podboy and Wilton became vested and were settled in
accordance with the applicable plan provisions.
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Effective June 19, 2015, in connection with the change in the equity value of our student housing portfolio resulting from
certain intercompany transfers of assets and debt to and from University House that do not reflect University House’s actual
performance, our compensation committee approved an adjustment to the number of share units subject to all share unit awards
outstanding under the Student Housing Plan to protect the value of the awards from dilution or enlargement attributable to such
transfers.
On November 16, 2015, in connection with the change in the equity value of our retail/non-core portfolio resulting from certain
intercompany transfers of assets and debt to and from the retail/non-core portfolio that do not reflect the retail/non-core
portfolio’s actual performance, our compensation committee approved an adjustment to the number of share units subject to all
share unit awards outstanding under the Retail Plan to protect the value of the awards from dilution or enlargement attributable
to such transfers.
Additional information regarding the vesting terms and conditions applicable to all outstanding share unit awards held by our
named executive officers is set forth under the heading “- Potential Payments Upon Termination or Change in Control” below.
Other Elements of Compensation
In 2015, we provided customary employee benefits to our full- and part-time employees, including our named executive
officers, including medical and dental benefits, short-term and long-term disability insurance, accidental death and
dismemberment insurance, and group life insurance. In addition, Mr. McGuinness was also covered by an additional life
insurance policy provided by the Company.
We have established a 401(k) retirement savings plan for our employees, including our named executive officers, who satisfy
certain eligibility requirements. In 2015, our named executive officers were eligible to participate in the 401(k) plan on the
same terms as other full-time employees. The Code allows eligible employees to defer a portion of their compensation, within
prescribed limits, on a pre-tax basis through contributions to the 401(k) plan. For 2015, we matched 50% of the contributions
made by participants in the 401(k) plan for the first $3,000 of the employee’s contributions. These matching contributions are
subject to vesting based on the participant’s years of service. We believe that providing a vehicle for tax-deferred retirement
savings though our 401(k) plan, and making matching contributions, adds to the overall desirability of our compensation
packages and further incentivizes our employees in accordance with our compensation policies.
Severance and Change in Control-Based Compensation
As more fully described below under the caption “- Potential Payments Upon Termination or Change in Control,” the amended
and restated employment agreements with our named executive officers provide for certain payments and/or benefits upon a
qualifying termination of employment. We believe that job security and terminations of employment, both within and outside of
the change in control context, are causes of significant concern and uncertainty for senior executives and that providing
protections to our named executive officers in these contexts is therefore appropriate in order to alleviate these concerns and
allow the executives to remain focused on their duties and responsibilities to the Company in all situations.
Payments and/or benefits provided in the employment agreements for our named executive officers, in each case, upon a
termination by the Company without “cause” or by the executive for “good reason,” include, without limitation:
•
•
a multiple of the sum of the executive’s annual base salary and target bonus for the year in which the termination
occurs; and
payment or reimbursement, by the Company of premiums for healthcare continuation coverage under COBRA for the
executive and his dependents for up to 18 months after the termination date.
Furthermore, the award agreements covering the share unit awards granted to each named executive officer and the RSU Award
Agreements provide for accelerated vesting of the awards upon certain terminations of employment. A detailed description of
the acceleration provisions applicable to the share unit awards and the RSU Awards is set forth under the heading “- Potential
Payments Upon Termination or Change in Control” below.
Mr. Roberts may also be eligible to receive a change in control retention bonus under the IA Communities Group, Inc.
Retention Bonus Plan, as amended (the "Retention Bonus Plan"). See "Potential Payments Upon Termination of Change in
Control - University House Retention Bonus Plan" below for additional details.
Separation Agreement with Mr. Potts
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Effective November 23, 2015, Mr. Potts resigned as Executive Vice President - Chief Financial Officer and Treasurer and
principal financial officer of the Company and from all other officer, director or other positions he held with any subsidiary,
division or affiliate of the Company.
In connection with Mr. Potts’ resignation, the Company and Mr. Potts entered into the Severance Agreement. Pursuant to the
Severance Agreement, Mr. Potts is entitled to certain severance payments and benefits, as more fully described below under the
caption “- Potential Payments Upon Termination or Change in Control.” All such compensation and benefits are conditioned
upon Mr. Potts not revoking the general release of claims set forth in the Severance Agreement. The Severance Agreement
further provides that the non-competition covenant under Mr. Potts’ employment agreement with the Company will continue to
apply for six months (rather than twelve months) following the separation date.
Tax and Accounting Considerations
Code Section 162(m)
Generally, Section 162(m) of the Code disallows a tax deduction for any publicly-held corporation for individual compensation
exceeding $1.0 million in any taxable year to its chief executive officer and each of its three other most highly compensated
executive officers, other than its chief financial officer, unless compensation qualifies as “performance-based compensation”
within the meaning of the Code. We believe that we qualify as a REIT under the Code and generally are not subject to federal
income taxes, provided that we distribute to our stockholders at least 90% of our taxable income each year. As a result of the
Company’s tax status as a REIT, the loss of a deduction under Section 162(m) may not affect the amount of federal income tax
payable by the Company. Therefore, our board and our compensation committee generally have not taken the deductibility
limit imposed by Section 162(m) into consideration in setting compensation.
Code Section 409A
Section 409A of the Code, or Section 409A, requires that “nonqualified deferred compensation” be deferred and paid under
plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of
payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to
accelerated income tax liabilities, penalty taxes and interest on their vested compensation under such plans. Accordingly, as a
general matter, it is our intention to design and administer our compensation and benefits plans and arrangements for all of our
employees and other service providers, including our named executive officers, so that they are either exempt from, or satisfy
the requirements of, Section 409A.
Code Section 280G
Section 280G of the Code disallows a tax deduction with respect to excess parachute payments to certain executives of
companies which undergo a change in control. In addition, Section 4999 of the Code imposes a 20% excise tax on the
individual with respect to the excess parachute payment. Parachute payments are compensation linked to or triggered by a
change in control and may include, but are not limited to, bonus payments, severance payments, certain fringe benefits, and
payments and acceleration of vesting from long-term incentive plans including share units and other equity-based
compensation. Excess parachute payments are parachute payments that exceed a threshold determined under Section 280G
based on the executive’s prior compensation. In approving the compensation arrangements for our named executive officers,
our board and our compensation committee consider all elements of the cost to our company of providing such compensation,
including the potential impact of Section 280G. However, our board or our compensation committee may, in their judgment,
authorize compensation arrangements that could give rise to loss of deductibility under Section 280G and the imposition of
excise taxes under Section 4999 when they believe that such arrangements are appropriate to attract and retain executive talent.
Accounting for Stock-Based Compensation
We follow FASB Accounting Standards Codification Topic 718, or ASC Topic 718, for our stock-based compensation awards.
ASC Topic 718 requires companies to calculate the grant date “fair value” of their stock-based awards using a variety of
assumptions. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based awards in their
income statements over the period that an employee is required to render service in exchange for the award. Grants of Annual
Share Unit Awards and Contingency Share Unit Awards under the Share Unit Plans and RSU Awards under the Incentive
Award Plan will be accounted for as equity awards under ASC Topic 718. Grants of Transaction Share Unit Awards may only
be settled in cash, and therefore are reflected as non-equity awards. Our compensation committee will regularly consider the
accounting implications of significant compensation decisions, especially in connection with decisions that relate to the Share
Unit Plans. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our
equity awards with our overall executive compensation philosophy and objectives.
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Executive Compensation Tables
Summary Compensation Table
The following table sets forth certain information with respect to the compensation paid to our named executive officers for the
fiscal year ended December 31, 2015, and as applicable, the fiscal year ended December 31, 2014.
Name and Principal Position
Thomas P. McGuinness
President and Chief Executive Officer
Jack Potts
Former Executive Vice President, Chief
Financial Officer and Treasurer
Michael E. Podboy
Executive Vice President, Chief Financial
Officer, Chief Investment Officer and Treasurer
Scott W. Wilton
Executive Vice President, General Counsel and
Secretary
David F. Collins
Executive Vice President, Portfolio
Management
Jonathan T. Roberts
President, University House Communities
Group, Inc.
Year
2015
2014
Salary(1)
$700,000
Stock
Awards(2)
$1,750,000
572,115
3,000,000
2015
483,000
600,000
Non-Equity
Incentive Plan
Compensation(3)
$1,284,004
975,000
354,098
All Other
Compensation(4)
$5,330
4,211
Total
$3,739,334
4,551,326
1,802,434
3,239,532
2014
398,192
1,150,000
432,000
86
1,980,278
2015
395,000
500,000
2014
305,553
800,000
2015
395,000
500,000
564,088
241,000
477,468
5,261
1,464,349
86
1,346,639
5,261
1,377,729
2015
395,000
500,000
330,299
41,381
1,266,680
2015
375,000
500,000
374,718
5,458
1,255,176
(1) For 2014, for Messrs. McGuinness, Potts and Podboy, amounts represent base salary earned for the portion of 2014 during
which the executive was employed and compensated by us subsequent to the Self-Management Transactions (March 1,
2014 through December 31, 2014), as well as amounts reimbursed to the Business Manager and its affiliates for salaries
paid to the executives for the period from February 1, 2014 through February 28, 2014.
For 2015, Mr. Roberts' annual base salary was increased from $375,000 to $450,000 effective November 16, 2015.
(2) For 2015, for Messrs. McGuinness, Potts, Podboy, Wilton and Collins, amounts reflect the full grant-date fair value of
RSU Awards granted under the Incentive Award Plan in accordance with ASC Topic 718. Additional details on accounting
for stock-based compensation can be found in Note 2: “Summary of Significant Accounting Policies-Stock-Based
Compensation” and Note 15: “Stock-Based Compensation” of our consolidated financial statements in this Annual Report
on Form 10-K.
For 2014, for Messrs. McGuinness, Potts and Podboy, amounts reflect the full grant-date fair value of Annual Share Unit
Awards and Contingency Share Unit Awards granted under the Retail Plan, which was calculated by multiplying the
applicable number of share units by the per unit value ($10.00) on the date of grant as prescribed by ASC Topic 718. The
value of each share unit ($10.00) was determined by reference to the third-party valuation performed for the Company as
of December 31, 2013. Although the amounts presented in the table reflect the full grant-date fair value of the share unit
awards as of the date of grant in accordance with ASC Topic 718, because the awards are contingent on the occurrence of a
liquidity event that is outside our control, the Company did not recognize any stock-based compensation expense at the
time of grant under ASC Topic 718 with respect to such awards, and any compensation expense recognized by the
Company in the future will not necessarily reflect the grant date fair value of the awards shown in this table.
For 2015, for Mr. Roberts, amount reflects the full grant-date fair value of an Annual Share Unit Award granted under the
Student Housing Plan, which was calculated by multiplying the applicable number of share units by the estimated per unit
value ($13.98) on the date of grant as prescribed by ASC Topic 718. The value of each share unit was determined by our
compensation committee. Although the amount presented in the table reflects the full grant-date fair value of the share unit
award as of the date of grant in accordance with ASC Topic 718, because the award is contingent on the occurrence of a
liquidity event that is outside our control, the Company has not recognized any stock-based compensation expense under
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ASC Topic 718 with respect to such award, and any compensation expense recognized by the Company in the future will
not necessarily reflect the grant date fair value of the award shown in this table.
(3) For 2015, amounts represent (i) the annual bonus awards earned in 2015 and paid in 2016 under our annual bonus
programs for employees of the Company and University House, as applicable, and (ii) payments with respect to the
settlement of the Transaction Share Unit Awards that were granted under the Lodging Plan and were paid as a result of the
Xenia Spin-Off to Messrs. McGuinness ($354,098), Potts ($354,098), Podboy ($212,459) and Wilton ($141,639).
For 2014, amounts represent the annual bonus awards earned in 2014 and paid in 2015 under our annual bonus programs
for Messrs. McGuinness, Potts and Podboy. See “Compensation Discussion and Analysis - Elements of Executive
Compensation - Annual Cash Bonuses” for a detailed discussion of our annual bonus programs.
(4) The following table sets forth the amount of each other item of compensation paid to, or on behalf of, our named executive
officers during 2015 included in the “All Other Compensation” column. Amounts for each other item of compensation are
valued based on the aggregate incremental cost to us, in each case without taking into account the value of any income tax
deduction for which we may be eligible.
Name
Thomas P. McGuinness
Jack Potts
Michael E. Podboy
Scott W. Wilton
David F. Collins
Jonathan T. Roberts
Company
Contributions to
401(k) Plan
Life
Insurance
Premiums
Relocation
Payment
$5,000
5,000
5,000
5,000
5,000
5,000
$330
292
261
261
261
458
$—
—
—
—
35,000
—
Other
Payments(1)
$—
Total
$5,330
1,797,142
1,802,434
—
—
1,120
—
5,261
5,261
41,381
5,458
(1) With respect to Mr. Potts, amount includes (i) cash severance payments equal to $1,757,050 and continued health
insurance coverage at the Company’s expense valued at an estimated $38,093, paid or payable pursuant to the Severance
Agreement and (ii) $1,999 for third-party provided services. With respect to Mr. Collins, amount reflects an employee
referral bonus paid in 2015.
Grants of Plan-Based Awards in 2015
The following table sets forth information regarding grants of plan-based awards made to our named executive officers for
the year ended December 31, 2015.
Estimated Future Payout Under Non-
Equity Incentive Plan Awards(1)
Name
Grant Date
Threshold
Target
Max
Thomas P. McGuinness
N/A
$437,500
$875,000
$1,312,500
Jack Potts
Michael E. Podboy
Scott W. Wilton
David F. Collins
June 19, 2015
N/A
June 19, 2015
N/A
June 19, 2015
N/A
June 19, 2015
N/A
—
217,350
—
158,000
—
158,000
—
158,000
June 19, 2015
—
—
434,700
—
316,000
—
316,000
—
316,000
—
—
652,050
—
474,000
—
474,000
—
474,000
—
Jonathan T. Roberts
N/A
180,000
360,000
540,000
June 19, 2015
—
—
—
159
All Other
Stock
Awards:
Number of Stock or
Share Units (#)
—
437,500(2)
—
150,000(2)
—
125,000(2)
—
125,000(2)
—
125,000(2)
—
35,765(3)
Grant Date
Fair Value
of Stock
Awards ($)
—
$1,750,000(4)
—
600,000(4)
—
500,000(4)
—
500,000(4)
—
500,000(4)
—
500,000(5)
(1) Amounts represent the potential value of cash bonus awards that could have been earned for 2015 under our bonus
programs. Under the bonus program applicable to Messrs. McGuinness, Potts, Podboy, Wilton and Collins, each executive
was eligible to earn a cash bonus based on achievement in 2015 of performance goals relating to (i) AFFO, and (ii)
individual performance. Under the bonus program applicable to Mr. Roberts, Mr. Roberts was eligible to earn a cash bonus
based on achievement in 2015 of performance goals relating to (i) adjusted EBITDA, (ii) development management, and
(iii) individual performance. Please also see “Compensation Discussion and Analysis - Elements of Executive
Compensation Program - Annual Cash Bonuses” for a detailed discussion of the 2015 bonus programs.
(2) Represents RSU Awards granted under the Incentive Award Plan.
(3) Represents an Annual Share Unit Award granted under the Student Housing Plan.
(4) Amounts reflect the full grant-date fair value of RSU Awards granted under the Incentive Award Plan in accordance with
ASC Topic 718.
(5) Amount reflects the full grant-date fair value of the Annual Share Unit Award granted to Mr. Roberts under the Student
Housing Plan during 2015, which was calculated by multiplying the applicable number of share units by the estimated per
unit value ($13.98) on the date of grant as prescribed by ASC Topic 718. The estimated value of each share unit ($13.98)
was determined by the compensation committee.
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Employment Agreements
The following provides a description of the material terms of each named executive officer’s employment agreement. Unless
the context requires otherwise, references to "we" or the “Company” refer to InvenTrust or University House, as applicable.
On July 1, 2014, we entered into an Executive Employment Agreement with each of Messrs. McGuinness, Potts, Podboy,
Wilton and Roberts. On January 28, 2015, we entered into an Executive Employment Agreement with Mr. Collins (collectively,
the “Prior Employment Agreements”). On June 19, 2015, we entered into an Amended and Restated Executive Employment
Agreement (an “Amended Employment Agreement”) with each of our named executive officers. The Amended Employment
Agreements amend and restate the Prior Employment Agreements.
The Amended Employment Agreements provide that the executives are entitled to the following annual base salaries, which
were approved by our compensation committee and, consistent with prior practice, were effective as of January 1, 2015:
Name
Thomas P. McGuinness
Jack Potts
Michael E. Podboy
Scott W. Wilton
David F. Collins
Jonathan T. Roberts
Annual Base Salary
$700,000
483,000
395,000
395,000
395,000
375,000
Under the Prior Employment Agreements, the executives were entitled to the following annual base salaries: Mr. McGuinness -
$625,000; Mr. Potts - $435,000; Mr. Podboy - $300,000; Mr. Wilton - $335,175; Mr. Collins - $300,000; and Mr. Roberts -
$275,000.
In addition, each executive is eligible to receive an annual cash performance bonus based upon the achievement of performance
criteria established and approved by our compensation committee. The target awards for Messrs. McGuinness, Potts, Podboy,
Wilton, Collins and Roberts under the Amended Employment Agreements will be no less than 125%, 90%, 80%, 80%, 80%
and 80% of such executive’s annual base salary, respectively (previously 125%, 90%, 75%, 55%, 75% and 55%, respectively,
under the Prior Employment Agreements). In the event of a change in control or Listing Event of the Company or University
House, as applicable, the executive will be eligible to receive a pro-rated portion of the executive’s target annual bonus for the
year in which such event occurs.
The Amended Employment Agreement with Mr. Roberts provides that, no later than March 15 of each year during his
employment, we will grant him an annual share unit award under the Student Housing Plan with an aggregate value equal to no
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less than 133% of his then-current annual base salary (previously 100% of base salary under his Prior Employment
Agreement). Similar grant provisions contained in the Prior Employment Agreements for Messrs. McGuinness, Potts, Podboy,
Wilton and Collins were removed in connection with the entry into the Amended Employment Agreements, and are not
included in those agreements.
The Amended Employment Agreements with Messrs. McGuinness, Potts, Podboy, Wilton and Collins also contain a
confidentiality covenant by the executive that extends indefinitely, a non-competition covenant that extends during the
executive’s employment and for a period of one year following a termination of the executive’s employment (previously one
year following a termination of the executive’s employment by the executive for any reason or by the Company for “cause”
under the Prior Employment Agreements), and an employee and independent contractor non-solicitation covenant that extends
during the executive’s employment and for a period of three years following a termination of the executive’s employment. The
non-competition covenant contained in the Amended Employment Agreements generally prohibits the executive from engaging
or associating with any person or entity that owns properties having an aggregate appraised value of at least $500 million and is
actively engaged in the acquisition, ownership, development, improvement, operation, management, leasing or sale of
community centers, grocery-anchored centers, strip centers and/or power centers. Each Amended Employment Agreement with
Messrs. McGuinness, Potts, Podboy, Wilton and Collins also includes a mutual non-disparagement covenant by the executive
and the Company. The confidentiality, non-competition, independent contractor non-solicitation and mutual non-
disparagement covenants contained in Mr. Roberts’ Executive Employment Agreement remained unchanged from his Prior
Employment Agreement.
On November 16, 2015, the Amended and Restated Employment Agreement with Mr. Roberts was amended to increase his
annual base salary to $450,000. His Amended and Restated Employment Agreement otherwise remained unchanged.
In addition to the terms described above, each of the Amended and Restated Employment Agreements also provides for certain
payments and benefits upon a termination without “cause” or for “good reason” (each, as defined in the applicable employment
agreement), which are described under the caption “- Potential Payments Upon Termination or Change in Control” below.
As discussed above, in connection with Mr. Potts’ resignation, the Company and Mr. Potts entered into the Severance
Agreement. Pursuant to the Severance Agreement, Mr. Potts is entitled to certain severance payments and benefits, as more
fully described below under the caption "- Potential Payments Upon Termination or Change in Control."
Outstanding Equity Awards at 2015 Fiscal Year-End
The following tables summarize the number of RSUs underlying outstanding RSU Awards and share units underlying
outstanding Annual Share Unit Awards and Contingency Share Unit Awards for each named executive officer as of December
31, 2015. Because Transaction Share Unit Awards may only be settled in cash, they are not included in these tables as equity
incentive plan awards.
Outstanding Restricted Stock Unit Awards at Fiscal Year End
The following table represents the RSU Awards outstanding as of December 31, 2015, granted under the Incentive Award Plan.
Name
Thomas P. McGuinness
Michael E. Podboy
Scott W. Wilton
David F. Collins
Grant Date
June 19, 2015
June 19, 2015
June 19, 2015
June 19, 2015
Number of RSUs That Have Not
Vested (#)
293,125(2)
83,750(2)
83,750(2)
83,750(2)
Market Value of RSUs That
Have Not Vested ($)(1)
$1,172,500
335,000
335,000
335,000
(1) Amounts represent the number of outstanding RSUs multiplied by $4.00, which is equal to the estimated value per share of
our common stock as of February 24, 2015 and was the latest valuation available at the time of grant in June 2015 or on
December 31, 2015.
(2) Represents outstanding RSUs, which vest as follows, subject to the executive’s continued service on each applicable
vesting date: 49% on December 31, 2016 and 51% on December 31, 2017. If the executive’s service is terminated by us
other than for “cause” or by the executive for “good reason,” in either case, on the date of, or during the 24 month period
following, a change in control of the Company, or due to the executive’s death or “disability” (as defined in the RSU
Award Agreement), the RSU Award will vest in full upon such termination.
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Outstanding Share Unit Awards at Fiscal Year End
The following table represents the Share Unit Awards outstanding as of December 31, 2015, granted under the Retail Plan and
the Student Housing Plan.
Name
Thomas P. McGuinness
Michael E. Podboy
Scott W. Wilton
David F. Collins
Jonathan T. Roberts
Grant Date
October 9, 2014
October 9, 2014
October 9, 2014
October 9, 2014
October 9, 2014
October 9, 2014
October 9, 2014
October 9, 2014
June 19, 2015
October 9, 2014
October 9, 2014
Number of Share Units That Have
Not Vested (#)(1)
150,000(3)
150,000(4)
40,000(3)
40,000(4)
30,000(3)
22,500(4)
40,000(3)
40,000(4)
35,765(5)
27,500(6)
27,500(7)
Market Value of RSUs and
Share Units That Have Not
Vested ($)(2)
1,500,000
1,500,000
400,000
400,000
300,000
225,000
400,000
400,000
500,000
275,000
275,000
(1) Numbers do not reflect adjustments made by our compensation committee from time to time to the number of share units
underlying each award in order to prevent dilution or enlargement of value as a result of intercompany transfers of cash,
assets or debt that have affected the interim equity value of our retail/non-core business or student housing business, as
applicable. For additional information, see footnote 2 below. For a more detailed description of the Share Unit Awards, see
the discussion under the captions "Share Unit Plans" and "Share Unit Awards" above.
(2) With respect to Share Unit Awards granted in 2014, amounts represent the number of share units that were granted on the
grant date multiplied by the estimated value of each share unit on the grant date as determined by our compensation
committee by reference to the third-party valuation performed for the Company that was the most recent third-party
evaluation available at the time of the grant. The estimated value of a share unit was determined based on a phantom
capitalization of our retail/non-core business or student housing business, as applicable, and does not directly correspond to
the value of a share of common stock of the Company or University House, as applicable. Vesting of the share units is
conditioned upon the occurrence of a triggering event, such as a Listing Event or a change in control of the business and,
therefore, the market value of the share units cannot be definitively determined until the occurrence of such an event. With
respect to Share Unit Awards granted under the Student Housing Plan in 2015, represents the number of share units
outstanding multiplied by $13.98, which is equal to the estimated value of each share unit as of December 31, 2015 as
determined by our compensation committee.
(3) Represents an Annual Share Unit Award granted under the Retail Plan, which will vest and be settled on the later to occur
of (i) the date of a change in control of the Company, or a Listing Event with respect to the shares of common stock of the
Company, and (ii) the third anniversary of the vesting commencement date of the award, subject to the executive’s
continued employment through the applicable settlement date, provided that in no event will the Annual Share Unit Award
vest or be settled unless such a change in control or Listing Event occurs on or before the fifth anniversary of the vesting
commencement date of the award. The vesting commencement date for each Annual Share Unit Award is March 12, 2014.
(4) Represents a Contingency Share Unit Award granted under the Retail Plan, the vesting and settlement of which is
contingent upon the occurrence of a change in control of the Company, or a Listing Event with respect to the shares of
common stock of the Company, in each case that occurs no later than the fifth anniversary of the applicable vesting
commencement date. If a Listing Event occurs, the Contingency Share Unit Award will vest and settle in three equal
installments on each of the first three anniversaries of the Listing Event, subject to the executive’s continued employment
through each vesting date. If a qualifying change in control occurs, 100% of the Contingency Share Unit Award will vest
and settle on the one-year anniversary of the change in control event, subject to the executive’s continued employment
through the vesting date. The vesting commencement date for each Contingency Share Unit Award is March 12, 2014.
(5) Represents an Annual Share Unit Award granted under the Student Housing Plan, which will vest and be settled on the
later to occur of (i) with respect to one-third of the share units underlying the Annual Share Unit Award, on the first three
anniversaries of the vesting commencement date, and (ii) the date of a change in control of the Company or University
House, or a Listing Event with respect to the shares of common stock of University House, subject to the executive’s
continued employment through the applicable settlement date, provided that in no event will the Annual Share Unit Awards
162
vest or be settled unless such a change in control or Listing Event occurs on or before the fifth anniversary of the vesting
commencement date of the award. The vesting commencement date for the Annual Share Unit Award is January 1, 2015.
(6) Represents an Annual Share Unit Award granted under the Student Housing Plan, which will vest and be settled on the
later to occur of (i) the date of a change in control of the Company or University House, or a Listing Event with respect to
the shares of common stock of University House, and (ii) the third anniversary of the vesting commencement date of the
award, subject to the executive’s continued employment through the applicable settlement date, provided that in no event
will the Annual Share Unit Award vest or be settled unless such a change in control or Listing Event occurs on or before
the fifth anniversary of the vesting commencement date of the award. The vesting commencement date for the Annual
Share Unit Award is March 12, 2014.
(7) Represents a Contingency Share Unit Award granted under the Student Housing Plan, the vesting and settlement of which
is contingent upon the occurrence of a change in control of the Company or University House, or a Listing Event with
respect to the shares of common stock of University House, in each case that occurs no later than the fifth anniversary of
the applicable vesting commencement date. If a Listing Event occurs, the Contingency Share Unit Award will vest and
settle in three equal installments on each of the first three anniversaries of the Listing Event, subject to the executive’s
continued employment through each vesting date. If a qualifying change in control occurs, 100% of the Contingency Share
Unit Award will vest and settle on the one-year anniversary of the change in control event, subject to the executive’s
continued employment through the vesting date. The vesting commencement date for the Contingency Share Unit Award is
March 12, 2014.
Stock Vested
The following table provides information regarding RSU Awards held by Messrs. McGuinness, Potts, Podboy, Wilton and
Collins that vested during fiscal year 2015:
Name
Thomas P. McGuinness
Jack Potts
Michael E. Podboy
Scott W. Wilton
David F. Collins
Number of Shares
Acquired on Vesting
144,375
50,000
41,250
41,250
41,250
Values Realized
on Vesting (1)
$577,500
200,000
165,000
165,000
165,000
(1) Amounts represent the number of shares of our common stock acquired in connection with the vesting of RSUs multiplied
by $4.00, which is equal to the estimated value per share of our common stock as of February 24, 2015 and was the latest
valuation available on December 31, 2015, the vesting date.
Potential Payments Upon Termination or Change in Control
Our named executive officers are entitled to certain payments and benefits upon a qualifying termination of employment
(whether or not such termination is in connection with a change in control) or upon a change in control or Listing Event. The
following discussion describes the payments and benefits to which our named executive officers, other than Mr. Potts, would
have become entitled upon a qualifying termination or change in control, as applicable, occurring on December 31, 2015. With
respect to Mr. Potts, the discussion describes the payments and benefits payable under the Severance Agreement in connection
with his termination of employment on November 23, 2015.
Employment Agreements
Under the named executive officers’ respective Amended Employment Agreements, if the executive’s employment was
terminated by the Company or University House, as applicable, without “cause” or by the executive for “good reason” (each, as
defined in the Amended Employment Agreement), the executive would be entitled to the following severance payments and
benefits:
•
•
payment in an amount equal to a multiple of the sum of the executive’s annual base salary and target bonus for the
year in which the termination occurs, payable in equal installments over a period of 12 months commencing within 60
days (or 70 days for Mr. Roberts) following the executive’s termination date (except as described below); and
payment or reimbursement by us or University House, as applicable, of premiums for healthcare continuation
coverage under COBRA for the executive and his dependents for up to 18 months after the termination date.
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The cash severance multiple for each executive for both non-change in control and change in control termination scenarios is as
follows: Mr. McGuinness - 2x (non-change in control) and 3x (change in control) (previously 2x (non-change in control) and
2.5x (change in control) under Mr. McGuinness’ Prior Employment Agreement); Messrs. Podboy, Wilton, Collins and Roberts -
1.5x (non-change in control) and 2.5x (change in control) (previously 1.5x (non-change in control) and 2x (change in control)
under the Prior Employment Agreements). Under the Amended Employment Agreements, the change in control severance
multiple will apply in the event of a termination by us without “cause” that occurs on the date of, or during the 24 month period
following, a change in control transaction or, with respect to Messrs. McGuinness, Podboy, Wilton and Collins, a sale of our
retail business segment, or in the event of a termination by the executive for “good reason” that occurs on the date of, or during
the 24 month period following, a change in control transaction (each, as defined in the Amended Employment Agreement).
Cash severance payable in the event of a qualifying change in control termination will be made in a single lump sum within 60
days (or 70 days for Mr. Roberts) following the executive’s termination date (rather than installments over 12 months). The
executive’s right to receive the severance or other benefits described above will be subject to the executive signing, delivering
and not revoking a general release agreement in a form generally used by us.
The Amended Employment Agreements further provide that, to the extent that any payment or benefit received by an executive
in connection with a change in control would be subject to an excise tax under Section 4999 of the Code, such payments and/or
benefits will be subject to a “best pay cap” reduction if such reduction would result in a greater net after-tax benefit to the
executive than receiving the full amount of such payments.
RSU Awards
The RSU Agreements provide for accelerated vesting of the awards in the event of certain terminations of service. If an
executive’s service is terminated by us other than for “cause” or by the executive for “good reason,” in either case, on the date
of, or during the 24 month period following, a change in control of the Company, or due to the executive’s death or “disability”
(as defined in the RSU Award Agreement), the RSU Award will vest in full upon such termination.
Share Unit Awards
The form of award agreements covering the share unit awards made to our named executive officers provide for accelerated
vesting of the awards in the event of certain terminations of service and, in the case of the Transaction Share Unit Awards, a
change in control or Listing Event.
With respect to Annual Share Unit Awards and Contingency Share Unit Awards, if the executive’s employment is terminated by
the Company or University House, as applicable, without “cause” or by the executive for “good reason” (each, as defined in the
applicable award agreement or Share Unit Plan), in either case, following the occurrence of a change in control or Listing
Event, the unvested portion of the award will vest in full and be settled on the date of such termination or resignation. In
addition, with respect to Annual Share Unit Awards and Contingency Share Unit Awards, in the event that the executive’s
employment was terminated on account of death or “disability” (as defined in the applicable award agreement) after the
occurrence of a change in control or Listing Event, then with respect to all share units which were unvested as of that time, the
executive would be entitled to receive a cash payment equal to the fair market value of the share units on the date of the
termination. In the event that the executive’s employment was terminated on account of death or “disability,” and a change in
control or Listing Event had not yet occurred, then upon the occurrence of a change in control or Listing Event, the executive
would be entitled to a cash payment equal to the fair market value of the share units on the date of the change in control or
Listing Event, as applicable.
With respect to Transaction Share Unit Awards, in the event that the executive’s employment was terminated on account of
death or “disability” (as defined in the applicable award agreement) prior to the occurrence of a change in control or Listing
Event, the executive would be entitled to a cash payment equal to the fair market value of the share units on the date of the
change in control or Listing Event, as applicable.
164
Potts Severance Agreement
Under the Severance Agreement, Mr. Potts is entitled to the following compensation and benefits: (i) $1,376,550, payable over
a period of 12 months following the effective date of Mr. Potts’ resignation (the “separation date”); (ii) $380,500, payable in a
lump-sum within 60 days following the separation date; (iii) continued health insurance coverage at the Company’s expense for
up to 18 months following the separation date; and (iv) accelerated vesting, effective as of the separation date, of 50,000
restricted stock units previously granted to Mr. Potts which were otherwise scheduled to vest on December 31, 2015. The
following table summarizes the amount of compensation and benefits paid or payable to Mr. Potts under the Severance
Agreement.
Cash Severance
Company-Paid COBRA
Premiums (1)
Accelerated Vesting of
RSU Awards (2)
Jack Potts
$200,000
(1) Estimated value based on Company-paid COBRA premiums at 2015 enrollment rates.
$1,757,050
$38,093
Total
$1,995,143
(2) Represents the product of 50,000 RSUs multiplied by $4.00, which is equal to the latest estimated share value of the
Company as of the separation date.
The compensation and benefits payable under the Severance Agreement are conditioned upon Mr. Potts not revoking the
general release of claims set forth in the Severance Agreement. The Severance Agreement further provides that the
noncompetition covenant under Mr. Potts’ Amended Employment Agreement will continue to apply for six months following
the separation date.
University House Retention Bonus Plan
Pursuant to the terms of the Retention Bonus Plan, in the event of a change in control of University House, subject to Mr.
Roberts’ continued employment with University House until immediately prior to such change in control and subject to the
terms and conditions of the Retention Bonus Plan, Mr. Roberts would be entitled to receive a cash retention bonus in an amount
equal to one-half of his then-current annual base salary.
165
Summary of Potential Payments
The following table summarizes the payments that would be made to our named executive officers, other than Mr. Potts, upon
the occurrence of certain qualifying terminations of employment or a change in control, Listing Event or, other than with
respect to Mr. Roberts, a sale of our retail business (a “retail sale”), assuming such named executive officer’s termination of
employment with the Company or University House, as applicable, occurred on December 31, 2015 and, where relevant, that a
change in control or Listing Event of the Company or University House, as applicable, or a retail sale occurred on December
31, 2015. Amounts shown in the table below do not include (1) accrued but unpaid salary or bonuses and (2) other benefits
earned or accrued by the named executive officer during his employment that are available to all salaried employees, such as
accrued vacation.
Name
Thomas P.
McGuinness
Benefit
Cash Severance (4)
Accelerated Vesting of RSU
Awards (5)
Accelerated Vesting of Share
Unit Awards (6)
Company-Paid COBRA
Premiums (7)
Total
Michael E. Podboy
Cash Severance (4)
Accelerated Vesting of RSU
Awards (5)
Accelerated Vesting of Share
Unit Awards (6)
Company-Paid COBRA
Premiums (7)
Total
Scott W. Wilton
Cash Severance (4)
Accelerated Vesting of RSU
Awards (5)
Accelerated Vesting of Share
Unit Awards (6)
Company-Paid COBRA
Premiums (7)
Total
David F. Collins
Cash Severance (4)
Accelerated Vesting of RSU
Awards (5)
Accelerated Vesting of Share
Unit Awards (6)
Company-Paid COBRA
Premiums (7)
Total
Jonathan T. Roberts Cash Severance (4)
Accelerated Vesting of Share
Unit Awards (6)
Company-Paid COBRA
Premiums (7)
Retention Bonus (8)
Total
Change in
Control or
Listing Event
Following
Termination
Upon Death or
Disability(1)
Termination
Upon Death or
Disability
Following a
Change in
Control or
Listing Event(2)
Termination
Without
Cause or
For Good
Reason (No
Change in
Control or Retail
Sale)
Termination
Without
Cause or
For Good
Reason (Change
in Control or
Retail Sale) (2)(3)
—
—
$3,150,000
$4,725,000
Change of
Control or Listing
Event (No
Termination)
—
—
$1,172,500
$1,172,500
$150,000
3,150,000
3,150,000
—
—
—
150,000
4,322,500
4,322,500
—
—
23,701
3,173,701
1,066,500
—
—
35,339
1,101,839
1,066,500
—
—
34,432
1,100,932
1,066,500
—
—
35,518
1,102,018
1,215,000
1,172,500
3,150,000
23,701
9,071,201
1,777,500
335,000
890,000
35,339
3,037,839
1,777,500
335,000
585,000
34,432
2,731,932
1,777,500
335,000
800,000
35,518
2,948,018
2,025,000
—
—
335,000
335,000
890,000
890,000
—
—
1,225,000
1,225,000
—
—
335,000
335,000
585,000
585,000
—
920,000
—
—
920,000
—
335,000
335,000
800,000
800,000
—
—
1,135,000
1,135,000
—
—
—
—
90,000
—
90,000
—
—
60,000
—
60,000
—
—
—
—
—
—
—
—
225,000
225,000
1,050,000
1,050,000
—
1,050,000
—
—
1,050,000
—
225,000
1,275,000
41,038
—
41,038
225,000
1,256,038
3,341,038
(1) Includes (i) with respect to the RSU Awards, amounts to which named executive officers would be entitled to upon a
termination of employment on account of death or “disability” and (ii) with respect to the share unit awards, amounts to
which named executive officers would be entitled to upon a change in control or Listing Event occurring following a
termination of employment on account of death or “disability.”
166
(2) Includes (i) amounts which would be payable by reason of accelerated vesting of RSU Awards upon a qualifying
termination of employment following a change in control, (ii) amounts which would be payable upon the occurrence of a
change in control or Listing Event under Transaction Share Unit Awards, and (iii) amounts which would be payable by
reason of accelerated vesting of other share unit awards upon a qualifying termination of employment following the
change in control or Listing Event.
(3) Represents amounts to which named executive officers would be entitled upon a qualifying termination of employment
occurring on the date of, or during the 24 month period following, a change in control (or with respect to share unit
awards, following a Listing Event). In the event the named executive officer incurred a qualifying termination of
employment beyond the 24 month period following a change in control (or with respect to share unit awards, following a
Listing Event), the executive would remain entitled to acceleration of unvested share unit awards, but not the cash
severance, reimbursement of COBRA premiums amounts or, unless the executive was terminated on account of death or
disability, acceleration of unvested RSU Awards.
(4) Represents a multiple of the sum of the named executive officer’s annual base salary and target bonus for the year in which
the qualifying termination occurs. The multiple varies by executive, and whether the executive’s qualifying termination
occurs on the date of, or during the 24 month period following, a change in control. For additional details, see “ -
Employment Agreements” above.
(5) Represents the aggregate value of the named executive officer’s unvested RSUs which would vest in connection with the
executive’s termination of employment, calculated by multiplying the applicable number of RSUs subject to each RSU
Award by $4.00, which is equal to the estimated value per share of our common stock as of February 24, 2015 and was the
latest valuation available at the time of grant in June 2015 or on December 31, 2015.
(6) Represents the aggregate value of the named executive officer’s unvested share unit awards which would vest in
connection with the change in control or Listing Event or the executive’s termination of employment, as applicable, based
on the following. With respect to Share Unit Awards granted under the Retail Plan and the Student Housing Plan in 2014,
amounts represent the number of share units that were granted on the grant date multiplied by the estimated value of each
share unit on the grant date as determined by our compensation committee by reference to the third-party valuation
performed for the Company that was the most recent third-party evaluation available at the time of the grant. The estimated
value of a share unit was determined based on a phantom capitalization of our retail/non-core business or student housing
business, as applicable, and does not directly correspond to the value of a share of common stock of the Company. Vesting
of the share units is conditioned upon the occurrence of a triggering event, such as a Listing Event or a change in control of
the business and, therefore, the market value of the share units cannot be definitively determined until the occurrence of
such an event. With respect to Share Unit Awards granted under the Student Housing Plan in 2015, represents the number
of share units outstanding multiplied by $13.98, which is equal to the estimated value of each share unit as of December
31, 2015 as determined by our compensation committee. For a more detailed description of the Share Unit Awards, see the
discussion under the captions "Share Unit Plans" and "Share Unit Awards" above.
(7) Represents reimbursement of COBRA premiums. The amounts associated with COBRA premiums were calculated using
2015 enrollment rates, multiplied by the maximum 18 month period during which the executive may be entitled to
reimbursement of COBRA premiums.
(8) Represents amount payable to Mr. Roberts pursuant to the Retention Bonus Plan upon a change in control of University
House.
167
Compensation Risk Assessment
We believes that our compensation policies and practices appropriately balance near-term performance improvement with
sustainable long-term value creation, and that they do not encourage unnecessary or excessive risk taking. In 2015, our
management conducted an extensive review of the design and operation of our compensation program and presented their
findings to the compensation committee. The review included an assessment of the level of risk associated with the various
elements of compensation. Based on this review and assessment, we believe that our compensation policies and practices are
not reasonably likely to have a material adverse effect on the Company.
Compensation Committee Report
The compensation committee of our board of directors has reviewed and discussed with management the Compensation
Discussion and Analysis contained herein and, based on such review and discussions, recommended to the board that the
Compensation Discussion and Analysis be included in this Annual Report on Form 10-K for the year ended December 31,
2015.
Compensation Committee of the Board of Directors
Paula Saban
Thomas F. Glavin
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides information with respect to the beneficial ownership of our common stock as of March 15, 2016,
by (i) each person who we believe is a beneficial owner of more than 5% of our outstanding common stock, (ii) each of our
directors and named executive officers, and (iii) all directors and executive officers as a group.
Unless otherwise indicated, the address of each named person is c/o InvenTrust Properties Corp., 2809 Butterfield Road, Suite
360, Oak Brook, Illinois 60523. Except as otherwise noted in the footnotes below, each person or entity identified below has
sole voting and investment power with respect to such securities, and no shares beneficially owned by any director, nominee or
executive officer have been pledged as security.
Name of Beneficial Owner
Directors and Named Executive Officers:
Amount and
Nature of Beneficial
Ownership (2)
% of Shares
Outstanding (10)
Thomas P. McGuinness, Director, President and Chief Executive Officer
Michael E. Podboy, Executive Vice President, Chief Financial Officer, Chief
Investment Officer and Treasurer
80,293(3)
22,398(4)
David F. Collins, Executive Vice President-Portfolio Management
22,398
Scott W. Wilton, Executive Vice President, General Counsel and Secretary
Jonathan T. Roberts, President, University House Communities Group Inc. (1)
J. Michael Borden, Independent Director, Chairman of the Board
Thomas F. Glavin, Independent Director
Paula Saban, Independent Director
William J. Wierzbicki, Independent Director
All Executive Officers and Directors as a Group (10 persons)
* Indicates less than 1%
27,499(5)
—
187,370(6)
45,767(7)
20,625(8)
22,166(9)
441,955
*
*
*
*
—
*
*
*
*
*
(1) The business address for Mr. Roberts is 3890 W. Northwest Highway, Suite 601, Dallas, Texas 75220.
(2) Does not include shares underlying unvested RSUs. All fractional ownership amounts have been rounded to the
nearest whole number.
(3) Mr. McGuinness and his spouse share voting and dispositive power over all 80,293 shares.
(4) Mr. Podboy and his spouse share voting and dispositive power over all 22,398 shares.
168
(5)
(6)
(7)
Includes 23,471 shares over which Mr. Wilton and his spouse share voting and dispositive power, 3,351 shares over
which Mr. Wilton and his mother share voting and dispositive power, and 677 shares owned by Mr. Wilton’s spouse
through her individual IRA.
Includes 115,899 shares over which Mr. Borden has sole voting and dispositive power, 64,613 shares owned by St.
Anthony Padua Charitable Trust, for which Mr. Borden is the trustee, and 6,858 shares owned by Mr. Borden’s spouse.
Includes 25,142 shares over which Mr. Glavin and his spouse share voting and dispositive power.
(8) Ms. Saban and her spouse share voting and dispositive power over all 20,625 shares.
(9)
Includes 1,541 shares over which Mr. Wierzbicki and his spouse share voting and dispositive power.
(10) Based on 862,205,672 shares of our common stock outstanding as of March 15, 2016.
Equity Compensation Plan Information
The following table provides information regarding our equity compensation plans as of December 31, 2015.
(a)
(b)
Number of
Shares or Share Units
Issuable
Upon
Vesting of
Outstanding
RSU Awards and Share Unit
Awards(1)
Number of
Securities Remaining
Available for Future
Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))(2)
Equity compensation plans not approved by security holders:
InvenTrust Properties Corp. 2015 Incentive Award Plan
Inland American Real Estate Trust, Inc. 2014 Share Unit Plan(3)
University House Communities Group, Inc. 2014 Share Unit Plan
951,955
784,780
273,249
28,419,375
—
45,769,297
(1) Represents RSU Awards outstanding under the Incentive Award Plan and Annual Share Unit Awards and Contingency
Share Unit Awards outstanding under the Retail Plan and Student Housing Plan as of December 31, 2015. Transaction
Share Unit Awards, which may only be settled in cash, are not included in the amounts shown in this column. The number
of share units subject to each share unit award reflects the value of the award and does not necessarily correspond to an
equivalent number of shares of common stock of the Company or University House, as applicable.
(2)
Includes shares of common stock available for future grants under the Incentive Award Plan, and share units available for
future grants under the Share Unit Plans, as applicable, as of December 31, 2015. The number of share units available
under each plan was established solely as a means to enable the Company to measure the change in value over time of the
share unit awards granted under the applicable plan, and does not necessarily correspond to an equivalent number of shares
of common stock of the Company, Xenia or University House, as applicable.
(3) Effective June 19, 2015, in connection with the adoption of the Incentive Award Plan, we terminated this plan, which we
refer to as the Retail Plan. Awards outstanding as of the termination of the plan will remain outstanding and subject to the
terms of the plan and the applicable award agreement. No additional awards will be granted under the Retail Plan.
The material features of the Incentive Award Plan and the Share Unit Plans are described under the heading “Compensation
Discussion and Analysis - Elements of Executive Compensation - Long-Term Equity-Based Incentives.”
169
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and Related Transactions
As of January 1, 2015, we are no longer a related party to The Inland Group, Inc. as further described in our annual report on Form
10-K for the year ended December 31, 2015.
On February 3, 2015, we completed the Xenia Spin-Off through the pro rata taxable distribution of 95% of the outstanding common
stock of our subsidiary Xenia Hotels & Resorts, Inc. to holders of record of our common stock as of the close of business on January
20, 2015. In connection with and in order to effectuate the Xenia Spin-Off, we and Xenia entered into a Separation and Distribution
Agreement, a Transition Services Agreement and an Employee Matters Agreement. These agreements provided a framework for our
relationship with Xenia following the Xenia Spin-Off, including, among other things, provisions that regard the allocation of
liabilities, the absence of competition restrictions, access to financial and other information and confidentiality.
Policies and Procedures with Respect to Related Party Transactions
Our board of directors has adopted a written policy regarding the review, approval and ratification of transactions with related
persons, which we refer to as our “related person policy.” Our related person policy requires that management present to the audit
committee any proposed “related person transaction” (defined as any transaction, arrangement or relationship (or any series of
similar transactions, arrangements or relationships) in which the Company (including any of its subsidiaries) was, is or will be a
participant and the amount involved exceeds $120,000, and in which any “related person” (as defined in paragraph (a) of Item 404
of Regulation S-K)) had, has or will have a direct or indirect interest), including all relevant facts and circumstances relating thereto.
The audit committee will review the relevant facts and circumstances of each related person transaction, including if the transaction
is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party and the extent of the
related person’s interest in the transaction, take into account the conflicts of interest and corporate opportunity provisions of the
Code of Ethics and Business Conduct, and either approve or disapprove the related person transaction.
If advance audit committee approval of a related person transaction requiring the audit committee’s approval is not feasible, then the
transaction may be preliminarily entered into by management upon prior approval of the transaction by the chair of the audit
committee subject to ratification of the transaction by the audit committee at the audit committee’s next regularly scheduled
meeting; provided, that if ratification shall not be forthcoming, management shall make all reasonable efforts to cancel or annul such
transaction. Any related person transaction shall be consummated and shall continue only if the audit committee has approved or
ratified such transaction in accordance with Section 2-419 of Maryland Code, Corporations and Associations (if applicable), or any
successor provision thereto, our charter and bylaws and the guidelines set forth in the related person policy.
Our related person policy was adopted in 2015 and therefore none of the transactions described above under the heading Certain
Relationships and Related Transactions was approved pursuant to this policy. Prior to the adoption of our related person policy, any
related party transactions, including those described above, were approved by a majority of our directors, including a majority of the
directors not interested in the transaction. In determining whether to approve or authorize a particular related party transaction, these
directors considered whether the transaction between us and the related party was fair and reasonable to us and had terms and
conditions no less favorable to us than those available from unaffiliated third parties.
Director Independence
Our business is managed under the direction and oversight of our board of directors. The members of our board are J. Michael
Borden, Thomas F. Glavin, Thomas P. McGuinness, Paula Saban and William J. Wierzbicki, with Mr. Borden serving as the
chairman. As required by our charter, a majority of our directors must be “independent.” As defined by our charter, an “independent
director” means any director who qualifies as an “independent director” under the provisions of the New York Stock Exchange
(“NYSE”) Listed Company Manual in effect from time to time. The NYSE standards provide that to qualify as an independent
director, in addition to satisfying certain bright-line criteria, the board of directors must affirmatively determine that a director has no
material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a
relationship with the Company).
Consistent with these considerations, after reviewing all relevant transactions or relationships between each director, or any of his or
her family members, and the Company, our management and our independent registered public accounting firm, and considering
each director’s direct and indirect association with the Company and its management, the board has determined that Messrs. Borden,
Glavin and Wierzbicki and Ms. Saban qualify as independent directors.
170
Our audit committee is comprised of Messrs. Borden and Glavin and Ms. Saban, with Mr. Glavin serving as chair. The board has
determined that each director is independent in accordance with the listing standards of the NYSE and the rules of the SEC
applicable to audit committee members.
Our compensation committee is comprised of Mr. Glavin and Ms. Saban, with Ms. Saban serving as chair. The board has
determined that each director is independent in accordance with the listing standards of the NYSE and the rules of the SEC
applicable to compensation committee members. Thomas F. Meagher resigned from the board and the compensation committee
effective April 21, 2015.
Our nominating and corporate governance committee is comprised of Mr. Borden and Mr. Glavin, with Mr. Borden serving as chair.
The board has determined that each director is independent in accordance with the listing standards of the NYSE. Prior to the
formation of the nominating and corporate governance committee in February 2015, the board did not have a separately designated
nominating committee, or a charter that governed the director nomination process. Instead, the full board performed the functions of
a nominating committee, including identifying and selecting nominees for election at the annual meeting of stockholders. Even
though Mr. McGuinness was not an independent director within the listing standards of the NYSE, a majority of the board of
directors qualified as independent directors, as required by our charter.
Item 14. Principal Accounting Fees and Services
Fees to Independent Registered Public Accounting Firm
The following table presents fees for professional services rendered by our independent registered public accounting firm, KPMG
LLC ("KPMG"), for the audit of our annual financial statements for the years ended December 31, 2015 and 2014, together with
fees for audit-related services and tax services rendered by KPMG for the years ended December 31, 2015 and 2014, respectively.
Audit fees (1)
Audit-related fees (2)
Tax fees (3)
All other fees
TOTAL
Year ended December 31,
2015
2014
$2,776,500
—
$957,010
—
$3,733,510
$3,391,683
30,000
$1,242,781
—
$4,664,464
(1) Audit fees consist principally of fees paid for the audit of our annual consolidated financial statements and review of our
consolidated financial statements included in our quarterly reports. In addition, for the year ended December 31, 2015,
$1,075,000 of the above audit fees relate to the Highlands registration statement on Form 10, the audit of the 2012-2014
Highlands combined consolidated financial statements, and the audit of the 2015 Highlands combined consolidated
financial statements. For the year ended December 31, 2014, audit fees include reimbursement of out-of-pocket legal
expenses associated with the SEC investigation that concluded in March 2015. In addition, for the year ended December
31, 2014, $1,583,000 of the above audit fees relate to review of the Xenia Hotels & Resorts, Inc. registration statement on
Form 10, audits of significant acquirees under Rule 3-05, the audit of the 2011-2013 combined consolidated financial
statements, and the audit of the 2014 combined consolidated financial statements.
(2) Prior year audit-related fees consist of agreed-upon procedures for one property owned by Xenia Hotels & Resorts, Inc.
(3) Tax fees are comprised of tax compliance and consulting fees.
Approval of Services and Fees
Our audit committee, or the chairman of our audit committee, must pre-approve any audit and non-audit service provided to us by
the independent auditor, unless the engagement is entered into pursuant to appropriate preapproval policies established by the audit
committee or if such service falls within available exceptions under SEC rules. If approved by the chairman of the audit committee,
such approval will be presented to the audit committee at its next meeting. The audit committee may form and delegate authority to
subcommittees consisting of one or more members when appropriate, including the authority to approve audit and permitted non-
audit services, provided that the decision of the subcommittee to approve any service shall be presented to the full audit committee
at its next scheduled meeting.
Our audit committee has reviewed and approved all of the fees charged by KPMG for the years ended December 31, 2015 and 2014,
and actively monitors the relationship between audit and non-audit services provided by KPMG. The audit committee concluded
that all services rendered by KPMG during the years ended December 31, 2015 and 2014, respectively, were consistent with
maintaining KPMG’s independence. As a matter of policy, we will not engage our primary independent registered public accounting
firm for non-audit services other than “audit-related services,” as defined by the SEC, certain tax services and other permissible non-
audit services that are specifically approved as described above.
171
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) List of documents filed:
i. Financial Statements:
1. Report of Independent Registered Public Accounting Firm
2. The consolidated financial statements of the Company are set forth in the report in Item 8.
ii. Financial Statement Schedules:
1. Financial statement schedule for the year ended December 31, 2015 is submitted herewith.
2. Real Estate and Accumulated Depreciation (Schedule III)
iii. Exhibits:
1. The list of exhibits filed as part of this Annual Report is set forth on the Exhibit Index attached hereto.
(b) Exhibits:
i. The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.
(c) Financial Statement Schedules
All schedules other than those indicated in the index have been omitted as the required information is inapplicable or the
information is presented in the consolidated financial statements or related notes.
172
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
INVENTRUST PROPERTIES CORP.
By:
Date:
/s/ Thomas P. McGuinness
Thomas P. McGuinness
Director, President and Chief Executive Officer (Principal Executive Officer)
March 18, 2016
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
President and Chief Executive Officer (Principal Executive Officer)
March 18, 2016
Executive Vice President, Chief Financial Officer, Chief Investment Officer and Treasurer
(Principal Financial Officer)
March 18, 2016
Executive Vice President, Chief Accounting Officer (Principal Accounting Officer)
March 18, 2016
By:
Name:
/s/ Thomas P. McGuinness
Thomas P. McGuinness
By:
Name:
/s/ Michael E. Podboy
Michael E. Podboy
By:
Name:
/s/ Anna N. Fitzgerald
Anna N. Fitzgerald
By:
Name:
/s/ J. Michael Borden
J. Michael Borden
By:
Name:
/s/ Paula Saban
Paula Saban
Director
Director
By:
Name:
/s/ William J. Wierzbicki
William J. Wierzbicki
Director
By:
Name:
/s/ Thomas F. Glavin
Thomas F. Glavin
Director
173
March 18, 2016
March 18, 2016
March 18, 2016
March 18, 2016
EXHIBIT
NO.
2.1
2.2
2.3
3.1
3.2
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
EXHIBIT INDEX
DESCRIPTION
Master Modification Agreement, dated as of March 12, 2014, by and among Inland American Real Estate Trust, Inc., Inland
American Business Manager & Advisor, Inc., Inland American Lodging Corporation, Inland American Holdco Management LLC,
Inland American Retail Management LLC, Inland American Office Management LLC, Inland American Industrial Management
LLC and Eagle I Financial Corp. (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, as filed by the Registrant
with the SEC on March 13, 2014)
Asset Acquisition Agreement, dated as of March 12, 2014, by and among Inland American Real Estate Trust, Inc., Inland
American Holdco Management LLC, Inland American Retail Management LLC, Inland American Office Management LLC,
Inland American Industrial Management LLC and Eagle I Financial Corp. (incorporated by reference to Exhibit 2.2 to the
Registrant’s Form 8-K, as filed by the Registrant with the SEC on March 13, 2014)
Separation and Distribution Agreement by and between Inland American Real Estate Trust, Inc. and Xenia Hotels & Resorts, Inc.,
dated as of January 20, 2015 incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K, as filed by the Registrant with
the SEC on January 23, 2015).
Seventh Articles of Amendment and Restatement of InvenTrust Properties Corp., as amended (incorporated by reference to
Exhibit 3.1 to the Registrant’s Form 10-Q, as filed by the Registrant with the SEC on May 14, 2015)
Amended and Restated Bylaws of InvenTrust Properties Corp., as amended by Amendment No. 1 (incorporated by reference to
Exhibit 3.2 to the Registrant’s Form 10-Q, as filed by the Registrant with the SEC on November 12, 2015)
Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon
request and without charge to stockholders issued shares without certificates) (incorporated by reference to Exhibit 4.4 to the
Registrant’s Amendment No. 1 to Form S-11 Registration Statement, as filed by the Registrant with the SEC on July 31, 2007
(file number 333-139504))
Amended and Restated Master Management Agreement, dated as of March 12, 2014, by and between Inland American Real
Estate Trust, Inc. and Inland American Retail Management LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s
Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on March 13, 2014)
Amended and Restated Master Management Agreement, dated as of March 12, 2014, by and between Inland American Real
Estate Trust, Inc. and Inland American Office Management LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s
Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on March 13, 2014)
Amended and Restated Master Management Agreement, dated as of March 12, 2014, by and between Inland American Real
Estate Trust, Inc. and Inland American Industrial Management LLC (incorporated by reference to Exhibit 10.3 to the Registrant’s
Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on March 13, 2014)
Articles of Association of Oak Real Estate Association by and among Inland Real Estate Corporation, Inland Real Estate Trust,
Inc., Inland Western Retail Real Estate Trust, Inc. and Inland American Real Estate Trust, Inc., dated September 29, 2006
(incorporated by reference to Exhibit 10.139 to the Registrant’s Quarterly Report on Form 10-Q, as filed by the Registrant with
the SEC on November 7, 2006)
Operating Agreement of Oak Property and Casualty L.L.C. by and among Inland Real Estate Corporation, Inland Retail Real
Estate Trust, Inc., Inland Western Retail Real Estate Trust, Inc. and Inland American Real Estate Trust, Inc, dated September 29,
2006 (incorporated by reference to Exhibit 10.140 to the Registrant’s Quarterly Report on Form 10-Q, as filed by the Registrant
with the SEC on November 7, 2006)
Oak Property and Casualty L.L.C. Membership Participation Agreement by and among Inland Real Estate Corporation, Inland
Retail Real Estate Trust, Inc., Inland Western Retail Real Estate Trust, Inc., Inland American Real Estate Trust, Inc., and Oak
Property and Casualty L.L.C. dated September 29, 2006 (incorporated by reference to Exhibit 10.141 to the Registrant’s Quarterly
Report on Form 10-Q, as filed by the Registrant with the SEC on November 7, 2006)
Indemnity Agreement, dated as of August 8, 2014, by and between Inland American Real Estate Trust, Inc., and Xenia Hotels &
Resorts, Inc., and Inland American Lodging Group, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly
Report on Form 10-Q, as filed by the Registrant with the SEC on August 14, 2014)
10.8.1^ Amended and Restated Executive Employment Agreement, dated as of June 19, 2015, between InvenTrust Properties Corp. and
Thomas P. McGuinness (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, as filed by the Registrant with
the SEC on June 24, 2015)
10.8.2^ Amended and Restated Executive Employment Agreement, dated as of June 19, 2015, between InvenTrust Properties Corp. and
Jack Potts (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on
June 24, 2015)
10.8.3^ Amended and Restated Executive Employment Agreement, dated as of June 19, 2015, between InvenTrust Properties Corp. and
Michael Podboy (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC
on June 24, 2015)
174
EXHIBIT
NO.
DESCRIPTION
10.8.4^* Amended and Restated Executive Employment Agreement, dated as of June 19, 2015, between InvenTrust Properties Corp. and Scott
W. Wilton
10.8.5^* Amended and Restated Executive Employment Agreement, dated as of June 19, 2015, between InvenTrust Properties Corp. and David
F. Collins
10.8.6^* Amended and Restated Executive Employment Agreement, dated as of November 16, 2015, between University House Communities
Group, Inc. and Jonathan T. Roberts
10.8.7^
Severance Agreement and General Release, dated as of November 23, 2015, between InvenTrust Properties Corp. and Jack Potts
(incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on November 23,
2015)
10.9
Asset Purchase Agreement, dated as of September 17, 2014, by and among Inland American Real Estate Trust, Inc., IHP I Owner
JV, LLC, IHP West Homestead (PA) Owner LLC and Northstar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to
the Registrant’s Form 8-K, as filed by the Registrant with the SEC on September 22, 2014).
10.10.1^ The Xenia Hotels & Resorts, Inc. 2014 Share Unit Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K,
as filed by the Registrant with the SEC on September 22, 2014).
10.10.2^ The Inland American Real Estate Trust, Inc. 2014 Share Unit Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s
Form 8-K, as filed by the Registrant with the SEC on September 22, 2014).
10.10.3^ The Inland American Communities Group, Inc. 2014 Share Unit Plan (incorporated by reference to Exhibit 10.4 to the
Registrant’s Form 8-K, as filed by the Registrant with the SEC on September 22, 2014).
10.10.4^ Form of Xenia Hotels & Resorts, Inc. Share Unit Award Agreement (Annual Award) (incorporated by reference to Exhibit 10.5 to
the Registrant’s Form 8-K, as filed by the Registrant with the SEC on September 22, 2014).
10.10.5^ Form of Inland American Real Estate Trust, Inc. Share Unit Award Agreement (Annual Award) (incorporated by reference to
Exhibit 10.6 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on September 22, 2014).
10.10.6^ Form of Xenia Hotels & Resorts, Inc. Share Unit Award Agreement (Contingency) (incorporated by reference to Exhibit 10.8 to
the Registrant’s Form 8-K, as filed by the Registrant with the SEC on September 22, 2014).
10.10.7^ Form of Inland American Real Estate Trust, Inc. Share Unit Award Agreement (Contingency) (incorporated by reference to
Exhibit 10.9 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on September 22, 2014).
10.10.8^ Form of Inland American Communities Group, Inc. Share Unit Award Agreement (Contingency) (incorporated by reference to
Exhibit 10.10 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on September 22, 2014).
10.10.9^ Form of Xenia Hotels & Resorts, Inc. Share Unit Award Agreement (Transaction) (incorporated by reference to Exhibit 10.11 to
the Registrant’s Form 8-K, as filed by the Registrant with the SEC on September 22, 2014).
10.10.10^ Form of Inland American Communities Group, Inc. Share Unit Award Agreement (Transaction) (incorporated by reference to
Exhibit 10.12 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC on September 22, 2014).
10.10.11^
InvenTrust Properties Corp. 2015 Incentive Award Plan (incorporated by reference to Exhibit 99.1 to the Registrant’s Form S-8
Registration Statement, as filed by the Registrant with the SEC on June 19, 2015)
10.10.12^ Form of Time-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.5 to the Registrant’s Current
Report on Form 8-K, as filed by the Registrant with the SEC on June 23, 2015)
10.10.13^ Form of Director Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q, as
filed by the Registrant with the SEC on November 12, 2015)
10.10.14^ Form of University House Communities Group, Inc. Share Unit Award Agreement (2015) (incorporated by reference to Exhibit
10.1 to the Registrant’s Form 10-Q, as filed by the Registrant with the SEC on November 12, 2015)
10.10.15^
InvenTrust Properties Corp. Director Compensation Program (incorporated by reference to Exhibit 10.1 to the Registrant’s Form
10-Q, as filed by the Registrant with the SEC on November 12, 2015)
10.10.16^* First Amendment to IA Communities Group, Inc. Retention Bonus Plan dated as of November 16, 2015
10.11.1 Transition Services Agreement by and between Inland American Real Estate Trust, Inc. and Xenia Hotels & Resorts, Inc., dated as
of February 3, 2015 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, as filed by the Registrant with the
SEC on February 9, 2015).
10.11.2 Employee Matters Agreement by and between Inland American Real Estate Trust, Inc. and Xenia Hotels & Resorts, Inc., dated as
of February 3, 2015 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K, as filed by the Registrant with the
SEC on February 9, 2015).
175
EXHIBIT
NO.
10.11.3
10.12
DESCRIPTION
First Amendment to Indemnity Agreement by and among Inland American Real Estate Trust, Inc. and Xenia Hotels & Resorts,
Inc., dated as of February 3, 2015 (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K, as filed by the
Registrant with the SEC on February 9, 2015).
Amended and Restated Credit Agreement by and among Inland American Real Estate Trust, Inc., KeyBank National Association,
as administrative agent, swing line lender and letter of credit issuer; KeyBanc Capital Markets Inc. and J. P. Morgan Securities
LLC, as joint lead arrangers; JPMorgan Chase Bank, N.A., as syndication agent; and other lenders party thereto, dated as of
February 3, 2015 (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 8-K, as filed by the Registrant with the SEC
on February 9, 2015).
21.1*
Subsidiaries of the Registrant
23.1*
Consent of KPMG LLP
31.1*
Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*
Certification by Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
Certification by Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
*
^
The following financial information from our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the
Securities and Exchange Commission on March 18, 2016, is formatted in Extensible Business Reporting Language ("XBRL"): (i)
Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income, (iii) Consolidated
Statements of Equity, (iv) Consolidated Statements of Cash Flows (v) Notes to Consolidated Financial Statements (tagged as
blocks of text).
Filed as part of this Annual Report on Form 10-K.
Management contract or compensatory plan or arrangement.
176
InvenTrust Properties Corp.
Corporate Profi le
InvenTrust became a self-managed REIT in 2014 and as of December 31, 2015, is an
owner and operator of 112 multi-tenant retail properties. InvenTrust’s total retail
portfolio comprises 18.5 million square feet of retail space in 24 states. As of December
31, 2015, the Company also owned 11,039 student housing beds.
Legal Counsel
Latham & Watkins
330 North Wabash Avenue
Suite 2800
Chicago, IL 60611
Transfer Agent
DST Systems, Inc.
333 W. 11th St.
Kansas City, MO 64105
888.DST.INFO
Independent Auditors
KPMG LLP
303 East Wacker Drive
Chicago, IL 60601
Memberships
Investor Relations
If you have any questions, please contact
Investor Relations, at 855.377.0510 or by e-mail at
investorrelations@inventrustproperties.com
Forward-Looking Statements
Forward-looking statements in this annual report, which are not historical facts, are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical, including
statements regarding management’s intentions, beliefs, expectations, representation, plans or predictions of the future and are typically
identifi ed by words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,”
“likely,” “will,” “would” and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such
forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by us and our
management, are inherently uncertain. Factors that may cause actual results to diff er materially from current expectations include,
among others, our ability to execute on our strategy and our ability to build our core multi-tenant retail and position our Company
for growth. For further discussion of factors that could materially aff ect the outcome of our forward-looking statements and our future
results and fi nancial condition, see the Risk Factors included in our most recent Annual Report on Form 10-K, as updated by any
subsequent Quarterly Report on Form 10-Q, in each case as fi led with the Securities and Exchange Commission. We intend that such
forward-looking statements be subject to the safe harbors created by Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, except as may be required by applicable law. We caution you not
to place undue reliance on any forward-looking statements, which are made as of the date of the letter in this Annual Report. We
undertake no obligation to update publicly any of these forward-looking statements to refl ect actual results, new information or future
events, changes in assumptions or changes in other factors aff ecting forward-looking statements, except to the extent required by
applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional
updates with respect to those or other forward-looking statements.
2809 Butterfi eld Road, Suite 200
Oak Brook, IL 60523
www.InvenTrustProperties.com
855.377.0510
The companies depicted in the photographs herein may have proprietary interests in their trade names and trademarks and nothing herein shall be considered
to be an endorsement, authorization or approval of InvenTrust Properties Corp. by the companies. Further, none of these companies are affi liated with InvenTrust
Properties Corp. in any manner.