2
0
1
5
A
N
N
U
A
L
R
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P
O
R
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ADVANCING OUR VISION
the best in retail. from every angle.
TM
2014 annual report
L E T T E R
F R O M T H E
C E O
I am pleased to report that 2014 marked another successful
year for RPAI as we executed on our financial, operational
and transactional objectives, making meaningful progress
on our strategic plan while continuing to enhance our
financial capacity and flexibility.
Our success was evident in our 2014 results, as we
outperformed our original expectations, generating Operating
Funds From Operations of $1.09 per share, up from $1.05
per share in 2013, and same store NOI growth of 3.3%. We
also maintained strong leasing momentum, signing over
700 retail leases representing nearly four million square
feet of gross leasable area, resulting in a year-end leased
rate of 95.6%, up 90 basis points during the course of
the year. Given the strong fundamental outlook for our
business today, we are committed to pursuing strategic
remerchandising opportunities to upgrade our tenancy,
reduce our exposure to struggling retailers and categories,
and reinforce the dominance of our shopping centers
during 2015.
During 2014, we also continued to make meaningful
progress on our geographic repositioning strategy, as we
closed on approximately $324 million of non-strategic
and non-core dispositions, completing our multi-tenant
retail exit from nine metropolitan statistical areas (MSAs),
and we acquired approximately $290 million of strategic
acquisitions in our target markets. This included the $234
million acquisition of six multi-tenant retail assets through
the dissolution of our MS Inland unconsolidated joint
venture, our last investment property unconsolidated joint
venture, which enhanced our presence in several of our
target markets and simplified our balance sheet.
T O T A L S T O C K P E R F O R M A N C E
n
r
u
t
e
R
l
a
t
o
T
d
e
x
e
d
n
I
230.0%
$230
210.0%
$210
190.0%
$190
170.0%
$170
150.0%
$150
130.0%
$130
110.0%
$110
$90
90.0%
04/05/12
4/12
06/30/12
6/12
09/30/12
9/12
12/31/12
12/12
03/31/13
3/13
06/30/13
6/13
09/30/13
9/13
12/31/13
12/13
03/31/14
3/14
06/30/14
6/14
09/30/14
9/14
12/31/14
12/14
RPAI Bloomberg REIT Shopping Center Index MSCI US REIT Index (RMS) Standard & Poor’s 500 Index
Cumulative Total Stockholder Returns for RPAI’s Class A Common Stock versus the Bloomberg REIT Shopping Center Index, MSCI US REIT Index (RMS)
and the Standard & Poor’s 500 Index during the period beginning April 5, 2012, the date of the initial listing of RPAI’s Class A Common Stock on the New
York Stock Exchange, through December 31, 2014. The graph assumes a $100 investment in each of the indices on April 5, 2012 and the reinvestment of
all dividends. Source: Bloomberg
With our net debt to adjusted EBITDA
ratio at 5.8x as of December 31, 2014,
we believe we are well-positioned
to take advantage of external and
internal growth initiatives. During
2014, we received investment grade
credit ratings from both Moody’s
Investors Service and Standard and
Poor’s Ratings Services, strong
acknowledgments of
the quality
of our portfolio, our disciplined
and measured approach to capital
allocation, and
the conservative
management of our balance sheet.
These ratings positioned us
to
enter the public investment grade
unsecured bond market
in early
2015, when we raised $250 million
of unsecured debt capital which we
expect will be used to repay 2015
secured debt maturities and extend
the duration of our balance sheet.
Looking forward, given the strength
of the disposition market, we expect
to be a net seller in 2015, with
approximately $500 million of non-
core and non-strategic dispositions
and approximately $400-$450 million
of strategic acquisitions
in our
target markets. We are off to a very
strong start on the acquisition front,
with approximately $375 million
of acquisitions closed or under
contract in the Washington, D.C.,
Austin and Seattle MSAs, expanding
our footprint in these markets by
847,000 square feet.
Downtown Crown
Gaithersburg, MD
Lincoln Park
Dallas, TX
We also continue to identify opportunities within our existing
portfolio to meaningfully increase density and extract value
through the redevelopment of infill locations in our target
markets. We have commenced pre-development activities at
Boulevard at the Capital Centre, located in the Washington,
D.C. MSA, and Towson Circle, located in the Baltimore MSA,
and we look forward to sharing additional details on these
two exciting projects with you throughout 2015.
Finally, I would like to thank our Board of Directors and
employees for their hard work and dedication this past year.
We are very proud of our performance in 2014 and are excited
about the opportunities ahead of us as we work to advance
our strategic vision in 2015. As always, we will remain
focused on enhancing shareholder value and delivering the
best in retail, from every angle.
Sincerely,
Steven P. Grimes
President & Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35481
RETAIL PROPERTIES OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation or organization)
42-1579325
(I.R.S. Employer Identification No.)
2021 Spring Road, Suite 200, Oak Brook, Illinois
(Address of principal executive offices)
60523
(Zip Code)
630-634-4200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock, $.001 par value
7.00% Series A Cumulative Redeemable Preferred Stock, $.001 par value
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of class
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
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
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes
No
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
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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.
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
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
As of June 30, 2014, the aggregate market value of the Class A common stock held by non-affiliates was approximately $3.6 billion based upon
the closing price as reported on the New York Stock Exchange on June 30, 2014 of $15.38 per share. (For this computation, the Registrant has
excluded the market value of all shares of Class A common stock reported as beneficially owned by executive officers and directors of the
Registrant. Such exclusion shall not be deemed to constitute an admission that any such person is an affiliate of the Registrant.)
Number of shares outstanding of the registrant’s classes of common stock as of February 13, 2015:
Class A common stock:
236,601,886 shares
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Registrant’s Proxy Statement relating to its Annual Meeting of Stockholders to be held on May 21, 2015 is
incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III. The Registrant intends to file such Proxy Statement with the Securities and
Exchange Commission no later than 120 days after the end of its fiscal year ended December 31, 2014.
RETAIL PROPERTIES OF AMERICA, INC.
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART II
Item 6.
Selected Financial Data
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.
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
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
PART III
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
1
3
17
17
19
19
20
22
23
44
46
103
103
105
105
105
105
105
105
106
108
All share amounts and dollar amounts in this Form 10-K in Items 1. through 7A. are stated in thousands with the exception of per
share amounts. In this report, all references to “we,” “our,” and “us” refer collectively to Retail Properties of America, Inc. and
its subsidiaries, including consolidated joint ventures.
PART I
Item 1. Business
General
Retail Properties of America, Inc. is a real estate investment trust (REIT) and is one of the largest owners and operators of high
quality, strategically located shopping centers in the United States. As of December 31, 2014, we owned 208 retail operating
properties representing 30,523,000 square feet of gross leasable area (GLA). Our retail operating portfolio includes power centers,
neighborhood and community centers, and lifestyle centers and predominantly multi-tenant retail mixed-use properties, as well
as single-user retail properties.
The following table summarizes our operating portfolio, including our office properties, as of December 31, 2014:
Property Type
Operating portfolio:
Multi-tenant retail
Power centers
Neighborhood and community centers
Lifestyle centers and mixed-use properties
Total multi-tenant retail
Single-user retail
Total retail operating portfolio
Office
Total operating portfolio (b)
(a) Includes leases signed but not commenced.
Number of
Properties
GLA
(in thousands)
Occupancy
Percent Leased
Including Leases
Signed (a)
60
89
9
158
50
208
5
213
14,780
10,546
3,843
29,169
1,354
30,523
1,130
31,653
95.2%
93.5%
90.8%
94.0%
100.0%
94.2%
100.0%
94.4%
96.1%
95.4%
91.0%
95.2%
100.0%
95.4%
100.0%
95.6%
(b) Excludes one multi-tenant retail operating property and one single-user office property classified as held for sale as of December 31, 2014.
In addition to our operating portfolio, as of December 31, 2014, we held interests in three retail development properties, one of
which is currently under active development and held in a consolidated joint venture.
Operating History
We are a Maryland corporation formed in March 2003 and have been publicly held and subject to U.S. Securities and Exchange
Commission (SEC) reporting requirements since 2003. We were initially formed as Inland Western Retail Real Estate Trust, Inc.
and on March 8, 2012, we changed our name to Retail Properties of America, Inc.
Business Objectives and Strategies
In 2012, management began a long-term portfolio repositioning effort to focus the portfolio on high quality, multi-tenant retail
properties. The core objective of this effort is to become a dominant owner of multi-tenant retail properties in 10 to 15 target
markets, owning 3,000,000 to 5,000,000 square feet in each market. We believe that concentrating our portfolio in multi-tenant
retail properties in these target markets will allow us to optimize our local and regional operating platforms and drive operating
performance. To date, we have identified 10 target markets: New York City/Long Island, Baltimore/Washington, D.C., Chicago,
Atlanta, Dallas, Houston, Austin, San Antonio, Phoenix and Seattle, which generally feature one or more of the following
characteristics:
• well-diversified local economy;
•
strong demographic profile with significant long-term population growth or above-average existing density, low relative
cost-of living and/or a highly educated employment base;
•
fiscal and regulatory environment conducive to business activity and growth;
1
•
•
strong barriers to entry, whether topographical, regulatory or density driven; and
ability to create critical mass and realize operational efficiencies.
Since the beginning of 2012, we have sold 87 properties, primarily in our non-target markets, for aggregate consideration of
$1,240,149, including our pro rata share of unconsolidated joint ventures, with a majority of the proceeds used for debt reduction.
Beginning in the fourth quarter of 2013, after meeting leverage targets, we began executing on our external growth initiatives
through the acquisition of high quality, multi-tenant retail assets within our target markets. Since that time, we have purchased 15
properties for a total acquisition price of $559,348, including our pro rata share of unconsolidated joint ventures.
Competition
In seeking new investment opportunities, we compete with other real estate investors, including other REITs, pension funds,
insurance companies, foreign investors, real estate partnerships, private individuals and other real estate companies, some of which
may have a lower cost of capital than we do.
From an operational perspective, we compete with other property owners on the basis of location, visibility, quality and aesthetic
value of construction, strength and name recognition of tenants and other factors. These factors combine to determine the level of
occupancy and rental rates that we are able to achieve at our properties. Because our revenue potential may be linked to the success
of retailers, we indirectly share exposure to the same competitive factors that our retail tenants experience when trying to attract
customers. These factors include other forms of retailing, including e-commerce, catalog companies and direct consumer sales
and general competition from other regional shopping centers. To remain competitive, we evaluate all of the factors affecting our
centers and work to position them accordingly. We believe the principal factors that retailers consider in making their leasing
decisions include:
•
•
•
consumer demographics;
quality, design and location of properties;
diversity of retailers within individual shopping centers;
• management and operational expertise of the landlord; and
•
rental rates.
Based on these factors, we believe that the size and scope of our property portfolio and operating platform, as well as the overall
quality and attractiveness of our individual properties, enable us to compete effectively for retail tenants. We believe that our long-
term strategy of focusing on 10 to 15 target markets will provide for a more thorough understanding of local market trends and
dynamics, which we believe will enhance our ability to drive revenue growth.
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, or the
Code. To maintain our qualification as a REIT, we must meet a number of organizational and operational requirements, including
a requirement that we annually distribute to our shareholders at least 90% of our REIT taxable income, prior to the deduction for
dividends paid and excluding net capital gains. As a REIT, we generally are not subject to U.S. federal income tax on the taxable
income we distribute to our shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal
income tax at regular corporate tax 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 and U.S. federal income and excise taxes on our undistributed income. We have one
wholly-owned consolidated subsidiary that has jointly elected to be treated as a taxable REIT subsidiary, or TRS, for U.S. federal
income tax purposes. A TRS is taxed on its net income at regular corporate tax rates. The income tax expense incurred through
the TRS has not had a material impact on our consolidated financial statements.
Regulation
General
The properties in our portfolio, including common areas, are subject to various laws, ordinances and regulations.
2
Americans with Disabilities Act (ADA)
Our properties must comply with Title III of the ADA, to the extent that such properties are “public accommodations” as defined
by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of
our properties where such removal is readily achievable. We believe our existing properties are substantially in compliance with
the ADA and that we will not be required to make significant capital expenditures to address the requirements of the ADA. Refer
to Item 1A. “Risk Factors” for more information regarding compliance with the ADA.
Environmental Matters
Under various federal, state or local laws, ordinances and regulations, as a current or former owner or operator of real property,
we may be liable for costs and damages resulting from the presence or release of hazardous substances, waste, or petroleum
products at, on, in, under or from such property, including costs for investigation, remediation, natural resource damages or third
party liability for personal injury or property damage. These laws often impose liability without regard to whether the owner or
operator knew of, or was responsible for, the presence or release of such materials, and the liability may be joint and several.
Independent environmental consultants conducted Phase I Environmental Site Assessments or similar environmental audits for
all of our investment properties at the time they were acquired. A Phase I Environmental Site Assessment is a written report that
identifies existing or potential environmental conditions associated with a particular property. These environmental site assessments
generally involve a review of records and visual inspection of the property, but do not include soil sampling or ground water
analysis. These environmental site assessments have not revealed, nor are we aware of, any environmental liability that we believe
will have a material effect on our operations. Refer to Item 1A. “Risk Factors” for more information regarding environmental
matters.
Insurance
We carry comprehensive liability and property insurance coverage inclusive of fire, extended coverage, earthquake, terrorism and
loss of income insurance covering all of the properties in our portfolio under a blanket policy. We believe the policy specifications
and insured limits are appropriate given the relative risk of loss, the cost of the coverage and industry practice. We believe that the
properties in our portfolio are adequately insured. Terrorism insurance is carried on all properties in an amount and with deductibles
that we believe are commercially reasonable. See Item 1A. “Risk Factors” for more information. The terrorism insurance is subject
to exclusions for loss or damage caused by nuclear substances, pollutants, contaminants and biological and chemical weapons.
We do not carry insurance for losses attributable to riots or certain acts of God.
Employees
As of December 31, 2014, we had 254 employees.
Access to Company Information
We make available, free of charge, through our website and by responding to requests addressed to our investor relations group,
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 and proxy statements filed or furnished pursuant to 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.
These reports are available as soon as reasonably practical after such material is electronically filed or furnished to the SEC. Our
website address is www.rpai.com. The information contained on our website, or other websites linked to our website, is not part
of this document. Our reports may also be obtained by accessing the EDGAR database at the SEC’s website at www.sec.gov.
Shareholders wishing to communicate directly with the board of directors or any committee can do so by writing to the attention
of the Board of Directors or applicable committee in care of Retail Properties of America, Inc. at 2021 Spring Road, Suite 200,
Oak Brook, Illinois 60523.
Item 1A. Risk Factors
In evaluating our company, careful consideration should be given to the following risk factors, in addition to the other information
included in this annual report. Each of these risk factors could adversely affect our business operating results and/or financial
condition, as well as adversely affect the value of our common stock or preferred stock. In addition to the following disclosures,
please refer to the other information contained in this report including the accompanying consolidated financial statements and
the related notes.
3
RISKS RELATING TO OUR BUSINESS AND OUR PROPERTIES
There are inherent risks associated with real estate investments and with the real estate industry, each of which could have an
adverse impact on our financial performance and the value of our retail properties.
Real estate investments are subject to various risks, many of which are beyond our control. Our operating and financial performance
and the value of our properties can be affected by many of these risks, including the following:
•
•
•
•
•
•
•
•
•
national, regional and local economies, which may be negatively impacted by inflation, deflation, government deficits,
high unemployment rates, decreased consumer confidence, industry slowdowns, reduced corporate profits, liquidity and
other adverse business conditions;
local real estate conditions, such as an oversupply of retail space or a reduction in demand for retail space, resulting in
vacancies or compromising our ability to rent space on favorable terms;
the convenience and quality of competing retail properties and other retailing options such as the internet;
adverse changes in the financial condition of tenants at our properties, including bankruptcies, financial difficulties or
lease defaults;
competition for investment opportunities from other real estate investors with significant capital, including other REITs,
real estate operating companies and institutional investment funds;
the illiquid nature of real estate investments, which may limit our ability to sell properties at the terms desired or at terms
favorable to us;
fluctuations in interest rates and the availability of financing, which could adversely affect our ability and the ability of
buyers and tenants of our properties, to obtain financing on favorable terms or at all;
changes in, and changes in enforcement of, laws, regulations and governmental policies, including, without limitation,
health, safety, environmental, zoning and tax laws, government fiscal policies and the ADA; and
civil unrest, acts of war, terrorist attacks and natural disasters, including earthquakes and floods, which may result in
uninsured and underinsured losses.
During a period of economic slowdown or recession, declining demand for real estate, or the public perception that any of these
events may occur, could result in a general decline in rents or an increased incidence of defaults among our existing leases, and,
consequently, our properties may fail to generate revenues sufficient to meet operating, debt service and other expenses. As a
result, we may have to borrow amounts to cover fixed costs, and our cash flow, financial condition and results of operations could
be adversely affected. As such, the per share trading prices of our Class A common stock and Series A preferred stock and our
ability to satisfy our principal and interest obligations and to make distributions to our shareholders may be adversely affected.
Our financial condition and results of operations could be adversely affected by poor economic or market conditions where
our properties are located, especially in the state of Texas, where we have a high concentration of properties.
We are in the process of repositioning our portfolio into 10 to 15 target markets. To date, we have announced 10 of these markets,
of which four are located in Texas where recent and potential future fluctuations in oil prices may adversely impact local economies.
The economic conditions in markets in which our properties are concentrated greatly influence our financial condition and results
of operations. We are particularly susceptible to adverse economic and other developments in such areas, including increased
unemployment, industry slowdowns, business layoffs or downsizing, relocations of businesses, decreased consumer confidence,
changes in demographics, increases in real estate and other taxes, increased regulation and natural disasters. As of December 31,
2014, approximately 23.6% of our GLA and approximately 26.2% of our annualized base rent (ABR) of our retail operating
portfolio was in the state of Texas. More specifically, approximately 13.1% of our GLA and approximately 16.8% of our ABR is
located in the Dallas-Fort Worth-Arlington area. As such, poor economic or market conditions in Texas, particularly in the Dallas-
Fort Worth-Arlington area, and in other markets in which our properties are concentrated may adversely affect our cash flow,
financial condition and results of operations.
4
We may choose to not renew leases or be unable to renew leases, lease vacant space or re-lease space as leases expire and rents
associated with new or renewed leases may be less than expiring rents (lease roll-down) or, to facilitate leasing, we may choose
to incur significant capital expenditures to improve our properties, which could adversely affect our cash flow, financial
condition and results of operations.
Approximately 4.6% of the total GLA in our retail operating portfolio was vacant as of December 31, 2014, excluding leases
signed but not commenced. In addition, leases accounting for approximately 27.0% of the ABR in our retail operating portfolio
as of December 31, 2014 are scheduled to expire between 2015 and 2017. In our efforts to lease space, we compete with numerous
developers, owners and operators of retail properties, many of whom own properties similar to, and in the same sub-markets as
our properties. In addition, we may choose to not renew leases based on various strategic factors such as operating strength of the
occupying tenant or its retail category, merchandising composition of the property or other leasing opportunities available to us.
As a result, we cannot assure you that leases will be renewed or that current or future vacancies will be re-leased at rental rates
equal to or above the current average rental rates without significant down time, or that substantial rent abatements, tenant
improvements, lease inducements, early termination rights or below-market renewal options will not be offered to attract new
tenants or retain existing tenants. Additionally, we may incur significant capital expenditures or accommodate requests for
renovations and other improvements to make our properties more attractive to tenants. If we choose to not renew leases or are
unable to renew leases, lease vacant space or re-lease space as leases expire and rents associated with new or renewed leases are
less than expiring rents or we incur significant capital expenditures to improve our properties, our cash flow, financial condition
and results of operations could be adversely affected.
Our inability to collect rents from tenants or collect balances due on our leases from any tenants in bankruptcy may negatively
impact our cash flow, financial condition and results of operations.
Substantially all of our income is derived from rentals of real property. If sales generated by stores operating in our properties
decline sufficiently, tenants may be unable to pay their existing minimum rents or other charges, or tenants may decline to extend
or renew a lease upon its expiration on terms favorable to us, or at all, or may even exercise early termination rights (to the extent
available). If a significant number of our tenants are unable to make their rental payments to us or otherwise meet their lease
obligations, our cash flow, financial condition and results of operations may be materially adversely affected. In addition, although
minimum rent is generally supported by long-term lease contracts, tenants who file bankruptcy have the legal right to reject any
or all of their leases and close related stores. In the event that a tenant with a significant number of leases in our properties files
bankruptcy and rejects its leases, we could experience a significant reduction in our revenues and may not be able to collect all
pre-petition amounts owed by that party, which could result in a reduction to our cash flow, financial condition and results of
operations.
If any of our anchor tenants experience a downturn in their business or terminate their leases, our cash flow, financial condition
and results of operations could be adversely affected.
Anchor tenants occupy a significant amount of the square footage and pay a significant portion of the total rent in our retail operating
portfolio. Specifically, our 20 largest tenants based on ABR represent 41.4% of GLA and 35.3% of ABR as of December 31, 2014.
In addition, anchor tenants and “shadow” anchors, retailers in or adjacent to our properties that occupy space we do not own,
contribute to the success of other tenants by drawing customers to a property. The bankruptcy, insolvency or downturn in business
of one of our anchor tenants could result in a tenant vacating its space, defaulting on its lease obligations, terminating its lease or
renewing its lease at lower rental rates. As a result, our cash flow, financial condition and results of operations could be adversely
affected.
If small shop tenants are not successful and terminate their leases, our cash flow, financial condition and results of operations
could be adversely affected.
Small shop tenants, those that occupy less than 10,000 square feet, in our retail operating portfolio represent 27.8% of GLA, but
39.2% of ABR as of December 31, 2014. Such tenants generally have more limited resources than larger tenants and, as a result,
may be more vulnerable to negative economic conditions. If a significant number of our small shop tenants experience financial
difficulties or are unable to remain open, our cash flow, financial condition and results of operations could be adversely affected.
Many of the leases at our retail properties contain provisions, which, if triggered, may allow tenants to pay reduced rent, cease
operations or terminate their leases, any of which could adversely affect our cash flow, financial condition and results of
operations.
Some anchor tenants have the right to vacate and inhibit our ability to re-lease the space by paying rent through the balance of the
remaining term. Additionally, many of the leases at our retail properties contain provisions that condition a tenant’s obligation to
5
remain open, the amount of rent payable by the tenant or potentially the tenant’s obligation to remain in the lease, upon certain
factors, including: (i) the presence and continued operation of a certain anchor tenant or tenants, (ii) minimum occupancy levels
at the applicable property or (iii) tenant sales amounts. If such a provision is triggered by a failure of any of these or other applicable
conditions, a tenant could have the right to cease operations at the applicable property, have its rent reduced or terminate its lease
early. A tenant ceasing operations as a result of these provisions could result in decreased customer traffic and related decreased
sales for our other tenants at that property. To the extent these provisions result in lower revenue, our cash flow, financial condition
and results of operations could be adversely affected.
Our expenses may remain constant or increase, even if income from our properties decreases, causing our cash flow, financial
condition and results of operations to be adversely affected.
Certain costs associated with our business, such as real estate taxes, state and local taxes, insurance, utilities, mortgage payments
and corporate expenses, are relatively inflexible and generally do not decrease when a property is not fully occupied, rental rates
decrease, a tenant fails to pay rent or other circumstances cause our revenues to decrease. If we are unable to reduce our operating
costs in response to revenue declines, our cash flow, financial condition and results of operations may be adversely affected. In
addition, inflationary or other price increases could result in increased operating costs, and increases in assessed valuations or
changes in tax rates could result in increased real estate taxes for us and our tenants, and to the extent to which we are unable to
recover such increases in operating expenses and real estate taxes from tenants, our cash flow, financial condition and results of
operations could be adversely affected.
We depend on external sources of capital that are outside of our control, which may affect our ability to execute on strategic
opportunities, satisfy our debt obligations and make distributions to our shareholders.
In order to maintain our qualification as a REIT, we are generally required under the Code to annually distribute to our shareholders
at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital
gains. In addition, as a REIT, we will be subject to income tax at regular corporate rates to the extent that we distribute less than
100% of our REIT taxable income, including any net capital gains. Because of these distribution requirements, we may not be
able to fund future capital needs (including redevelopment and acquisition activities, payments of principal and interest on and
the refinancing of our existing debt, tenant improvements and leasing costs) from operating cash flow. Consequently, we may rely
on third-party sources to fund our capital needs. We may not be able to obtain the necessary capital on favorable terms, in the time
period we desire, or at all. Additional debt we incur may increase our leverage, expose us to the risk of default and may impose
operating restrictions on us, and any additional equity we raise could be dilutive to existing shareholders. Our access to third-party
sources of capital depends, in part, on general market conditions, the market’s view of the quality of our assets, operating platform
and growth potential, our current debt levels, and our current and expected future earnings, cash flow and distributions to our
shareholders. If we cannot obtain capital from third party sources, we may not be able to acquire or develop properties when
strategic opportunities exist, satisfy our principal and interest obligations or make cash distributions to our shareholders necessary
to maintain our qualification as a REIT.
We may be unable to sell a property at the time we desire on favorable terms or at all, which could limit our ability to access
capital through dispositions and could adversely affect our cash flow, financial condition and results of operations.
Real estate investments generally cannot be sold quickly. Our ability to dispose of properties on advantageous terms depends on
factors beyond on our control, including competition from other sellers and the availability of attractive financing for potential
buyers of our properties, and we cannot predict the various market conditions affecting real estate investments that will exist at
any particular time in the future. As a result of the uncertainty of market conditions, we cannot provide any assurance that we will
be able to sell such properties at a profit, or at all. In addition, and subject to certain safe harbor provisions, the Code generally
imposes a 100% tax on gain recognized by REITs upon the disposition of assets if the assets are held primarily for sale in the
ordinary course of business, rather than for investment, which may cause us to forego or defer sales of properties that otherwise
would be attractive from a pre-tax perspective. Accordingly, our ability to access capital through dispositions may be limited,
which could limit our ability to fund future capital needs.
We may be unable to complete acquisitions and, even if acquisitions are completed, our operating results at acquired properties
may not meet our financial expectations.
We continue to evaluate the market of available properties and expect to continue to acquire properties when we believe strategic
opportunities exist. Our ability to acquire properties on favorable terms and successfully operate or develop them is subject to the
following risks:
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• we may be unable to acquire a desired property because of competition from other real estate investors with substantial
capital, including from other REITs, real estate operating companies and institutional investment funds;
•
even if we are able to acquire a desired property, competition from other potential acquirers may significantly increase
the purchase price;
• we may incur significant costs and divert management attention in connection with the evaluation and negotiation of
potential acquisitions, including ones that we are subsequently unable to complete;
• we may be unable to quickly and efficiently integrate new acquisitions, particularly the acquisition of portfolios of
properties, into our existing operations;
• we may acquire properties that are not initially accretive to our results upon acquisition, and we may not successfully
manage and lease those properties to meet our expectations;
• we may be unable to finance acquisitions on favorable terms in the time period we desire, or at all; and
• we may acquire properties subject to liabilities and without any recourse, or with only limited recourse to former owners,
with respect to unknown liabilities for clean-up of undisclosed environmental contamination, claims by tenants or other
persons to former owners of the properties and claims for indemnification by general partners, directors, officers and
others indemnified by the former owners of the properties.
If we are unable to acquire properties on favorable terms, finance acquisitions in a timely manner and on favorable terms, or operate
acquired properties to meet our financial expectations, our cash flow, financial condition and results of operations could be adversely
affected.
Joint venture investments could be adversely affected by our lack of sole decision-making authority.
As of December 31, 2014, one development property with 77,900 square feet of GLA was held in a consolidated joint venture.
Our existing joint venture and any joint venture arrangements in which we engage in the future are, or could be, subject to various
risks. Such risks include, among others, our lack of exclusive control over the joint venture, which may prevent us from taking
actions that are in our best interest; future capital constraints of our partners, which may force us to contribute more capital than
we anticipated to cover the joint venture’s liabilities; actions by our partners that could jeopardize our REIT status or the tax status
of the joint venture, requiring us to pay taxes or subject properties owned by the joint venture to liabilities greater than those
contemplated by the terms of the joint venture agreements; and disputes between us and our partners, which may result in litigation
or arbitration that would increase our expenses and require our officers and/or directors to focus a disproportionate amount of their
time and effort on the joint venture. If any of the foregoing were to occur, our cash flow, financial condition and results of operations
could be adversely affected.
Our development, redevelopment and construction activities have inherent risks, which could adversely impact our cash flow,
financial condition and results of operations.
As of December 31, 2014, we had one active development project and we anticipate engaging in increased redevelopment activities
going forward. In addition to the risks associated with real estate investments in general as described elsewhere, the risks associated
with current and future development and redevelopment activities include:
•
•
•
•
•
•
expenditure of money and time on projects that may never be completed;
higher than estimated construction or operating costs, including labor and material costs;
inability to complete construction and lease-up on schedule due to a number of factors, including weather, labor disruptions,
construction delays or delays in receipt of zoning or other regulatory approvals, acts of terror or other acts of violence,
or acts of God (such as fires, earthquakes or floods);
significant time lag between commencement and stabilization subjecting us to greater risks due to fluctuations in the
general economy and shifts in demographics;
occupancy and rental rates at a newly completed property that may not meet expectations; and
failure or inability to obtain financing on favorable terms or at all.
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Additionally, the time frame required for development or redevelopment and lease-up of these properties means that we may not
realize a significant cash return for several years. If any of the above events occur, the development of the properties may hinder
our growth and have an adverse effect on our cash flow, financial condition and results of operations. In addition, new development
activities, regardless of whether or not they are ultimately successful, typically require substantial time and attention from
management.
We are subject to litigation that may negatively impact our cash flow, financial condition and results of operations.
We are a defendant from time to time in lawsuits and regulatory proceedings relating to our business. Due to the inherent uncertainties
of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such litigation or proceedings.
A significant unfavorable outcome could negatively impact our cash flow, financial condition and results of operations.
A number of properties in our portfolio are subject to ground leases; if we are found to be in breach of a ground lease or are
unable to renew a ground lease, we could be materially and adversely affected.
We have 14 properties in our portfolio that are either completely or partially on land subject to ground leases with third parties.
Accordingly, we only own a long-term leasehold or similar interest in those properties. If we are found to be in breach of a ground
lease, we could lose our interest in the improvements and the right to operate the property. In addition, unless we can purchase a
fee interest in the underlying land or extend the terms of these leases before or at their expiration, as to which no assurance can
be given, we will lose our interest in the improvements and the right to operate these properties. Assuming that we exercise all
available options to extend the terms of our ground leases, all of our ground leases will expire between 2049 and 2107. However,
in certain cases, our ability to exercise such options is subject to the condition that we are not in default under the terms of the
ground lease at the time that we exercise such options, and we can provide no assurances that we will be able to exercise our
options at such time. If we were to lose the right to operate a property due to a breach or non-renewal of the ground lease, we
would be unable to derive income from such property, which could materially and adversely affect us.
Uninsured losses or losses in excess of insurance coverage could materially and adversely affect our cash flow, financial
condition and results of operations.
Each tenant is responsible for insuring its goods and demised premises and, in most circumstances, are required to reimburse us
for a share of the cost of acquiring comprehensive insurance for the property, including casualty, liability, fire and extended coverage
customarily obtained for similar properties in amounts which have been determined as sufficient to cover reasonably foreseeable
losses. Tenants with a net lease typically are required to pay all insurance costs associated with their space. However, material
losses may occur in excess of insurance proceeds with respect to any property. Additionally, losses of a catastrophic nature including
loss due to wars, acts of terrorism, earthquakes, floods, hurricanes, other natural disasters, pollution or environmental matters may
be considered uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-
payments. In the instance of a loss that is uninsured or that exceeds policy limits, a significant portion of the capital invested in
the damaged property could be lost, as well as the anticipated future revenue of the property, which could materially and adversely
affect our financial condition and results of operations. A variety of factors, including, among others, changes in building codes
and ordinances and environmental considerations, might also make it impractical or undesirable to use insurance proceeds to
replace a property after it has been damaged or destroyed. Furthermore, we may not be able to obtain adequate insurance coverage
at reasonable costs in the future, as the costs associated with property and casualty renewals may be higher than anticipated.
A number of our properties are located in areas which are susceptible to, and could be significantly affected by, natural disasters
that could cause significant damage to our properties. For example, many of our properties are located in coastal regions, and
would therefore be affected by any future increases in sea levels or in the frequency or severity of hurricanes and tropical storms.
In addition, a number of our properties are located in California and other regions that are especially susceptible to earthquakes.
The occurrence of terrorist acts could sharply increase the premium paid for terrorism insurance coverage. Further, mortgage
lenders, in some cases, insist that specific coverage against terrorism be purchased by commercial property owners as a condition
for providing mortgage loans. It is uncertain whether such insurance policies will be available, or available at reasonable costs,
which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other
financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot provide assurance that
we will have adequate coverage for such losses and, to the extent we must pay unexpectedly large amounts for insurance, our cash
flow, financial condition and results of operations could be materially and adversely affected.
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We may incur significant costs complying with the ADA and similar laws, which could adversely affect our cash flow, financial
condition and results of operations.
Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Although
we believe the properties in our portfolio substantially comply with the present requirements of the ADA, we have not conducted
an audit or investigation of all of our properties to determine our compliance, nor can we be assured that requirements will not
change. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties
and to make alterations as appropriate in this respect. If one or more of the properties in our portfolio is not in compliance with
the ADA, we would be required to incur additional costs to bring the property into compliance, and it could result in the imposition
of fines or an award of damages to private litigants. Additional federal, state and local laws also may require modifications to our
properties, or restrict our ability to renovate our properties. We cannot predict the ultimate cost of compliance with the ADA or
other legislation. If we incur substantial costs to comply with the ADA and any other legislation, our cash flow, financial condition
and results of operations could be adversely affected.
We may incur liability with respect to contaminated property or incur costs to comply with environmental laws, which may
negatively impact our cash flow, financial condition and results of operations.
Under various federal, state and local laws, ordinances and regulations, as a current or former owner or operator of real property,
we may be liable for costs and damages resulting from the presence or release of hazardous substances, waste, or petroleum
products at, on, in, under or from such property, including costs for investigation, remediation, natural resource damages or third
party liability for personal injury or property damage. These laws often impose liability without regard to whether the owner or
operator knew of, or was responsible for, the presence or release of such materials, and the liability may be joint and several. In
addition, the presence of contamination or the failure to remediate contamination at our properties may adversely affect our ability
to sell, redevelop, or lease such property or to borrow using the property as collateral. Environmental laws also may create liens
on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. Moreover, if
contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which that property
may be used or how businesses may be operated on that property. Some of our properties have been or may be impacted by
contamination arising from current or prior uses of the property or adjacent properties for commercial or industrial purposes. Such
contamination may arise from spills of petroleum or hazardous substances or releases from tanks used to store such materials. We
also may be liable for the costs of remediating contamination at off-site disposal or treatment facilities when we arrange for disposal
or treatment of hazardous substances at such facilities. The environmental site assessments described in Item 1. “Business —
Environmental Matters” have a limited scope and may not reveal all potential environmental liabilities. Further, material
environmental conditions may have arisen after the review was completed or may arise in the future, and future laws, ordinances
or regulations may impose additional material environmental liability beyond what was known at the time the site assessment was
conducted.
In addition, our properties are subject to various federal, state and local environmental, health and safety laws, including laws
governing the management of waste and underground and aboveground storage tanks. Noncompliance with these environmental,
health and safety laws could subject us or our tenants to liability. These environmental liabilities could affect a tenant’s ability to
make rental payments to us. Moreover, changes in laws could increase the potential costs of compliance with environmental laws,
health and safety laws or increase liability for noncompliance. This may result in significant unanticipated expenditures or may
otherwise materially and adversely affect our operations, or those of our tenants, which could in turn have a material adverse effect
on us.
As the owner or operator of real property, we may also incur liability based on various building conditions. For example, buildings
and other structures on properties that we currently own or operate or those we acquire or operate in the future contain, may contain,
or may have contained, asbestos-containing material, or ACM. Environmental, health and safety laws require that ACM be properly
managed and maintained and may impose fines or penalties on owners, operators or employers for non-compliance with those
requirements. These requirements include special precautions, such as removal, abatement or air monitoring, if ACM would be
disturbed during maintenance, renovation or demolition of a building, potentially resulting in substantial costs. In addition, we
may be subject to liability for personal injury or property damage sustained as a result of exposure to ACM or releases of ACM
into the environment.
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 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 properties could require us to undertake a costly remediation program to contain
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or remove the mold or other airborne contaminants or to increase ventilation. In addition, the presence of significant mold or other
airborne contaminants could expose us to liability from our tenants, employees of our tenants, or others if property damage or
personal injury occurs.
To the extent we incur costs or liabilities as a result of environmental issues, our cash flow, financial condition and results of
operations could be materially adversely affected.
We may experience a decline in the fair value of our assets resulting in the recognition of impairment charges, which could
materially and adversely impact our results of operations.
A decline in the fair value of our assets may require us to recognize an impairment charge against such assets under accounting
principles generally accepted in the United States (GAAP) if we were to determine that we do not have the ability and intent to
hold such assets for a period of time sufficient to allow for recovery to the carrying value of such assets. If such a determination
were to be made, we would recognize an impairment charge through earnings and write down the carrying value of such assets to
a new cost basis, based on the fair value of such assets on the date they are considered to not be recoverable. For the years ended
December 31, 2014, 2013 and 2012, we recognized aggregate impairment charges related to investment properties of $72,203,
$92,033 and $25,842, respectively (including $0, $32,547 and $24,519, respectively, reflected in discontinued operations). We
may be required to recognize additional asset impairment charges in the future.
We face risks associated with security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant
disruptions of our information technology (IT) networks and related systems.
We face risks associated with security breaches, whether through (i) cyber attacks or cyber intrusions, (ii) malware, (iii) computer
viruses, (iv) people with access or who gain access to our systems, and other significant disruptions of our IT networks and related
systems. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer
hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted
attacks and intrusions from around the world have increased. Our IT networks and related systems are essential to the operation
of our business and our ability to perform day-to-day operations. Although we make efforts to maintain the security and integrity
of our IT networks and related systems, and we have implemented various measures to manage the risk of a security breach or
disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches
or disruptions would not be successful or damaging. Even the most well-protected information, networks, systems and facilities
remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not
recognized until launched against a target, and in some cases are designed to not be detected and, in fact, may not be detected.
Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative
measures.
A security breach or other significant disruption involving our IT networks and related systems could significantly disrupt the
proper functioning of our networks and systems and, as a result, disrupt our operations, which could have a material adverse effect
on our cash flow, financial condition and results of operations.
Our success depends on key personnel whose continued service is not guaranteed.
We depend on the efforts and expertise of our senior management team to manage our day-to-day operations and strategic business
direction. While we have retention and severance agreements with the members of our executive management team that provide
for certain payments in the event of a change of control or termination without cause, we do not have employment agreements
with the members of our executive management team; therefore, we cannot guarantee their continued service. The loss of their
services, and our inability to find suitable replacements, could have an adverse effect on our operations.
RISKS RELATED TO OUR DEBT FINANCING
We are generally subject to the risks associated with debt financing and our debt service obligations could adversely affect our
financial health and operating flexibility.
Required principal and interest payments on our indebtedness reduce funds available for tenant improvements and leasing costs,
as well as external growth initiatives and distributions to our shareholders. Our existing debt financing and debt service obligations
also increase our vulnerability to general adverse economic and industry conditions, including increases in interest rates. In addition,
as our existing debt comes due, we may be unable to refinance it or access additional capital on favorable terms, which would
adversely affect our cash flow, financial condition and results of operations.
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Credit ratings may not reflect all the risks of an investment in our debt or preferred shares.
Our credit ratings are an assessment by rating agencies of our ability to pay our debts and preferred dividends when due.
Consequently, real or anticipated changes in our credit ratings will generally affect the market value of our preferred shares and
any public debt we may issue in the future. Credit ratings may be revised or withdrawn at any time by the rating agency at its sole
discretion. We do not undertake any obligation to maintain the ratings or advise holders of our preferred shares or any public debt
we may issue in the future of any change in ratings. There can be no assurance that we will be able to maintain our current credit
ratings. Adverse changes in our credit ratings could impact our ability to obtain additional debt and equity financing on favorable
terms, if at all, and could significantly reduce the market price of our publicly-traded securities.
Our cash flow, financial condition and results of operations could be adversely affected by financial and other covenants and
provisions under the unsecured credit agreement governing our unsecured revolving line of credit and unsecured term loan,
or other debt agreements, including the note purchase agreement.
Our unsecured credit agreement, which governs our unsecured revolving line of credit and unsecured term loan, our note purchase
agreement, which governs our unsecured notes payable, and any future debt agreements, require or may require compliance with
certain financial and operating covenants, including, among other things, the requirement to maintain maximum unencumbered,
secured and consolidated leverage ratios, minimum interest and fixed charge coverage and unencumbered interest coverage ratios,
and a minimum consolidated net worth, and contain or may contain customary events of default, including defaults on any of our
recourse indebtedness in excess of $50,000 or any non-recourse indebtedness in excess of $150,000 in the aggregate, subject to
certain carveouts, and bankruptcy or other insolvency events. In addition, our unsecured credit agreement limits our distributions
to the greater of 95% of funds from operations (FFO), as defined in the unsecured credit agreement (which equals FFO, as set
forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Funds From Operations,”
excluding gains or losses from extraordinary items, impairment charges not already excluded from FFO and other non-cash charges)
or the amount necessary for us to maintain our qualification as a REIT.
The provisions of these agreements could limit our ability to make distributions to our shareholders, obtain additional funds needed
to address cash shortfalls or pursue growth opportunities or other accretive transactions. In addition, a breach of these covenants
or other events of default would allow the lenders to accelerate payment of amounts outstanding under these agreements. If payment
is accelerated, our liquid assets may not be sufficient to repay such debt in full and, as a result, such an event may have a material
adverse effect on our cash flow, financial condition and results of operations.
Additionally, our largest single mortgage is secured by IW JV 2009, LLC (IW JV), a previously consolidated joint venture that
became wholly-owned in April 2012. This mortgage is subject to a lockbox and cash management agreement pursuant to which
substantially all of the income generated by the 54 IW JV properties, which secured the outstanding mortgage balance as of
December 31, 2014, is deposited directly into a lockbox account established by the lender. In the event of a default or the debt
service coverage ratio falling below a set amount, the cash management agreement provides that excess cash flow will be swept
into a cash management account for the benefit of the lender and held as additional security after the payment of interest and
approved property operating expenses. Cash will not be distributed to us from these accounts, in the event of a default, until the
earlier of a cash sweep event cure or the repayment of the mortgage loan. As of December 31, 2014, we were in compliance with
the terms of the cash management agreement; however, if an event of default were to occur, we may be forced to borrow funds in
order to make distributions to our shareholders and maintain our qualification as a REIT.
Given the restrictions in our debt covenants on these and other activities, we may be limited in our operating and financial flexibility
and in our ability to respond to changes in our business or competitive activities in the future.
Increases in interest rates would cause our borrowing costs to rise and may limit our ability to refinance debt.
Although a significant amount of our outstanding debt has fixed interest rates, we also borrow funds at variable interest rates.
Increases in interest rates would increase our interest expense on any unhedged variable rate debt currently outstanding and will
affect the terms under which we refinance our existing debt as it matures, which would adversely affect our cash flow, financial
condition and results of operations.
Defaults on secured indebtedness may result in foreclosure. In addition, mortgages sometimes include cross-collateralization
or cross-default provisions that increase the risk that more than one property may be affected by a default.
In the event that we default on mortgages in the future, either as a result of ceasing to make debt service payments or failing to
meet applicable covenants, the lenders may accelerate our debt obligations and foreclose and/or take control of the properties that
secure their loans. In the event of a default under any of our recourse indebtedness, we would also remain liable for any deficiency
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between the value of the property securing such loan and the principal and accrued interest on the loan. In addition, as a result of
cross-collateralization or cross-default provisions contained in certain of our mortgage loans, a default under one mortgage loan
could result in a default on other indebtedness and cause us to lose other better performing properties, which could materially and
adversely affect our financial condition and results of operations.
Further, for tax purposes, the foreclosure of a mortgage may result in the recognition of taxable income related to the debt
extinguished without us having received any accompanying cash proceeds. As a result, since we are structured as a REIT, we may
be required to identify and utilize sources for distributions to our shareholders related to such taxable income in order to avoid
incurring corporate tax or to meet the REIT distribution requirements imposed by the Code.
RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE
Our board of directors may change significant corporate policies without shareholder approval.
Our investment, financing and distribution policies are determined by our board of directors. These policies may be amended or
revised at any time at the discretion of the board of directors without a vote of our shareholders. As a result, the ability of our
shareholders to control our policies and practices is extremely limited. We could make investments and engage in business activities
that are different from, and possibly riskier than, the investments and businesses described in this report. In addition, our board of
directors may change our policies with respect to conflicts of interest provided that such changes are consistent with applicable
legal and regulatory requirements, including the listing standards of the New York Stock Exchange (NYSE). A change in these
policies could have an adverse effect on our cash flow, financial condition and results of operations.
We could increase the number of authorized shares of stock and issue stock without shareholder approval.
Subject to applicable legal and regulatory requirements, our charter authorizes our board of directors, without shareholder approval,
to increase the aggregate number of authorized shares of stock or the number of authorized shares of stock of any class or series,
to issue authorized but unissued shares of our common stock or preferred stock, classify or reclassify any unissued shares of our
common stock or preferred stock and to set the preferences, rights and other terms of such classified or unclassified shares. As a
result, we may issue series or classes of common stock or preferred stock with preferences, dividends, powers and rights, voting
or otherwise, that are senior to, or otherwise conflict with, the rights of holders of our common stock. In addition, our board of
directors could establish a series of preferred stock that could, depending on the terms of such series, delay, defer or prevent a
transaction or a change of control that might involve a premium price for our common stock or that our shareholders may believe
is in their best interests.
Provisions of our charter may limit the ability of a third party to acquire control of our company.
Our charter provides that no person may beneficially own more than 9.8% in value or number of shares, whichever is more
restrictive, of our outstanding common stock or 9.8% in value of the aggregate outstanding shares of our capital stock. While these
charter provisions help us to ensure we maintain our REIT status, these ownership limitations may prevent an acquisition of control
of our company by a third party without our board of directors’ approval, even if our shareholders believe the change of control
is in their best interests.
Certain provisions of Maryland law could inhibit changes of control, which could lower the values of our Class A common
stock and Series A preferred stock.
Certain provisions of the Maryland General Corporation Law, or MGCL, may have the effect of inhibiting or deterring a third
party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide
the holders of shares of our common stock with the opportunity to realize a premium over the then prevailing market price of such
shares, including:
•
“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an
“interested shareholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our
shares or an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was
the beneficial owner of 10% or more of our then outstanding voting shares) or an affiliate of an interested shareholder
for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter, may
impose special shareholder voting requirements unless certain minimum price conditions are satisfied; and
•
“control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated
with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting
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power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of
ownership or control of outstanding “control shares”) have no voting rights except to the extent approved by our
shareholders 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 the MGCL, our board of directors has adopted a resolution exempting any business combinations between us and
any other person or entity from the business combination provisions of the MGCL. Our bylaws provide that such resolution or
any other resolution of our board of directors exempting any business combination from the business combination provisions of
the MGCL may only be revoked, altered or amended, and our board of directors may only adopt a resolution that is inconsistent
with any such prior resolution (including any amendment to that bylaw provision), which we refer to as an opt in to the business
combination provisions, with the approval of stockholders entitled to cast a majority of all votes cast by the holders of the issued
and outstanding shares of our common stock. In addition, as permitted by the MGCL, our bylaws contain a provision exempting
from the control share acquisition provisions of the MGCL any acquisition by any person of shares of our stock. This bylaw
provision may be amended, which we refer to as an opt in to the control share acquisition provisions, only with the affirmative
vote of a majority of the votes cast on such matter by holders of the issued and outstanding shares of our common stock.
Title 3, Subtitle 8 of the MGCL permits our board of directors, without shareholder approval and regardless of what is currently
provided in our charter or bylaws, to implement certain takeover defenses, including adopting a classified board. Such takeover
defenses may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or
preventing a change of control of us under the circumstances that otherwise could provide our common shareholders with the
opportunity to realize a premium over the then prevailing market price.
In addition, the provisions of our charter on removal of directors and the advance notice provisions of our bylaws, among others,
could delay, defer or prevent a transaction or a change of control of our company that might involve a premium price for holders
of our common stock or that our shareholders may believe to be in their best interests. Likewise, if our company’s board of directors
were to opt in to the provisions of Title 3, Subtitle 8 of the MGCL, or if our board of directors were to opt in to the business
combination provisions or the control share acquisition provisions of the MGCL, with shareholder approval, these provisions could
have similar anti-takeover effects.
Our rights and the rights of our shareholders to take action against our directors and officers are limited, which could limit
your recourse in the event of actions that you do not believe are in your best interests.
Maryland law provides that a director or officer has no liability in that capacity if he or she satisfies his or her duties to us and our
shareholders. As permitted by the MGCL, our charter limits the liability of our directors and officers to us and our shareholders
for monetary damages, except for liability resulting from:
• actual receipt of an improper benefit or profit in money, property or services; or
• a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to
the cause of action adjudicated.
In addition, our charter and bylaws and indemnification agreements that we have entered into with our directors and certain of our
officers require us to indemnify our directors and officers, among others, for actions taken by them in those capacities to the
maximum extent permitted by Maryland law. As a result, we and our shareholders may have more limited rights against our
directors and officers than might otherwise exist. Accordingly, in the event that actions taken in good faith by any of our directors
or officers impede the performance of our company, your ability to recover damages from such director or officer will be limited.
In addition, we will be obligated to advance the defense costs incurred by our directors and officers with indemnification agreements,
and may, in the discretion of our board of directors, advance the defense costs incurred by our employees and other agents, in
connection with legal proceedings.
Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our shareholders
to effect changes to our management.
Our charter provides that a director may only be removed for cause upon the affirmative vote of holders of a majority of the votes
entitled to be cast in the election of directors. Vacancies may be filled only by a majority of the remaining directors in office, even
if less than a quorum. These requirements make it more difficult to change our management by removing and replacing directors
and may prevent a change of control that is in the best interests of our shareholders.
13
RISKS RELATING TO OUR REIT STATUS
Failure to qualify as a REIT would cause us to be taxed as a regular corporation and, even if we qualify as a REIT, we may
face other tax liabilities which could substantially reduce funds available for distribution to our shareholders and materially
and adversely affect our cash flow, financial condition and results of operations.
We believe that we have been organized, owned and operated in conformity with the requirements for qualification and taxation
as a REIT under the Code beginning with our taxable year ended December 31, 2003, and that our intended manner of ownership
and operation will enable us to continue to meet the requirements for qualification and taxation as a REIT for U.S. federal income
tax purposes. However, we cannot assure you that we have qualified or will qualify as such.
Qualification as a REIT involves the application of highly technical and complex provisions of the Code as to which there are only
limited judicial and administrative interpretations and involves the determination of facts and circumstances not entirely within
our control. For example, to qualify as a REIT, we generally are required to annually distribute to our shareholders at least 90%
of our REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains. To the
extent that we satisfy this distribution requirement, but distribute less than 100% of our taxable income, we will be subject to U.S.
federal corporate income tax on our undistributed taxable income. Our unsecured revolving line of credit and unsecured term loan
may limit our distributions to the minimum amount required to maintain our REIT status. Specifically, they limit our distributions
to the greater of 95% of FFO, as defined in the unsecured credit agreement (which equals FFO, as set forth in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Funds From Operations,” excluding gains or losses
from extraordinary items, impairment charges not already excluded from FFO and other non-cash charges) or the amount necessary
for us to maintain 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 shareholders because:
• we would not be allowed a deduction for dividends paid to shareholders 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;
• we could be subject to 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, it could result in default under certain of our indebtedness agreements. As a result of
all these factors, our failure to qualify as a REIT could adversely affect our cash flow, financial condition and results of operations.
We may be required to borrow funds or sell assets to satisfy our REIT distribution requirements.
Our cash flows may be insufficient to fund distributions required to maintain our qualification as a REIT 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 expenditures, such as capital expenditures, payments of compensation for which Section 162(m) of the Code
denies a deduction, the creation of reserves or required amortization payments. If the Company does not have other funds available
in these situations, we may need to borrow funds on a short-term basis or sell assets, even if the then-prevailing market conditions
are not favorable for these borrowings or sales, in order to satisfy our REIT distribution requirements. Such actions could decrease
our cash flow and results of operations.
Dividends payable by REITs generally do not qualify for reduced tax rates.
Certain qualified dividends paid by corporations to individuals, trusts and estates that are U.S. shareholders are taxed at capital
gain rates, which are lower than ordinary income rates. Dividends of current and accumulated earnings and profits payable by
REITs, however, are taxed at ordinary income rates as opposed to the capital gain rates. Dividends payable by REITs in excess of
these earnings and profits generally are treated as a non-taxable reduction of the shareholders’ basis in the shares to the extent
thereof and thereafter as taxable gain. The more favorable rates applicable to regular corporate dividends could cause investors
who are individuals, trusts and estates to perceive investments in REITs, including us, to be relatively less attractive than investments
in the stock of non-REIT corporations that pay dividends, which may negatively impact the trading prices of our Class A common
stock and Series A preferred stock.
14
Complying with REIT requirements may cause us to forego otherwise attractive opportunities or to liquidate otherwise attractive
investments.
To qualify as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and
diversification of our assets, the amounts we distribute to our shareholders and the ownership of our capital stock. In order to meet
these tests, we may be required to forego investments we might otherwise make and refrain from engaging in certain activities.
Thus, compliance with the REIT requirements may hinder our performance.
In addition, if we fail to comply with certain asset ownership tests at the end of any calendar quarter, we must correct the failure
within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT
qualification. As a result, we may be required to liquidate otherwise attractive investments.
Shareholders may be restricted from acquiring or transferring certain amounts of our stock.
In order to maintain our REIT qualification, among other requirements, no more than 50% in value of our outstanding stock may
be owned, directly or indirectly, by five or fewer individuals, as defined in the Code to include certain kinds of entities, during the
last half of any taxable year, other than the first year for which we made a REIT election. To assist us in qualifying as a REIT, our
charter contains an aggregate stock ownership limit of 9.8%, a common stock ownership limit of 9.8% and a preferred stock
ownership limit of 9.8%. Generally, shareholders must include stock of affiliates for purposes of determining whether they own
stock in excess of any of these ownership limits.
If anyone attempts to transfer or own shares of stock in a way that would violate the aggregate stock ownership limit, the common
stock ownership limit or the preferred stock ownership limit, unless such ownership limits have been waived by our board of
directors, or in a way that would prevent us from continuing to qualify as a REIT, those shares instead will be transferred to a trust
for the benefit of a charitable beneficiary and will be either redeemed by us or sold to a person whose ownership of the shares will
not violate the aggregate stock ownership limit, the common stock ownership limit or the preferred stock ownership limit. Purported
transferees generally bear any decline in the market price of such stock held in such trust, but do not benefit from any increase. If
this transfer to a trust fails to prevent such a violation or our disqualification as a REIT, then the initial intended transfer or ownership
will be null and void from the outset.
The ability of our board of directors to revoke our REIT qualification without shareholder approval may cause adverse
consequences to our shareholders.
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our
shareholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we
will not be allowed a deduction for dividends paid to shareholders in computing our taxable income and will be subject to U.S.
federal income tax at regular corporate rates and state and local taxes, which may have adverse consequences on our total return
to our shareholders.
GENERAL INVESTMENT RISKS
The market price and trading volume of our Class A common stock may be volatile.
The U.S. stock markets, including the NYSE on which our Class A common stock is listed, have periodically experienced significant
price and volume fluctuations. As a result, the market price of shares of our Class A common stock is likely to be similarly volatile,
and investors in shares of our Class A common stock may experience a decrease in the value of their shares, including decreases
unrelated to our operating performance or prospects. We cannot assure you that the market price of our Class A common stock
will not fluctuate or decline significantly in the future.
A number of factors could negatively affect our share price or result in fluctuations in the price or trading volume of our Class A
common stock, including:
•
•
•
actual or anticipated changes in our operating results and changes in expectations of future financial performance;
our operating performance and the performance of other similar companies;
our strategic decisions, such as acquisitions, dispositions, spin-offs, joint ventures, strategic investments or changes in
business strategy;
•
adverse market reaction to any indebtedness we incur in the future;
15
•
•
•
•
•
•
•
•
•
•
•
•
•
•
equity issuances by us or the perception that such issuances may occur;
increases in market interest rates or decreases in our distributions to shareholders that lead purchasers of our shares to
demand a higher yield;
changes in market valuations of similar companies;
additions or departures of key management personnel;
changes in the real estate industry, including increased competition due to shopping center supply growth;
changes in the retail industry, including growth in e-commerce, catalog companies and direct consumer sales;
publication of research reports about us or our industry by securities analysts;
speculation in the press or investment community;
the passage of legislation or other regulatory developments that adversely affect us, our tax status, or our industry;
changes in accounting principles;
our failure to satisfy the listing requirements of the NYSE;
our failure to comply with the requirements of the
Act;
our failure to qualify as a REIT; and
general market conditions, including factors unrelated to our performance.
In the past, securities class action litigation has often been instituted against companies following periods of volatility in the price
of their common stock. This type of litigation could result in substantial costs and divert our management’s attention and resources,
which could have a material adverse effect on our cash flow, financial condition and results of operations.
Increases in market interest rates may result in a decrease in the value of our common and preferred stock.
One of the factors that may influence the price of our common and preferred stock is the dividend yield on our common and
preferred stock relative to market interest rates. If market interest rates, which are currently at low levels relative to historical rates,
rise, prospective purchasers or holders of shares of our common stock may expect a higher distribution rate. Higher interest rates
would not, however, result in more funds being available for distribution and, in fact, would likely increase our borrowing costs
and might decrease our funds available for distribution. We therefore may not be able, or we may not choose, to provide a higher
distribution rate on our common stock. In addition, fluctuations in interest rates could adversely affect the market value of our
properties. These factors could result in a decline in the market price of our Class A common stock and Series A preferred stock.
Future offerings of debt securities, which would be senior to our common and preferred stock, or equity securities, which would
dilute the interests of our existing shareholders and may be senior to our existing common stock, may adversely affect the
market prices of our common and preferred stock.
We have issued one series of preferred stock, $250,000 of unsecured notes and have established an at-the-market (ATM) equity
program under which we may sell shares of our Class A common stock. In the future, we may attempt to increase our capital
resources by making additional offerings of debt or equity securities, including senior or subordinated notes and classes of preferred
or common stock. Holders of debt securities or shares of preferred stock will generally be entitled to receive interest payments or
distributions, both current and in connection with any liquidation or sale, prior to the holders of our common stock. Furthermore,
offerings of common stock or other equity securities may dilute the holdings of our existing shareholders. We are not required to
offer any such equity securities to existing shareholders on a preemptive basis, and future offerings of debt or equity securities, or
perceptions that such offerings may occur, may reduce the market prices of our common and preferred stock or the distributions
that we pay with respect to our common stock. Because we may generally issue any such debt or equity securities in the future
without obtaining the consent of our shareholders, our shareholders will bear the risk of our future offerings reducing the market
prices of our common and preferred stock and diluting their proportionate ownership.
16
The change of control conversion feature of our Series A preferred stock may make it more difficult for a party to take over
our company or discourage a party from taking over our company.
Upon the occurrence of a change of control (as defined in our Articles Supplementary for our Series A preferred stock), holders
of our Series A preferred stock will have the right to convert some or all of their Series A preferred stock into shares of our common
stock, or equivalent value of alternative consideration, unless we have provided notice of our election to redeem our Series A
preferred stock. Upon such a conversion, the holders will be limited to a maximum number of shares of our common stock equal
to 4.1736, subject to certain adjustments, multiplied by the number of shares of Series A preferred stock converted. The change
of control conversion feature of our Series A preferred stock may have the effect of discouraging a third party from making an
acquisition proposal for our company or of delaying, deferring or preventing certain change of control transactions of our company
under circumstances that shareholders may otherwise believe are in their best interests.
Our ability to pay dividends is limited by the requirements of Maryland law.
Our ability to pay dividends on our common stock and Series A preferred stock is limited by the laws of the State of Maryland.
Under applicable Maryland law, a Maryland corporation generally may not make a distribution if, after giving effect to the
distribution, the corporation would not be able to pay its debts as the debts become due in the usual course of business, or the
corporation’s total assets would be less than the sum of its total liabilities plus, unless the corporation’s charter provides otherwise,
the amount that would be needed, if the corporation were dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. Accordingly, we generally
may not make a distribution on our common stock or Series A preferred stock if, after giving effect to the distribution, we would
not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of
our total liabilities plus, unless the terms of such class or series provide otherwise, the amount that would be needed to satisfy the
preferential rights upon dissolution of the holders of shares of any class or series of preferred stock then outstanding, if any, with
preferences senior to those of our common stock or Series A preferred stock, respectively.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The following table sets forth summary information regarding our consolidated operating portfolio as of December 31, 2014.
Dollars (other than per square foot information) and square feet of GLA are presented in thousands. This information is grouped
into regions based on the manner in which we have structured our asset management, property management and leasing operations.
For additional property details on our consolidated operating portfolio, see “Real Estate and Accumulated Depreciation (Schedule
III)” herein.
Regions
Number of
Properties
GLA
% of Total
GLA (a)
Occupancy
(b)
ABR
% of Total
ABR (a)
ABR per
Occupied
Sq. Ft.
North
Connecticut, Indiana, Massachusetts, Maryland,
Maine, Michigan, New Jersey, New York, Ohio,
Pennsylvania, Rhode Island, Vermont
East
Alabama, Florida, Georgia, Illinois, Missouri,
North Carolina, South Carolina, Tennessee,
Virginia
West
Arizona, California, Colorado, Kansas,
Montana, New Mexico, Nevada, Utah,
Washington
South
Louisiana, Oklahoma, Texas
Total retail operating portfolio
Office
Total consolidated operating portfolio (c)
69
9,126
29.9%
95.4% $
135,881
30.7% $
15.61
60
8,278
27.1%
95.7%
107,930
24.4%
13.62
26
5,588
18.3%
91.7%
79,086
17.8%
15.43
53
208
5
213
7,531
30,523
1,130
31,653
24.7%
100.0%
93.1%
94.2%
100.0%
120,101
442,998
13,953
27.1%
100.0%
94.4% $
456,951
$
17.13
15.41
12.35
15.29
(a) Percentages are only provided for our retail operating portfolio.
17
(b) Calculated as the percentage of economically occupied GLA as of December 31, 2014. Including leases signed but not commenced, our
retail operating portfolio and our consolidated operating portfolio were 95.4% and 95.6% leased, respectively, as of December 31, 2014.
(c) Excludes one multi-tenant retail operating property and one single-user office property classified as held for sale as of December 31, 2014.
The following table sets forth information regarding the 20 largest tenants in our retail operating portfolio based on ABR as of
December 31, 2014. Dollars (other than per square foot information) and square feet of GLA are presented in thousands.
Tenant
Primary DBA
Best Buy Co., Inc.
Best Buy, Pacific Sales
Ahold U.S.A. Inc.
Ross Stores, Inc.
Giant Foods, Stop & Shop, Martin's
The TJX Companies, Inc.
HomeGoods, Marshalls, TJ Maxx
Bed Bath & Beyond Inc.
Bed Bath & Beyond, Buy Buy
Baby, The Christmas Tree Shops,
Cost Plus World Market
PetSmart, Inc.
Rite Aid Corporation
The Home Depot, Inc.
Home Depot, Home Decorators
The Sports Authority, Inc.
Michaels Stores, Inc.
Michaels, Aaron Brothers Art &
Frame
Regal Entertainment Group
Edwards Cinema
Office Depot, Inc.
Pier 1 Imports, Inc.
Publix Super Markets Inc.
Dick's Sporting Goods, Inc.
Staples, Inc.
Ascena Retail Group Inc.
The Gap, Inc.
Office Depot, OfficeMax
Dick's Sporting Goods, Golf
Galaxy, Field & Stream
Catherine's, Dress Barn, Justice,
Lane Bryant, Maurices
Old Navy, Banana Republic, The
Gap, Gap Factory Store
Wal-Mart Stores, Inc.
Wal-Mart, Sam's Club
Barnes & Noble, Inc.
Total Top Retail Tenants
Number
of Stores
Occupied
GLA
24
11
37
43
28
31
31
9
15
26
2
23
30
12
10
15
46
25
5
11
953
675
1,087
1,255
736
645
387
1,003
643
588
219
472
307
511
495
325
250
344
761
280
% of
Occupied
GLA
ABR
% of
Total ABR
ABR per
Occupied
Sq. Ft.
3.3% $
14,202
3.2% $
14.90
2.3%
3.8%
4.4%
2.6%
2.2%
1.3%
3.5%
2.2%
2.0%
0.8%
1.6%
1.1%
1.8%
1.7%
1.1%
0.9%
1.2%
2.6%
1.0%
13,275
11,780
11,737
9,841
9,525
9,356
8,390
7,635
6,950
6,785
6,601
5,971
5,405
5,348
5,032
5,015
4,792
4,780
4,637
3.0%
2.7%
2.6%
2.2%
2.2%
2.1%
1.9%
1.7%
1.6%
1.5%
1.5%
1.3%
1.2%
1.2%
1.1%
1.1%
1.1%
1.1%
1.0%
19.67
10.84
9.35
13.37
14.77
24.18
8.36
11.87
11.82
30.98
13.99
19.45
10.58
10.80
15.48
20.06
13.93
6.28
16.56
13.16
434
11,936
41.4% $ 157,057
35.3% $
18
The following table sets forth a summary, as of December 31, 2014, of lease expirations scheduled to occur during 2015 and each
of the nine calendar years from 2016 to 2024 and thereafter, assuming no exercise of renewal options or early termination rights
for all leases in our retail operating portfolio, excluding one multi-tenant retail operating property classified as held for sale as of
December 31, 2014. The following table is based on leases commenced as of December 31, 2014. Dollars (other than per square
foot information) and square feet of GLA are presented in thousands.
Lease Expiration Year
Lease
Count
GLA
ABR
% of Total
ABR
ABR per
Occupied
Sq. Ft.
370
447
442
452
545
256
102
102
107
127
92
47
1,713
2,446
2,891
3,169
4,625
3,182
1,542
2,069
1,705
2,205
3,114
103
% of
Occupied
GLA
6.0% $
8.5%
10.0%
11.0%
16.1%
11.1%
5.4%
7.2%
6.0%
7.6%
10.8%
0.3%
27,894
44,658
45,354
53,742
77,431
42,158
22,780
28,138
25,771
29,836
43,471
1,765
6.3% $
10.1%
10.2%
12.1%
17.5%
9.5%
5.2%
6.4%
5.8%
6.7%
9.8%
0.4%
16.28
18.26
15.69
16.96
16.74
13.25
14.77
13.60
15.11
13.53
13.96
17.14
15.41
3,089
28,764
100.0% $
442,998
100.0% $
2015 (a)
2016
2017
2018
2019
2020
2021
2022
2023
2024
Thereafter
Month-to-month
Total
(a) Excludes month-to-month leases.
As of December 31, 2014, the weighted average remaining term of leases at our office properties, excluding one office property
classified as held for sale as of December 31, 2014, based on ABR, was 2.2 years.
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 such 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 effect on our consolidated financial statements.
Item 4. Mine Safety Disclosures
Not applicable.
19
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The following table sets forth, for the quarterly periods indicated, the high and low sales prices of our Class A common stock,
which trades on the NYSE under the trading symbol “RPAI”, and the quarterly dividend distributions per share of common stock
for the years ended December 31, 2014 and 2013:
2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2013
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Sales Price
High
Low
Dividends
per Share
$
$
$
$
$
$
$
$
16.99
16.15
15.65
14.00
14.54
15.07
16.04
15.26
$
$
$
$
$
$
$
$
14.43
13.48
13.42
12.07
12.49
12.37
13.95
11.85
$
$
$
$
$
$
$
$
0.165625
0.165625
0.165625
0.165625
0.165625
0.165625
0.165625
0.165625
The closing share price for our Class A common stock on February 13, 2015, as reported on the NYSE, was $17.15.
We have determined that the dividends paid during 2014 and 2013 on our Class A common stock qualify for the following tax
treatment:
Ordinary dividends
Non-dividend distributions
Total distribution per common share
2014
0.447492
0.215008
0.662500
$
$
2013
0.274164
0.388336
0.662500
$
$
As of February 13, 2015, there were approximately 19,000 record holders of our Class A common stock. The number of holders
does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing
agency.
We intend to continue to qualify as a REIT for U.S. federal income tax purposes. The Code generally requires that a REIT annually
distributes to its shareholders at least 90% of its taxable income, excluding the deduction for dividends paid or net capital gains.
The Code imposes tax on any taxable income, including net capital gains, retained by a REIT.
To satisfy the requirements for qualification as a REIT and generally not be subject to U.S. federal income and excise tax, we
intend to make regular quarterly distributions of all, or substantially all, of our REIT taxable income to shareholders. Our future
distributions will be at the sole discretion of our board of directors. When determining the amount of future distributions, we expect
that our board of directors will consider, among other factors, (i) the amount of cash generated from our operating activities, (ii) our
expectations of future cash flow, (iii) our determination of near-term cash needs for debt repayments, acquisitions of new properties,
redevelopment opportunities and existing or future share repurchases, (iv) the timing of significant re-leasing activities and the
establishment of additional cash reserves for anticipated tenant allowances and general property capital improvements, (v) our
ability to continue to access additional sources of capital, (vi) the amount required to be distributed to maintain our status as a
REIT and to reduce any income and excise taxes that we otherwise would be required to pay, (vii) the amount required to declare
and pay in cash, or set aside for the payment of, the dividends on our Series A preferred stock for all past dividend periods, (viii) any
limitations on our distributions contained in our unsecured credit facility, which limits our distributions to the greater of 95% of
FFO, as defined in the unsecured credit agreement (which equals FFO, as set forth in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Funds From Operations,” excluding gains or losses from extraordinary items,
impairment charges not already excluded from FFO and other non-cash charges) or the amount necessary for us to maintain our
qualification as a REIT.
20
If our operations do not generate sufficient cash flow to allow us to satisfy the REIT distribution requirements, we may be required
to fund distributions from working capital or by borrowing funds, issuing equity or selling assets. Our actual results of operations
will be affected by a number of factors, including the revenues we receive from our properties, our operating and corporate expenses,
interest expense, the ability of our tenants to meet their obligations and unanticipated expenditures. For more information regarding
risk factors that could materially adversely affect our actual results of operations, please see Item 1A. “Risk Factors”.
Sales of Unregistered Equity Securities
There were no unregistered sales of equity securities during the quarter ended December 31, 2014.
Issuer Purchases of Equity Securities
The following table summarizes the amount of shares of Class A common stock surrendered to the Company by employees to
satisfy such employees’ tax withholding obligations in connection with the vesting of restricted common stock for the specified
periods.
Period
October 1, 2014 to October 31, 2014
November 1, 2014 to November 30, 2014
December 1, 2014 to December 31, 2014
Total
Total number
of shares of
Class A common
stock purchased
Average price
paid per share
of Class A
common stock
Total number of
shares purchased
as part of publicly
announced plans
or programs
Maximum number
(or approximate dollar
value) of shares that
may yet be purchased
under the plans
or programs
— $
86
$
— $
86
$
—
15.72
—
15.72
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
21
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with the accompanying consolidated financial statements and
related notes appearing elsewhere in this annual report.
RETAIL PROPERTIES OF AMERICA, INC.
As of and for the years ended December 31, 2014, 2013, 2012, 2011 and 2010
(Amounts in thousands, except per share amounts)
Net investment properties
Total assets
Total debt
Total shareholders’ equity
Total revenues
Expenses:
Depreciation and amortization
Other
Total expenses
Operating income
Gain on extinguishment of debt
Gain on extinguishment of other liabilities
Equity in (loss) income of unconsolidated joint ventures, net
Gain on sale of joint venture interest
Gain on change in control of investment properties
Interest expense
Other non-operating income (expense), net
Income (loss) from continuing operations
Income (loss) from discontinued operations, net
Gain on sales of investment properties, net
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) attributable to the Company
Preferred stock dividends
Net income (loss) attributable to common shareholders
Earnings (loss) per common share - basic and diluted:
Continuing operations
Discontinued operations
Net income (loss) per common share attributable to
common shareholders
Distributions declared - preferred
Distributions declared per preferred share
Distributions declared - common
Distributions declared per common share
Cash flows provided by operating activities
Cash flows provided by investing activities
Cash flows used in financing activities
Weighted average number of common shares outstanding - basic
Weighted average number of common shares outstanding - diluted
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2013
4,474,044
4,877,576
2,299,633
2,307,340
551,508
222,710
251,277
473,987
77,521
—
—
(1,246)
17,499
5,435
(146,805)
4,741
(42,855)
50,675
5,806
13,626
—
13,626
(9,450)
4,176
(0.20)
0.22
0.02
9,713
1.80
155,616
0.66
239,632
103,212
(422,723)
234,134
234,134
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2014
4,314,905
4,803,860
2,334,465
2,187,881
600,614
215,966
282,003
497,969
102,645
—
4,258
(2,088)
—
24,158
(133,835)
5,459
597
507
42,196
43,300
—
43,300
(9,450)
33,850
0.14
—
0.14
9,450
1.75
156,742
0.66
254,014
77,900
(277,812)
236,184
236,187
22
2011
5,260,788
5,941,894
3,481,218
2,135,024
531,077
$
$
$
$
$
$
$
$
$
$
213,623
192,282
405,905
125,172
15,345
—
(6,437)
—
—
2010
5,686,473
6,386,836
3,757,237
2,294,902
560,150
223,557
197,193
420,750
139,400
—
—
2,025
—
—
2012
4,687,091
5,237,427
2,592,089
2,374,259
531,171
208,658
187,949
396,607
134,564
3,879
—
(6,307)
—
—
(171,295)
24,791
(14,368)
(203,914)
(223,767)
(1,658)
(71,492)
(6,992)
5,906
(72,578)
(31)
(72,609)
—
(72,609)
(0.34)
(0.04)
$
$
(3,341)
(85,683)
(9,024)
—
(94,707)
(1,136)
(95,843)
—
(95,843)
(0.45)
(0.05)
6,078
7,843
(447)
—
(447)
(263)
(710)
(0.03)
0.03
$
$
— $
(0.38)
$
(0.50)
— $
— $
— $
— $
$
$
$
$
$
146,769
0.66
167,085
471,829
(636,854)
220,464
220,464
$
$
$
$
$
120,647
0.63
174,607
107,471
(276,282)
192,456
192,456
—
—
94,579
0.49
184,072
154,400
(321,747)
193,497
193,497
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,”
“Business” and elsewhere in this Annual Report on Form 10-K may constitute “forward-looking statements” within the meaning
of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set
forth in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange
Act of 1934, as amended, or the Exchange Act). Forward-looking statements involve numerous risks and uncertainties and you
should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods
which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events
described will happen as described (or that they will happen at all). You can identify forward-looking statements by the use of
forward-looking terminology such as “believes,” “expects,” “may,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro
forma,” “estimates,” “focus,” “contemplates,” “aims,” “continues,” “would” or “anticipates” or the negative of these words and
phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategies, plans or
intentions. Risks, uncertainties and other factors could cause actual results and future events to differ materially from those set
forth or contemplated in the forward-looking statements. Changes in the following factors, among others, could cause actual results
and future events to differ materially from those set forth or contemplated in the forward-looking statements:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
economic, business and financial conditions, and changes in our industry and changes in the real estate markets in particular;
economic and other developments in the state of Texas, where we have a high concentration of properties;
our business strategy;
our projected operating results;
rental rates and/or vacancy rates;
frequency and magnitude of defaults on, early terminations of or non-renewal of leases by tenants;
interest rates or operating costs;
real estate and zoning laws and changes in real property tax rates;
real estate valuations, potentially resulting in impairment charges, as applicable;
our leverage;
our ability to generate sufficient cash flows to service our outstanding indebtedness;
our ability to obtain necessary outside financing;
the availability, terms and deployment of capital;
general volatility of the capital and credit markets and the market price of our Class A common stock;
risks generally associated with real estate acquisitions, dispositions and redevelopment, including the cost of construction
delays and cost overruns;
our ability to identify properties to acquire and complete acquisitions;
our ability to successfully operate acquired properties;
our ability to effectively manage growth;
composition of members of our senior management team;
our ability to attract and retain qualified personnel;
our ability to make distributions to our shareholders;
our ability to continue to qualify as a REIT;
governmental regulations, tax laws and rates and similar matters;
our compliance with laws, rules and regulations;
23
•
•
•
environmental uncertainties and exposure to natural disasters;
insurance coverage; and
the likelihood or actual occurrence of terrorist attacks in the U.S.
For a further discussion of these and other factors that could impact our future results, performance or transactions, see Item 1A.
“Risk Factors.” Readers should not place undue reliance on any forward-looking statements, which are based only on information
currently available to us (or to third parties making the forward-looking statements). We undertake no obligation to publicly release
any revisions to such forward-looking statements to reflect events or circumstances after the date of this Annual Report on Form
10-K, except as required by applicable law.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related
notes included in this report.
Executive Summary
Retail Properties of America, Inc. is a REIT and is one of the largest owners and operators of high quality, strategically located
shopping centers in the United States. As of December 31, 2014, we owned 208 retail operating properties representing 30,523,000
square feet of GLA. Our retail operating portfolio includes power centers, neighborhood and community centers, and lifestyle
centers and predominantly multi-tenant retail mixed-use properties, as well as single-user retail properties.
The following table summarizes our operating portfolio, including our office properties, as of December 31, 2014:
Description
Operating portfolio:
Multi-tenant retail
Power centers
Neighborhood and community centers
Lifestyle centers and mixed-use properties
Total multi-tenant retail
Single-user retail
Total retail operating portfolio
Office
Total operating portfolio (b)
(a) Includes leases signed but not commenced.
Number of
Properties
GLA
(in thousands)
Occupancy
Percent Leased
Including Leases
Signed (a)
60
89
9
158
50
208
5
213
14,780
10,546
3,843
29,169
1,354
30,523
1,130
31,653
95.2%
93.5%
90.8%
94.0%
100.0%
94.2%
100.0%
94.4%
96.1%
95.4%
91.0%
95.2%
100.0%
95.4%
100.0%
95.6%
(b) Excludes one multi-tenant retail operating property and one single-user office property classified as held for sale as of December 31, 2014.
In addition to our operating portfolio, as of December 31, 2014, we held interests in three retail development properties, one of
which is currently under active development and held in a consolidated joint venture.
2014 Company Highlights
Leasing Activity
The following table summarizes the leasing activity in our retail operating portfolio, including our pro rata share of unconsolidated
joint ventures, during the year ended December 31, 2014. Leases with terms of less than 12 months have been excluded from the
table.
Number of
Leases
Signed
GLA Signed
(in thousands)
New
Contractual
Rent per Square
Foot (PSF) (a)
Prior
Contractual
Rent PSF (a)
% Change
over Prior
ABR (a)
Weighted
Average
Lease Term
Tenant
Allowances
PSF
Comparable Renewal Leases
Comparable New Leases
Non-Comparable New and
Renewal Leases (b)
Total
475
56
180
711
2,906
$
190
869
3,965
$
16.12
21.33
15.63
16.44
$
$
15.39
19.18
n/a
15.62
4.74%
11.21%
n/a
5.25%
4.99
8.14
6.01
5.41
$
$
0.91
31.31
19.72
6.49
24
(a) Total excludes the impact of Non-Comparable New and Renewal Leases.
(b) Includes leases signed on units that were vacant for over 12 months, leases signed without fixed rental payments and leases signed where
the previous and the current lease do not have a consistent lease structure.
Leasing activity remained strong in 2014, with 711 leases signed during the year for a total of approximately 3,965,000 square
feet, achieving a renewal rate of 85.6%. Rental rates for comparable new leases signed during 2014 increased approximately 11.2%
and rental rates on comparable renewal leases signed during 2014 increased by approximately 4.7% over previous rental rates, for
a combined comparable re-leasing spread of approximately 5.3% for the year ended December 31, 2014. We anticipate increased
volatility in our reported leasing metrics throughout 2015 as we pursue additional strategic remerchandising opportunities across
the portfolio. In addition, as portfolio occupancy increases and available inventory of vacant space decreases, we anticipate that
much of our new leasing activity in 2015 will be non-comparable in nature as the leased space is more likely to have been vacant
for longer than 12 months.
Acquisitions
During the year ended December 31, 2014, we continued executing on our investment strategy of acquiring high quality, multi-
tenant retail assets within our target markets. The price paid for acquisitions during 2014 totaled $289,561, on a pro rata basis, and
included eight multi-tenant retail operating properties, one outparcel and one parcel at existing wholly-owned multi-tenant retail
operating properties and the fee interest in an existing wholly-owned multi-tenant retail operating property that was previously
subject to a ground lease with a third party, as detailed below.
We acquired our partner’s 80% ownership interest in the six multi-tenant retail properties owned by our MS Inland Fund, LLC
(MS Inland) unconsolidated joint venture (collectively, the MS Inland acquisitions). The six properties had, at acquisition, a
combined fair value of $292,500, with our partner’s interest valued at $234,000. We paid total cash consideration of approximately
$120,600 before transaction costs and prorations and after assumption of the joint venture’s in-place mortgage financing on those
properties of $141,698 at a weighted average interest rate of 4.79%. The properties acquired have a combined total gross leasable
area of 1,194,800 square feet.
In addition, we closed on the acquisitions of Heritage Square, a 53,100 square foot multi-tenant retail property, and Avondale
Plaza, a 39,000 square foot multi-tenant retail property, both located in the Seattle metropolitan statistical area (MSA), for purchase
prices of $18,022 and $15,070, respectively.
We paid $6,369 to acquire an 8,500 square foot single-user outparcel at Southlake Town Square, one of our existing wholly-owned
multi-tenant retail operating properties, located in Southlake, Texas. In addition, we paid $5,750 to acquire a 44,000 square foot
parcel at Lakewood Towne Center, one of our existing wholly-owned multi-tenant retail operating properties, located in Lakewood,
Washington. We also paid $10,350 to acquire the fee interest in Bed Bath & Beyond Plaza, one of our existing wholly-owned
multi-tenant retail operating properties, located in Miami, Florida that was previously subject to a ground lease with a third party.
Subsequent to December 31, 2014, we have continued to execute on our investment strategy by acquiring $284,285 of multi-tenant
retail assets in the Washington, D.C. MSA. In total for 2015, we expect to acquire approximately $400,000 to $450,000 of strategic
acquisitions in our target markets.
Dispositions
During the year ended December 31, 2014, we continued to pursue targeted dispositions of select non-strategic and non-core
properties. Consideration from dispositions totaled $323,689 and included the sales of 14 multi-tenant retail operating properties
aggregating 1,998,500 square feet for total consideration of $245,820, seven single-user retail operating properties aggregating
145,700 square feet for total consideration of $41,319, three single-user office and industrial properties aggregating 345,900 square
feet for total consideration of $35,850 and one outparcel for total consideration of $700.
Subsequent to December 31, 2014, we sold one single-user office property, which was classified as held for sale at December 31,
2014, for $17,233. During 2015, we expect to dispose of approximately $500,000 of non-strategic and non-core properties.
Capital Markets
On June 30, 2014, we issued $250,000 of unsecured notes to institutional investors in a private placement transaction, consisting
of $100,000 of notes with a seven-year term, priced at a fixed interest rate of 4.12%, and $150,000 of notes with a ten-year term,
priced at a fixed interest rate of 4.58%, resulting in an annual weighted average fixed interest rate of 4.40%. The proceeds were
25
used to pay down a portion of our unsecured revolving line of credit in anticipation of the repayment of future secured debt
maturities.
Additionally, during the year ended December 31, 2014, we continued to enhance our balance sheet flexibility by repaying and
defeasing mortgage debt, including prepaying certain longer dated maturities, in amounts totaling $179,465 (excluding $55 from
condemnation proceeds which were paid to the lender and scheduled principal payments of $17,554 related to amortizing loans).
We also repaid $165,000, net of borrowings, on our unsecured revolving line of credit. As discussed above, as part of the MS
Inland acquisitions, we assumed the joint venture’s in-place mortgage financing on the acquired properties of $141,698 at a weighted
average interest rate of 4.79%.
Distributions
We declared quarterly distributions totaling $1.75 per share of preferred stock and quarterly distributions totaling $0.6625 per
share of common stock during 2014.
Results of Operations
We believe that net operating income (NOI) is a useful measure of our operating performance. We define NOI as operating revenues
(rental income, tenant recovery income and other property income, excluding straight-line rental income, amortization of lease
inducements, amortization of acquired above and below market lease intangibles and lease termination fee income) less property
operating expenses (real estate tax expense and property operating expense, excluding straight-line ground rent expense,
amortization of acquired ground lease intangibles and straight-line bad debt expense). Other REITs may use different methodologies
for calculating NOI, and accordingly, our NOI may not be comparable to other REITs.
This measure provides an operating perspective not immediately apparent from operating income or net income (loss) attributable
to common shareholders as defined within GAAP. We use NOI to evaluate our performance on a property-by-property basis because
NOI allows us to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by property, have
on our operating results. However, NOI should only be used as an alternative measure of our financial performance. For reference
and as an aid in understanding our computation of NOI, a reconciliation of NOI to net income (loss) attributable to common
shareholders as computed in accordance with GAAP has been presented.
Comparison of the Years Ended December 31, 2014 and 2013
The following table presents operating information for our same store portfolio consisting of 197 operating properties acquired or
placed in service and stabilized prior to January 1, 2013, along with a reconciliation to net operating income. The number of
properties in our same store portfolio decreased to 197 as of December 31, 2014 from 223 as of December 31, 2013 as a result of
the following:
•
•
•
•
•
the sale of 23 same store investment properties during the year ended December 31, 2014;
two same store investment properties classified as held for sale as of December 31, 2014;
one investment property changing categorization from same store to “Other investment properties” as we began activities
in anticipation of a redevelopment, which had a significant impact to property net operating income during 2014; and
an outparcel at one of our same store investment properties previously counted as a separate property was combined with
the related shopping center, resulting in a reduction of one to our total property count;
partially offset by
one former development property changing categorization to same store from “Other investment properties” because it
was part of our operating property portfolio for both periods presented.
The sale of Riverpark Phase IIA on March 11, 2014 did not impact the number of same store properties as it was classified as held
for sale as of December 31, 2013 and is presented in discontinued operations.
The properties and financial results reported in “Other investment properties” primarily include the properties acquired during
2013 and 2014, our development properties, a property where we began activities during 2014 in anticipation of a future
redevelopment as noted above, the investment properties that were sold or held for sale in 2014 that did not qualify for discontinued
26
operations treatment and the historical ground rent expense related to an existing same store investment property that was subject
to a ground lease with a third party prior to our acquisition of the fee interest during 2014.
2014
2013
Change
Percentage
Operating revenues:
Same store investment properties (197 properties):
Rental income
Tenant recovery income
Other property income
Other investment properties:
Rental income
Tenant recovery income
Other property income
Operating expenses:
Same store investment properties (197 properties):
Property operating expenses
Real estate taxes
Other investment properties:
Property operating expenses
Real estate taxes
Net operating income from continuing operations:
Same store investment properties
Other investment properties
Total net operating income from continuing operations
Other income (expense):
Straight-line rental income, net
Amortization of acquired above and below market lease intangibles, net
Amortization of lease inducements
Lease termination fees
Straight-line ground rent expense
Amortization of acquired ground lease intangibles
Depreciation and amortization
Provision for impairment of investment properties
General and administrative expenses
Gain on extinguishment of other liabilities
Equity in loss of unconsolidated joint ventures, net
Gain on sale of joint venture interest
Gain on change in control of investment properties
Interest expense
Other income, net
Total other expense
Income (loss) from continuing operations
Discontinued operations:
(Loss) income, net
Gain on sales of investment properties
Income from discontinued operations
Gain on sales of investment properties
Net income
Net income attributable to the Company
Preferred stock dividends
$
$
$
395,800
96,130
6,749
72,734
19,589
795
(77,114)
(65,339)
(16,355)
(13,434)
356,226
63,329
419,555
4,781
2,076
(707)
2,667
(3,889)
560
(215,966)
(72,203)
(34,229)
4,258
(2,088)
—
24,158
(133,835)
5,459
(418,958)
386,962
91,295
6,759
46,287
10,667
286
(76,287)
(63,758)
(9,082)
(7,433)
344,971
40,725
385,696
(381)
976
(253)
8,605
(3,486)
93
(222,710)
(59,486)
(31,533)
—
(1,246)
17,499
5,435
(146,805)
4,741
(428,551)
8,838
4,835
(10)
26,447
8,922
509
(827)
(1,581)
(7,273)
(6,001)
11,255
22,604
33,859
5,162
1,100
(454)
(5,938)
(403)
467
6,744
(12,717)
(2,696)
4,258
(842)
(17,499)
18,723
12,970
718
9,593
2.3
5.3
(0.1)
(1.1)
(2.5)
3.3
8.8
2.2
597
(42,855)
43,452
(148)
655
507
42,196
43,300
43,300
(9,450)
33,850
$
9,396
41,279
50,675
5,806
13,626
13,626
(9,450)
4,176
$
(9,544)
(40,624)
(50,168)
36,390
29,674
29,674
—
29,674
Net income attributable to common shareholders
$
Same store net operating income increased $11,255, or 3.3%, primarily due to the following:
•
•
rental income increased $8,838 primarily due to an increase of $5,364 from occupancy growth and $3,691 from contractual
rent increases and re-leasing spreads, partially offset by negotiated rent reductions and co-tenancy provisions in certain
leases; and
total operating expenses, net of tenant recovery income, decreased $2,427 primarily as a result of a decrease in certain
non-recoverable operating expenses, including bad debt expense.
27
In 2015, we expect same store net operating income growth to moderate in part due to anticipated strategic remerchandising efforts
at some of our same store properties.
Total net operating income increased $33,859, or 8.8%, primarily due to an increase of $28,937 in net operating income related
to the properties acquired during 2013 and 2014 and the increase of $11,255 from the same store portfolio described above, partially
offset by a decrease of $7,459 in net operating income related to the properties sold in 2014.
Other income (expense). Total other expense decreased $9,593, or 2.2%, primarily due to:
•
an $18,723 increase in gain on change in control of investment properties associated with the dissolutions of our MS
Inland and RC Inland L.P. (RioCan) unconsolidated joint ventures during 2014 and 2013, respectively (see Note 11 to
the accompanying consolidated financial statements);
•
a $12,970 decrease in interest expense primarily consisting of:
•
•
•
•
an $11,722 decrease in interest on mortgages payable due to the repayment of mortgage debt;
a $2,432 decrease in write-offs of loan fees primarily due to the 2013 repayment of the IW JV senior and junior
mezzanine notes payable and a $1,422 decrease in interest on notes payable as a result of this repayment; and
a $1,851 increase in the amortization of mortgage premium resulting from the assumption of mortgages payable in
connection with the dissolutions of our MS Inland and RioCan unconsolidated joint ventures during 2014 and 2013,
respectively;
partially offset by
a $5,495 increase in interest expense due to the issuance of $250,000 of unsecured notes in a private placement
transaction.
a $6,744 decrease in depreciation and amortization primarily due to the write-off of assets demolished as part of
redevelopment efforts at two operating properties during 2013 and the impact of 2014 dispositions, partially offset by the
incremental increase due to the acquisition of properties in 2013 and 2014;
partially offset by
a $17,499 decrease in gain on sale of joint venture interest associated with the dissolution of our RioCan unconsolidated
joint venture during 2013 (see Note 11 to the accompanying consolidated financial statements); and
a $12,717 increase in provision for impairment of investment properties in continuing operations. Based on the results
of our evaluations for impairment (see Notes 15 and 16 to the accompanying consolidated financial statements), we
recognized impairment charges in continuing operations of $72,203 and $59,486 for the years ended December 31, 2014
and 2013, respectively.
•
•
•
During 2015, we expect general and administrative expenses to increase primarily due to higher expected compensation expense.
Discontinued operations. We elected to early adopt the revised discontinued operations pronouncement effective January 1, 2014.
The revised pronouncement limits what qualifies for discontinued operations treatment and requires prospective application to all
dispositions or assets classified as held for sale subsequent to adoption. One property, Riverpark Phase IIA, was classified as held
for sale as of December 31, 2013, and, therefore, qualified for discontinued operations treatment under the previous standard. No
additional properties qualified for discontinued operations treatment during the year ended December 31, 2014. Discontinued
operations for the year ended December 31, 2013 consists of 20 properties that were sold during the year ended December 31,
2013 and one property classified as held for sale as of December 31, 2013, including 12 multi-tenant retail properties, six single-
user retail properties, two single-user office properties and one single-user industrial property. The 2013 dispositions aggregated
2,833,900 square feet for consideration totaling $328,045 during the year ended December 31, 2013.
Comparison of the Years Ended December 31, 2013 to 2012
The following table presents operating information for the properties that were included in our same store portfolio for the periods
presented, which consists of 223 operating properties acquired or placed in service prior to January 1, 2012, including those
properties that were sold subsequent to December 31, 2013 that did not qualify for discontinued operations treatment, along with
a reconciliation to net operating income.
28
Operating revenues:
Same store investment properties (223 properties):
Rental income
Tenant recovery income
Other property income
Other investment properties:
Rental income
Tenant recovery income
Other property income
Operating expenses:
Same store investment properties (223 properties):
Property operating expenses
Real estate taxes
Other investment properties:
Property operating expenses
Real estate taxes
Net operating income:
Same store investment properties
Other investment properties
Total net operating income
Other (expense) income:
Straight-line rental income, net
Amortization of acquired above and below market lease intangibles, net
Amortization of lease inducements
Lease termination fees
Straight-line ground rent expense
Amortization of acquired ground lease intangibles
Depreciation and amortization
Provision for impairment of investment properties
General and administrative expenses
Gain on extinguishment of debt
Equity in loss of unconsolidated joint ventures, net
Gain on sale of joint venture interest
Gain on change in control of investment properties
Interest expense
Co-venture obligation expense
Recognized gain on marketable securities
Other income, net
Total other expense
Loss from continuing operations
Discontinued operations:
Income (loss), net
Gain on sales of investment properties, net
Income from discontinued operations
Gain on sales of investment properties, net
Net income (loss)
Net income (loss) attributable to the Company
Preferred stock dividends
Net income (loss) attributable to common shareholders
$
2013
2012
Change
Percentage
$
$
424,038
99,881
6,992
416,196
99,714
7,249
$
7,842
167
(257)
5,044
1,275
9
3,007
(822)
(1,111)
(1,137)
9,937
4,080
14,017
(1,567)
335
(196)
7,380
(235)
93
(14,052)
(58,163)
(4,655)
(3,879)
5,061
17,499
5,435
24,490
3,300
(25,840)
2,490
(42,504)
1.9
0.2
(3.5)
3.5
(1.2)
2.7
3.8
(11.0)
9,211
2,081
53
(83,213)
(69,363)
(2,156)
(1,828)
378,335
7,361
385,696
(381)
976
(253)
8,605
(3,486)
93
(222,710)
(59,486)
(31,533)
—
(1,246)
17,499
5,435
(146,805)
—
—
4,741
(428,551)
4,167
806
44
(86,220)
(68,541)
(1,045)
(691)
368,398
3,281
371,679
1,186
641
(57)
1,225
(3,251)
—
(208,658)
(1,323)
(26,878)
3,879
(6,307)
—
—
(171,295)
(3,300)
25,840
2,251
(386,047)
(42,855)
(14,368)
(28,487)
9,396
41,279
50,675
5,806
13,626
13,626
(9,450)
4,176
$
(24,063)
30,141
6,078
7,843
(447)
(447)
(263)
(710)
$
33,459
11,138
44,597
(2,037)
14,073
14,073
(9,187)
4,886
Same store net operating income increased $9,937, or 2.7%, primarily due to the following:
•
•
rental income increased $7,842 primarily due to an increase of $4,052 from occupancy growth and $4,051 from contractual
rent increases and re-leasing spreads; and
total operating expenses, net of tenant recovery income, decreased $2,352 primarily as a result of a decrease in certain
non-recoverable operating expenses, partially offset by negative adjustments from the common area maintenance
reconciliation process in 2013 and an increase in bad debt expense.
29
Total net operating income increased $14,017, or 3.8%, primarily due to the increase of $9,937 from the same store portfolio
described above and an increase of $4,014 in net operating income related to the properties acquired during 2013.
Other (expense) income. Total other expense increased $42,504, or 11.0%, primarily due to:
•
•
•
a $58,163 increase in provision for impairment of investment properties in continuing operations. Based on the results
of our evaluations for impairment (see Notes 15 and 16 to the accompanying consolidated financial statements), we
recognized impairment charges in continuing operations of $59,486 and $1,323 for the years ended December 31, 2013
and 2012, respectively;
a $25,840 decrease in recognized gain on marketable securities due to the liquidation of our marketable securities portfolio
in 2012; and
a $14,052 increase in depreciation and amortization primarily due to the write-off of assets demolished as part of
redevelopment efforts at two operating properties during 2013;
partially offset by
•
a $24,490 decrease in interest expense primarily consisting of:
•
•
•
•
•
a $22,964 decrease in interest on mortgages payable and construction loans primarily due to the repayment of mortgage
debt;
a $15,617 decrease in interest on notes payable due to the repayment of notes payable with an aggregate balance of
$138,900 and a weighted average interest rate of 12.62%; and
a $3,599 decrease in interest on our credit facility due to lower interest rates following the May 2013 amendment
and restatement of the facility;
partially offset by
the 2013 payment of $6,250 in prepayment penalties and non-cash loan fee write-offs of $2,492 related to the
repayment of the IW JV senior and junior mezzanine notes; and
an $8,854 net decrease in mortgage premium amortization related to the repayment of a cross-collateralized pool of
mortgages in 2012.
•
•
a $17,499 increase in gain on sale of joint venture interest associated with the dissolution of our RioCan unconsolidated
joint venture during 2013 (see Note 11 to the accompanying consolidated financial statements); and
a $7,380 increase in lease termination fees primarily due to termination fees of $7,135 received from four tenants in the
fourth quarter of 2013.
Discontinued operations. Discontinued operations consists of amounts related to one, 20 and 31 properties that were sold during
the years ended December 31, 2014, 2013 and 2012. The one property that was sold in 2014 was classified as held for sale as of
December 31, 2013.
Funds From Operations
Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts,
or NAREIT, an industry trade group, has promulgated a performance measure known as FFO. As defined by NAREIT, FFO means
net income (loss) computed in accordance with GAAP, excluding gains (or losses) from sales of depreciable real estate, plus
depreciation and amortization and impairment charges on depreciable real estate, including amounts from continuing and
discontinued operations as well as adjustments for unconsolidated joint ventures in which the reporting entity holds an interest.
We have adopted the NAREIT definition in our computation of FFO. Management believes that, subject to the following limitations,
FFO provides a basis for comparing our performance and operations to those of other REITs.
We define Operating FFO as FFO excluding the impact of discrete non-operating transactions and other events which we do not
consider representative of the comparable operating results of our core business platform, our real estate operating portfolio.
Specific examples of discrete non-operating transactions and other events include, but are not limited to, the financial statement
impact of gains or losses associated with the early extinguishment of debt or other liabilities, actual or anticipated settlement of
litigation involving the Company, and impairment charges to write down the carrying value of assets other than depreciable real
estate, which are otherwise excluded from our calculation of FFO.
30
We believe that FFO and Operating FFO, which are non-GAAP performance measures, provide additional and useful means to
assess the operating performance of REITs. Neither FFO nor Operating FFO represent alternatives to “Net Income” as an indicator
of our performance or “Cash Flows from Operating Activities” as determined by GAAP as a measure of our capacity to fund cash
needs, including the payment of dividends. Further comparison of our presentation of Operating FFO to similarly titled measures
for other REITs may not necessarily be meaningful due to possible differences in definition and application by such REITs.
FFO and Operating FFO are calculated as follows:
Net income (loss) attributable to common shareholders
Depreciation and amortization
Provision for impairment of investment properties
Gain on sales of investment properties (a)
FFO
Impact on earnings from the early extinguishment of debt, net
Recognized gain on marketable securities
Joint venture investment impairment
Excise tax accrual
Reversal of excise tax accrual
Provision for hedge ineffectiveness
Gain on extinguishment of other liabilities
Other
Operating FFO
2014
2013
2012
$
$
$
33,850
216,676
72,203
(67,009)
255,720
10,479
—
—
—
(4,594)
12
(4,258)
(199)
257,160
$
$
$
4,176
241,152
92,319
(70,996)
266,651
(15,914)
—
1,834
—
—
(912)
(3,511)
(1,349)
246,799
$
$
$
(710)
247,109
27,369
(37,984)
235,784
(10,860)
(25,840)
—
4,594
—
623
—
(1,677)
202,624
(a) Gain on sales of investment properties for the year ended December 31, 2014 includes the gain on change in control of investment properties
of $24,158 recognized pursuant to the dissolution of our joint venture arrangement with our partner in our MS Inland unconsolidated joint
venture on June 5, 2014. Gain on sales of investment properties for the year ended December 31, 2013 includes the gain on sale of joint
venture interest of $17,499 and the gain on change in control of investment properties of $5,435 recognized pursuant to the dissolution of
our joint venture arrangement with our partner in our RioCan unconsolidated joint venture on October 1, 2013.
Liquidity and Capital Resources
We anticipate that cash flows from the below-listed sources will provide adequate capital for the next 12 months and beyond for
all scheduled principal and interest payments on our outstanding indebtedness, including maturing debt, current and anticipated
tenant allowance or other capital obligations, the shareholder distributions required to maintain our REIT status and compliance
with the financial covenants of our unsecured credit facility and unsecured notes.
Our primary expected sources and uses of liquidity are as follows:
SOURCES
USES
Operating cash flow
Cash and cash equivalents
Available borrowings under our unsecured revolving
line of credit
Proceeds from asset dispositions
Proceeds from capital markets transactions
Short-Term:
Tenant allowances and leasing costs
Improvements made to individual properties that are not
recoverable through common area maintenance charges to tenants
Debt repayment requirements
Distribution payments
Acquisitions
Long-Term:
Major redevelopment, renovation or expansion activities
New development
We have made substantial progress over the last several years in strengthening our balance sheet and addressing debt maturities.
This has been accomplished through a combination of the repayment or refinancing of maturing debt, which has been funded
primarily through dispositions of assets and capital markets transactions, including the completion of a public offering and listing
of our Class A common stock on the NYSE, the completion of a public offering of our Series A preferred stock, the establishment
and issuance of stock pursuant to our ATM equity program and the issuance of $250,000 of unsecured notes to institutional investors
in a private placement transaction. As of December 31, 2014, we had $391,559 of debt scheduled to mature through the end of
2015, which we plan on satisfying through a combination of proceeds from asset dispositions, capital markets transactions and
our unsecured revolving line of credit.
31
The table below summarizes our consolidated indebtedness as of December 31, 2014:
Debt
Fixed rate mortgages payable (a)
Variable rate construction loan
Total mortgages payable
Premium, net of accumulated amortization
Discount, net of accumulated amortization
Total mortgages payable, net
Unsecured notes payable:
Series A senior notes
Series B senior notes
Total unsecured notes payable
Unsecured credit facility:
Fixed rate portion of term loan (b)
Variable rate portion of term loan
Variable rate revolving line of credit
Total unsecured credit facility
Aggregate
Principal
Amount
Weighted
Average
Interest Rate
Weighted
Average Years
to Maturity
$
1,616,063
14,900
1,630,963
3,972
(470)
1,634,465
100,000
150,000
250,000
300,000
150,000
—
450,000
6.03%
2.44%
5.99%
4.12%
4.58%
4.40%
1.99%
1.62%
1.67%
1.87%
5.03%
4.0 years
0.8 years
3.9 years
6.5 years
9.5 years
8.3 years
3.4 years
3.4 years
2.4 years
3.4 years
4.3 years
Total consolidated indebtedness, net
$
2,334,465
(a) Includes $8,124 of variable rate mortgage debt that was swapped to a fixed rate as of December 31, 2014. Excludes a mortgage
payable of $8,075 associated with one investment property classified as held for sale as of December 31, 2014.
(b) Reflects $300,000 of variable rate debt that matures in May 2018 that is swapped to a fixed rate through February 2016.
Mortgages Payable
During the year ended December 31, 2014, we repaid and defeased mortgages payable in the total amount of $179,465 (excluding
$55 from condemnation proceeds which were paid to the lender and scheduled principal payments of $17,554 related to amortizing
loans). The loans repaid and defeased during the year ended December 31, 2014 had a weighted average fixed interest rate of
6.08%. In addition, during the year ended December 31, 2014, as part of the MS Inland acquisitions, we assumed the in-place
mortgage financing on the acquired properties of $141,698 at a weighted average interest rate of 4.79%.
Unsecured Notes Payable
On June 30, 2014, we issued $250,000 of unsecured notes in a private placement transaction pursuant to a note purchase agreement
we entered into on May 16, 2014 with various institutional investors. The proceeds were used to pay down a portion of our unsecured
revolving line of credit in anticipation of the repayment of future secured debt maturities.
The following table summarizes our unsecured notes payable as of December 31, 2014:
Unsecured Notes Payable
Series A senior notes
Series B senior notes
Maturity Date
June 30, 2021
June 30, 2024
Principal
Balance
$
$
100,000
150,000
250,000
Total
Interest Rate/
Weighted Average
Interest Rate
4.12%
4.58%
4.40%
The note purchase agreement contains customary representations, warranties and covenants, and events of default. Pursuant to the
terms of the note purchase agreement, we are subject to various financial covenants, some of which are based upon the financial
covenants in effect in our primary credit facility, including the requirement to maintain the following: (i) maximum unencumbered,
secured and consolidated leverage ratios; (ii) minimum interest coverage and unencumbered interest coverage ratios; and (iii) a
minimum consolidated net worth. As of December 31, 2014, management believes we were in compliance with the financial
covenants and default provisions under the note purchase agreement.
32
Credit Facility
On May 13, 2013, we entered into our third amended and restated unsecured credit agreement with a syndicate of financial
institutions to provide for an unsecured credit facility aggregating $1,000,000, consisting of a $550,000 unsecured revolving line
of credit and a $450,000 unsecured term loan (collectively, the unsecured credit facility). The unsecured credit facility contains
an accordion feature that allows us to increase the availability thereunder to up to $1,450,000 in certain circumstances.
The unsecured credit facility is currently priced on a leverage grid at a rate of London Interbank Offered Rate (LIBOR) plus a
margin ranging from 1.50% to 2.05%, plus a quarterly unused fee ranging from 0.25% to 0.30% depending on the undrawn amount,
for the unsecured revolving line of credit and LIBOR plus a margin ranging from 1.45% to 2.00% for the unsecured term loan.
On January 27, 2014, we received our first of two investment grade credit ratings. In accordance with the unsecured credit agreement,
we may elect to convert to an investment grade pricing grid. Upon making such an election and depending on our credit rating,
the interest rate for the unsecured revolving line of credit would equal LIBOR plus a margin ranging from 0.90% to 1.70%, plus
a facility fee ranging from 0.15% to 0.35%, and for the unsecured term loan, LIBOR plus a margin ranging from 1.05% to 2.05%.
As of December 31, 2014, making such an election would have resulted in a higher interest rate and, as such, we have not made
the election to convert to an investment grade pricing grid.
The following table summarizes our unsecured credit facility as of December 31, 2014:
Credit Facility
Term loan - fixed rate portion (a)
Term loan - variable rate portion
Revolving line of credit - variable rate
Maturity Date
May 11, 2018
May 11, 2018
May 12, 2017 (b)
Balance
300,000
150,000
—
450,000
$
$
Total
Interest Rate/
Weighted Average
Interest Rate
1.99%
1.62%
1.67%
1.87%
(a) $300,000 of the term loan has been swapped to a fixed rate of 0.53875% plus a margin based on a leverage grid ranging from 1.45%
to 2.00% through February 24, 2016. The applicable margin was 1.45% as of December 31, 2014.
(b) We have a one year extension option on the unsecured revolving line of credit, which we may exercise as long as we are in compliance
with the terms of the unsecured credit agreement and we pay an extension fee equal to 0.15% of the commitment amount being extended.
The unsecured credit agreement contains customary representations, warranties and covenants, and events of default. Pursuant to
the terms of the unsecured credit agreement, we are subject to various financial covenants, including the requirement to maintain
the following: (i) maximum unencumbered, secured and consolidated leverage ratios, (ii) minimum fixed charge and unencumbered
interest coverage ratios, and (iii) a minimum consolidated net worth requirement. As of December 31, 2014, management believes
we were in compliance with the financial covenants and default provisions under the unsecured credit agreement.
33
Debt Maturities
The following table shows the scheduled maturities and principal amortization of our indebtedness as of December 31, 2014, for
each of the next five years and thereafter and the weighted average interest rates by year, as well as the fair value of our indebtedness
as of December 31, 2014. The table does not reflect the impact of any 2015 debt activity.
2015
2016
2017
2018
2019
Thereafter
Total
Fair Value
Debt:
Fixed rate debt:
Mortgages payable (a)
$ 376,659
$ 67,736
$ 321,126
$ 12,414
$ 502,882
$ 335,246
$1,616,063
$ 1,734,771
Unsecured credit facility - fixed rate
portion of term loan (b)
Unsecured notes payable
Total fixed rate debt
—
—
—
—
—
—
300,000
—
—
—
376,659
67,736
321,126
312,414
502,882
—
250,000
585,246
300,000
250,000
301,001
258,360
2,166,063
2,294,132
Variable rate debt:
Construction loan
Unsecured credit facility
Total variable rate debt
Total debt (c)
Weighted average interest rate on debt:
14,900
—
—
—
—
—
14,900
$ 391,559
—
$ 67,736
—
$ 321,126
—
150,000
150,000
$ 462,414
—
—
—
—
14,900
150,000
14,900
150,501
—
$ 502,882
—
$ 585,246
164,900
$2,330,963
165,401
$ 2,459,533
Fixed rate debt
Variable rate debt
Total
5.59%
2.44%
5.47%
5.06%
—
5.06%
5.53%
—
5.53%
2.18%
1.62%
2.00%
7.50%
—
7.50%
4.72%
—
4.72%
5.28%
1.69%
5.03%
(a) Includes $8,124 of variable rate mortgage debt that was swapped to a fixed rate as of December 31, 2014. Excludes mortgage premium of
$3,972 and discount of $(470), net of accumulated amortization, which was outstanding as of December 31, 2014 and a mortgage payable
of $8,075 associated with one investment property classified as held for sale as of December 31, 2014.
(b) $300,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through February 24, 2016. The swap effectively converts
one-month floating rate LIBOR to a fixed rate of 0.53875% over the term of the swap.
(c) As of December 31, 2014, the weighted average years to maturity of consolidated indebtedness was 4.3 years.
We plan on addressing our mortgages payable maturities through a combination of proceeds from asset dispositions, capital markets
transactions and our unsecured revolving line of credit.
Distributions and Equity Transactions
Our distributions of current and accumulated earnings and profits for U.S. federal income tax purposes are taxable to shareholders,
generally, as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction
of the shareholders’ basis in the shares to the extent thereof (non-dividend distributions) and thereafter as taxable gain. We intend
to continue to qualify as a REIT for U.S. federal income tax purposes. The Code generally requires that a REIT annually distributes
to its shareholders at least 90% of its taxable income, prior to the deduction for dividends paid and excluding net capital gains.
The Code imposes tax on any taxable income, including net capital gains, retained by a REIT.
To satisfy the requirements for qualification as a REIT and generally not be subject to U.S. federal income and excise tax, we
intend to make regular quarterly distributions of all, or substantially all, of our taxable income to shareholders. Our future
distributions will be at the sole discretion of our board of directors. When determining the amount of future distributions, we expect
that our board of directors will consider, among other factors, (i) the amount of cash generated from our operating activities, (ii) our
expectations of future cash flow, (iii) our determination of near-term cash needs for debt repayments, acquisitions of new properties,
redevelopment opportunities and existing or future share repurchases, (iv) the timing of significant re-leasing activities and the
establishment of additional cash reserves for anticipated tenant allowances and general property capital improvements, (v) our
ability to continue to access additional sources of capital, (vi) the amount required to be distributed to maintain our status as a
REIT and to reduce any income and excise taxes that we otherwise would be required to pay, (vii) the amount required to declare
and pay in cash, or set aside for the payment of, the dividends on our Series A preferred stock for all past dividend periods, (viii) any
limitations on our distributions contained in our unsecured credit facility, which limits our distributions to the greater of 95% of
FFO, as defined in the unsecured credit agreement (which equals FFO, as set forth in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Funds From Operations,” excluding gains or losses from extraordinary items,
impairment charges not already excluded from FFO and other non-cash charges) or the amount necessary for us to maintain our
34
qualification as a REIT. Under certain circumstances, we may be required to make distributions in excess of cash available for
distribution in order to meet the REIT distribution requirements.
On March 7, 2013, we established an ATM equity program under which we may sell shares of our Class A common stock, having
an aggregate offering price of up to $200,000, from time to time. The net proceeds are expected to be used for general corporate
purposes, which may include repaying debt, including our unsecured revolving line of credit, and funding acquisitions. We did
not sell any shares under our ATM equity program during the year ended December 31, 2014. During the year ended December 31,
2013, 5,547 shares were issued at a weighted average price per share of $15.29 for proceeds of $83,527, net of commissions and
offering costs. As of December 31, 2014, we had Class A common shares having an aggregate offering price of up to $115,165
remaining available for sale under our ATM equity program.
Capital Expenditures and Development Activity
We anticipate that obligations related to capital improvements to our properties can be met with cash flows from operations and
working capital.
The following table provides summary information regarding our properties under development as of December 31, 2014, including
one consolidated joint venture and three wholly-owned properties. As of December 31, 2014, we did not have any significant
active construction ongoing at these properties, and, currently, we only intend to develop the remaining potential GLA to the extent
that we have pre-leased substantially all of the space to be developed.
Location
Property Name
Henderson, Nevada
Billings, Montana
Nashville, Tennessee
Henderson, Nevada
Green Valley Crossing
South Billings Center
Bellevue Mall
Lake Mead Crossing
Our
Ownership
Percentage
50.0%
100.0%
100.0%
100.0%
Carrying Value
$
Construction
Loan Balance
14,900
—
—
—
14,900
$
3,080 (a)
5,154
23,467
10,860
42,561 (b) $
Total
$
(a) Total excludes $29,705 of costs, net of accumulated depreciation, placed in service, $4,047 of which was placed in service during the year
ended December 31, 2014 based upon substantial completion of construction of an approximately 25,000 square foot anchor space leased
to a grocer tenant.
(b) There is no income attributable to developments in progress.
Asset Dispositions
Over the past three years, our asset sales were an integral component of our long-term portfolio repositioning and deleveraging
efforts. The following table highlights the results of our asset dispositions during 2014, 2013 and 2012:
2014 Dispositions
2013 Dispositions
2012 Dispositions
Number of
Assets Sold
Square
Footage
Consideration
Aggregate
Proceeds,
Net (a)
Mortgage Debt
Extinguished (b)
24
20
31
2,490,100
2,833,900
4,420,300
$
$
$
322,989
328,045
475,631
$
$
$
314,377
320,574
211,381
$
$
$
9,713
—
254,306
(a) Represents total consideration net of transaction costs.
(b) Excludes mortgages payable repaid prior to disposition transactions.
In addition to the transactions presented in the preceding table, we (i) received net proceeds of $1,023, $6,192 and $11,203 from
other transactions, including condemnation awards, earnouts and the sale of parcels at certain of our properties, and (ii) generated
aggregate net proceeds of $0, $108,257 and $5,227, on a pro-rata basis, from dispositions at our unconsolidated joint ventures
each during the years ended December 31, 2014, 2013 and 2012, respectively. The pro rata net proceeds of $108,257 from
dispositions at our unconsolidated joint ventures in 2013 includes $95,502 related to the sale of our 20% ownership interest in
eight properties owned by the RioCan joint venture in connection with the dissolution of our joint venture arrangement on October
1, 2013.
35
Asset Acquisitions
During the fourth quarter of 2013, we began executing on our investment strategy of acquiring high quality, multi-tenant retail
assets within our target markets. The following table highlights our asset acquisitions during 2014, 2013 and 2012:
Number of
Assets Acquired
Square
Footage
Acquisition
Price
Pro Rata
Acquisition
Price (a)
Mortgage
Debt
Pro Rata
Mortgage
Debt (a)
2014 Acquisitions (b)
2013 Acquisitions
2012 Acquisitions (c)
11
7
1
1,339,400
1,088,100
45,000
$
$
$
348,061
317,213
2,806
$
$
$
289,561
292,256
$
$
141,698
67,864
$
$
— $
— $
113,358
54,291
—
(a) Includes amounts associated with the 2014 acquisition of our partner’s 80% ownership interest in our MS Inland unconsolidated joint venture
and the 2013 acquisition of our partner’s 80% ownership interest in five properties owned by our RioCan unconsolidated joint venture, as
well as acquisitions from unaffiliated third parties.
(b) We acquired the fee interest in our Bed Bath & Beyond Plaza multi-tenant retail operating property that was previously subject to a ground
lease with an unaffiliated third party, a single-user outparcel located at our Southlake Town Square multi-tenant retail operating property
that was subject to a ground lease with us prior to the transaction, and a parcel located at our Lakewood Towne Center multi-tenant retail
operating property. The total number of properties in our portfolio was not affected by these transactions.
(c) We acquired from an unaffiliated third party a fully occupied building located at our Hickory Ridge multi-tenant retail operating property
that was subject to a ground lease with us prior to the transaction. As a result, the total number of properties in our portfolio was not affected.
Summary of Cash Flows
Cash provided by operating activities
Cash provided by investing activities
Cash (used in) financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, at beginning of year
Cash and cash equivalents, at end of year
Cash Flows from Operating Activities
Year Ended December 31,
2013
Impact
2014
$
$
254,014
77,900
(277,812)
54,102
58,190
112,292
$
$
239,632
103,212
(422,723)
(79,879)
138,069
58,190
$
14,382
(25,312)
144,911
133,981
Cash flows from operating activities consist primarily of net income from property operations, adjusted for the following, among
others, (i) depreciation and amortization, (ii) provision for impairment of investment properties, (iii) gains on sales of investment
properties, joint venture interest and change in control of investment properties, and (iv) gains on extinguishment of debt and other
liabilities. Net cash provided by operating activities in 2014 increased $14,382 primarily due to the following:
•
•
a $17,330 reduction in cash paid for interest;
a $13,464 increase in NOI (including an increase in NOI from continuing operations of $33,859, partially offset by a
decrease of $20,395 in NOI from discontinued operations); and
•
a $4,407 decrease in cash paid for leasing fees and inducements;
partially offset by
a $13,116 decrease in net lease termination fees received;
a $5,745 decrease in distributions on investments in unconsolidated joint ventures; and
a $2,066 decrease in joint venture management fees received.
•
•
•
Cash Flows from Investing Activities
Cash flows from investing activities consist primarily of proceeds from the sales of investment properties and joint venture interests,
net of cash paid to purchase investment properties and to fund capital expenditures and tenant improvements, in addition to changes
in restricted escrows. In comparing 2014 to 2013, the decrease in cash paid to purchase investment properties was offset by the
36
decrease in proceeds from the sale of a joint venture interest associated with the dissolution of our RioCan unconsolidated joint
venture during 2013 and the decrease in proceeds from the sales of investment properties. Net cash provided by investing activities
in 2014 decreased $25,312 primarily due to the following:
•
a $39,117 net change in restricted escrow activity, of which $22,600 relates to acquisition deposits made in 2014;
partially offset by
•
a $9,615 reduction in investment in unconsolidated joint ventures.
We will continue to execute on our investment strategy by disposing of certain non-strategic and non-core properties. The majority
of the proceeds from disposition activity in 2015 is expected to be redeployed into external growth initiatives, including strategic
acquisitions. In addition, tenant improvement costs associated with re-leasing vacant space and strategic remerchandising efforts
across the portfolio may continue to be significant.
Cash Flows from Financing Activities
Net cash used in financing activities primarily consists of credit facility repayments and principal payments on mortgages payable,
partially offset by proceeds from our credit facility and the issuance of debt instruments and equity securities. Net cash used in
financing activities in 2014 decreased $144,911 primarily due to the following:
•
•
•
•
a $379,626 decrease in principal payments on mortgages payable; and
a $250,000 increase in proceeds from the issuance of unsecured notes to institutional investors in a private placement
transaction in 2014;
partially offset by
a $400,000 decrease in net proceeds from our credit facility; and
an $84,835 decrease in proceeds from the issuance of common shares resulting from activity on our ATM equity program
in 2013.
We plan to continue to address our debt maturities through a combination of proceeds from asset dispositions, capital markets
transactions and our unsecured revolving line of credit.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual Obligations
The table below presents our obligations and commitments to make future payments under debt obligations and lease agreements
as of December 31, 2014 and does not reflect the impact of any 2015 activity:
Long-term debt (a)
Fixed rate
Variable rate
Interest
Operating lease obligations (e)
Less than
1 year (b)
1-3
years (c)
3-5
years (d)
More than
5 years
Total
Payment due by period
$
$
376,659
14,900
112,826
8,440
512,825
$
$
388,862
—
174,689
16,655
580,206
$
$
815,296
150,000
131,986
17,201
1,114,483
$
$
585,246
—
81,987
519,964
1,187,197
$
$
2,166,063
164,900
501,488
562,260
3,394,711
(a) Amounts exclude mortgage premium of $3,972 and discount of $(470), net of accumulated amortization, that was outstanding as of
December 31, 2014 and a mortgage payable of $8,075 associated with one investment property classified as held for sale as of December 31,
2014. Fixed and variable rate amounts for each year include scheduled principal amortization payments. Interest payments related to variable
rate debt were calculated using interest rates as of December 31, 2014.
(b) We plan on addressing our 2015 mortgages payable maturities through a combination of proceeds from asset dispositions, capital markets
transactions and our unsecured revolving line of credit.
37
(c) Included in fixed rate debt is $8,124 of variable rate mortgage debt that has been swapped to a fixed rate through its maturity on September
30, 2016.
(d) Included in fixed rate debt is $300,000 of LIBOR-based debt which matures on May 11, 2018. We have swapped this portion of our unsecured
term loan to a fixed rate through February 24, 2016.
(e) We lease land under non-cancellable leases at certain of our properties expiring in various years from 2023 to 2090, not inclusive of any
available option period. In addition, unless we can purchase a fee interest in the underlying land or extend the terms of these leases before
or at their expiration, we will lose our interest in the improvements and the right to operate these properties. We lease office space under
non-cancellable leases expiring in various years from 2015 to 2023.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These
estimates and assumptions affect the reported amounts of assets and liabilities and the 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.
For example, significant estimates and assumptions have been made with respect to useful lives of assets; capitalization of
development costs; fair value measurements; provision for impairment, including estimates of holding periods, capitalization rates
and discount rates (where applicable); provision for income taxes; recoverable amounts of receivables; deferred taxes and initial
valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions.
Actual results could differ from those estimates.
Summary of Significant Accounting Policies
Critical Accounting Policies and Estimates
The following disclosure pertains to accounting policies and estimates we believe are most “critical” to the portrayal of our financial
condition and results of operations and require our most difficult, subjective or complex judgments. 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 trends, events or uncertainties known which were taken into consideration upon the application of
those policies and the likelihood that materially different amounts would be reported upon taking into consideration different
conditions and assumptions.
Acquisition of Investment Property
We allocate the purchase price of each acquired investment property based upon the estimated acquisition date fair value of the
individual assets acquired and liabilities assumed, which generally include land, building and other improvements, in-place lease
value, acquired above and below market lease intangibles, any assumed financing that is determined to be above or below market,
the value of customer relationships and goodwill, if any. Acquisition transaction costs are expensed as incurred and included within
“General and administrative expenses” in the accompanying consolidated statements of operations and other comprehensive
income (loss).
For tangible assets acquired, including land, building and other improvements, we consider available comparable market and
industry information in estimating acquisition date fair value. We allocate a portion of the purchase price to the estimated acquired
in-place lease value intangibles based on estimated lease execution costs for similar leases as well as lost rental payments during
an assumed lease-up period. We also evaluate each acquired lease as compared to current market rates. If an acquired lease is
determined to be above or below market, we allocate a portion of the purchase price to such above or below market leases based
upon the present value of the difference between the contractual lease payments and estimated market rent payments over the
remaining lease term. Renewal periods are included within the lease term in the calculation of above and below market lease
values if, based upon factors known at the acquisition date, market participants would consider it reasonably assured that the lessee
would exercise such options. Acquisition accounting fair value estimates, including the discount rate used, require us to consider
various factors, including, but not limited to, market knowledge, demographics, age and physical condition of the property,
geographic location, size and location of tenant spaces within the acquired investment property and tenant profile.
Impairment of Long-Lived Assets and Unconsolidated Joint Ventures
Our investment properties, including developments in progress, are reviewed for potential impairment at the end of each reporting
period or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. At the end of each
reporting period, we separately determine whether impairment indicators exist for each property. Examples of situations considered
to be impairment indicators for both operating properties and developments in progress include, but are not limited to:
38
•
•
•
•
•
•
•
•
a substantial decline in or continued low occupancy rate or cash flow;
expected significant declines in occupancy in the near future;
continued difficulty in leasing space;
a significant concentration of financially troubled tenants;
a change in anticipated holding period;
a cost accumulation or delay in project completion date significantly above and beyond the original development estimate;
a significant decrease in market price not in line with general market trends; and
any other quantitative or qualitative events or factors deemed significant by our management or board of directors.
If the presence of one or more impairment indicators as described above is identified at the end of a reporting period or at any
point throughout the year with respect to a property, the asset is tested for recoverability by comparing its carrying value to the
estimated future undiscounted cash flows. An investment property is considered to be impaired when the estimated future
undiscounted cash flows are less than its current carrying value. When performing a test for recoverability or estimating the fair
value of an impaired investment property, we make certain complex or subjective assumptions which include, but are not limited
to:
•
•
•
•
•
•
•
projected operating cash flows considering factors such as vacancy rates, rental rates, lease terms, tenant financial strength,
competitive positioning and property location;
estimated holding period or various potential holding periods when considering probability-weighted scenarios;
projected capital expenditures and lease origination costs;
estimated dates of construction completion and grand opening for developments in progress;
projected cash flows from the eventual disposition of an operating property or development in progress using a property-
specific capitalization rate;
comparable selling prices; and
a property-specific discount rate.
We did not have any unconsolidated joint ventures as of December 31, 2014. When we hold investments in unconsolidated joint
ventures, they are reviewed for potential impairment, in addition to impairment evaluations of the individual assets underlying
these investments, each reporting period or whenever events or changes in circumstances warrant such an evaluation.
To determine whether any identified impairment is other-than-temporary, we consider whether we have the ability and intent to
hold the investment until the carrying value is fully recovered. To the extent impairment has occurred, we will record an impairment
charge calculated as the excess of the carrying value of the asset over its estimated fair value.
Cost Capitalization, Depreciation and Amortization 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 included in the investment properties financial statement caption as an addition to building and improvements.
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 associated improvements and 15 years for site improvements and most other
capital improvements. Tenant improvements, leasing fees and acquired in-place lease value intangibles are amortized on a straight-
line basis over the life of the related lease as a component of depreciation and amortization expense. Acquired above and below
market lease intangibles are amortized on a straight-line basis over the life of the related lease, inclusive of renewal periods if
market participants would consider it reasonably assured that the lessee would exercise such options, as an adjustment to rental
income when we are the lessor. For acquired leases in which we are the lessee, any value attributable to above and below market
lease intangibles is amortized on a straight-line basis over the life of the related lease as an adjustment to property operating
expenses.
39
Development and Redevelopment Projects
We capitalize direct and certain indirect project costs incurred during the development or redevelopment period such as construction,
insurance, architectural, legal, interest and other financing costs and real estate taxes. At such time as the development or
redevelopment is considered substantially complete, the capitalization of certain indirect costs such as real estate taxes, interest
and financing costs ceases and all project-related costs included in developments in progress are reclassified to land and building
and other improvements. A project’s classification changes from development to operating when it is substantially completed and
held available for occupancy, but no later than one year from the completion of major construction activity. A property is considered
stabilized upon reaching 90% occupancy, but no later than one year from the date it was classified as operating, and is included
in our same store portfolio when it is stabilized for the periods presented.
Investment Properties Held for Sale
In determining whether to classify an investment property as held for sale, we consider 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, subject
only to terms that are usual and customary; (iii) we have initiated a program to locate a buyer; (iv) we believe that the sale of the
investment property is probable; (v) we are actively marketing the investment property for sale at a price that is reasonable in
relation to its current value, and (vi) actions required for us to complete the plan indicate that it is unlikely that any significant
changes will be made.
If all of the above criteria are met, we classify the investment property as held for sale. When these criteria are met, we suspend
depreciation (including depreciation for tenant improvements and building improvements) and amortization of acquired in-place
lease value intangibles and any above or below market lease intangibles and we record the investment property held for sale at
the lower of cost or net realizable value. The assets and liabilities associated with those investment properties that are classified
as held for sale are presented separately on the consolidated balance sheets for the most recent reporting period. Prior to our early
adoption of the revised discontinued operations pronouncement in 2014, if the operations and cash flow of the property had been,
or were upon consummation of such sale, eliminated from ongoing operations and we did not have significant continuing
involvement in the operations of the property, then the operations for the periods presented were classified in the consolidated
statements of operations and other comprehensive income (loss) as discontinued operations for all periods presented. However,
we elected to early adopt the revised discontinued operations pronouncement effective January 1, 2014, which limits what qualifies
for discontinued operations presentation. As a result, the investment properties that were sold or classified as held for sale during
2014, except for Riverpark Phase IIA, which was classified as held for sale as of December 31, 2013 and, therefore, qualified for
discontinued operations treatment under the previous standard, did not qualify for discontinued operations presentation and, as
such, are reflected in continuing operations on the accompanying consolidated statements of operations and other comprehensive
income (loss).
Partially-Owned Entities
If we determine that we are an owner in a variable interest entity (VIE) and we hold a controlling financial interest, then we will
consolidate the entity as the primary beneficiary. We assess our interests in variable interest entities on an ongoing basis to determine
whether or not we are a primary beneficiary. Partially-owned, non-variable interest joint ventures in which we have a controlling
financial interest are consolidated. Partially-owned, non-variable interest joint ventures in which we do not have a controlling
financial interest, but have the ability to exercise significant influence, will not be consolidated, but rather accounted for pursuant
to the equity method of accounting.
Derivative and Hedging Activities
Derivatives are recorded in the accompanying consolidated balance sheets at fair value within “Other liabilities.” We use interest
rate derivatives to manage differences in the amount, timing and duration of our known or expected cash payments principally
related to certain of our borrowings. We do not use derivatives for trading or speculative purposes. On the date that we enter into
a derivative, we may designate the derivative as a hedge against the variability of cash flows that are to be paid in connection with
a recognized liability. Subsequent changes in the fair value of a derivative designated as a cash flow hedge that is determined to
be highly effective are recorded in “Accumulated other comprehensive income” and are reclassified to interest expense as interest
payments are made on our variable rate debt. As of December 31, 2014, the balance in accumulated other comprehensive loss
relating to derivatives was $537. Any hedge ineffectiveness or changes in the fair value for any derivative not designated as a
hedge is reported in “Other income, net” in the accompanying consolidated statements of operations and other comprehensive
income (loss).
40
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 that the lessee is the owner, for
accounting purposes, of the tenant improvements, then the leased asset is the unimproved space and any tenant improvement
allowances funded under the lease are accounted for as lease inducements which are amortized as a reduction to the revenue
recognized over the term of the lease. In these circumstances, we commence revenue recognition when the lessee takes possession
of the unimproved space for the lessee to construct their own improvements. We consider a number of factors to evaluate whether
we or the lessee are 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;
• who constructs or directs the construction of the improvements, and
• whether the tenant or landlord is obligated to fund cost overruns.
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.
Rental income, for only those leases that have fixed and measurable rent escalations, is recognized on a straight-line basis over
the term of each lease. The difference between such rental income earned and the cash rent due under the provisions of a lease is
recorded as deferred rent receivable and is included as a component of “Accounts and notes receivable” in the accompanying
consolidated balance sheets.
Reimbursements from tenants for recoverable real estate taxes and operating expenses are accrued as revenue in the period the
applicable expenditures are incurred. We make certain assumptions and judgments in estimating the reimbursements at the end
of each reporting period.
We record lease termination income in “Other property income” upon execution of a termination letter agreement, when all of the
conditions of such agreement have been fulfilled, the tenant is no longer occupying the property and collectibility is reasonably
assured. Upon early lease termination, we may record losses related to recognized tenant specific intangibles and other assets or
adjust the remaining useful life of the assets if determined to be appropriate.
Our policy for percentage rental income is to defer recognition of contingent rental income until the specified target (i.e. breakpoint)
that triggers the contingent rental income is achieved.
Profits from sales of real estate are not recognized under the full accrual method unless a sale is consummated; the buyer’s initial
and continuing investments are adequate to demonstrate a commitment to pay for the property; our receivable, if applicable, is
not subject to future subordination; we have transferred to the buyer the usual risks and rewards of ownership; and we do not have
substantial continuing involvement with the property.
Accounts and Notes Receivable and Allowance for Doubtful Accounts
Accounts and notes receivable balances outstanding include base rents, tenant reimbursements and deferred rent receivables. An
allowance for the uncollectible portion of accounts receivable is determined on a tenant-specific basis through an analysis of
balances outstanding, historical bad debt levels, tenant creditworthiness and current economic trends. Additionally, estimates of
the expected recovery of pre-petition and post-petition claims with respect to tenants in bankruptcy are considered in assessing
the collectibility of the related receivables. As these factors change, the allowance is subject to revision and may impact our results
of operations. Management’s estimate of the collectibility of accounts and notes receivable is based on the best information available
to management at the time of evaluation.
41
Income Taxes
We have elected to be taxed as a REIT under Sections 856 through 860 of the Code. As a REIT, we generally will not be subject
to U.S. federal income tax on the taxable income we currently distribute to our shareholders.
We record a benefit, based on the GAAP measurement criteria, for uncertain income tax positions if the result of a tax position
meets a “more likely than not” recognition threshold.
Impact of Recently Issued Accounting Pronouncements
Effective January 1, 2014, companies are required to present unrecognized tax benefits as a reduction to deferred tax assets when
a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. To the extent none of these are available
at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be
combined with deferred tax assets. The adoption of this pronouncement did not have any effect on our consolidated financial
statements.
Effective January 1, 2015, with early adoption permitted effective January 1, 2014, the definition of discontinued operations has
been revised to limit what qualifies for this classification and presentation to disposals of components of a company that represent
strategic shifts that have, or will have, a major effect on a company’s operations and financial results. Required expanded disclosures
for disposals or disposal groups that qualify for discontinued operations treatment are intended to provide users of financial
statements with enhanced information about the assets, liabilities, revenues and expenses of such discontinued operations. In
addition, in accordance with this pronouncement, companies are required to disclose the pretax profit or loss of an individually
significant component that does not qualify for discontinued operations treatment. While the threshold for a disposal or disposal
group to qualify for discontinued operations treatment has been revised, this pronouncement retains the held for sale classification
and presentation concepts of previous authoritative literature. Accordingly, under this pronouncement, a disposal or disposal group
may qualify for held for sale classification but not meet the threshold for discontinued operations treatment. We elected to early
adopt this pronouncement effective January 1, 2014. The adoption, which is applied prospectively, is anticipated to substantially
reduce the number of our transactions, going forward, that qualify for discontinued operations as compared to historical results.
Except for Riverpark Phase IIA, which was classified as held for sale as of December 31, 2013 and, therefore, qualified for
discontinued operations treatment under the previous standard, the investment properties that were sold or held for sale during
2014 did not qualify for discontinued operations treatment and, as such, are reflected in continuing operations on the accompanying
consolidated statements of operations and other comprehensive income (loss).
Effective January 1, 2016, with early adoption permitted effective January 1, 2014, companies that grant their employees share-
based payments in which the terms of the award provide that a performance target which affects vesting could be achieved after
the requisite service period will be required to treat that feature as a performance condition. We elected to early adopt this
pronouncement effective January 1, 2014. The adoption of this pronouncement did not have any effect on our consolidated financial
statements.
Effective January 1, 2016, with early adoption permitted effective January 1, 2014, companies that issue hybrid financial instruments
in the form of a share will be required to consider all stated and implied substantive terms and features in evaluating whether the
host contract within the hybrid financial instrument is more akin to debt or to equity. The effects of initially adopting this
pronouncement should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of
a share. We elected to early adopt this pronouncement effective January 1, 2014. The adoption of this pronouncement did not have
any effect on our consolidated financial statements.
Effective January 1, 2016, a company’s management will be required to assess the entity’s ability to continue as a going concern
every reporting period including interim periods for a period of one year after the date that the financial statements are issued (or
available to be issued) and provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to
continue as a going concern. We do not expect the adoption of this pronouncement will have a material effect on our consolidated
financial statements.
Effective January 1, 2016, the concept of extraordinary items will be eliminated from GAAP and entities will no longer be required
to consider whether an underlying event or transaction is extraordinary. However, the presentation and disclosure guidance for
items that are unusual in nature or occur infrequently will be retained. We have elected to early adopt this pronouncement effective
January 1, 2015. The adoption of this pronouncement is not expected to have any effect on our consolidated financial statements.
Effective January 1, 2017, companies will be required to apply a five-step model in accounting for revenue arising from contracts
with customers. The core principle of this revised revenue model is that a company recognizes revenue to depict the transfer of
42
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. Lease contracts will be excluded from this revenue recognition criteria; however, the sale
of real estate will be required to follow the new model. This pronouncement allows either a full or a modified retrospective method
of adoption. Expanded quantitative and qualitative disclosures regarding revenue recognition will be required for contracts that
are subject to this guidance. We do not expect the adoption of this pronouncement will have a material effect on our consolidated
financial statements; however, we will continue to evaluate this assessment until the guidance becomes effective.
Inflation
Certain of our leases contain provisions designed to mitigate the adverse impact of inflation. Such provisions include clauses
enabling us to receive payment of additional rent calculated as a percentage of tenants’ gross sales above predetermined thresholds,
which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the
leases. While most escalation clauses are fixed in nature, some may include increases based upon changes in the consumer price
index or similar inflation indices. In addition, many of our leases are for terms of less than 10 years, which permits us to seek to
increase rents to market rates upon renewal. Most of our leases require the tenant to pay an allocable share of operating expenses,
including common area maintenance costs, real estate taxes and insurance, thereby reducing our exposure to increases in costs
and operating expenses resulting from inflation.
Subsequent Events
Subsequent to December 31, 2014, we:
•
drew $225,000, net of repayments, on our unsecured revolving line of credit and used the proceeds and available cash
on hand to acquire the following properties:
•
the retail portion of Downtown Crown, a Class A mixed-use property located in Gaithersburg, Maryland, from a
third party for a gross purchase price of $162,785. The property contains approximately 258,000 square feet of retail
space;
• Merrifield Town Center, a Class A mixed-use property located in Merrifield, Virginia, from a third party for a gross
purchase price of $56,500. The property contains approximately 85,000 square feet of retail space; and
•
Fort Evans Plaza II, a Class A multi-tenant retail property located in Leesburg, Virginia, from a third party for a gross
purchase price of $65,000. The property contains approximately 229,000 square feet.
•
closed on the disposition of Aon Hewitt East Campus, a 343,000 square foot single-user office property located in
Lincolnshire, Illinois, for a sales price of $17,233 with no significant gain or loss on sale due to impairment charges
previously recognized; and
•
repaid a pool of mortgages payable with an aggregate principal balance of $18,504 and an interest rate of 6.39%.
On February 10, 2015, our board of directors declared the cash dividend for the first quarter of 2015 for our 7.00% Series A
cumulative redeemable preferred stock. The dividend of $0.4375 per preferred share will be paid on March 31, 2015 to preferred
shareholders of record at the close of business on March 20, 2015.
On February 10, 2015, our board of directors declared the distribution for the first quarter of 2015 of $0.165625 per share on our
outstanding Class A common stock, which will be paid on April 10, 2015 to Class A common shareholders of record at the close
of business on March 27, 2015.
43
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We may be exposed to interest rate changes primarily as a result of long-term debt used to maintain liquidity and fund our operations.
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. To achieve our objectives, we borrow primarily at fixed rates, and in some cases variable rates
with the ability to convert to fixed rates.
With regard to 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 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.
As of December 31, 2014, we had $308,124 of variable rate debt based on LIBOR that was swapped to fixed rate debt through
interest rate swaps. Our interest rate swaps as of December 31, 2014 are summarized in the following table:
Fixed rate portion of credit facility
Heritage Towne Crossing
Notional
Amount
$
$
300,000
8,124
308,124
Termination Date
February 24, 2016
September 30, 2016
Fair Value of
Derivative
Liability
$
$
442
120
562
A decrease of 1% in market interest rates would result in a hypothetical increase in our derivative liability of approximately $1,500.
The combined carrying amount of our mortgages payable, unsecured notes payable and unsecured credit facility is approximately
$125,068 lower than the fair value as of December 31, 2014.
We may use additional derivative financial instruments to hedge exposures to changes in interest rates. To the extent we do, we
are exposed to market and credit risk. 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. 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, we generally
are not exposed to the credit risk of the counterparty. We minimize credit risk in derivative instruments by entering into transactions
with the same party providing the financing, with the right of offset, or by entering into transactions with highly rated counterparties.
44
Debt Maturities
Our interest rate risk is monitored using a variety of techniques. The following table shows the scheduled maturities and principal
amortization of our indebtedness as of December 31, 2014, for each of the next five years and thereafter and the weighted average
interest rates by year, as well as the fair value of our indebtedness as of December 31, 2014. The table does not reflect the impact
of any 2015 debt activity.
2015
2016
2017
2018
2019
Thereafter
Total
Fair Value
Debt:
Fixed rate debt:
Mortgages payable (a)
$ 376,659
$ 67,736
$ 321,126
$ 12,414
$ 502,882
$ 335,246
$ 1,616,063
$ 1,734,771
Unsecured credit facility - fixed rate
portion of term loan (b)
Unsecured notes payable
Total fixed rate debt
Variable rate debt:
Construction loan
Unsecured credit facility
Total variable rate debt
—
—
—
—
—
—
300,000
—
—
—
376,659
67,736
321,126
312,414
502,882
—
250,000
585,246
300,000
250,000
301,001
258,360
2,166,063
2,294,132
14,900
—
14,900
—
—
—
—
—
—
—
150,000
150,000
—
—
—
—
—
—
14,900
150,000
164,900
14,900
150,501
165,401
Total debt (c)
$ 391,559
$ 67,736
$ 321,126
$ 462,414
$ 502,882
$ 585,246
$ 2,330,963
$ 2,459,533
Weighted average interest rate on debt:
Fixed rate debt
Variable rate debt
Total
5.59%
2.44%
5.47%
5.06%
—
5.06%
5.53%
—
5.53%
2.18%
1.62%
2.00%
7.50%
—
7.50%
4.72%
—
4.72%
5.28%
1.69%
5.03%
(a) Includes $8,124 of variable rate mortgage debt that was swapped to a fixed rate as of December 31, 2014. Excludes mortgage premium of
$3,972 and discount of $(470), net of accumulated amortization, which was outstanding as of December 31, 2014 and a mortgage payable
of $8,075 associated with one investment property classified as held for sale as of December 31, 2014.
(b) $300,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through February 24, 2016. The swap effectively converts
one-month floating rate LIBOR to a fixed rate of 0.53875% over the term of the swap.
(c) As of December 31, 2014, the weighted average years to maturity of consolidated indebtedness was 4.3 years.
We had $164,900 of variable rate debt, excluding $308,124 of variable rate debt that was swapped to fixed rate debt, with interest
rates varying based upon LIBOR, with a weighted average interest rate of 1.69% as of December 31, 2014. An increase in the
variable interest rate on this debt constitutes a market risk. If interest rates increase by 1% based on debt outstanding as of
December 31, 2014, interest expense would increase by approximately $1,649 on an annualized basis.
The table incorporates only those interest rate exposures that existed as of December 31, 2014. It does not consider those interest
rate exposures or positions that could arise after that date. The information presented herein is merely an estimate and has limited
predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on the interest
rate exposures that arise during future periods, our hedging strategies at that time and future changes in interest rates.
45
Item 8. Financial Statements and Supplementary Data
Index
RETAIL PROPERTIES OF AMERICA, INC.
Report of Independent Registered Public Accounting Firm
Financial Statements
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the Years Ended
December 31, 2014, 2013 and 2012
Consolidated Statements of Equity for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
Valuation and Qualifying Accounts (Schedule II)
Real Estate and Accumulated Depreciation (Schedule III)
Schedules not filed:
47
48
49
50
52
54
87
88
All schedules other than the two listed in the Index have been omitted as the required information is either not applicable or the
information is already presented in the accompanying consolidated financial statements or related notes thereto.
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Retail Properties of America, Inc.:
We have audited the accompanying consolidated balance sheets of Retail Properties of America, Inc. and subsidiaries (the
“Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations and other comprehensive
income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included
the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are
the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and
financial statement schedules 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, such consolidated financial statements present fairly, in all material respects, the financial position of Retail
Properties of America, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for and
disclosure of discontinued operations for the year ended December 31, 2014 due to the adoption of Accounting Standards Update
2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control
— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 18, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 18, 2015
47
RETAIL PROPERTIES OF AMERICA, INC.
Consolidated Balance Sheets
(in thousands, except par value amounts)
Assets
Investment properties:
Land
Building and other improvements
Developments in progress
Less accumulated depreciation
Net investment properties
Cash and cash equivalents
Investment in unconsolidated joint ventures
Accounts and notes receivable (net of allowances of $7,497 and $8,197, respectively)
Acquired lease intangible assets, net
Assets associated with investment properties held for sale
Other assets, net
Total assets
Liabilities and Equity
Liabilities:
Mortgages payable, net
Unsecured notes payable
Unsecured term loan
Unsecured revolving line of credit
Accounts payable and accrued expenses
Distributions payable
Acquired lease intangible liabilities, net
Liabilities associated with investment properties held for sale
Other liabilities
Total liabilities
Commitments and contingencies (Note 17)
Equity:
Preferred stock, $0.001 par value, 10,000 shares authorized, 7.00% Series A cumulative
redeemable preferred stock, 5,400 shares issued and outstanding as of December 31, 2014
and 2013; liquidation preference $135,000
Class A common stock, $0.001 par value, 475,000 shares authorized, 236,602 and 236,302
shares issued and outstanding as of December 31, 2014 and 2013, respectively
Additional paid-in capital
Accumulated distributions in excess of earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements
December 31,
2014
December 31,
2013
$
$
$
$
1,195,369
4,442,446
42,561
5,680,376
(1,365,471)
4,314,905
112,292
—
86,013
125,490
33,640
131,520
4,803,860
1,634,465
250,000
450,000
—
61,129
39,187
100,641
8,203
70,860
2,614,485
5
237
4,922,864
(2,734,688)
(537)
2,187,881
1,494
2,189,375
4,803,860
$
$
$
$
1,174,065
4,586,657
43,796
5,804,518
(1,330,474)
4,474,044
58,190
15,776
80,818
129,561
8,616
110,571
4,877,576
1,684,633
—
450,000
165,000
54,457
39,138
91,881
6,603
77,030
2,568,742
5
236
4,919,633
(2,611,796)
(738)
2,307,340
1,494
2,308,834
4,877,576
48
RETAIL PROPERTIES OF AMERICA, INC.
Consolidated Statements of Operations and Other Comprehensive Income (Loss)
(in thousands, except per share amounts)
Revenues:
Rental income
Tenant recovery income
Other property income
Total revenues
Expenses:
Property operating expenses
Real estate taxes
Depreciation and amortization
Provision for impairment of investment properties
General and administrative expenses
Total expenses
Operating income
Gain on extinguishment of debt
Gain on extinguishment of other liabilities
Equity in loss of unconsolidated joint ventures, net
Gain on sale of joint venture interest
Gain on change in control of investment properties
Interest expense (Note 10)
Co-venture obligation expense
Recognized gain on marketable securities, net
Other income, net
Income (loss) from continuing operations
Discontinued operations:
(Loss) income, net
Gain on sales of investment properties, net
Income from discontinued operations
Gain on sales of investment properties, net
Net income (loss)
Net income (loss) attributable to the Company
Preferred stock dividends
Net income (loss) attributable to common shareholders
Earnings (loss) per common share — basic and diluted:
Continuing operations
Discontinued operations
Net income per common share attributable to common shareholders
Net income (loss)
Other comprehensive income (loss):
Net unrealized gain on derivative instruments (Note 10)
Net unrealized gain on marketable securities
Reversal of unrealized gain to recognized gain on marketable securities
Comprehensive income (loss)
Comprehensive income (loss) attributable to the Company
Year Ended December 31,
2013
2012
2014
$
$
$
$
$
$
474,684
115,719
10,211
600,614
96,798
78,773
215,966
72,203
34,229
497,969
102,645
—
4,258
(2,088)
—
24,158
(133,835)
—
—
5,459
597
(148)
655
507
42,196
43,300
43,300
(9,450)
33,850
0.14
—
0.14
43,300
201
—
—
43,501
43,501
$
$
$
$
$
$
433,591
101,962
15,955
551,508
89,067
71,191
222,710
59,486
31,533
473,987
77,521
—
—
(1,246)
17,499
5,435
(146,805)
—
—
4,741
(42,855)
9,396
41,279
50,675
5,806
13,626
13,626
(9,450)
4,176
(0.20)
0.22
0.02
13,626
516
—
—
14,142
14,142
$
$
$
$
$
$
422,133
100,520
8,518
531,171
90,516
69,232
208,658
1,323
26,878
396,607
134,564
3,879
—
(6,307)
—
—
(171,295)
(3,300)
25,840
2,251
(14,368)
(24,063)
30,141
6,078
7,843
(447)
(447)
(263)
(710)
(0.03)
0.03
—
(447)
108
4,748
(25,840)
(21,431)
(21,431)
Weighted average number of common shares outstanding — basic
236,184
234,134
220,464
Weighted average number of common shares outstanding — diluted
236,187
234,134
220,464
See accompanying notes to consolidated financial statements
49
Balance as of January 1, 2012
— $
Net loss
Other comprehensive loss
Distributions declared to common shareholders
($0.6625 per share)
Issuance of common stock, net of offering costs
Redemption of fractional shares of common stock
—
—
—
—
—
Issuance of preferred stock, net of offering costs
5,400
Distribution reinvestment program (DRP)
Issuance of restricted common stock
Conversion of Class B common stock to Class A
common stock
Stock based compensation expense
—
—
—
—
Balance as of December 31, 2012
5,400
$
Net income
Other comprehensive income
Distributions declared to preferred shareholders
($1.7986 per share)
Distributions declared to common shareholders
($0.6625 per share)
Issuance of common stock, net of offering costs
Issuance of restricted common stock
Conversion of Class B common stock to Class A
common stock
Stock based compensation expense, net of shares
withheld for employee taxes and forfeitures
— $
—
—
—
—
—
—
—
Balance as of December 31, 2013
5,400
$
—
—
—
—
—
—
5
—
—
—
—
5
—
—
—
—
—
—
—
—
5
RETAIL PROPERTIES OF AMERICA, INC.
Consolidated Statements of Equity
(in thousands, except per share amounts)
Preferred Stock
Class A
Common Stock
Class B
Common Stock
Shares
Amount
Shares
Amount
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Distributions
in Excess of
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Noncontrolling
Interests
Total
Equity
145,147
$
146
$ 4,427,977
$ (2,312,877) $
19,730
$
2,135,024
$
1,494
$ 2,136,518
48,382
$
—
—
—
36,570
(39)
—
167
8
48,518
—
48
—
—
—
37
—
—
—
—
48
—
—
—
—
—
(118)
—
502
24
(48,518)
—
133,606
$
133
97,037
$
—
—
—
—
—
—
—
—
(48)
—
98
—
—
—
266,454
(1,253)
130,289
11,626
—
—
277
(447)
—
(146,769)
—
—
—
—
—
—
—
—
(447)
(20,984)
(20,984)
—
—
—
—
—
—
—
—
(146,769)
266,491
(1,253)
130,294
11,626
—
—
277
—
—
—
—
—
—
—
—
—
—
(447)
(20,984)
(146,769)
266,491
(1,253)
130,294
11,626
—
—
277
$ 4,835,370
$ (2,460,093) $
(1,254) $
2,374,259
$
1,494
$ 2,375,753
— $
—
—
—
5,547
116
97,037
(4)
—
—
—
—
5
—
98
—
— $
— $
— $
13,626
$
— $
13,626
$
— $
13,626
—
—
—
—
—
—
—
—
—
—
(97,037)
(98)
—
—
—
—
—
83,491
—
—
772
—
516
516
(9,713)
(155,616)
—
—
—
—
—
—
—
—
—
—
(9,713)
(155,616)
83,496
—
—
772
—
—
—
—
—
—
—
516
(9,713)
(155,616)
83,496
—
—
772
236,302
$
236
— $
— $ 4,919,633
$ (2,611,796) $
(738) $
2,307,340
$
1,494
$ 2,308,834
See accompanying notes to consolidated financial statements
50
RETAIL PROPERTIES OF AMERICA, INC.
Consolidated Statements of Equity
(Continued)
(in thousands, except per share amounts)
Preferred Stock
Class A
Common Stock
Class B
Common Stock
Shares
Amount
Shares
Amount
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Distributions
in Excess of
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Noncontrolling
Interests
Total
Equity
Net income
Other comprehensive income
Distributions declared to preferred shareholders
($1.75 per share)
Distributions declared to common shareholders
($0.6625 per share)
Issuance of common stock, net of offering costs
Issuance of restricted common stock
Exercise of stock options
Stock based compensation expense, net of shares
withheld for employee taxes and forfeitures
— $
—
—
—
—
—
—
—
Balance as of December 31, 2014
5,400
$
—
—
—
—
—
—
—
—
5
— $
—
—
—
—
303
2
(5)
—
—
—
—
—
1
—
—
— $
— $
— $
43,300
$
— $
43,300
$
— $
43,300
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(145)
—
23
3,353
—
201
201
(9,450)
(156,742)
—
—
—
—
—
—
—
—
—
—
(9,450)
(156,742)
(145)
1
23
3,353
—
—
—
—
—
—
—
201
(9,450)
(156,742)
(145)
1
23
3,353
236,602
$
237
— $
— $ 4,922,864
$ (2,734,688) $
(537) $
2,187,881
$
1,494
$ 2,189,375
See accompanying notes to consolidated financial statements
51
RETAIL PROPERTIES OF AMERICA, INC.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
(including discontinued operations):
Depreciation and amortization
Provision for impairment of investment properties
Gain on sales of investment properties, net
Gain on extinguishment of debt
Gain on extinguishment of other liabilities
Gain on sale of joint venture interest
Gain on change in control of investment properties
Amortization of loan fees, mortgage debt premium and discount on debt assumed, net
Premium paid in connection with the defeasance of mortgages payable
Equity in loss of unconsolidated joint ventures, net
Distributions on investments in unconsolidated joint ventures
Recognized gain on sale of marketable securities
Payment of leasing fees and inducements
Changes in accounts receivable, net
Changes in accounts payable and accrued expenses, net
Changes in other operating assets and liabilities, net
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from sale of marketable securities
Changes in restricted escrows, net
Purchase of investment properties
Capital expenditures and tenant improvements
Proceeds from sales of investment properties
Investment in developments in progress
Proceeds from sale of joint venture interest
Investment in unconsolidated joint ventures
Distributions of investments in unconsolidated joint ventures
Other, net
Net cash provided by investing activities
Cash flows from financing activities:
Repayments of margin debt related to marketable securities
Proceeds from mortgages and notes payable
Principal payments on mortgages and notes payable
Proceeds from unsecured notes payable
Proceeds from credit facility
Repayments of credit facility
Payment of loan fees and deposits, net
Purchase of Treasury securities in connection with defeasance of mortgages payable
Settlement of co-venture obligation
Proceeds from issuance of common stock
Redemption of fractional shares of common stock
Proceeds from issuance of preferred stock
Distributions paid, net of DRP
Other, net
Net cash 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
52
Year Ended December 31,
2014
2013
2012
$
43,300
$
13,626
$
(447)
215,966
72,203
(42,851)
—
(4,258)
—
(24,158)
4,926
1,322
2,088
1,360
—
(8,523)
(5,762)
3,220
(7,499)
2,680
254,014
—
(16,757)
(172,989)
(44,442)
315,400
(2,992)
—
(25)
—
(295)
77,900
—
3,541
(192,244)
250,000
375,500
(540,500)
(1,615)
(6,152)
—
—
—
—
(166,143)
(199)
(277,812)
233,785
92,033
(47,085)
(26,331)
(3,511)
(17,499)
(5,435)
10,032
—
1,246
7,105
—
(12,930)
(2,574)
(6,043)
(4,836)
8,049
239,632
—
22,360
(237,520)
(51,221)
326,766
(1,468)
53,073
(9,640)
862
—
103,212
—
940
(571,870)
—
630,000
(395,000)
(5,454)
—
—
84,835
—
—
(164,391)
(1,783)
(422,723)
236,126
25,842
(37,984)
(3,879)
—
—
—
(5)
—
6,307
6,168
(25,840)
(43,132)
3,378
(9,037)
8,701
887
167,085
35,133
23,916
(2,806)
(40,772)
453,320
(565)
—
(13,821)
17,403
21
471,829
(7,541)
319,691
(988,483)
—
355,000
(530,000)
(6,482)
—
(50,000)
272,081
(1,253)
130,747
(128,391)
(2,223)
(636,854)
54,102
58,190
112,292
$
(79,879)
138,069
58,190
$
2,060
136,009
138,069
$
(continued)
RETAIL PROPERTIES OF AMERICA, INC.
Consolidated Statements of Cash Flows
(in thousands)
Supplemental cash flow disclosure, including non-cash activities:
Cash paid for interest
Distributions payable
Distributions reinvested
Accrued capital expenditures and tenant improvements
Developments in progress placed in service
Treasury securities transferred in connection with defeasance of mortgages payable
Defeasance of mortgages payable
Forgiveness of mortgage debt
Forgiveness of accrued interest, net of escrows held by the lender
Shares of Class B common stock converted to Class A common stock
Purchase of investment properties (after credits at closing and including acquisition
of our partners’ joint venture interests):
Land, building and other improvements, net
Accounts receivable, acquired lease intangible and other assets
Acquired ground lease intangibles
Accounts payable, acquired lease intangible and other liabilities
Mortgages payable assumed, net
Gain on change in control of investment properties
Proceeds from sales of investment properties:
Land, building and other improvements, net
Accounts receivable, acquired lease intangible and other assets
Accounts payable, acquired lease intangible and other liabilities
Mortgages payable
Forgiveness of mortgage debt
Deferred gains
Gain on extinguishment of other liabilities
Gain on sales of investment properties, net
Proceeds from sale of joint venture ownership interest:
Investment in unconsolidated joint venture
Other assets and other liabilities
Deferred gain
Gain on sale of joint venture interest
Year Ended December 31,
2014
2013
2012
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
127,645
39,187
$
$
144,975
39,138
$
$
— $
— $
6,731
4,047
6,152
4,830
$
$
$
$
6,662
523
$
$
— $
— $
— $
19,615
— $
—
6,716
97,036
(337,906)
(31,116)
—
25,390
146,485
24,158
(172,989)
265,127
12,053
(4,631)
—
—
—
—
42,851
315,400
$
$
$
$
— $
—
—
—
— $
(298,695)
(41,597)
14,791
13,369
69,177
5,435
(237,520)
275,749
15,928
(14,368)
(26)
—
(1,113)
3,511
47,085
326,766
35,574
(447)
447
17,499
53,073
$
$
$
$
$
$
$
$
205,124
38,200
11,626
6,399
929
—
—
27,449
—
48,518
(2,806)
—
—
—
—
—
(2,806)
389,465
52,064
(2,305)
—
(23,570)
(318)
—
37,984
453,320
—
—
—
—
—
(concluded)
See accompanying notes to consolidated financial statements
53
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(1) Organization and Basis of Presentation
Retail Properties of America, Inc. (the Company) was formed on March 5, 2003 to own and operate high quality, strategically
located shopping centers in the United States.
All share amounts and dollar amounts in the consolidated financial statements and notes thereto are stated in thousands with the
exception of per share amounts and per square foot amounts. Square foot and per square foot amounts are unaudited.
The Company has elected to be taxed as a real estate investment trust (REIT) under the Internal Revenue Code of 1986, as amended
(the Code). The Company believes it qualifies for taxation as a REIT and, as such, the Company generally will not be subject to
U.S. federal income tax on taxable income that is distributed to shareholders. If the Company fails to qualify as a REIT in any
taxable year, the Company will be subject to U.S. federal 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 U.S. federal income and excise taxes on its undistributed income. The Company has one wholly-owned subsidiary
that has jointly elected to be treated as a taxable REIT subsidiary (TRS) for U.S. federal income tax purposes. A TRS is taxed on
its taxable income at regular corporate tax rates. The income tax expense incurred as a result of the TRS did not have a material
impact on the Company’s accompanying consolidated financial statements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP)
requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets
and liabilities and the 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. For example, significant estimates and assumptions have
been made with respect to useful lives of assets, capitalization of development costs, fair value measurements, provision for
impairment, including estimates of holding periods, capitalization rates and discount rates (where applicable), provision for income
taxes, recoverable amounts of receivables, deferred taxes and initial valuations and related amortization periods of deferred costs
and intangibles, particularly with respect to property acquisitions. Actual results could differ from those estimates.
During 2014, the Company eliminated the “Loss on lease terminations” financial statement caption in the consolidated statements
of operations and other comprehensive income (loss) and reclassified the 2013 and 2012 amounts to “Rental income” or
“Depreciation and amortization,” as appropriate. Loss on lease terminations, as previously reported for the year ended December
31, 2013, totaled $2,819, of which $285 was reclassified as an increase in rental income and $3,104 was reclassified as an increase
in depreciation and amortization. Loss on lease terminations, as previously reported for the year ended December 31, 2012, totaled
$6,102, of which $488 was reclassified as a decrease in rental income and $5,614 was reclassified as an increase in depreciation
and amortization.
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),
limited partnerships (LPs) and statutory trusts.
The Company’s property ownership as of December 31, 2014 is summarized below:
Operating properties (b)
Development properties
Wholly-owned
Consolidated
Joint Ventures (a)
213
2
—
1
(a) The Company has a 50% ownership interest in one LLC.
(b) Excludes two wholly-owned properties classified as held for sale as of December 31, 2014.
The Company consolidates certain property holding entities and other subsidiaries in which it owns less than a 100% interest if it
is deemed to be the primary beneficiary in a variable interest entity (VIE). An entity is a VIE if, among other aspects, the equity
investment at risk is not sufficient for the entity to finance its activities without additional subordinated financial support; or, as a
group, the holders of the equity investment at risk do not possess the power to direct the activities that most substantially impact
the entity’s economic performance, or possess the obligation to absorb expected losses or right to receive expected residual returns.
The Company also consolidates entities that are not VIEs in which it has a controlling financial interest. Intercompany balances
and transactions have been eliminated in consolidation. Investments in real estate joint ventures in which the Company has the
ability to exercise significant influence, but does not have financial or operating control, are accounted for pursuant to the equity
54
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
method of accounting. Accordingly, the Company’s share of the loss of these unconsolidated joint ventures is included in “Equity
in loss of unconsolidated joint ventures, net” in the accompanying consolidated statements of operations and other comprehensive
income (loss). Refer to Note 11 for further discussion.
Noncontrolling interest is the portion of equity in a consolidated subsidiary not attributable, directly or indirectly, to the Company.
In the consolidated statements of operations and other comprehensive income (loss), revenues, expenses and net income or loss
from less-than-wholly-owned consolidated subsidiaries are reported at the consolidated amounts, including both the amounts
attributable to common shareholders and noncontrolling interests. Consolidated statements of equity are included in the annual
financial statements, including beginning balances, activity for the period and ending balances for total shareholders’ equity,
noncontrolling interests and total equity. Noncontrolling interests are adjusted for additional contributions from and distributions
to noncontrolling interest holders, as well as the noncontrolling interest holders’ share of the net income or loss of each respective
entity, as applicable. The Company evaluates the classification and presentation of noncontrolling interests associated with its
consolidated joint venture investment on an ongoing basis as facts and circumstances necessitate.
As of December 31, 2014, the Company is the controlling member in one less-than-wholly-owned consolidated entity. The
Company is entitled to a preferred return on its capital contributions to the entity. No adjustment to the carrying value of the
noncontrolling interests for contributions, distributions or allocation of net income or loss were made during the years ended
December 31, 2014, 2013 and 2012.
(2) Summary of Significant Accounting Policies
Investment Properties: Investment properties are recorded at cost less accumulated depreciation. Ordinary repairs and maintenance
are expensed as incurred. Expenditures for significant improvements are capitalized.
The Company allocates the purchase price of each acquired investment property based upon the estimated acquisition date fair
value of the individual assets acquired and liabilities assumed, which generally include land, building and other improvements,
in-place lease value, acquired above and below market lease intangibles, any assumed financing that is determined to be above or
below market, the value of customer relationships and goodwill, if any. Acquisition transaction costs are expensed as incurred and
included within “General and administrative expenses” in the accompanying consolidated statements of operations and other
comprehensive income (loss).
For tangible assets acquired, including land, building and other improvements, the Company considers available comparable
market and industry information in estimating acquisition date fair value. The Company allocates a portion of the purchase price
to the estimated acquired in-place lease value intangibles based on estimated lease execution costs for similar leases as well as
lost rental payments during an assumed lease-up period. The Company also evaluates each acquired lease as compared to current
market rates. If 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 market leases based upon the present value of the difference between the contractual lease payments
and estimated market rent payments over the remaining lease term. Renewal periods are included within the lease term in the
calculation of above and below market lease values if, based upon factors known at the acquisition date, market participants would
consider it reasonably assured that the lessee would exercise such options. Acquisition accounting fair value estimates, including
the discount rate used, require the Company to consider various factors, including, but not limited to, market knowledge,
demographics, age and physical condition of the property, geographic location, size and location of tenant spaces within the acquired
investment property and tenant profile.
The portion of the purchase price allocated to acquired in-place lease value intangibles is amortized on a straight-line basis over
the life of the related lease as a component of depreciation and amortization expense. The Company incurred amortization expense
pertaining to acquired in-place lease value intangibles of $28,977, $32,241 and $36,524 (including $0, $1,717 and $3,575,
respectively, reflected as discontinued operations) for the years ended December 31, 2014, 2013 and 2012, respectively.
With respect to acquired leases in which the Company is the lessor, the portion of the purchase price allocated to acquired above
and below market lease intangibles is amortized on a straight-line basis over the life of the related lease as an adjustment to rental
income. Amortization pertaining to above market lease value intangibles of $4,170, $3,053 and $4,026 (including $0, $25 and
$150, respectively, reflected as discontinued operations) for the years ended December 31, 2014, 2013 and 2012, respectively, was
recorded as a reduction to rental income. Amortization pertaining to below market lease value intangibles of $6,246, $4,187 and
$5,339 (including $0, $183 and $409, respectively, reflected as discontinued operations) for the years ended December 31, 2014,
2013 and 2012, respectively, was recorded as an increase to rental income.
55
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
With respect to acquired leases in which the Company is the lessee, the portion of the purchase price allocated to acquired above
and below market lease intangibles is amortized on a straight-line basis over the life of the related lease as an adjustment to property
operating expenses. Amortization pertaining to above market lease value intangibles of $560 and $93 for the years ended
December 31, 2014 and 2013, respectively, was recorded as a reduction to property operating expenses. No amortization pertaining
to above or below market lease value intangibles was recorded for the year ended December 31, 2012.
The following table presents the amortization during the next five years and thereafter related to the acquired lease intangible
assets and liabilities for properties owned as of December 31, 2014:
Amortization of:
Acquired above market lease intangibles (a)
Acquired in-place lease value intangibles (a)
Acquired lease intangible assets, net (b)
Acquired below market lease intangibles (a)
Acquired ground lease intangibles (c)
Acquired lease intangible liabilities, net (b)
2015
2016
2017
2018
2019
Thereafter
Total
$
$
$
$
4,145
21,261
25,406
(5,191)
(560)
(5,751)
$
$
$
$
3,614
17,563
21,177
(4,753)
(560)
(5,313)
$
$
$
$
3,138
14,211
17,349
(4,612)
(560)
(5,172)
$
$
$
$
2,626
11,190
13,816
(4,445)
(560)
(5,005)
$
$
$
$
1,580
8,468
10,048
(4,248)
(560)
(4,808)
$
$
$
$
3,546
34,148
37,694
(63,254)
(11,338)
(74,592)
$
$
$
18,649
106,841
125,490
(86,503)
(14,138)
$ (100,641)
(a) Represents the portion of the purchase price with respect to acquired leases in which the Company is the lessor. The amortization of acquired
above and below market lease intangibles is recorded as an adjustment to rental income and the amortization of acquired in-place lease
value intangibles is recorded to depreciation and amortization expense.
(b) Acquired lease intangible assets, net and acquired lease intangible liabilities, net are presented net of $302,110 and $45,479 of accumulated
amortization, respectively, as of December 31, 2014.
(c) Represents the portion of the purchase price with respect to acquired leases in which the Company is the lessee. The amortization is recorded
as an adjustment to property operating expenses.
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 associated improvements and 15 years for site improvements and most other
capital improvements. Tenant improvements and leasing fees are amortized on a straight-line basis over the life of the related lease
as a component of depreciation and amortization expense.
Impairment of Long-Lived Assets and Unconsolidated Joint Ventures: The Company’s investment properties, including
developments in progress, are reviewed for potential impairment at the end of each reporting period or whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. At the end of each reporting period, the Company
separately determines whether impairment indicators exist for each property. Examples of situations considered to be impairment
indicators for both operating properties and developments in progress include, but are not limited to:
•
•
•
•
•
•
•
•
a substantial decline in or continued low occupancy rate or cash flow;
expected significant declines in occupancy in the near future;
continued difficulty in leasing space;
a significant concentration of financially troubled tenants;
a change in anticipated holding period;
a cost accumulation or delay in project completion date significantly above and beyond the original development estimate;
a significant decrease in market price not in line with general market trends; and
any other quantitative or qualitative events or factors deemed significant by the Company’s management or board of
directors.
If the presence of one or more impairment indicators as described above is identified at the end of a reporting period or at any
point throughout the year with respect to a property, the asset is tested for recoverability by comparing its carrying value to the
estimated future undiscounted cash flows. An investment property is considered to be impaired when the estimated future
undiscounted cash flows are less than its current carrying value. When performing a test for recoverability or estimating the fair
56
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
value of an impaired investment property, the Company makes certain complex or subjective assumptions which include, but are
not limited to:
•
•
•
•
•
•
•
projected operating cash flows considering factors such as vacancy rates, rental rates, lease terms, tenant financial strength,
competitive positioning and property location;
estimated holding period or various potential holding periods when considering probability-weighted scenarios;
projected capital expenditures and lease origination costs;
estimated dates of construction completion and grand opening for developments in progress;
projected cash flows from the eventual disposition of an operating property or development in progress using a property-
specific capitalization rate;
comparable selling prices; and
a property-specific discount rate.
The Company did not have any unconsolidated joint ventures as of December 31, 2014. When the Company holds investments
in unconsolidated joint ventures, they are reviewed for potential impairment, in addition to impairment evaluations of the individual
assets underlying these investments, each reporting period or whenever events or changes in circumstances warrant such an
evaluation.
To determine whether any identified impairment is other-than-temporary, the Company considers whether it has the ability and
intent to hold the investment until the carrying value is fully recovered. To the extent impairment has occurred, the Company will
record an impairment charge calculated as the excess of the carrying value of the asset over its estimated fair value.
Below is a summary of impairment charges recorded during the years ended December 31, 2014, 2013 and 2012:
Impairment of consolidated properties (a)
Impairment of investment in unconsolidated joint ventures (b)
Impairment of properties recorded at unconsolidated joint ventures (c)
Year Ended December 31,
2013
2012
2014
$
$
$
72,203
—
—
$
$
$
92,033
1,834
286
$
$
$
25,842
—
1,527
(a) Included in “Provision for impairment of investment properties” in the accompanying consolidated statements of operations and other
comprehensive income (loss), except for $32,547 and $24,519, which is included in discontinued operations in 2013 and 2012, respectively.
(b) Included in “Equity in loss of unconsolidated joint ventures, net” in the accompanying consolidated statements of operations and other
comprehensive income (loss), and represents the aggregate impairment charge recorded to write down the Company’s investment in its
Hampton Retail Colorado, L.L.C. (Hampton) joint venture, which was dissolved during 2013. See Note 11 for further discussion.
(c) Reflected within “Equity in loss of unconsolidated joint ventures, net” in the accompanying consolidated statements of operations and other
comprehensive income (loss), and represents the Company’s proportionate share of property-level impairment charges recorded at its
unconsolidated joint ventures.
The Company’s assessment of impairment as of December 31, 2014 was based on the most current information available to the
Company. If the operating conditions mentioned above deteriorate or if the Company’s expected holding period for assets change,
subsequent tests for impairment could result in additional impairment charges in the future. The Company can provide no assurance
that material impairment charges with respect to the Company’s investment properties will not occur in 2015 or future periods.
Based upon current market conditions, certain of the Company’s properties may have fair values less than their carrying amounts.
However, based on the Company’s plans with respect to those properties, the Company believes that their carrying amounts are
recoverable and therefore, under applicable GAAP guidance, no additional impairment charges were recorded. Accordingly, the
Company will continue to monitor circumstances and events in future periods to determine whether additional impairment charges
are warranted. Refer to Note 15 for further discussion.
Development and Redevelopment Projects: The Company capitalizes direct and certain indirect project costs incurred during the
development or redevelopment period such as construction, insurance, architectural, legal, interest and other financing costs, and
real estate taxes. At such time as the development or redevelopment is considered substantially complete, the capitalization of
57
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
certain indirect costs such as real estate taxes and interest and financing costs ceases and all project-related costs included in
developments in progress are reclassified to land and building and other improvements. Development payables of $91 and $271
as of December 31, 2014 and 2013, respectively, consist of costs incurred and not yet paid pertaining to such development or
redevelopment projects and are included in “Accounts payable and accrued expenses” in the accompanying consolidated balance
sheets. The Company did not capitalize interest costs or real estate taxes during the years ended December 31, 2014, 2013 and
2012.
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, subject only to terms that are usual and customary; (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 is
actively marketing the investment property for sale at a price that is reasonable in relation to its current value, and (vi) actions
required for the Company to complete the plan indicate that it is unlikely that any significant changes will be made.
If all of the above criteria are met, the Company classifies the investment property as held for sale. When these criteria are met,
the Company suspends depreciation (including depreciation for tenant improvements and building improvements) and amortization
of acquired in-place lease value intangibles and any above or below market lease intangibles and the Company records the investment
property held for sale at the lower of cost or net realizable value. The assets and liabilities associated with those investment
properties that are classified as held for sale are presented separately on the consolidated balance sheets for the most recent reporting
period. There were two properties classified as held for sale as of December 31, 2014 and one property classified as held for sale
as of December 31, 2013.
Prior to the Company’s early adoption of the revised discontinued operations pronouncement in 2014, if the operations and cash
flow of the property had been, or were upon consummation of such sale, eliminated from ongoing operations and the Company
did not have significant continuing involvement in the operations of the property, then the operations for the periods presented
were classified in the consolidated statements of operations and other comprehensive income (loss) as discontinued operations for
all periods presented. However, the Company elected to early adopt the revised discontinued operations pronouncement effective
January 1, 2014, which limits what qualifies for discontinued operations presentation. As a result, the investment properties that
were sold or classified as held for sale during 2014, except for Riverpark Phase IIA, which was classified as held for sale as of
December 31, 2013 and, therefore, qualified for discontinued operations treatment under the previous standard, did not qualify
for discontinued operations presentation and, as such, are reflected in continuing operations on the consolidated statements of
operations and other comprehensive income (loss). Refer to Note 4 for further discussion.
Partially-Owned Entities: If the Company determines that it holds a financial interest in a VIE that is deemed to be a controlling
financial interest, it will consolidate the entity as the primary beneficiary. The Company assesses its interests in variable interest
entities on an ongoing basis to determine whether or not it is a primary beneficiary. Partially-owned, non-variable interest joint
ventures in which the Company has a controlling financial interest are consolidated. Partially-owned, non-variable interest joint
ventures in which the Company does not have a controlling financial interest, but has the ability to exercise significant influence,
will not be consolidated, but rather accounted for pursuant to the equity method of accounting. Refer to Notes 1 and 11 for more
information.
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 major financial institutions. The cash and cash equivalent balances at one
or more of these financial institutions exceeds the Federal Depository Insurance Corporation (FDIC) insurance coverage. The
Company periodically assesses the credit risk associated with these financial institutions and believes that the risk of loss is minimal.
Marketable Securities: The Company liquidated its entire investments in securities portfolio in 2012. When the Company holds
investments in marketable securities, they are classified as “available-for-sale” and accordingly are carried at fair value, with
unrealized gains and losses reported as a separate component of shareholders’ equity. During the year ended December 31, 2012,
the Company recognized a gain on sales of marketable securities of $25,840 and an unrealized OCI gain of $4,748.
Restricted Cash and Escrows: Restricted cash and escrows consist of lenders’ escrows and funds restricted through lender or
other agreements, including funds held in escrow for future acquisitions, and are included as a component of “Other assets, net”
in the accompanying consolidated balance sheets. As of December 31, 2014 and 2013, the Company had $58,469 and $40,198,
respectively, in restricted cash and escrows.
58
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
Derivative and Hedging Activities: Derivatives are recorded in the accompanying consolidated balance sheets at fair value within
“Other liabilities.” The Company uses interest rate derivatives to manage differences in the amount, timing and duration of the
Company’s known or expected cash payments principally related to certain of the Company’s borrowings. The Company does not
use derivatives for trading or speculative purposes. On the date that the Company enters into a derivative, it may designate the
derivative as a hedge against the variability of cash flows that are to be paid in connection with a recognized liability. Subsequent
changes in the fair value of a derivative designated as a cash flow hedge that is determined to be highly effective are recorded in
“Accumulated other comprehensive income” and are reclassified to interest expense as interest payments are made on the
Company’s variable rate debt. As of December 31, 2014, the balance in accumulated other comprehensive loss relating to derivatives
was $537. Any hedge ineffectiveness or changes in the fair value for any derivative not designated as a hedge is reported in “Other
income, net” in the accompanying consolidated statements of operations and other comprehensive income (loss).
Conditional Asset Retirement Obligations: The Company evaluates the potential impact of conditional asset retirement obligations
on its consolidated financial statements. The term conditional asset retirement obligation refers to a legal obligation to perform an
asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be
within the control of the entity. Based upon the Company’s evaluation, no accrual of a liability for asset retirement obligations
was warranted as of December 31, 2014 and 2013.
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 that the lessee is the owner, for accounting purposes, of the tenant improvements, then the leased asset is the
unimproved space and any tenant improvement allowances funded under the lease are accounted for as lease inducements which
are amortized as a reduction to the revenue recognized over the term of the lease. In these circumstances, the Company commences
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 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 the Company 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;
• who constructs or directs the construction of the improvements, and
• whether the tenant or the Company is obligated to fund cost overruns.
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, for only those leases that have fixed and measurable rent escalations, is recognized on a straight-line basis over
the term of each lease. The difference between such rental income earned and the cash rent due under the provisions of a lease is
recorded as deferred rent receivable and is included as a component of “Accounts and notes receivable” in the accompanying
consolidated balance sheets.
Reimbursements from tenants for recoverable real estate taxes and operating expenses are accrued as revenue in the period the
applicable expenditures are incurred. The Company makes certain assumptions and judgments in estimating the reimbursements
at the end of each reporting period.
The Company records lease termination income in “Other property income” upon execution of a termination letter agreement,
when all of the conditions of such agreement have been fulfilled, the tenant is no longer occupying the property and collectibility
is reasonably assured. Upon early lease termination, the Company provides for losses related to recognized tenant specific
intangibles and other assets or adjusts the remaining useful life of the assets if determined to be appropriate. The Company recorded
59
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
lease termination income of $2,667, $15,787 and $2,331 (including $0, $7,182 and $1,106, respectively, reflected as discontinued
operations) for the years ended December 31, 2014, 2013 and 2012, respectively.
The Company recorded percentage rental income in lieu of base rent and other contingent percentage rental income of $5,229,
$4,744 and $5,356 (including $0, $55 and $52, respectively, reflected as discontinued operations) for the years ended December 31,
2014, 2013 and 2012, respectively. The Company’s policy is to defer recognition of contingent rental income until the specified
target (i.e. breakpoint) that triggers the contingent rental income is achieved.
Profits from sales of real estate are not recognized under the full accrual method until the following criteria are met: a sale is
consummated; the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property;
the Company’s receivable, if applicable, is not subject to future subordination; the Company has transferred to the buyer the usual
risks and rewards of ownership; and the Company does not have substantial continuing involvement with the property. The Company
sold 24, 20 and 31 consolidated investment properties during the years ended December 31, 2014, 2013 and 2012, respectively.
Refer to Note 4 for further discussion.
Accounts and Notes Receivable and Allowance for Doubtful Accounts: Accounts and notes receivable balances outstanding
include base rents, tenant reimbursements and deferred rent receivables. An allowance for the uncollectible portion of accounts
and notes receivable is determined on a tenant-specific basis through an analysis of balances outstanding, historical bad debt levels,
tenant creditworthiness and current economic trends. Additionally, estimates of the expected recovery of pre-petition and post-
petition claims with respect to tenants in bankruptcy are considered in assessing the collectibility of the related receivables.
Management’s estimate of the collectibility of accounts and notes receivable is based on the best information available to
management at the time of evaluation.
Rental Expense: Rental expense associated with land and office space that the Company leases under non-cancellable operating
leases, for only those leases that have fixed and measurable rent escalations, is recorded on a straight-line basis over the term of
each lease. The difference between rental expense incurred on a straight-line basis and rental payments due under the provisions
of a lease agreement is recorded as a deferred liability and is included as a component of “Other liabilities” in the accompanying
consolidated balance sheets. See Note 6 for additional information pertaining to these leases.
Loan Fees: Loan fees are generally amortized using the effective interest method (or other methods which approximate the
effective interest method) over the life of the related loan as a component of interest expense. Debt prepayment penalties and
certain fees associated with exchanges or modifications of debt are expensed as incurred as a component of interest expense.
Income Taxes: The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code. As a REIT, the
Company generally will not be subject to U.S. federal income tax on the taxable income the Company currently distributes to its
shareholders.
The Company records a benefit, based on the GAAP measurement criteria, for uncertain income tax positions if the result of a tax
position meets a “more likely than not” recognition threshold. Tax returns for the calendar years 2011 through 2014 remain subject
to examination by federal and various state tax jurisdictions.
Segment Reporting: The Company’s chief operating decision maker, which is comprised of its Chief Executive Officer, Chief
Operating Officer and Chief Financial Officer, assesses and measures the operating results of the Company’s portfolio of properties
based on net operating income and does not differentiate properties by geography, size or type. Each of the Company’s investment
properties is considered a separate operating segment, as each property earns revenue and incurs expenses, individual operating
results are reviewed and discrete financial information is available. However, the Company’s properties are aggregated into one
reportable segment as they have similar economic characteristics, the Company provides similar services to its tenants and the
Company evaluates the collective performance of its properties.
Recent Accounting Pronouncements
Effective January 1, 2014, companies are required to present unrecognized tax benefits as a reduction to deferred tax assets when
a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. To the extent none of these are available
at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be
combined with deferred tax assets. The adoption of this pronouncement did not have any effect on the Company’s consolidated
financial statements.
60
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
Effective January 1, 2015, with early adoption permitted effective January 1, 2014, the definition of discontinued operations has
been revised to limit what qualifies for this classification and presentation to disposals of components of a company that represent
strategic shifts that have, or will have, a major effect on a company’s operations and financial results. Required expanded disclosures
for disposals or disposal groups that qualify for discontinued operations treatment are intended to provide users of financial
statements with enhanced information about the assets, liabilities, revenues and expenses of such discontinued operations. In
addition, in accordance with this pronouncement, companies are required to disclose the pretax profit or loss of an individually
significant component that does not qualify for discontinued operations treatment. While the threshold for a disposal or disposal
group to qualify for discontinued operations treatment has been revised, this pronouncement retains the held for sale classification
and presentation concepts of previous authoritative literature. Accordingly, under this pronouncement, a disposal or disposal group
may qualify for held for sale classification but not meet the threshold for discontinued operations treatment. The Company elected
to early adopt this pronouncement effective January 1, 2014. The adoption, which is applied prospectively, is anticipated to
substantially reduce the number of the Company’s transactions, going forward, that qualify for discontinued operations as compared
to historical results. Except for Riverpark Phase IIA, which was classified as held for sale as of December 31, 2013 and, therefore,
qualified for discontinued operations treatment under the previous standard, the investment properties that were sold or held for
sale during 2014 did not qualify for discontinued operations treatment and, as such, are reflected in continuing operations on the
consolidated statements of operations and other comprehensive income (loss).
Effective January 1, 2016, with early adoption permitted effective January 1, 2014, companies that grant their employees share-
based payments in which the terms of the award provide that a performance target which affects vesting could be achieved after
the requisite service period will be required to treat that feature as a performance condition. The Company elected to early adopt
this pronouncement effective January 1, 2014. The adoption of this pronouncement did not have any effect on the Company’s
consolidated financial statements.
Effective January 1, 2016, with early adoption permitted effective January 1, 2014, companies that issue hybrid financial instruments
in the form of a share will be required to consider all stated and implied substantive terms and features in evaluating whether the
host contract within the hybrid financial instrument is more akin to debt or to equity. The effects of initially adopting this
pronouncement should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of
a share. The Company elected to early adopt this pronouncement effective January 1, 2014. The adoption of this pronouncement
did not have any effect on the Company’s consolidated financial statements.
Effective January 1, 2016, a company’s management will be required to assess the entity’s ability to continue as a going concern
every reporting period including interim periods for a period of one year after the date that the financial statements are issued (or
available to be issued) and provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to
continue as a going concern. The Company does not expect the adoption of this pronouncement will have a material effect on its
consolidated financial statements.
Effective January 1, 2016, the concept of extraordinary items will be eliminated from GAAP and entities will no longer be required
to consider whether an underlying event or transaction is extraordinary. However, the presentation and disclosure guidance for
items that are unusual in nature or occur infrequently will be retained. The Company has elected to early adopt this pronouncement
effective January 1, 2015. The adoption of this pronouncement is not expected to have any effect on the Company’s consolidated
financial statements.
Effective January 1, 2017, companies will be required to apply a five-step model in accounting for revenue arising from contracts
with customers. The core principle of this revised revenue model is that a company recognizes revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. Lease contracts will be excluded from this revenue recognition criteria; however, the sale
of real estate will be required to follow the new model. This pronouncement allows either a full or a modified retrospective method
of adoption. Expanded quantitative and qualitative disclosures regarding revenue recognition will be required for contracts that
are subject to this guidance. The Company does not expect the adoption of this pronouncement will have a material effect on its
consolidated financial statements; however, it will continue to evaluate this assessment until the guidance becomes effective.
61
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(3) Acquisitions
The Company closed on the following acquisitions during the year ended December 31, 2014:
Date
Property Name
December 30, 2014
Lakewood Towne Center - Parcel
November 20, 2014 Avondale Plaza
June 23, 2014
June 5, 2014
February 27, 2014
Southlake Town Square - Outparcel (a)
MS Inland Portfolio (b)
Bed Bath & Beyond Plaza - Fee
Interest (c)
February 27, 2014
Heritage Square
Metropolitan
Statistical
Area (MSA)
Property Type
Square
Footage
Acquisition
Price
Pro Rata
Acquisition
Price
Seattle
Seattle
Dallas
Various
Miami
Seattle
Multi-tenant parcel
44,000
$
5,750
$
Multi-tenant retail
Single-user outparcel
39,000
8,500
Multi-tenant retail
1,194,800
Ground lease interest
Multi-tenant retail
—
53,100
15,070
6,369
292,500
10,350
18,022
5,750
15,070
6,369
234,000
10,350
18,022
1,339,400
$
348,061
$
289,561
(a) The Company acquired a single-user outparcel located at its Southlake Town Square multi-tenant retail operating property that was subject
to a ground lease with the Company prior to the transaction.
(b) As discussed in Note 11, the Company dissolved its joint venture arrangement with its partner in MS Inland Fund, LLC (MS Inland) by
acquiring its partner’s 80% ownership interest in the six multi-tenant retail properties owned by the joint venture (collectively, the MS Inland
acquisitions). The Company paid total cash consideration of approximately $120,600 before transaction costs and prorations and after
assumption of the joint venture’s in-place mortgage financing on those properties of $141,698. The Company accounted for this transaction
as a business combination achieved in stages and recognized a gain on change in control of investment properties of $24,158 as a result of
remeasuring the carrying value of its 20% interest in the six acquired properties to fair value. Such gain is presented as “Gain on change in
control of investment properties” in the accompanying consolidated statements of operations and other comprehensive income (loss).
(c) The Company acquired the fee interest in an existing wholly-owned multi-tenant retail operating property located in Miami, Florida, which
was previously subject to a ground lease with a third party. In conjunction with this transaction, the Company reversed a straight-line ground
rent liability of $4,258, which is presented in “Gain on extinguishment of other liabilities” in the accompanying consolidated statements of
operations and other comprehensive income (loss).
The Company closed on the following acquisitions during the year ended December 31, 2013:
Date
Property Name
November 13, 2013
Fordham Place
November 6, 2013
Pelham Manor Shopping Plaza
October 1, 2013
RioCan Portfolio (a)
MSA
New York City
New York City
Various
Property Type
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Square
Footage
Acquisition
Price
Pro Rata
Acquisition
Price
262,000
$
133,900
$
133,900
228,000
598,100
58,530
124,783
58,530
99,826
1,088,100
$
317,213
$
292,256
(a) As discussed in Note 11, the Company dissolved its joint venture arrangement with its partner in RC Inland L.P. (RioCan) and acquired its
partner’s 80% ownership interest in five multi-tenant retail properties owned by the joint venture (collectively, the RioCan acquisitions).
The Company paid total cash consideration of approximately $45,500 before transaction costs and prorations and after assumption of its
partner’s 80% interest of the joint venture’s $67,900 in-place mortgage financing on those properties. The Company accounted for this
transaction as a business combination achieved in stages and recognized a gain on change in control of investment properties of $5,435 as
a result of remeasuring the carrying value of its 20% interest in the five acquired properties to fair value. Such gain is presented as “Gain
on change in control of investment properties” in the accompanying consolidated statements of operations and other comprehensive income
(loss).
The following table summarizes the acquisition date fair values, before prorations, the Company recorded in conjunction with the
acquisitions discussed above:
Land
Building and other improvements
Acquired lease intangible assets (a)
Acquired lease intangible liabilities (b)
Mortgages payable (c)
Net assets acquired (d)
62
2014
2013
$
$
118,732
219,174
35,520
(20,578)
(146,485)
206,363
$
$
60,307
238,388
46,357
(26,525)
(69,177)
249,350
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(a) The weighted average amortization period for acquired lease intangible assets is eight years and 12 years for acquisitions
completed during the years ended December 31, 2014 and 2013, respectively.
(b) The weighted average amortization period for acquired lease intangible liabilities is 16 years and 23 years for acquisitions
completed during the years ended December 31, 2014 and 2013, respectively.
(c) Includes mortgage premium of $4,787 and $1,313 for acquisitions completed during the years ended December 31, 2014
and 2013, respectively.
(d) Net assets attributable to the MS Inland and RioCan acquisitions are presented at 100%.
The above acquisitions were funded using a combination of available cash on hand and proceeds from the Company’s unsecured
revolving line of credit. Transaction costs totaling $2,271, $937 and $0 for the years ended December 31, 2014, 2013 and 2012,
respectively, were expensed as incurred and included within “General and administrative expenses” in the accompanying
consolidated statements of operations and other comprehensive income (loss).
Included in the Company’s consolidated statements of operations and other comprehensive income (loss) from the properties
acquired are $55,303, $6,390 and $0 in total revenues, and $6,733, $597 and $0 in net income attributable to common shareholders
from the date of acquisition through December 31, 2014, 2013, and 2012, respectively.
Subsequent to December 31, 2014, the Company acquired the following properties:
•
the retail portion of Downtown Crown, a Class A mixed-use property located in Gaithersburg, Maryland, from a third
party for a gross purchase price of $162,785. The property was acquired on January 8, 2015 and contains approximately
258,000 square feet of retail space;
• Merrifield Town Center, a Class A mixed-use property located in Merrifield, Virginia, from a third party for a gross
purchase price of $56,500. The property was acquired on January 23, 2015 and contains approximately 85,000 square
feet of retail space; and
•
Fort Evans Plaza II, a Class A multi-tenant retail property located in Leesburg, Virginia, from a third party for a gross
purchase price of $65,000. The property was acquired on January 23, 2015 and contains approximately 229,000
square feet.
The Company has not completed the allocation of the acquisition date fair values for the properties acquired subsequent to December
31, 2014. However, it expects that the purchase price of these properties will primarily be allocated to building, land and acquired
lease intangibles.
Condensed Pro Forma Financial Information
The results of operations of the acquisitions accounted for as business combinations are included in the following unaudited
condensed pro forma financial information as if these acquisitions had been completed as of the beginning of the year prior to the
acquisition date. The results of operations of the Downtown Crown, Merrifield Town Center, and Fort Evans Plaza II acquisitions
will be included in the consolidated statements of operations and other comprehensive income (loss) beginning on their respective
acquisition dates. The following unaudited condensed pro forma financial information is presented as if the 2015 acquisitions were
completed as of January 1, 2014, the 2014 acquisitions were completed as of January 1, 2013, and the 2013 acquisitions were
completed as of January 1, 2012. The results of operations associated with the 2014 Bed Bath & Beyond Plaza acquisition have
not been included in the pro forma presentation as it has been accounted for as an asset acquisition. The Company did not have
any significant business combinations in 2012. These pro forma results are for comparative purposes only and are not necessarily
indicative of what the actual results of operations of the Company would have been had the acquisitions occurred at the beginning
of the periods presented, nor are they necessarily indicative of future operating results.
63
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The unaudited condensed pro forma financial information is as follows:
Total revenues
Net income
Net income attributable to common shareholders
Earnings per common share — basic and diluted
Net income per common share attributable to common shareholders
Weighted average number of common shares outstanding — basic
(4) Dispositions
Year Ended December 31,
2013
2012
2014
$
$
$
$
630,067
15,583
6,133
0.03
236,184
$
$
$
$
605,708
24,964
15,514
0.07
234,134
$
$
$
$
565,053
6,902
6,639
0.03
220,464
The Company monitors its investment properties to ensure that each property continues to meet investment and strategic objectives.
This approach results in the sale of certain non-strategic and non-core assets that no longer meet the Company’s investment criteria.
The Company closed on the following property dispositions during the year ended December 31, 2014:
Date
Property Name
Property Type
Continuing Operations:
Square
Footage
Consideration
Aggregate
Proceeds, Net
(a)
Gain (a)
December 22, 2014
Newburgh Crossing
Multi-tenant retail
62,900
$
December 16, 2014
Diebold Warehouse
Single-user industrial
December 4, 2014
Plaza at Riverlakes
November 24, 2014
Mission Crossing (b)
November 5, 2014
Crockett Square
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
October 31, 2014
October 29, 2014
October 20, 2014
October 2, 2014
August 27, 2014
August 26, 2014
August 19, 2014
August 19, 2014
August 15, 2014
August 15, 2014
August 1, 2014
May 16, 2014
April 1, 2014
The Market at Clifty Crossing
Multi-tenant retail
Shoppes at Stroud
Various (c)
Gloucester Town Center
Four Peaks Plaza
Crossroads Plaza CVS
Greenwich Center
Boston Commons
Fisher Scientific
Stanley Works/Mac Tools
Battle Ridge Pavilion
Beachway Plaza &
Cornerstone Plaza (d)
Midtown Center
Multi-tenant retail
Single-user retail
Multi-tenant retail
Multi-tenant retail
Single-user retail
Multi-tenant retail
Multi-tenant retail
Single-user office
Single-user office
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
158,700
102,800
178,200
107,100
175,900
136,400
65,400
107,200
140,400
16,000
182,600
103,400
114,700
72,500
103,500
189,600
408,500
2,425,800
10,000
11,500
17,350
24,250
9,750
19,150
26,850
24,400
10,350
9,900
7,650
22,700
9,820
14,000
10,350
14,100
24,450
47,150
313,720
$
9,770
$
10,752
17,021
23,545
9,565
18,883
26,466
23,846
9,722
9,381
7,411
21,977
9,586
13,715
10,184
13,722
23,584
46,043
305,173
—
2,879
4,127
5,936
822
5,292
485
6,362
—
—
2,863
5,871
—
3,732
1,375
1,327
819
—
41,890
Discontinued Operations:
March 11, 2014
Riverpark Phase IIA
Single-user retail
64,300
9,269
9,204
655
2,490,100
$
322,989
$
314,377
$
42,545
(a) Aggregate proceeds are net of transaction costs and exclude $324 of condemnation proceeds, which did not result in any additional gain
recognition.
(b) The disposition of Mission Crossing was executed in two separate transactions for a total sales price of $24,250. The 163,400 square foot
multi-tenant retail property, excluding the Walgreens outparcel, was sold for $17,250 to a third party and the 14,800 square foot Walgreens
outparcel was sold for $7,000 to a different third party.
(c) The Company sold a portfolio of five drug stores located in Pennsylvania, Wisconsin and Alabama in a single transaction.
(d) The terms of the disposition of Beachway Plaza and Cornerstone Plaza were negotiated as a single transaction. The Company recognized
a gain on sale of $527 during the second quarter of 2014 and an additional gain of $292 during the fourth quarter of 2014 that was deferred
at disposition.
64
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The Company also received consideration of $700, net proceeds of $699 and recorded a gain of $306 from the sale of an outparcel
at one of its properties. The aggregate proceeds, net of closing costs, from the property sales and additional transactions during
the year ended December 31, 2014 totaled $315,400 with aggregate gains of $42,851. During the year ended December 31, 2014,
the Company repaid or defeased $128,947 in mortgages payable prior to or in connection with the 2014 dispositions.
During 2013, the Company sold 20 properties. The dispositions and certain additional transactions, including earnouts, pad sales
and condemnations, resulted in aggregate proceeds, net of transaction costs, of $326,766 with aggregate gains of $47,085.
During 2012, the Company sold 31 properties. The dispositions and certain additional transactions, including earnouts and
condemnations, resulted in aggregate proceeds, net of transaction costs, of $453,320 with aggregate gains of $37,984.
As of December 31, 2014, the Company had entered into contracts to sell Promenade at Red Cliff, a 94,500 square foot multi-
tenant retail property located in St. George, Utah, and Aon Hewitt East Campus, a 343,000 square foot single-user office property
located in Lincolnshire, Illinois. These properties qualified for held for sale accounting treatment upon meeting all applicable
GAAP criteria on or prior to December 31, 2014, at which time depreciation and amortization were ceased. As such, the assets
and liabilities associated with these properties are separately classified as held for sale in the consolidated balance sheets as of
December 31, 2014. Riverpark Phase IIA, which was sold on March 11, 2014, was classified as held for sale as of December 31,
2013.
The following table presents the assets and liabilities associated with the investment properties classified as held for sale:
Assets
Land, building and other improvements
Accumulated depreciation
Net investment properties
Other assets
Assets associated with investment properties held for sale
Liabilities
Mortgages payable
Other liabilities
Liabilities associated with investment properties held for sale
December 31,
2014
December 31,
2013
$
$
$
$
36,020
(5,358)
30,662
2,978
33,640
8,075
128
8,203
$
$
$
$
10,285
(2,206)
8,079
537
8,616
6,435
168
6,603
65
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The Company does not allocate general corporate interest expense to discontinued operations. The results of operations for the
investment properties that are accounted for as discontinued operations, which consists of investment properties sold and classified
as held for sale on or prior to December 31, 2013, including Riverpark Phase IIA, are presented in the table below:
Revenues:
Rental income
Tenant recovery income
Other property income
Total revenues
Expenses:
Property operating expenses
Real estate taxes
Depreciation and amortization
Provision for impairment of investment properties
Gain on extinguishment of debt
Gain on extinguishment of other liabilities
Interest expense
Other (income) expense, net
Total expenses
Year Ended December 31,
2013
2012
2014
$
$
(123)
144
23
44
$
24,448
5,142
7,571
37,161
121
3
—
—
—
—
68
—
192
4,802
5,664
11,075
32,547
(26,331)
(3,511)
3,632
(113)
27,765
55,507
7,284
1,544
64,335
7,941
8,209
27,468
24,519
—
—
20,256
5
88,398
(Loss) income from discontinued operations, net
$
(148)
$
9,396
$
(24,063)
(5) Compensation Plans
On May 22, 2014, the Company’s shareholders approved the Company’s 2014 Long-Term Equity Compensation Plan (the 2014
Plan), which replaces the Company’s 2008 Long-Term Equity Compensation Plan and Third Amended and Restated Independent
Director Stock Option and Incentive Plan (Director Plan). The 2014 Plan, subject to certain conditions, authorizes the issuance of
incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock,
performance shares, dividend equivalent rights and cash-based awards to the Company’s employees, non-employee directors,
consultants and advisors in connection with compensation and incentive arrangements that may be established by the Company’s
board of directors or executive management.
The following table represents a summary of the Company’s unvested restricted shares as of and for the years ended December 31,
2014, 2013 and 2012:
Unvested
Restricted
Shares
Weighted Average
Grant Date Fair
Value per
Restricted Share
14
$
$
32
— $
— $
$
46
$
116
(9)
$
(1)
$
$
152
$
303
(58)
$
(1)
$
$
396
17.13
17.38
—
—
17.30
14.27
15.53
15.61
15.11
13.89
14.50
15.61
14.26
Balance as of January 1, 2012
Shares granted (a)
Shares vested
Shares forfeited
Balance as of December 31, 2012
Shares granted (a)
Shares vested
Shares forfeited
Balance as of December 31, 2013
Shares granted (b)
Shares vested
Shares forfeited
Balance as of December 31, 2014
66
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(a) Of the shares granted to the Company’s executives in 2012 and 2013, 50% vest on each of the third and fifth anniversaries
of the grant date. Shares granted to Company employees in 2013 vest ratably over three years and shares granted to the
Company’s non-employee directors vested on May 22, 2014, the date of the annual stockholder meeting.
(b) Shares granted in 2014 vest ratably over periods ranging from one to three years in accordance with the terms of
applicable award documents.
During the years ended December 31, 2014, 2013 and 2012, the Company recorded compensation expense of $3,417, $455 and
$211, respectively, related to unvested restricted shares. As of December 31, 2014, total unrecognized compensation expense
related to unvested restricted shares was $2,126, which is expected to be amortized over a weighted average term of 1.0 year. The
total fair value of shares vested during the year ended December 31, 2014 was $840. During the year ended December 31, 2013,
the Company recorded $113 of additional compensation expense related to the accelerated vesting of nine restricted shares in
conjunction with the resignation of its former Chief Accounting Officer. The total fair value of shares vested during the year ended
December 31, 2013 was $139.
Prior to 2013, non-employee directors had been granted options to acquire shares under the Company’s Director Plan. As of
December 31, 2014, options to purchase 84 shares of common stock had been granted, of which options to purchase three shares
had been exercised, options to purchase six shares had expired and options to purchase 11 shares had been forfeited. As of
December 31, 2013, options to purchase 84 shares of common stock had been granted, of which options to purchase one share
had been exercised and options to purchase five shares had expired.
The Company did not grant any options in 2013 or 2014. During 2012, the Company calculated the per share weighted average
grant date fair value of options using the Black-Scholes option pricing model utilizing the following assumptions: expected dividend
yield of 5.66%; expected volatility rate of 21.65%; expected life of five years and a risk-free interest rate of 0.67%. The grant date
fair value per share for 2012 was $0.92.
Compensation expense of $3, $24 and $49 related to stock options was recorded during the years ended December 31, 2014, 2013
and 2012, respectively.
(6) Leases
The majority of revenues from the Company’s properties consist of rents received under long-term operating leases. In addition
to base rent paid monthly in advance, some leases provide for the reimbursement of the tenant’s pro rata share of certain operating
expenses incurred by the landlord including real estate taxes, special assessments, insurance, utilities, common area maintenance,
management fees and certain capital repairs, subject to the terms of the respective lease. 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
accompanying consolidated statements of operations and other comprehensive income (loss). Under leases where all expenses are
paid by the landlord, subject to reimbursement by the tenant, the expenses are included in “Property operating expenses” or “Real
estate taxes” and reimbursements are included in “Tenant recovery income” in the accompanying consolidated statements of
operations and other comprehensive income (loss).
In certain municipalities, the Company is required to remit sales taxes to governmental authorities based upon the rental income
received from properties in those regions. These taxes are reimbursed by the tenant to the Company depending upon the terms of
the applicable tenant lease. The presentation of the remittance and reimbursement of these taxes is on a gross basis with sales tax
expenses included in “Property operating expenses” and sales tax reimbursements included in “Other property income” in the
accompanying consolidated statements of operations and other comprehensive income (loss). Such taxes remitted to governmental
authorities, which are reimbursed by tenants, exclusive of amounts attributable to discontinued operations, were $1,985, $1,791
and $1,794 for the years ended December 31, 2014, 2013 and 2012, respectively.
67
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
Minimum lease payments to be received under operating leases, excluding payments under master lease agreements, additional
percentage rent based on tenants’ sales volume and tenant reimbursements of certain operating expenses and assuming no exercise
of renewal options or early termination rights, are as follows:
2015
2016
2017
2018
2019
Thereafter
Total
Minimum Lease
Payments (a)
$
$
447,535
408,877
357,000
310,505
242,518
821,430
2,587,865
(a) Excludes minimum lease payments related to two investment properties classified as held for sale as of
December 31, 2014.
The remaining lease terms range from less than one year to more than 45 years.
Many of the leases at the Company’s retail properties contain provisions that condition a tenant’s obligation to remain open, the
amount of rent payable by the tenant or potentially the tenant’s obligation to remain in the lease, upon certain factors, including:
(i) the presence and continued operation of a certain anchor tenant or tenants, (ii) minimum occupancy levels at the applicable
property or (iii) tenant sales amounts. If such a provision is triggered by a failure of any of these or other applicable conditions, a
tenant could have the right to cease operations at the applicable property, have its rent reduced or terminate its lease early. The
Company does not expect that such provisions will have a material impact on its future operating results.
The Company leases land under non-cancellable operating leases at certain of its properties expiring in various years from 2023
to 2090, exclusive of any available option periods. In addition, the Company leases office space for certain management offices
and its corporate office. The following table summarizes rent expense included in the accompanying consolidated statements of
operations and other comprehensive income (loss), including straight-line rent expense:
Ground lease rent expense (a)
Office rent expense (b)
Year Ended December 31,
2013
2012
2014
$
$
11,676
1,210
$
$
9,758
962
$
$
9,217
846
(a) Included in “Property operating expenses” in the accompanying consolidated statements of operations and other comprehensive
income (loss). Excludes amounts attributable to discontinued operations, but includes straight-line ground rent expense of
$3,889, $3,486 and $3,251 for the years ended December 31, 2014, 2013 and 2012, respectively.
(b) Office rent expense related to property management operations is included in “Property operating expenses” and office rent
expense related to corporate office operations is included in “General and administrative expenses” in the accompanying
consolidated statements of operations and other comprehensive income (loss).
Minimum future rental obligations to be paid under the ground and office leases, including fixed rental increases, are as follows:
2015
2016
2017
2018
2019
Thereafter
Total
Minimum Lease
Obligations
$
$
8,440
8,293
8,362
8,428
8,773
519,964
562,260
68
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(7) Mortgages Payable
The following table summarizes the Company’s mortgages payable:
December 31, 2014
December 31, 2013
Aggregate
Principal
Balance
Weighted
Average
Interest Rate
Weighted
Average Years
to Maturity
Aggregate
Principal
Balance
Weighted
Average
Interest Rate
Weighted
Average Years
to Maturity
Fixed rate mortgages payable (a)
$
1,616,063
Variable rate construction loan (b)
Mortgages payable
Premium, net of accumulated amortization
Discount, net of accumulated amortization
14,900
1,630,963
3,972
(470)
Mortgages payable, net
$
1,634,465
6.03%
2.44%
5.99%
4.0
0.8
3.9
$
1,673,080
11,359
1,684,439
1,175
(981)
$
1,684,633
6.15%
2.44%
6.13%
4.9
0.8
4.9
(a) Includes $8,124 and $8,337 of variable rate mortgage debt that was swapped to a fixed rate as of December 31, 2014 and 2013, respectively,
and excludes mortgages payable of $8,075 and $6,435 associated with investment properties classified as held for sale as of December 31,
2014 and 2013, respectively. The fixed rate mortgages had interest rates ranging from 3.35% to 8.00% and 3.50% to 8.00% as of December 31,
2014 and 2013, respectively.
(b) The variable rate construction loan bears interest at a floating rate of London Interbank Offered Rate (LIBOR) plus 2.25%.
Mortgages Payable
During the year ended December 31, 2014, the Company repaid and defeased mortgages payable in the total amount of $179,465
(excluding $55 from condemnation proceeds which were paid to the lender and scheduled principal payments of $17,554 related
to amortizing loans). The loans repaid and defeased during the year ended December 31, 2014 had a weighted average fixed interest
rate of 6.08%. In addition, during the year ended December 31, 2014, as part of the MS Inland acquisitions, the Company assumed
the in-place mortgage financing on the acquired properties of $141,698 at a weighted average interest rate of 4.79%.
The majority of the Company’s mortgages payable require monthly payments of principal and interest, as well as reserves for real
estate taxes and certain other costs. The Company’s properties and the related tenant leases are pledged as collateral for the fixed
rate mortgages payable while a consolidated joint venture property and the related tenant leases are pledged as collateral for the
variable rate construction loan. Although the mortgage loans obtained by the Company are generally non-recourse, occasionally,
the Company may guarantee all or a portion of the debt on a full-recourse basis. As of December 31, 2014, the Company had
guaranteed $7,991 of the outstanding mortgage and construction loans with maturity dates ranging from November 2, 2015 through
September 30, 2016 (see Note 17). At times, the Company has borrowed funds financed as part of a cross-collateralized package,
with cross-default provisions, in order to enhance the financial benefits of a transaction. In those circumstances, one or more of
the Company’s properties may secure the debt of another of the Company’s properties. As of December 31, 2014, the most significant
cross-collateralized mortgage loan was the IW JV 2009, LLC (IW JV) mortgage in the amount of $462,896, excluding $8,075
associated with one of the 54 properties securing the mortgage that is classified as held for sale.
69
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
Debt Maturities
The following table shows the scheduled maturities and principal amortization of the Company’s indebtedness as of December 31,
2014, for each of the next five years and thereafter and the weighted average interest rates by year. The table does not reflect the
impact of any 2015 debt activity.
2015
2016
2017
2018
2019
Thereafter
Total
Debt:
Fixed rate debt:
Mortgages payable (a)
$ 376,659
$
67,736
$ 321,126
$
12,414
$ 502,882
$
335,246
$ 1,616,063
Unsecured credit facility - fixed rate
portion of term loan (b)
Unsecured notes payable
Total fixed rate debt
Variable rate debt:
Construction loan
Unsecured credit facility
Total variable rate debt
—
—
—
—
—
—
300,000
—
—
—
376,659
67,736
321,126
312,414
502,882
—
250,000
585,246
300,000
250,000
2,166,063
14,900
—
14,900
—
—
—
—
—
—
—
150,000
150,000
—
—
—
—
—
—
14,900
150,000
164,900
Total debt (c)
$ 391,559
$
67,736
$ 321,126
$ 462,414
$ 502,882
$
585,246
$ 2,330,963
Weighted average interest rate on debt:
Fixed rate debt
Variable rate debt
Total
5.59%
2.44%
5.47%
5.06%
—
5.06%
5.53%
—
5.53%
2.18%
1.62%
2.00%
7.50%
—
7.50%
4.72%
—
4.72%
5.28%
1.69%
5.03%
(a) Includes $8,124 of variable rate mortgage debt that was swapped to a fixed rate as of December 31, 2014. Excludes mortgage premium of
$3,972 and discount of $(470), net of accumulated amortization, which was outstanding as of December 31, 2014 and a mortgage payable
of $8,075 associated with one investment property classified as held for sale as of December 31, 2014.
(b) $300,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through February 24, 2016. The swap effectively converts
one-month floating rate LIBOR to a fixed rate of 0.53875% over the term of the swap.
(c) As of December 31, 2014, the weighted average years to maturity of consolidated indebtedness was 4.3 years.
The Company plans on addressing its debt maturities through a combination of proceeds from asset dispositions, capital markets
transactions and its unsecured revolving line of credit.
(8) Unsecured Notes Payable
On June 30, 2014, the Company issued $250,000 of unsecured notes in a private placement transaction pursuant to a note purchase
agreement the Company entered into on May 16, 2014 with various institutional investors. The proceeds were used to pay down
a portion of the Company’s unsecured revolving line of credit in anticipation of the repayment of future secured debt maturities.
The following table summarizes the Company’s unsecured notes payable as of December 31, 2014:
Unsecured Notes Payable
Series A senior notes
Series B senior notes
Maturity Date
June 30, 2021
June 30, 2024
Principal
Balance
$
$
100,000
150,000
250,000
Total
Interest Rate/
Weighted Average
Interest Rate
4.12%
4.58%
4.40%
The note purchase agreement contains customary representations, warranties and covenants, and events of default. Pursuant to the
terms of the note purchase agreement, the Company is subject to various financial covenants, some of which are based upon the
financial covenants in effect in the Company’s primary credit facility, including the requirement to maintain the following: (i)
maximum unencumbered, secured and consolidated leverage ratios; (ii) minimum interest coverage and unencumbered interest
coverage ratios; and (iii) a minimum consolidated net worth. As of December 31, 2014, management believes the Company was
in compliance with the financial covenants and default provisions under the note purchase agreement.
70
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(9) Credit Facility
On May 13, 2013, the Company entered into its third amended and restated unsecured credit agreement with a syndicate of financial
institutions led by KeyBank National Association and Wells Fargo Securities LLC to provide for an unsecured credit facility
aggregating $1,000,000. The third amended and restated credit facility consists of a $550,000 unsecured revolving line of credit
and a $450,000 unsecured term loan (collectively, the unsecured credit facility). The Company has the ability to increase available
borrowings up to $1,450,000 in certain circumstances.
The unsecured credit facility is currently priced on a leverage grid at a rate of LIBOR plus a margin ranging from 1.50% to 2.05%,
plus a quarterly unused fee ranging from 0.25% to 0.30% depending on the undrawn amount, for the unsecured revolving line of
credit and LIBOR plus a margin ranging from 1.45% to 2.00% for the unsecured term loan. On January 27, 2014, the Company
received its first of two investment grade credit ratings. In accordance with the unsecured credit agreement, the Company may
elect to convert to an investment grade pricing grid. Upon making such an election and depending on the Company’s credit rating,
the interest rate for the unsecured revolving line of credit would equal LIBOR plus a margin ranging from 0.90% to 1.70%, plus
a facility fee ranging from 0.15% to 0.35%, and for the unsecured term loan, LIBOR plus a margin ranging from 1.05% to 2.05%.
As of December 31, 2014, making such an election would have resulted in a higher interest rate and, as such, the Company has
not made the election to convert to an investment grade pricing grid.
The following table summarizes the Company’s unsecured credit facility:
Credit Facility
Term loan - fixed rate portion (a)
Term loan - variable rate portion
Maturity Date
May 11, 2018
May 11, 2018
Revolving line of credit - variable rate
May 12, 2017 (b)
Total
December 31, 2014
December 31, 2013
Balance
300,000
150,000
—
450,000
$
$
Interest Rate/
Weighted Average
Interest Rate
1.99% $
1.62%
1.67%
1.87% $
Balance
300,000
150,000
165,000
615,000
Interest Rate/
Weighted Average
Interest Rate
1.99%
1.62%
1.67%
1.81%
(a) $300,000 of the term loan has been swapped to a fixed rate of 0.53875% plus a margin based on a leverage grid ranging from 1.45% to
2.00% through February 24, 2016. The applicable margin was 1.45% as of December 31, 2014 and 2013.
(b) The Company has a one year extension option on the unsecured revolving line of credit, which it may exercise as long as it is in compliance
with the terms of the unsecured credit agreement and it pays an extension fee equal to 0.15% of the commitment amount being extended.
The unsecured credit agreement contains customary representations, warranties and covenants, and events of default. Pursuant to
the terms of the unsecured credit agreement, the Company is subject to various financial covenants, including the requirement to
maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) minimum fixed charge and
unencumbered interest coverage ratios; and (iii) a minimum consolidated net worth. As of December 31, 2014, management
believes the Company was in compliance with the financial covenants and default provisions under the unsecured credit agreement.
(10) Derivatives
The Company’s objective in using interest rate derivatives is to manage its exposure to interest rate movements and add stability
to interest expense. To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management
strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in
exchange for the Company making fixed rate payments over the life of the agreement without exchange of the underlying notional
amount.
The Company utilizes two interest rate swaps to hedge the variable cash flows associated with variable rate debt. The effective
portion of changes in the fair value of derivatives that are designated and that qualify as cash flow hedges is recorded in “Accumulated
other comprehensive loss” and is reclassified to interest expense as interest payments are made on the Company’s variable rate
debt. Over the next 12 months, the Company estimates that an additional $631 will be reclassified as an increase to interest expense.
The ineffective portion of the change in fair value of derivatives is recognized directly in earnings.
71
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The following table summarizes the Company’s interest rate swaps that were designated as cash flow hedges of interest rate risk:
Interest Rate Derivatives
Interest rate swaps
Number of Instruments
Notional
December 31,
2014
December 31,
2013
December 31,
2014
December 31,
2013
2
2
$
308,124
$
308,337
The table below presents the estimated fair value of the Company’s derivative financial instruments, which are presented within
“Other liabilities” in the consolidated balance sheets. The valuation techniques utilized are described in Note 16 to the consolidated
financial statements.
Derivatives designated as cash flow hedges:
Interest rate swaps
$
562
$
751
Fair Value
December 31,
2014
December 31,
2013
The following table presents the effect of the Company’s derivative financial instruments on the consolidated statements of
operations and other comprehensive income (loss):
Derivatives in
Cash Flow
Hedging
Relationships
Amount of Loss
Recognized in Other
Comprehensive Income
on Derivative
(Effective Portion)
2014
2013
Location of Loss
Reclassified from
Accumulated Other
Comprehensive
Income (AOCI)
into Income
(Effective Portion)
Location of
Loss (Gain)
Recognized In
Income on Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing)
Amount of Loss (Gain)
Recognized in Income
on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
2014
2013
Amount of Loss
Reclassified from
AOCI into Income
(Effective Portion)
2014
2013
Interest rate swaps
$
981
$
1,444
Interest Expense
$
1,182
$
1,960
Other income, net
$
12
$
(912)
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision whereby if the Company defaults
on the related indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then
the Company could also be declared in default on its corresponding derivative obligation.
The Company’s agreements with each of its derivative counterparties also contain a provision whereby if the Company consolidates
with, merges with or into, or transfers all or substantially all of its assets to another entity and the creditworthiness of the resulting,
surviving or transferee entity is materially weaker than the Company’s, the counterparty has the right to terminate the derivative
obligations. As of December 31, 2014, the termination value of derivatives in a liability position, which includes accrued interest
but excludes any adjustment for non-performance risk, which the Company has deemed not significant, was $581. As of
December 31, 2014, the Company has not posted any collateral related to these agreements. If the Company had breached any of
these provisions as of December 31, 2014, it could have been required to settle its obligations under the agreements at their
termination value of $581.
(11) Investment in Unconsolidated Joint Ventures
Investment Summary
The following table summarizes the Company’s investments in unconsolidated joint ventures:
Joint Venture
MS Inland (a)
Oak Property and Casualty LLC (b)
Date of
Investment
4/27/2007
10/1/2006
Ownership Interest
Investment at
December 31,
2014
December 31,
2013
December 31,
2014
December 31,
2013
—%
—%
20.0% $
20.0%
$
— $
—
— $
6,915
8,861
15,776
72
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(a) The MS Inland unconsolidated joint venture was formed with a large state pension fund; the Company was the managing member of the
venture and earned fees for providing property management and leasing services. However, the Company had the ability to exercise significant
influence, but did not have financial or operating control over this joint venture, and as a result, the Company accounted for its investment
pursuant to the equity method of accounting. On June 5, 2014, the Company dissolved its joint venture arrangement with its partner in MS
Inland through the acquisition of the six properties owned by the joint venture.
(b) Through December 1, 2014, Oak Property & Casualty LLC (the Captive) was an insurance association owned by the Company and three
other unaffiliated parties (four other unaffiliated parties as of December 31, 2013). The Captive was formed to insure/reimburse the members’
deductible obligations for property and general liability insurance claims subject to certain limitations. The Company entered into the Captive
to stabilize insurance costs, manage exposures and recoup expenses. It had been determined that the Captive was a VIE, but because the
Company did not hold the power to most significantly impact the Captive’s performance, the Company was not considered the primary
beneficiary. Accordingly, the Company’s investment in the Captive was accounted for pursuant to the equity method of accounting. The
Company’s risk of loss was limited to its investment and the Company was not required to fund additional capital to the Captive. Effective
December 1, 2014, the Company terminated its participation in the Captive and established a new wholly-owned captive insurance company.
See Note 17 for further details.
Under the equity method of accounting, the Company’s net equity investment in each unconsolidated joint venture is reflected in
the accompanying consolidated balance sheets and the Company’s share of net income or loss from each unconsolidated joint
venture is reflected in the accompanying consolidated statements of operations and other comprehensive income (loss).
Distributions from these investments that are related to income from operations are included as operating activities and distributions
that are related to capital transactions are included as investing activities in the accompanying consolidated statements of cash
flows.
Combined condensed financial information of the Company’s joint ventures (at 100%) for the periods attributable to the Company’s
ownership is summarized as follows:
Assets
Real estate assets
Less accumulated depreciation
Real estate, net
Other assets, net
Total assets
Liabilities
Mortgage debt
Other liabilities, net
Total liabilities
Total equity
Total liabilities and equity
Combined
Condensed Total
December 31,
2014
December 31,
2013
$
$
$
$
— $
—
—
—
— $
— $
—
—
—
— $
270,916
(52,624)
218,292
49,227
267,519
142,537
22,725
165,262
102,257
267,519
73
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
RioCan (a)
2013
2014
2012
2014
Hampton (b)
2013
2012
Other Joint Ventures (c)
2012
2013
2014
Combined Condensed Total
2012
2013
2014
Year ended December 31,
$ — $36,758
—
—
— 36,758
$ 48,483
—
48,483
—
—
—
5,001
6,187
21,964
457
7,033
—
— (4,436)
— 36,206
7,315
8,570
33,947
993
10,067
823
61,715
$ — $ — $ — $11,853
—
6,679
— 18,532
—
—
—
—
—
—
—
—
—
—
—
6
—
—
—
40
1,660
2,339
3,948
268
— (1,758)
—
(13)
— (1,765)
(319)
3,028
— 11,921
23,164
(279)
$27,841
8,174
36,015
$27,115
7,884
34,999
$11,853
6,679
18,532
$64,599
8,174
72,773
$ 75,598
7,884
83,482
3,522
5,267
9,601
454
7,129
6,025
31,998
4,439
4,711
10,720
248
7,853
6,625
34,596
1,660
2,339
3,948
268
3,028
11,921
23,164
8,523
11,454
31,565
917
12,404
1,576
66,439
11,754
13,281
44,667
1,281
17,601
7,448
96,032
—
552
(13,232)
— (1,026)
(2,415)
—
—
(117)
(1,278)
1,765
279
(4,632)
4,017
403
(4,632)
6,334
(12,550)
—
—
52
2,399
— (1,091)
(1,294)
—
—
—
1,019
—
—
—
—
—
1,019
—
$ — $ (474) $(15,647) $ — $ 2,667
$ (999) $ (4,632) $ 4,069
$ 2,802
$ (4,632) $ 6,262
$(13,844)
Revenues:
Property related income
Other income
Total revenues
Expenses:
Property operating expenses
Real estate taxes
Depreciation and amortization
General and administrative
expenses
Interest expense, net
Other (income) expense, net
Total expenses
Income (loss) from continuing
operations
(Loss) income from
discontinued operations (d)
Gain on sales of investment
properties - discontinued
operations
Net (loss) income
(a) On October 1, 2013, the Company dissolved its joint venture arrangement with its partner in RC Inland L.P. (RioCan).
(b) During 2013, the Company dissolved its joint venture arrangement with its partner in Hampton Retail Colorado, L.L.C. (Hampton).
(c) On June 5, 2014, the Company dissolved its joint venture arrangement with its partner in MS Inland. In addition, effective December 1,
2014, the Company terminated its investment in the Captive.
(d) Included within “(Loss) income from discontinued operations” are the following: property-level operating results attributable to the five
properties the Company acquired from its RioCan unconsolidated joint venture on October 1, 2013; all property-level operating results
attributable to the Hampton unconsolidated joint venture; and, the property-level operating results recognized by the Company’s MS Inland
unconsolidated joint venture related to a property sold to the Company’s RioCan unconsolidated joint venture. The property-level operating
results for the portfolio of properties held by the Company’s MS Inland unconsolidated joint venture are presented within “Income (loss)
from continuing operations” above given that the Company’s acquisition of its partner’s 80% interest in all of the properties was a transaction
among partners. The property-level operating results of the eight RioCan properties in which the Company’s partner acquired the Company’s
20% interest are presented within “Income (loss) from continuing operations” above given the continuity of the controlling financial interest
before and after the dissolution transaction.
Profits, Losses and Capital Activity
The following table summarizes the Company’s share of net income (loss) as well as net cash distributions from (contributions
to) each unconsolidated joint venture:
The Company’s Share of
Net Income (Loss) for the
Years Ended December 31,
Net Cash Distributions from/
(Contributions to) Joint Ventures for
the Years Ended December 31,
Fees Earned by the Company for the
Years Ended December 31,
Joint Venture
2014
2013
2012
2014
2013
2012
2014
2013
2012
MS Inland (a)
Hampton (b)
RioCan (c)
Captive (d)
$
241
$
661
$
18
$
1,360
$
2,369
$
1,992
$
338
$
859
$
—
—
(2,444)
2,576
(176)
(2,589)
(890)
(2,467)
(3,081)
—
—
(25)
855
(2,394)
(2,503)
68
10,958
(3,268)
—
—
—
1
1,648
—
851
3
2,109
—
$
(2,203)
$
472
$
(6,420)
$
1,335
$
(1,673)
$
9,750
$
338
$
2,508
$
2,963
(a) On June 5, 2014, the Company dissolved its joint venture arrangement with its partner in MS Inland.
(b) During the years ended December 31, 2013 and 2012, Hampton determined that the carrying value of certain of its assets was not recoverable
and, accordingly, recorded property level impairment charges in the amounts of $298 and $1,593, of which the Company’s share was $286
and $1,527, respectively. The joint venture’s estimates of fair value relating to these impairment assessments were based upon bona fide
purchase offers. During 2013, the Company dissolved its joint venture arrangement with its partner in Hampton.
74
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(c) On October 1, 2013, the Company dissolved its joint venture arrangement with its partner in RioCan.
(d) Effective December 1, 2014, the Company terminated its participation in the Captive.
In addition to the Company’s share of net income (loss) for each unconsolidated joint venture, amortization of basis differences
is recorded within “Equity in loss of unconsolidated joint ventures, net” in the consolidated statements of operations and other
comprehensive income (loss). Such basis differences resulted from the differences between the Company’s net book values based
on historical cost and the fair values of investment properties contributed to its unconsolidated joint ventures and are amortized
over the depreciable lives of the joint ventures’ real estate assets and liabilities. The Company recorded amortization of $115, $116
and $113, which was accretive to net income, related to these differences during the years ended December 31, 2014, 2013 and
2012, respectively.
The Company did not have any unconsolidated joint ventures as of December 31, 2014. When the Company holds investments
in unconsolidated joint ventures, they are reviewed for potential impairment, in addition to impairment evaluations of the individual
assets underlying these investments, each reporting period or whenever events or changes in circumstances warrant such an
evaluation. To determine whether impairment, if any, is other-than-temporary, the Company considers whether it has the ability
and intent to hold the investment until the carrying value is fully recovered. As a result of such evaluations, impairment charges
of $1,834 were recorded during the year ended December 31, 2013 to write down the carrying value of the Company’s investment
in Hampton. The Company’s Hampton joint venture arrangement was dissolved during the year ended December 31, 2013. No
impairment charges to the Company’s investments in unconsolidated joint venture’s were recorded during the years ended December
31, 2014 and 2012.
Acquisitions and Dispositions
On June 5, 2014, the Company dissolved its joint venture arrangement with its partner in MS Inland by acquiring its partner’s
80% ownership interest in the six multi-tenant retail properties owned by the joint venture (see Note 3). The six properties had, at
acquisition, a combined fair value of $292,500, with the Company’s partner’s interest valued at $234,000. The Company paid total
cash consideration of approximately $120,600 before transaction costs and prorations and after assumption of the joint venture’s
in-place mortgage financing on those properties of $141,698 at a weighted average interest rate of 4.79%. The Company accounted
for this transaction as a business combination achieved in stages and recognized a gain on change in control of investment properties
of $24,158 in the second quarter of 2014 as a result of remeasuring the carrying value of its 20% interest in the six acquired
properties to fair value. The following table summarizes the calculation of the gain on change in control of investment properties
recognized in conjunction with the transaction discussed above:
Fair value of the net assets acquired at 100%
Fair value of the net assets acquired at 20%
Less: Carrying value of the Company’s previous investment in the six properties
acquired on June 5, 2014
Gain on change in control of investment properties
$
$
$
150,802
30,160
6,002
24,158
On October 1, 2013, the Company dissolved its joint venture arrangement with its partner in RioCan as follows:
• The Company acquired its partner’s 80% ownership interest in five properties owned by the joint venture (see Note 3).
The properties have a fair value of approximately $124,800, with the Company’s partner’s interest valued at approximately
$99,900. The Company paid total cash consideration of approximately $45,500 before transaction costs and prorations
and after assumption of the joint venture’s in-place mortgage financing on those properties of approximately $67,900 at
a weighted average interest rate of 4.8%. The Company accounted for this transaction as a business combination and
recognized a gain on change in control of investment properties of $5,435 as a result of remeasuring the carrying value
of its 20% interest in the five acquired properties to fair value. The following table summarizes the calculation of the gain
on change in control of investment properties recognized in conjunction with the transaction discussed above:
Fair value of the net assets acquired at 100%
Fair value of the net assets acquired at 20%
Less: Carrying value of the Company’s previous investment in the five properties
acquired on October 1, 2013
Gain on change in control of investment properties
75
$
$
$
56,919
11,384
5,949
5,435
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
• The Company sold to its partner its 20% ownership interest in the remaining eight properties owned by the joint venture.
The properties have a fair value of approximately $477,500, with the Company’s 20% interest valued at approximately
$95,500. The Company received cash consideration of approximately $53,700 before transaction costs and prorations
and after the partner assumed the joint venture’s in-place mortgage financing on those properties of approximately
$209,200 at a weighted average interest rate of 3.7%. The Company recognized a $17,499 gain on sale of its interest in
RioCan as a result of the transaction upon meeting all applicable sales criteria. The following table summarizes the
calculation of the gain on sale of joint venture interest recognized in conjunction with the transaction described above:
Investment in RioCan at September 30, 2013
Less: Carrying value of the Company’s previous investment in the five properties
acquired on October 1, 2013
Pre-disposition investment in RioCan
Net consideration received at close for the Company’s interest in RioCan
Less: Pre-disposition investment in RioCan
Gain on sale of joint venture interest
$
$
$
$
41,523
5,949
35,574
53,073
35,574
17,499
Also during the year ended December 31, 2013, Hampton sold the two remaining properties in its portfolio. Such transactions
aggregated a combined sales price of $13,300, resulting in a gain on sale of $1,019 on one of the properties. Proceeds from the
sales were used to pay down the entire $12,631 balance of the joint venture’s outstanding debt. As of December 31, 2013, no
properties remained in the Hampton joint venture and the venture had been dissolved.
(12) Equity
On March 7, 2013, the Company established an at-the-market (ATM) equity program under which it may sell shares of its Class
A common stock, having an aggregate offering price of up to $200,000, from time to time. Actual sales may depend on a variety
of factors, including, among others, market conditions and the trading price of the Company’s Class A common stock. The net
proceeds are expected to be used for general corporate purposes, which may include repaying debt, including the Company's
unsecured revolving line of credit, and funding acquisitions.
The Company did not sell any shares under its ATM equity program during the year ended December 31, 2014.
The following table presents activity under the Company’s ATM equity program:
First quarter 2013
Second quarter 2013
Third quarter 2013
Fourth quarter 2013
Year to date December 31, 2013
First quarter 2014
Second quarter 2014
Third quarter 2014
Fourth quarter 2014
Year to date December 31, 2014
Number of
common
shares sold
Total net
consideration
Average price
per share
56
5,491
—
—
5,547
—
—
—
—
—
$
$
$
$
$
$
$
$
$
$
688
82,839
—
—
83,527
—
—
—
—
—
$
$
$
$
$
$
$
$
$
$
14.94
15.30
—
—
15.29
—
—
—
—
—
As of December 31, 2014, the Company had Class A common shares having an aggregate offering price of up to $115,165 remaining
available for sale under its ATM equity program.
76
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(13) Earnings per Share
The following is a reconciliation between weighted average shares used in the basic and diluted earnings per share (EPS)
calculations:
Numerator:
Income (loss) from continuing operations
Gain on sales of investment properties, net
Preferred stock dividends
Income (loss) from continuing operations attributable to common shareholders
Income from discontinued operations
Net income (loss) attributable to common shareholders
Distributions paid on unvested restricted shares
Net income (loss) attributable to common shareholders excluding amounts
attributable to unvested restricted shares
Denominator:
Denominator for earnings (loss) per common share — basic:
Weighted average number of common shares outstanding
Effect of dilutive securities — stock options
Denominator for earnings (loss) per common share — diluted:
Weighted average number of common and common equivalent
shares outstanding
Year Ended December 31,
2013
2012
2014
$
597
42,196
(9,450)
33,343
507
33,850
(225)
$
(42,855)
5,806
(9,450)
(46,499)
50,675
4,176
(59)
$
(14,368)
7,843
(263)
(6,788)
6,078
(710)
(25)
$
33,625
$
4,117
$
(735)
236,184 (a)
3 (d)
234,134 (b)
— (d)
220,464 (c)
— (d)
236,187
234,134
220,464
(a) Excluded from this weighted average amount are 396 shares of unvested restricted common stock, which equate to 364 shares on a weighted
average basis for the year ended December 31, 2014. These shares will continue to be excluded from the computation of basic EPS until
contingencies are resolved and the shares are released.
(b) Excluded from this weighted average amount are 152 shares of unvested restricted common stock, which equate to 106 shares on a weighted
average basis for the year ended December 31, 2013. These shares will continue to be excluded from the computation of basic EPS until
contingencies are resolved and the shares are released.
(c) Excluded from this weighted average amount are 46 shares of unvested restricted common stock, which equate to 40 shares on a weighted
average basis for the year ended December 31, 2012. These shares will continue to be excluded from the computation of basic EPS until
contingencies are resolved and the shares are released.
(d) There were outstanding options to purchase 64, 78 and 83 shares of common stock as of December 31, 2014, 2013 and 2012, respectively,
at a weighted average exercise price of $19.32, $19.10 and $19.31, respectively. Of these totals, outstanding options to purchase 54, 78 and
83 shares of common stock as of December 31, 2014, 2013 and 2012, respectively, at a weighted average exercise price of $20.72, $19.10
and $19.31, respectively, have been excluded from the common shares used in calculating diluted earnings per share as including them
would be anti-dilutive.
(14) Income Taxes
The Company has elected to be taxed as a REIT under the Code. To qualify as a REIT, the Company must meet a number of
organizational and operational requirements, including a requirement to annually distribute to its shareholders at least 90% of its
REIT taxable income, prior to the deduction for dividends paid and excluding net capital gains. The Company intends to continue
to adhere to these requirements and to maintain its REIT status. As a REIT, the Company is entitled to a deduction for some or all
of the distributions it pays to shareholders. Accordingly, the Company is generally subject to U.S. federal income taxes on any
taxable income that is not currently distributed to its shareholders. If the Company fails to qualify as a REIT in any taxable year,
it will be subject to U.S. federal income taxes and may not be able to qualify as a REIT until the fifth subsequent taxable year.
Notwithstanding the Company’s qualification as a REIT, the Company may be subject to certain state and local taxes on its income
or properties. In addition, the Company’s consolidated financial statements include the operations of one wholly-owned subsidiary
that has jointly elected to be treated as a TRS and is subject to U.S. federal, state and local income taxes at regular corporate tax
rates. The Company did not record any income tax expense related to the TRS for the year ended December 31, 2014. The Company
recorded $189 and $150 of income tax expense related to the TRS for the years ended December 31, 2013 and 2012, respectively.
As a REIT, the Company may also be subject to certain U.S. federal excise taxes if it engages in certain types of transactions.
77
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
Deferred income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized
for the estimated future consequences attributable 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 rates in effect for
the year in which these temporary differences are expected to reverse. 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, the magnitude and timing of future projected taxable income and tax planning strategies. The
Company believes that it is not more likely than not that a portion of its net deferred tax asset will be realized in future periods
and therefore, has recorded a valuation allowance for a portion of the balance, resulting in no effect on the consolidated financial
statements.
The Company’s deferred tax assets and liabilities as of December 31, 2014 and 2013 were as follows:
Deferred tax assets:
Basis difference in properties
Capital loss carryforward
Net operating loss carryforward
Other
Gross deferred tax assets
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Other
Net deferred tax assets
2014
2013
$
$
$
14,211
3,225
2,995
140
20,571
(20,355)
216
(216)
—
$
16,417
—
2,228
194
18,839
(18,631)
208
(208)
—
The Company’s deferred tax assets and liabilities result from the activities of the TRS. As of December 31, 2014, the TRS had a
capital loss carryforward and a federal net operating loss carryforward of $8,753 and $8,131, respectively, which if not utilized,
will begin to expire in 2018 and 2031, respectively.
Differences between net income (loss) from the consolidated statements of operations and other comprehensive income (loss) and
the Company’s taxable income (loss) primarily relate to impairment charges recorded on investment properties and the timing of
both revenue recognition and investment property depreciation and amortization.
The following table reconciles the Company’s net income (loss) to REIT taxable income before the dividends paid deduction for
the years ended December 31, 2014, 2013 and 2012:
Net income (loss) attributable to the Company
Book/tax differences
REIT taxable income subject to 90% dividend requirement
2014
2013
2012
$
$
43,300
71,910
115,210
$
$
13,626
60,098
73,724
$
$
(447)
3,807
3,360
The Company’s dividends paid deduction for the years ended December 31, 2014, 2013 and 2012 is summarized below:
Cash distributions paid
Less: non-dividend distributions
Total dividends paid deduction attributable to earnings and profits
2014
2013
$
$
166,025
(50,815)
115,210
$
$
164,391
(90,667)
73,724
$
$
2012
140,017
(136,657)
3,360
78
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
A summary of the tax characterization of the distributions paid per share to shareholders of the Company’s preferred stock and
common stock for the years ended December 31, 2014, 2013 and 2012 follows:
Preferred stock
Ordinary dividends
Non-dividend distributions
Total distributions per share
Common stock
Ordinary dividends
Non-dividend distributions
Total distributions per share
2014
2013
2012
$
$
$
$
1.75
—
1.75
0.45
0.21
0.66
$
$
$
$
1.80
—
1.80
0.27
0.39
0.66
$
$
$
$
—
—
—
0.02 (a)
0.64
0.66
(a) $0.02 included in ordinary dividends is considered a qualified dividend.
The Company records a benefit for uncertain income tax positions if the result of a tax position meets a “more likely than not”
recognition threshold. No liabilities have been recorded as of December 31, 2014 or 2013 as a result of this provision. The Company
expects no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of
December 31, 2014. Returns for the calendar years 2011 through 2014 remain subject to examination by federal and various state
tax jurisdictions.
(15) Provision for Impairment of Investment Properties
As of December 31, 2014, the Company identified certain indicators of impairment at eight of its properties, two of which were
classified as held for sale as of December 31, 2014. Such indicators included a low occupancy rate, difficulty in leasing space and
related cost of re-leasing, financially troubled tenants or reduced anticipated holding periods. The Company performed individual
cash flow analyses for this population and determined it was necessary to record impairment charges to write down the carrying
value of its investment in three properties to each property’s estimated fair value. One property, Promenade at Red Cliff, which is
classified as held for sale as of December 31, 2014, was considered to have an impairment indicator, however was not considered
impaired based upon the anticipated sales price of the property. For the remaining four properties, the Company determined that
the projected undiscounted cash flows based upon the estimated holding period for each asset exceeded their respective carrying
value by a weighted average of 48%.
The investment property impairment charges recorded by the Company during the year ended December 31, 2014 are summarized
below:
Property Name
Midtown Center (a)
Gloucester Town Center
Boston Commons (a)
Four Peaks Plaza (a)
Shaw’s Supermarket (c)
The Gateway (d)
Newburgh Crossing (a)
Hartford Insurance Building (e)
Citizen’s Property Insurance Building (e)
Aon Hewitt East Campus (f)
Property Type
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Single-user retail
Multi-tenant retail
Multi-tenant retail
Single-user office
Single-user office
Single-user office
Impairment Date
March 31, 2014
Various (b)
August 19, 2014
August 27, 2014
September 30, 2014
September 30, 2014
December 22, 2014
December 31, 2014
December 31, 2014
December 31, 2014
Square
Footage
Provision for
Impairment of
Investment
Properties
408,500
107,200
103,400
140,400
65,700
623,200
62,900
97,400
59,800
343,000
Total
$
$
394
6,148
453
4,154
6,230
42,999
1,139
5,782
4,341
563
72,203
Estimated fair value of impaired properties as of impairment date $
190,953
(a) The Company recorded impairment charges based upon the terms and conditions of an executed sales contract for each of the respective
properties, which were sold during 2014 and are included in continuing operations.
(b) An impairment charge was recorded on June 30, 2014 based upon the terms of a bona fide purchase offer and additional impairment was
recognized on September 30, 2014 pursuant to the terms and conditions of an executed sales contract.
79
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(c) The Company recorded an impairment charge upon re-evaluating the strategic alternatives for the property.
(d) The Company recorded an impairment charge as a result of a combination of factors including the expected impact on future operating
results stemming from a re-evaluation of the anticipated positioning of, and tenant population at, the property and a re-evaluation of other
potential strategic alternatives for the property.
(e) The Company recorded impairment charges driven by changes in the estimated holding periods for the properties.
(f) The Company recorded an impairment charge based upon the terms and conditions of an executed sales contract. This property was classified
as held for sale as of December 31, 2014 and was sold on January 20, 2015.
As part of its analyses performed as of December 31, 2013, the Company identified certain indicators of impairment at 14 of its
properties, nine of which were either sold or held for sale as of December 31, 2014. Such indicators included a low occupancy
rate, difficulty in leasing space and related cost of re-leasing, financially troubled tenants or reduced anticipated holding periods.
The Company performed individual cash flow analyses for this population and determined it was necessary to record impairment
charges to write down the carrying value of its investment in three properties to each property’s estimated fair value. One property,
Riverpark Phase IIA, which was classified as held for sale as of December 31, 2013, was considered to have an impairment
indicator, however was not considered to be impaired based upon the terms and conditions of the executed sales contract in place
as of December 31, 2013. For the remaining 10 properties, the Company determined that the projected undiscounted cash flows
based upon the estimated holding period for each asset exceeded their respective carrying value by a weighted average of 20%.
The investment property impairment charges recorded by the Company during the year ended December 31, 2013 are summarized
below:
Property Name
Aon Hewitt East Campus (a)
Four Peaks Plaza (b)
Lake Mead Crossing (b)
Discontinued Operations:
University Square (c)
Raytheon Facility
Shops at 5
Preston Trail Village
Rite Aid - Atlanta
Property Type
Single-user office
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Single-user office
Multi-tenant retail
Multi-tenant retail
Single-user retail
Impairment Date
September 30, 2013
December 31, 2013
December 31, 2013
June 30, 2013
Various (d)
Various (d)
Various (d)
Various (d)
Square
Footage
Provision for
Impairment of
Investment
Properties
$
343,000
140,400
221,200
287,000
105,000
421,700
180,000
10,900
Total
$
27,183
7,717
24,586
59,486
6,694
2,518
21,128
1,941
266
32,547
92,033
Estimated fair value of impaired properties as of impairment date $
134,853
(a) The Company recorded an impairment charge driven by a change in the estimated holding period for the property. The amount of the
impairment charge was based upon the terms and conditions of a bona fide purchase offer received from an unaffiliated third party.
(b) The Company recorded impairment charges driven by changes in the estimated holding periods for the properties.
(c) The Company recorded an impairment charge upon re-evaluating the strategic alternatives for the property, which was subsequently sold
on October 25, 2013.
(d) Impairment charges were recorded at various dates during the year ended December 31, 2013 initially based upon the terms of bona fide
purchase offers, subsequent revisions pursuant to contract negotiations or final disposition price, as applicable.
As part of its analyses performed as of December 31, 2012, the Company identified certain indicators of impairment at 13 of its
properties, six of which were either sold or held for sale as of December 31, 2014. Such indicators included a low occupancy rate,
difficulty in leasing space and related cost of re-leasing, financially troubled tenants or reduced anticipated holding periods. The
Company performed individual cash flow analyses for this population and determined it was necessary to record impairment
charges to write down the carrying value of its investment in three properties to each property’s estimated fair value. For the
remaining seven properties, the Company determined that the projected undiscounted cash flows based upon the estimated holding
period for each asset exceeded their respective carrying value by a weighted average of 57%.
80
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The investment property impairment charges recorded by the Company during the year ended December 31, 2012 are summarized
below:
Property Name
Towson Circle
Discontinued Operations:
Various (b)
Various (c)
Mervyns - McAllen
Mervyns - Bakersfield
Pro’s Ranch Market
American Express - Phoenix
Mervyns - Fontana
Mervyns - Ridgecrest
Dick’s Sporting Goods - Fresno
Mervyns - Highland
Property Type
Multi-tenant retail
Single-user retail
Multi-tenant retail
Single-user retail
Single-user retail
Single-user retail
Single-user office
Single-user retail
Single-user retail
Multi-tenant retail
Single-user retail
Impairment Date
June 25, 2012
September 18, 2012
September 25, 2012
September 30, 2012
September 30, 2012
Various (d)
Various (d)
December 24, 2012
Various (d)
Various (d)
Various (d)
Square
Footage
Provision for
Impairment of
Investment
Properties
n/a (a)
$
1,323
1,000,400
132,600
78,000
75,100
75,500
117,600
79,000
59,000
77,400
80,500
Total
1,100
5,528
2,950
37
2,749
4,902
352
1,622
2,982
2,297
24,519
25,842
161,039
$
$
Estimated fair value of impaired properties as of impairment date
(a) The Company sold a parcel of land to an unaffiliated third party for which the allocated carrying value was $1,323 greater than the sales
price. Such disposition did not qualify for discontinued operations accounting treatment.
(b) The Company recorded an impairment charge in conjunction with the sale of 13 former Mervyns properties located throughout California
based upon the terms and conditions of the executed sales contract.
(c) The Company recorded an impairment charge in conjunction with the sale of three multi-tenant retail properties located near Dallas, Texas
based upon the terms and conditions of the executed sales contract.
(d) Impairment charges were recorded at various dates during the year ended December 31, 2012 initially based upon the terms of bona fide
purchase offers, subsequent revisions pursuant to contract negotiations or final disposition price, as applicable.
The Company can provide no assurance that material impairment charges with respect to the Company’s investment properties
will not occur in future periods.
(16) Fair Value Measurements
Fair Value of Financial Instruments
The following table presents the carrying value and estimated fair value of the Company’s financial instruments:
December 31, 2014
December 31, 2013
Carrying
Value
Fair Value
Carrying
Value
Fair Value
Financial liabilities:
Mortgages payable, net
Unsecured notes payable
Credit facility
Derivative liability
$
$
$
$
1,634,465
250,000
450,000
562
$
$
$
$
1,749,671
258,360
451,502
562
$
$
$
$
1,684,633
$
— $
$
$
615,000
751
1,827,638
—
617,478
751
The carrying values of mortgages payable, net and unsecured notes payable in the table are included in the consolidated balance
sheets under the indicated captions. The carrying value of the credit facility is comprised of the “Unsecured term loan” and the
“Unsecured revolving line of credit” and the carrying value of the derivative liability is included in “Other liabilities” in the
consolidated balance sheets.
81
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
Fair Value Hierarchy
A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an
orderly transaction. The hierarchy for inputs used in measuring fair value are as follows:
• Level 1 Inputs — Unadjusted quoted prices in active markets for identical assets or liabilities.
• Level 2 Inputs — Observable inputs other than quoted prices in active markets for identical assets and liabilities.
• Level 3 Inputs — Prices or valuation techniques that require inputs that are both significant to the fair value measurement
and unobservable.
When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement
is categorized is based on the lowest level input that is significant to the fair value measurement.
Recurring Fair Value Measurements
The following table presents the Company’s financial instruments, which are measured at fair value on a recurring basis, by the
level in the fair value hierarchy within which those measurements fall. Methods and assumptions used to estimate the fair value
of these instruments are described after the table.
December 31, 2014
Derivative liability
December 31, 2013
Derivative liability
Level 1
Level 2
Level 3
Total
Fair Value
$
$
— $
562
— $
751
$
$
— $
562
— $
751
Derivative liability: The fair value of the derivative liability is determined using a discounted cash flow analysis on the expected
future cash flows of each derivative. This analysis utilizes observable market data including forward yield curves and implied
volatilities to determine the market’s expectation of the future cash flows of the variable component. The fixed and variable
components of the derivative are then discounted using calculated discount factors developed based on the LIBOR swap rate and
are aggregated to arrive at a single valuation for the period. 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. Although the Company has determined that the majority of the inputs used to value its derivatives fall within
Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as
estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31,
2014 and 2013, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation
of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation. As
a result, the Company has determined that its derivative valuations in their entirety are appropriately classified within Level 2 of
the fair value hierarchy. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company
has considered any applicable credit enhancements. The Company’s derivative instruments are further described in Note 10.
82
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
Nonrecurring Fair Value Measurements
The following table presents the Company’s assets measured on a nonrecurring basis as of December 31, 2014 and 2013, aggregated
by the level within the fair value hierarchy in which those measurements fall. The table includes information related to properties
remeasured to fair value during the years ended December 31, 2014 and 2013, except for those properties sold prior to December 31,
2014 and 2013, respectively. Methods and assumptions used to estimate the fair value of these assets are described after the table.
Fair Value
December 31, 2014
Investment properties
Investment properties - held for sale (c)
December 31, 2013
Investment properties (d)
Level 1
Level 2
Level 3
Total
$
$
$
—
—
—
$
$
$
—
17,233
—
$
$
$
86,500 (b) $
$
—
86,500
17,233
75,000
$
75,000
Provision for
Impairment (a)
$
$
$
59,352
563
59,486
(a) Excludes impairment charges recorded on investment properties sold prior to December 31, 2014 and 2013, respectively.
(b) Represents the fair values of the Company’s Shaw’s Supermarket, The Gateway, Hartford Insurance Building and Citizen’s Property Insurance
Building investment properties. The estimated fair values of Shaw’s Supermarket and The Gateway of $3,100 and $75,400, respectively,
were determined using the income approach. The income approach involves discounting the estimated income stream and reversion
(presumed sale) value of a property over an estimated holding period to a present value at a risk-adjusted rate. Discount rates, growth
assumptions and terminal capitalization rates utilized in this approach are derived from property-specific information, market transactions
and other industry data. The terminal capitalization rate and discount rate are significant inputs to this valuation. The following were the
key Level 3 inputs used in estimating the fair value of Shaw’s Supermarket and The Gateway as of September 30, 2014.
Rental growth rates
Operating expense growth rates
Discount rates
Terminal capitalization rates
2014
Low
Varies (i)
1.39%
8.25%
7.50%
High
Varies (i)
3.70%
9.50%
8.50%
(i) Since cash flow models are established at the tenant level, projected rental revenue growth rates fluctuate over the
course of the estimated holding period based upon the timing of lease rollover, amount of available space and other
property and space-specific factors.
The estimated fair values of Hartford Insurance Building and Citizen’s Property Insurance Building of $5,000 and $3,000, respectively,
were based upon third party comparable sales prices, which contain unobservable inputs used by these third parties to determine the estimated
fair values.
(c) Represents an impairment charge recorded during the the three months ended December 31, 2014 for Aon Hewitt East Campus, which was
classified as held for sale as of December 31, 2014. Such charge, calculated as the expected sales price from the executed sales contract
less estimated transaction costs as compared to the Company’s carrying value of its investment, was determined to be a Level 2 input. The
estimated transaction costs totaling $738 are not reflected as a reduction to the fair value disclosed in the table above.
(d) Includes impairment charges to write down the carrying value of the Company’s Aon Hewitt East Campus, Four Peaks Plaza and Lake
Mead Crossing investment properties to estimated fair value. The estimated fair value of Aon Hewitt East Campus of $18,000 was based
upon a bona fide purchase offer received by the Company from an unaffiliated third party (a Level 3 input). The estimated fair value of
Four Peaks Plaza and Lake Mead Crossing of $14,000 and $43,000, respectively, were determined using the income approach. See footnote
(b) above for a full description of the income approach. The following were the key Level 3 inputs used in estimating the fair value of Four
Peaks Plaza and Lake Mead Crossing as of December 31, 2013.
Rental growth rates
Operating expense growth rates
Discount rates
Terminal capitalization rates
83
2013
Low
Varies (i)
3.27%
7.29%
6.79%
High
Varies (i)
3.56%
8.45%
8.49%
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(i) Since cash flow models are established at the tenant level, projected rental revenue growth rates fluctuate over
the course of the estimated holding period based upon the timing of lease rollover, amount of available space
and other property and space-specific factors.
Fair Value Disclosures
The following table presents the Company’s financial liabilities, which are measured at fair value for disclosure purposes, by the
level in the fair value hierarchy within which those measurements fall. Methods and assumptions used to estimate the fair value
of these instruments are described after the table.
December 31, 2014
Mortgages payable, net
Unsecured notes payable
Credit facility
December 31, 2013
Mortgages payable, net
Credit facility
Level 1
Level 2
Level 3
Total
Fair Value
$
$
$
$
$
— $
— $
— $
— $
— $
— $
1,749,671
258,360
451,502
— $
— $
— $
— $
1,827,638
617,478
$
$
$
$
$
1,749,671
258,360
451,502
1,827,638
617,478
Mortgages payable, net: The Company estimates the fair value of its mortgages payable by discounting the future cash flows of
each instrument at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities.
The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rate for each of
the Company’s individual mortgages payable based upon the specific terms of the agreement, including the term to maturity, the
quality and nature of the underlying property and its leverage ratio. The rates used range from 2.2% to 4.0% and 2.4% to 5.6% as
of December 31, 2014 and 2013, respectively.
Unsecured notes payable: The Company estimates the fair value of its unsecured notes payable by discounting the future cash
flows at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities. The rates used
are not directly observable in the marketplace and judgment is used in determining the appropriate rates. The weighted average
rate used was 3.97% as of December 31, 2014.
Credit facility: The Company estimates the fair value of its credit facility by discounting the future cash flows related to the credit
spreads at rates currently offered to the Company by its lenders for similar facilities of comparable maturities. The rates used are
not directly observable in the marketplace and judgment is used in determining the appropriate rates. The rates used to discount
the credit spreads were 1.35% for the unsecured term loan as of both December 31, 2014 and 2013 and 1.40% for the unsecured
revolving line of credit as of December 31, 2013.
There were no transfers between the levels of the fair value hierarchy during the years ended December 31, 2014 and 2013.
(17) Commitments and Contingencies
Insurance Captive
On December 1, 2014, the Company formed a wholly-owned captive insurance company, Birch Property and Casualty LLC (Birch),
which insures the Company’s first layer of property and general liability insurance claims subject to certain limitations. The
Company capitalized Birch in accordance with the applicable regulatory requirements and Birch established annual premiums
based on projections derived from the past loss experience of the Company’s properties.
Guarantees
Although the mortgage loans obtained by the Company are generally non-recourse, occasionally the Company may guarantee all
or a portion of the debt on a full-recourse basis. As of December 31, 2014, the Company has guaranteed $7,991 of its outstanding
mortgage and construction loans, with maturity dates ranging from November 2, 2015 through September 30, 2016.
84
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(18) Litigation
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 such matters cannot be predicted with certainty, management believes, based on currently available
information, that the final outcome of such matters will not have a material effect on the consolidated financial statements of the
Company.
(19) Subsequent Events
Subsequent to December 31, 2014, the Company:
•
drew $225,000, net of repayments, on its unsecured revolving line of credit and used the proceeds and available cash on
hand to acquire the following properties:
•
the retail portion of Downtown Crown, a Class A mixed-use property located in Gaithersburg, Maryland, from a third
party for a gross purchase price of $162,785. The property contains approximately 258,000 square feet of retail space;
• Merrifield Town Center, a Class A mixed-use property located in Merrifield, Virginia, from a third party for a gross
purchase price of $56,500. The property contains approximately 85,000 square feet of retail space; and
•
Fort Evans Plaza II, a Class A multi-tenant retail property located in Leesburg, Virginia, from a third party for a gross
purchase price of $65,000. The property contains approximately 229,000 square feet.
•
closed on the disposition of Aon Hewitt East Campus, a 343,000 square foot single-user office property located in
Lincolnshire, Illinois, for a sales price of $17,233 with no significant gain or loss on sale due to impairment charges
previously recognized; and
•
repaid a pool of mortgages payable with an aggregate principal balance of $18,504 and an interest rate of 6.39%.
On February 10, 2015, the Company’s board of directors declared the cash dividend for the first quarter of 2015 for the Company’s
7.00% Series A cumulative redeemable preferred stock. The dividend of $0.4375 per preferred share will be paid on March 31,
2015 to preferred shareholders of record at the close of business on March 20, 2015.
On February 10, 2015, the Company’s board of directors declared the distribution for the first quarter of 2015 of $0.165625 per
share on the Company’s outstanding Class A common stock, which will be paid on April 10, 2015 to Class A common shareholders
of record at the close of business on March 27, 2015.
85
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(20) Quarterly Financial Information (unaudited)
The following table sets forth selected quarterly financial data for the Company:
Total revenues (a)
Net income (loss)
Net income (loss) attributable to common shareholders
Net income (loss) per common share attributable to common
shareholders — basic and diluted
Weighted average number of common shares outstanding — basic
Weighted average number of common shares outstanding — diluted
Total revenues (a)
Net income (loss)
Net income (loss) attributable to common shareholders
Net income (loss) per common share attributable to common
shareholders — basic and diluted
2014
Dec 31
Sep 30
Jun 30
Mar 31
153,531
25,865
23,502
0.10
$
$
$
$
151,446
(26,736)
(29,098)
$
$
$
146,446
30,043
27,680
(0.12)
$
0.12
$
$
$
$
149,191
14,128
11,766
0.05
236,204
236,203
236,176
236,151
236,207
236,203
236,179
236,153
2013
Dec 31
Sep 30
Jun 30
Mar 31
150,689
37,087
34,724
0.15
$
$
$
$
136,198
(37,552)
(39,914)
$
$
$
132,418
15,971
13,608
(0.17)
$
0.06
$
$
$
$
132,203
(1,880)
(4,242)
(0.02)
$
$
$
$
$
$
$
$
Weighted average number of common shares outstanding — basic
236,151
236,151
233,624
230,611
Weighted average number of common shares outstanding — diluted
236,151
236,151
233,627
230,611
(a) Unaudited quarterly “Total revenues” reflects the reclassification of a portion of amounts previously included in “Loss on lease terminations”
on the Company’s accompanying consolidated statements of operations and other comprehensive income (loss). The portion of loss on
lease terminations reclassified as an increase to rental income was $44, $140 and $403 for the quarterly periods ended September 30, June
30 and March 31, 2014, respectively. The portion of loss on lease terminations reclassified as a (decrease) or increase to rental income was
$(27), $72, $98 and $142 for the quarterly periods ended December 31, September 30, June 30 and March 31, 2013, respectively.
86
RETAIL PROPERTIES OF AMERICA, INC.
Schedule II
Valuation and Qualifying Accounts
For the Years Ended December 31, 2014, 2013 and 2012
(in thousands)
Year ended December 31, 2014
Allowance for doubtful accounts
Tax valuation allowance
Year ended December 31, 2013
Allowance for doubtful accounts
Tax valuation allowance
Year ended December 31, 2012
Allowance for doubtful accounts
Tax valuation allowance
Balance at
beginning
of year
Charged to
costs and
expenses
Write-offs
Balance at
end of year
$
$
$
$
$
$
8,197
18,631
6,452
7,852
8,231
8,900
2,689
1,724
4,600
10,779
(3,389)
$
— $
7,497
20,355
(2,855)
$
— $
8,197
18,631
969
(1,048)
(2,748)
$
— $
6,452
7,852
87
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2014
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
Encumbrance
Land
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
$
3,059
$
1,300
$
5,319
$
871
$
1,300
$
6,190
$
7,490
$
2,045
2003
—
1,230
2,549
1,340
3,096
1,050
—
3,215
2,530
1,045
3,752
2,943
3,954
3,963
5,700
—
3
6
—
281
1,230
1,340
1,050
3,215
1,045
3,752
2,946
3,960
3,963
5,981
4,982
4,286
5,010
7,178
7,026
1,432
2004
1,097
2004
1,476
2004
1,440
2004
2,263
2003
Date
Acquired
12/04
07/04
07/04
07/04
07/04
04/04
—
8,125
39,366
1,882
8,125
41,248
49,373
16,057
1987-1990
04/04
9,134
—
21,052
—
4,573
9,497
454
—
11,971
6,375
21,304
1,669
—
—
3,280
318
9,026
10,350
—
4,530
10,348
—
18,367
11,901
63
375
646
—
17,386
7,460
25,583
2,316
7,408
5,550
12,324
57
—
21,506
21,506
7,503
2002
4,573
6,375
3,280
318
9,497
14,070
31
2005
22,973
29,348
8,814
2004
10,411
13,691
2,766
2007
375
693
4
n/a
10,350
19,013
29,363
7,055
2004
05/05
11/14
10/04
10/07
05/06
10/04
4,530
7,460
5,550
11,901
16,431
4,105
2000-2002
07/05
27,899
35,359
10,396
1996-1999
04/04
12,381
17,931
4,377
2004
04/05
09/04
Property Name
23rd Street Plaza
Panama City, FL
Academy Sports
Houma, LA
Academy Sports
Midland, TX
Academy Sports
Port Arthur, TX
Academy Sports
San Antonio, TX
Alison's Corner
San Antonio, TX
Arvada Connection and Arvada
Marketplace
Arvada, CO
Ashland & Roosevelt
Chicago, IL
Avondale Plaza
Redmond, WA
Azalea Square I
Summerville, SC
Azalea Square III
Summerville, SC
Beachway Plaza outparcel (a)
Bradenton, FL
Bed Bath & Beyond Plaza
Miami, FL
Bed Bath & Beyond Plaza
Westbury, NY
Best on the Boulevard
Las Vegas, NV
Bison Hollow
Traverse City, MI
Boulevard at The Capital Centre
—
—
114,703
(29,779)
—
84,924
84,924
20,913
2004
Largo, MD
88
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2014
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
4,170
15,145
19,315
5,337
1994
Date
Acquired
04/05
45,300
31,218
76,518
11,039
1977/2004
04/05
Property Name
Boulevard Plaza
Pawtucket, RI
The Brickyard
Chicago, IL
Encumbrance
Land
2,375
4,170
—
45,300
Broadway Shopping Center
10,002
5,500
Bangor, ME
Brown's Lane
Middletown, RI
4,940
2,600
Central Texas Marketplace
45,386
13,000
—
—
—
7,100
8,500
4,940
3,450
—
—
—
2,150
1,775
16,700
12,351
5,830
—
6,413
Waco, TX
Centre at Laurel
Laurel, MD
Century III Plaza
West Mifflin, PA
Chantilly Crossing
Chantilly, VA
Cinemark Seven Bridges
Woodridge, IL
Citizen's Property Insurance Building
Jacksonville, FL
Clearlake Shores
Clear Lake, TX
Colony Square
Sugar Land, TX
The Columns
Jackson, TN
Commons at Royal Palm
Royal Palm Beach, FL
The Commons at Temecula
Temecula, CA
Coppell Town Center
Coppell, TX
Coram Plaza
Coram, NY
19,000
8,406
16,948
12,038
26,657
14,002
12,005
47,559
3,107
4,561
2,888
1,213
6,463
33,212
16,060
11,728
7,601
7,026
22,775
19,439
9,802
1,711
2,131
—
(6,802)
1,159
797
91
—
5,500
2,600
13,000
19,000
7,100
8,500
3,450
872
1,775
16,890
22,390
13,218
15,818
5,597
4,599
1960/1999-
2000
1985
54,022
67,022
15,258
2004
25,354
44,354
8,012
2005
34,923
42,023
12,029
1996
18,191
26,691
6,249
2004
11,728
15,178
4,002
2000
2,077
8,185
2,949
9,960
—
2005
2,866
2003-2004
04/05
16,700
23,572
40,272
7,367
1997
05/06
5,830
6,413
19,530
25,360
7,410
2004
9,802
16,215
261
2001
09/05
04/05
12/06
02/06
06/05
05/05
03/05
08/05
8/04 &
10/04
06/14
04/05
10/13
12/04
25,665
12,000
35,887
1,572
12,000
37,459
49,459
13,013
1999
10,730
2,919
13,281
38
2,919
13,319
16,238
669
1999
14,061
10,200
26,178
2,871
10,200
29,049
39,249
10,523
2004
89
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2014
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
Property Name
Corwest Plaza
New Britain, CT
Cottage Plaza
Pawtucket, RI
Cranberry Square
Cranberry Township, PA
Crown Theater
Hartford, CT
Cuyahoga Falls, OH
CVS Pharmacy
Burleson, TX
CVS Pharmacy (Eckerd)
Edmond, OK
CVS Pharmacy
Lawton, OK
CVS Pharmacy
Moore, OK
CVS Pharmacy (Eckerd)
Norman, OK
CVS Pharmacy
Oklahoma City, OK
CVS Pharmacy
Saginaw, TX
CVS Pharmacy
Sylacauga, AL
Cypress Mill Plaza
Cypress, TX
Davis Towne Crossing
North Richland Hills, TX
Denton Crossing
Denton, TX
Dorman Center I & II
Spartanburg, SC
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
Encumbrance
Land
14,487
6,900
10,736
3,000
23,851
19,158
63
197
11,021
3,000
18,736
1,209
—
7,318
954
Cuyahoga Falls Market Center
3,658
3,350
11,083
1,654
2,233
1,162
1,918
3,515
1,852
910
975
750
600
932
620
2,627
1,100
1,775
600
8,444
4,962
—
1,850
2,891
2,400
1,958
2,659
4,370
3,583
3,254
2,469
9,976
5,681
(60)
517
—
2
—
—
—
—
—
3
81
1,154
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
Date
Acquired
23,914
30,814
9,746
1999-2003
01/04
19,355
22,355
6,993
2004-2005
02/05
19,945
22,945
7,455
1996-1997
07/04
954
8,212
602
2000
11,600
14,950
4,045
1998
2,891
2,402
1,958
2,659
4,370
3,583
3,254
2,472
3,801
3,377
2,708
3,259
5,302
4,203
4,354
3,072
10,057
15,019
1,007
1999
979
688
942
2003
1999
2004
1,796
2003
1,248
1999
1,163
2004
922
575
2004
2004
07/05
04/05
06/05
12/03
05/05
05/05
12/03
06/05
03/05
10/04
10/13
7,014
8,685
2,507
2003-2004
06/04
54,997
60,997
20,152
2003-2004
10/04
6,900
3,000
3,000
7,258
3,350
910
975
750
600
932
620
1,100
600
4,962
1,671
6,000
27,267
6,000
43,434
11,563
20,574
17,025
29,478
1,003
17,025
30,481
47,506
12,298
2003-2004
3/04 & 7/04
90
Date
Acquired
06/06
05/04
11/04
05/05
05/05
12/04
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2014
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
Encumbrance
Land
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
—
2,900
28,714
(765)
2,826
28,023
30,849
8,644
2005
21,865
12,000
65,067
3,126
12,000
68,193
80,193
25,512
2002
6,508
3,500
9,501
—
13,728
11,800
4,275
1,700
—
—
—
4,800
2,540
17,209
8,219
2,430
10,956
35,421
33,098
6,425
268
—
—
632
13,490
4,391
6,393
96,547
14,836
458
31
711
9,025
3,755
15,563
(1,013)
3,500
11,224
14,724
4,131
2003
—
35,421
35,421
12,554
1988
11,800
33,098
44,898
11,730
1997
1,700
5,431
2,540
7,057
8,757
2,459
1995
17,250
22,681
6,070
2002-2004
01/05
6,851
9,391
17,209
96,578
113,787
2,433
4,102
1999/2004-
2005
Redev: 2009
12/04 &
3/05
11/13
2,430
3,755
15,547
17,977
5,924
2002
07/04
14,550
18,305
5,498
2003-2004
11/04
28,027
—
47,403
2,019
—
49,422
49,422
18,708
1988
4,082
1,250
4,947
37,276
12,348
56,199
347
16
1,250
5,294
6,544
1,858
2004
12,348
56,215
68,563
1,229
2000
06/04
06/05
06/14
95,853
28,665
110,945
(63,200)
18,163
58,247
76,410
885
2001-2003
05/05
24,226
9,880
—
—
55,195
26,371
1,005
3,693
91
9,880
56,200
66,080
20,363
2003-2004
12/04
—
30,064
30,064
10,957
2000
07/04
Property Name
East Stone Commons
Kingsport, TN
Eastwood Towne Center
Lansing, MI
Edgemont Town Center
Homewood, AL
Edwards Multiplex
Fresno, CA
Edwards Multiplex
Ontario, CA
Evans Towne Centre
Evans, GA
Fairgrounds Plaza
Middletown, NY
Five Forks (b)
Simpsonville, SC
Fordham Place
Bronx, NY
Forks Town Center
Easton, PA
Fox Creek Village
Longmont, CO
Fullerton Metrocenter
Fullerton, CA
Galvez Shopping Center
Galveston, TX
Gardiner Manor Mall
Bay Shore, NY
The Gateway
Salt Lake City, UT
Gateway Pavilions
Avondale, AZ
Gateway Plaza
Southlake, TX
Property Name
Gateway Station
College Station, TX
Gateway Station II & III
College Station, TX
Gateway Village
Annapolis, MD
Gerry Centennial Plaza
Oswego, IL
Golfsmith
Altamonte Springs, FL
Governor's Marketplace
Tallahassee, FL
Grapevine Crossing
Grapevine, TX
Green's Corner
Cumming, GA
Greensburg Commons
Greensburg, IN
Gurnee Town Center
Gurnee, IL
Hartford Insurance Building
Maple Grove, MN
Harvest Towne Center
Knoxville, TN
Henry Town Center
McDonough, GA
Heritage Square
Issaquah, WA
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2014
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
Encumbrance
Land
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
2,950
1,050
3,911
1,043
—
30,377
3,020
—
33,397
33,397
12,549
2001
1,050
3,280
8,550
5,370
1,250
3,894
3,200
2,700
7,000
788
2,963
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
Date
Acquired
4,954
6,004
1,803
2003-2004
12/04
11,601
14,881
2,826
2006-2007
05/07
43,581
52,131
16,431
1996
22,028
27,398
5,762
2006
07/04
06/07
2,976
4,226
954
1992/2004
11/05
17,297
21,191
6,073
2001
8,899
12,099
3,244
1997
19,655
22,355
6,840
1999
39,237
46,237
14,082
2000
08/04
04/05
12/04
04/05
10/04
08/05
4,184
5,140
4,972
8,103
—
2005
1,871
1996-1999
09/04
10,650
53,451
64,101
17,590
2002
6,377
3,065
6,860
3,075
11,576
17,953
381
1985
12,142
15,207
4,744
2002
33,865
40,725
12,485
1999
8,935
12,010
3,215
2004
12/04
02/14
03/04
01/04
03/05
—
3,280
36,377
8,550
5,370
1,250
—
—
—
11,557
39,298
12,968
2,974
44
4,283
9,060
2
11,119
4,100
16,938
5,320
3,200
8,663
10,250
2,700
19,080
153
236
575
15,106
7,000
35,147
4,090
—
—
—
—
1,700
3,155
10,650
6,377
13,709
(10,437)
5,085
(137)
46,814
11,385
10,729
33,323
9,148
6,637
191
1,413
542
(213)
92
Heritage Towne Crossing
8,120
3,065
Euless, TX
Hickory Ridge
Hickory, NC
High Ridge Crossing
High Ridge, MO
19,286
6,860
4,940
3,075
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2014
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
Property Name
Holliday Towne Center
Duncansville, PA
Home Depot Center
Pittsburgh, PA
Home Depot Plaza
Orange, CT
HQ Building
San Antonio, TX
Huebner Oaks Center
San Antonio, TX
Encumbrance
Land
7,790
2,200
—
—
10,750
9,700
9,070
5,200
37,588
18,087
Humblewood Shopping Center
6,430
2,200
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
11,609
16,758
17,137
10,010
64,731
12,823
9,247
52,762
23,932
19,144
(333)
—
1,666
4,192
96
28
1,090
1,131
(19)
(150)
2,200
11,276
13,476
4,173
2003
—
16,758
16,758
5,836
1996
18,803
28,503
6,291
1992
14,202
19,402
4,580
Redev: 2004
12/05
18,087
64,827
82,914
1,390
1996
06/14
Date
Acquired
02/05
06/05
06/05
12,851
15,051
4,281
Renov: 2005
11/05
10,358
12,937
3,569
1980 & 1985
12/04
53,893
76,990
13,514
2005
23,913
38,359
574
2004
3,710
18,994
22,704
6,328
2005
9,700
5,200
2,200
2,579
23,097
14,446
5,035
2,600
56,033
23,097
21,637
14,446
10,301
3,710
—
16,005
37,744
2,834
16,005
40,578
56,583
15,595
1996/1999
01/04
—
—
—
—
1,650
2,075
4,009
92
17,796
50,272
(35,902)
6,200
4,750
30,910
23,904
4,913
2,718
2,065
8,830
6,200
4,750
4,111
6,176
1,532
1999
23,336
32,166
1,427
2011
35,823
42,023
10,874
2005
26,622
31,372
8,867
2004
12,555
74,612
(14,276)
12,555
60,336
72,891
22,221
26,556
38,329
17,772
56
38,329
17,828
56,157
404
93
1998/2002-
2003
1997
Humble, TX
Irmo Station
Irmo, SC
Jefferson Commons
Newport News, VA
John's Creek Village
John's Creek, GA
King Philip's Crossing
Seekonk, MA
La Plaza Del Norte
San Antonio, TX
Lake Mary Pointe
Lake Mary, FL
Lake Mead Crossing (c)
Las Vegas, NV
Lake Worth Towne Crossing
Lake Worth, TX
Lakepointe Towne Center
Lewisville, TX
Lakewood Towne Center (d)
Lakewood, WA
Lincoln Park
Dallas, TX
02/08
06/14
11/05
10/04
10/06
06/06
05/05
06/04
06/14
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2014
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
Encumbrance
Land
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
Date
Acquired
38,533
13,000
46,482
22,548
13,110
68,920
82,030
22,377
2001-2004
09/05
Property Name
Lincoln Plaza
Worcester, MA
Low Country Village I & II
Bluffton, SC
Butler, NJ
MacArthur Crossing
Los Colinas, TX
Magnolia Square
Houma, LA
Manchester Meadows
Town and Country, MO
Mansfield Towne Crossing
Mansfield, TX
Maple Tree Place
Williston, VT
Massillon Commons
Massillon, OH
McAllen, TX
Mid-Hudson Center
Poughkeepsie, NY
Mitchell Ranch Plaza
New Port Richey, FL
Montecito Crossing
Las Vegas, NV
Lowe's/Bed, Bath & Beyond
12,863
7,423
799
—
2,910
16,614
(376)
(8)
6,799
4,710
16,265
1,857
6,365
2,635
—
—
—
14,700
3,300
28,000
6,983
4,090
—
—
9,900
5,550
15,040
39,738
12,195
67,361
12,521
2,958
29,160
26,213
(767)
1,257
3,623
4,748
473
(112)
21
505
McAllen Shopping Center
1,543
850
2,486
7,415
4,710
2,635
16,662
19,148
6,282
2004 & 2005
799
8,214
497
2005
06/04 &
09/05
08/05
18,122
22,832
7,071
1995-1996
02/04
14,273
16,908
5,232
2004
02/05
14,700
40,995
55,695
15,220
1994-1995
08/04
3,300
15,818
19,118
5,809
2003-2004
11/04
28,000
72,109
100,109
25,278
2004-2005
05/05
12,994
17,084
4,637
1986/2000
04/05
4,090
850
9,900
5,550
2,846
3,696
1,047
2004
29,181
39,081
10,078
2000
26,718
32,268
10,086
2003
12/04
07/05
08/04
10/05 &
01/08
10/05 &
11/06
10/13
12/03 &
02/04
12/04
2004-2005
& 2007
2003 &
2006
2003
1999 &
2004
1997
16,546
9,700
25,414
9,510
11,300
33,324
44,624
10,955
Mountain View Plaza I & II
—
5,180
Kalispell, MT
New Forest Crossing
Houston, TX
Newnan Crossing I & II
Newnan, GA
Newton Crossroads
Covington, GA
8,938
4,390
—
15,100
3,753
3,350
18,212
11,313
33,987
6,927
674
(6)
5,139
162
94
5,120
4,390
18,946
24,066
11,307
15,697
6,105
647
15,100
39,126
54,226
14,804
3,350
7,089
10,439
2,543
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2014
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
Property Name
Encumbrance
Land
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
North Rivers Towne Center
10,071
3,350
15,720
320
27,281
7,540
49,078
(14,642)
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
Date
Acquired
16,040
19,390
6,244
2003-2004
04/04
34,436
41,976
13,481
1999-2003
06/04
13,800
41,971
55,771
15,782
1991-1993
05/04
Charleston, SC
Northgate North
Seattle, WA
Northpointe Plaza
Spokane, WA
Northwood Crossing
Northport, AL
Northwoods Center
Wesley Chapel, FL
23,276
13,800
—
3,770
8,550
3,415
Orange Plaza (Golfland Plaza)
—
4,350
Orange, CT
The Orchard
New Hartford, NY
Oswego Commons
Oswego, IL
Pacheco Pass Phase I & II
Gilroy, CA
Page Field Commons
Fort Myers, FL
11,669
3,200
21,000
6,454
—
—
13,420
—
Paradise Valley Marketplace
9,216
6,590
Phoenix, AZ
Parkway Towne Crossing
Frisco, TX
Pavillion at Kings Grant I & II
Concord, NC
Pelham Manor Shopping Plaza
Pelham Manor, NY
Peoria Crossings I & II
Peoria, AZ
Phenix Crossing
Phenix City, AL
Pine Ridge Plaza
Lawrence, KS
14,817
18,587
4,759
1979/2004
01/06
15,871
19,286
5,732
2002-2004
12/04
7,220
11,570
2,199
1995
05/05
17,253
20,453
5,887
2004-2005
16,028
22,482
434
2002-2004
13,400
32,779
46,179
10,146
2004 & 2006
—
44,466
44,466
14,507
1999
6,590
6,142
20,953
27,543
8,233
2002
25,459
31,601
8,010
2010
07/05 &
9/05
06/14
07/05 &
06/07
05/05
04/04
08/06
12/03 &
06/06
11/13
03/04 &
05/05
12/04
—
—
—
6,142
—
24,131
6,995
4,180
2,600
67,870
32,816
6,776
10,274
12,392
11,872
10,274
24,264
34,538
—
67,946
67,946
7,461
3,175
2002-2003
& 2005
2008
35,185
43,680
13,624
7,097
9,697
2,615
2002-2003
& 2005
2004
—
5,000
19,802
22,699
27,699
8,389
1998/2004
06/04
37,707
13,658
9,475
4,834
17,151
16,004
32,784
43,355
20,425
20,423
4,264
1,159
6,396
2,386
102
24
(25)
1,111
528
5,036
76
3,869
321
2,897
95
3,350
7,540
3,770
3,415
4,350
3,200
6,454
8,495
2,600
5,000
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2014
(in thousands)
Property Name
Placentia Town Center
Placentia, CA
Plaza at Marysville
Marysville, WA
Plaza Santa Fe II
Santa Fe, NM
Pleasant Run
Cedar Hill, TX
Quakertown
Quakertown, PA
Rasmussen College
Brooklyn Park, MN
Red Bug Village
Winter Springs, FL
Reisterstown Road Plaza
Baltimore, MD
Initial Cost (A)
Gross amount carried at end of period
Encumbrance
Land
11,116
11,200
8,996
6,600
—
—
13,776
4,200
7,737
2,400
—
—
850
1,790
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
Date
Acquired
11,751
13,728
28,588
29,085
9,246
4,049
6,178
1,674
845
3,199
3,244
15
(344)
174
11,200
13,425
24,625
4,664
1973/2000
12/04
6,600
14,573
21,173
5,373
1995
07/04
—
31,787
31,787
12,005
2000-2002
06/04
4,200
2,400
500
1,790
32,329
36,529
11,552
2004
12/04
9,261
11,661
3,168
2004-2005
09/05
4,055
6,352
4,555
8,142
1,399
2005
2,211
2004
08/05
12/05
46,250
15,800
70,372
13,046
15,791
83,427
99,218
30,426
1986/2004
08/04
Rite Aid Store (Eckerd), Sheridan Dr.
2,903
2,000
Amherst, NY
Rite Aid Store (Eckerd), Transit Rd.
3,243
2,500
Amherst, NY
Rite Aid Store (Eckerd), E. Main St.
2,855
1,860
Batavia, NY
Rite Aid Store (Eckerd), W. Main St.
2,547
1,510
Batavia, NY
Rite Aid Store (Eckerd), Ferry St.
2,198
900
Buffalo, NY
Rite Aid Store (Eckerd), Main St.
2,174
1,340
Buffalo, NY
Rite Aid Store (Eckerd)
Canandaigua, NY
Rite Aid Store (Eckerd)
Chattanooga, TN
Rite Aid Store (Eckerd)
Cheektowaga, NY
3,091
1,968
1,673
750
2,117
2,080
2,722
2,764
2,786
2,627
2,677
2,192
2,575
2,042
1,393
—
2
19
—
—
—
1
—
—
96
2,000
2,500
1,860
1,510
900
1,340
1,968
750
2,080
2,722
2,766
2,805
2,627
2,677
2,192
2,576
2,042
1,393
4,722
5,266
4,665
4,137
3,577
3,532
4,544
2,792
3,473
915
929
939
883
899
736
866
711
468
1999
2003
2004
2001
2000
1998
2004
1999
1999
11/05
11/05
11/05
11/05
11/05
11/05
11/05
06/05
11/05
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2014
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
3,000
900
600
900
470
1,050
2,060
1,913
700
1,710
1,650
820
1,190
1,590
2,220
800
2,830
3,977
2,377
2,034
2,475
2,657
2,048
1,873
2,736
2,961
1,207
2,788
1,935
2,809
2,279
3,027
3,075
1,683
6,977
3,277
2,634
3,375
3,127
3,098
3,933
4,649
3,661
2,917
4,438
2,755
3,999
3,869
5,247
3,875
4,513
3,955
2,377
2,033
2,475
2,657
2,047
1,873
2,736
2,960
1,207
2,788
1,935
2,809
2,279
3,025
3,075
1,683
22
—
1
—
—
1
—
(27)
1
—
—
—
—
—
2
—
—
97
Date
Acquired
05/05
1,402
2005
947
2003-2004
06/04
789
2003-2004
06/04
827
893
1999
1998
11/05
11/05
794
2003-2004
06/04
629
919
2002
2002
11/05
11/05
1,149
2003-2004
06/04
405
937
650
944
766
1999
2002
2000
1999
2001
1,017
2001
1,033
2000
566
2003
11/05
11/05
11/05
11/05
11/05
11/05
11/05
11/05
Property Name
Rite Aid Store (Eckerd)
Colesville, MD
Rite Aid Store (Eckerd)
Columbia, SC
Rite Aid Store (Eckerd)
Crossville, TN
Rite Aid Store (Eckerd)
Grand Island, NY
Rite Aid Store (Eckerd)
Greece, NY
Rite Aid Store (Eckerd)
Greer, SC
Rite Aid Store (Eckerd)
Hudson, NY
Rite Aid Store (Eckerd)
Irondequoit, NY
Rite Aid Store (Eckerd)
Kill Devil Hills, NC
Rite Aid Store (Eckerd)
Lancaster, NY
Rite Aid Store (Eckerd)
Lockport, NY
Rite Aid Store (Eckerd)
North Chili, NY
Rite Aid Store (Eckerd)
Olean, NY
Encumbrance
Land
3,088
3,000
1,663
1,330
1,665
1,926
900
600
900
470
1,596
1,050
2,409
2,060
2,850
1,940
1,900
700
1,786
1,710
2,716
1,650
1,682
820
2,452
1,190
Rite Aid Store (Eckerd), Culver Rd.
2,376
1,590
Rochester, NY
Rite Aid Store (Eckerd), Lake Ave.
3,210
2,220
Rochester, NY
Rite Aid Store (Eckerd)
Tonawanda, NY
2,370
800
Rite Aid Store (Eckerd), Harlem Rd.
2,770
2,830
West Seneca, NY
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2014
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
—
2,700
11,532
(11,198)
2,160
3,034
24,214
16,060
40,274
827
34
2007
1995
Property Name
Encumbrance
Land
Rite Aid Store (Eckerd), Union Rd.
2,394
1,610
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
The Shoppes at Quarterfield
—
2,190
West Seneca, NY
Rite Aid Store (Eckerd)
Yorkshire, NY
Rivery Town Crossing
Georgetown, TX
Royal Oaks Village II
Houston, TX
Saucon Valley Square
Bethlehem, PA
Sawyer Heights Village
Houston, TX
Shaws Supermarket
New Britain, CT
Shoppes at Park West
Mt. Pleasant, SC
Severn, MD
Shoppes of New Hope
Dallas, GA
Shoppes of Prominence Point I&II
Canton, GA
The Shops at Boardwalk
Kansas City, MO
Shops at Forest Commons
Round Rock, TX
The Shops at Legacy
Plano, TX
Shops at Park Place
Plano, TX
Southgate Plaza
Heath, OH
Southlake Corners
Southlake, TX
1,372
810
—
—
2,900
2,200
8,550
3,200
18,884
24,214
5,320
2,240
3,550
1,350
—
—
—
—
3,650
5,000
1,050
8,800
2,300
1,434
6,814
11,859
12,642
15,797
—
—
376
(190)
(554)
263
9,357
8,840
11,045
12,652
30,540
6,133
(51)
98
(4)
488
140
261
108,940
12,982
7,788
9,096
13,175
3,929
2,200
9,229
21,156
6,612
23,605
521
950
25
98
2,300
1,434
3,910
2,244
773
482
2000
1997
7,190
10,090
2,196
2005
11,669
13,869
3,928
2004-2005
11/05
12,088
15,288
4,117
1999
9,306
11,546
3,511
2004
8,938
11,128
3,568
1999
11,041
12,391
4,212
2004
13,140
16,790
4,946
2004 & 2005
30,680
35,680
11,597
2003-2004
6,394
7,444
2,270
2002
121,922
130,722
33,683
2002
13,696
22,792
5,889
2001
10,218
12,379
3,374
1998-2002
03/05
23,630
30,242
1,173
2004
10/13
Date
Acquired
11/05
11/05
10/06
09/04
10/13
12/03
11/04
01/04
07/04
06/04 &
09/05
07/04
12/04
06/07
10/03
1,610
810
2,900
2,200
3,200
874
2,240
2,190
1,350
3,650
5,000
1,050
8,800
9,096
2,161
6,612
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2014
(in thousands)
Property Name
Encumbrance
Land
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
Date
Acquired
Initial Cost (A)
Gross amount carried at end of period
Southlake Town Square I - VII
141,519
41,490
193,391
21,054
41,490
214,445
255,935
67,367
1998-2007
Southlake, TX
Stateline Station
Kansas City, MO
Stilesboro Oaks
Acworth, GA
Stonebridge Plaza
McKinney, TX
Stony Creek I
Noblesville, IN
Stony Creek II
Noblesville, IN
Streets of Yorktown (e)
Houston, TX
Target South Center
Austin, TX
Tim Horton Donut Shop
Canandaigua, NY
Tollgate Marketplace
Bel Air, MD
Town Square Plaza
Pottstown, PA
Towson Circle
Towson, MD
Traveler's Office Building
Knoxville, TN
Trenton Crossing
McAllen, TX
—
6,500
23,780
(14,226)
5,092
2,200
—
1,000
9,426
5,783
232
295
8,550
6,735
17,564
1,012
—
—
1,900
3,440
5,106
54
22,111
2,881
5,430
2,300
—
212
35,000
8,700
16,815
9,700
—
—
9,050
650
8,760
30
61,247
18,264
17,840
7,001
660
—
2,458
1,639
(820)
822
16,246
8,180
19,262
3,181
University Town Center
4,465
—
9,557
Tuscaloosa, AL
Vail Ranch Plaza
Temecula, CA
The Village at Quail Springs
Oklahoma City, OK
10,716
6,200
16,275
5,225
3,335
7,766
183
100
245
99
3,829
2,200
1,000
6,735
1,900
3,440
2,300
212
8,700
9,700
6,874
1,079
8,180
—
6,200
3,335
12,225
16,054
3,104
2003-2004
9,658
11,858
3,457
1997
6,078
7,078
2,083
1997
18,576
25,311
7,547
2003
5,160
7,060
1,727
2005
24,992
28,432
8,181
2005
9,420
11,720
3,241
1999
30
242
19
2004
12/04, 5/07,
9/08 & 3/09
03/05
12/04
08/05
12/03
11/05
12/05
11/05
11/05
63,705
72,405
24,074
1979/1994
07/04
19,903
29,603
6,526
2004
19,196
26,070
7,044
1998
7,394
8,473
2,362
2005
22,443
30,623
7,933
2003
9,740
9,740
3,640
2002
12/05
07/04
01/06
02/05
11/04
16,375
22,575
5,795
2004-2005
04/05
8,011
11,346
2,839
2003-2004
02/05
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2014
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
Property Name
Encumbrance
Land
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
Village Shoppes at Gainesville
20,000
4,450
36,592
1,271
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
37,863
42,313
12,859
2004
Date
Acquired
09/05
Gainesville, GA
Village Shoppes at Simonton
Lawrenceville, GA
Walgreens
Northwoods, MO
Wal-Mart
Turlock, CA
Walter's Crossing
Tampa, FL
Watauga Pavillion
Watauga, TX
West Town Market
Fort Mill, SC
Wilton Square
Saratoga Springs, NY
Winchester Commons
Memphis, TN
Zurich Towers
Schaumburg, IL
Total Operating Properties
Development Properties
Bellevue Mall (c)
Nashville, TN
Green Valley Crossing (f)
Henderson, NV
South Billings Center (c)
Billings, MT
3,277
2,200
10,874
—
—
—
—
—
—
450
1,925
14,500
5,185
1,170
8,200
5,700
4,400
5,074
4,294
16,914
27,504
10,488
35,538
7,471
—
7,900
137,096
(16)
—
(2,918)
510
108
163
247
316
13
4,450
2,200
450
975
10,858
13,058
4,106
2004
5,074
2,326
5,524
3,301
1,731
2000
524
1987
08/04
04/05
09/05
07/06
14,500
17,424
31,924
5,370
2005
5,185
1,170
8,200
4,400
7,900
27,612
32,797
10,854
2003-2004
05/04
10,651
11,821
3,680
2004
35,785
43,985
12,299
2000
7,787
12,187
2,807
1999
06/05
07/05
11/04
137,109
145,009
48,511
1986 & 1990
11/04
1,619,565
1,207,009
4,304,779
94,069
1,180,319
4,425,538
5,605,857
1,362,903
—
3,056
—
—
3,056
—
3,056
—
14,900
12,884
16,932
(914)
11,994
16,908
28,902
2,568
—
—
—
—
—
—
—
—
Total Development Properties
14,900
15,940
16,932
(914)
15,050
16,908
31,958
2,568
Developments in Progress
—
41,293
1,268
—
41,293
1,268
42,561
—
Total Investment Properties
$
1,634,465
$1,264,242
$
4,322,979
$
93,155
$
1,236,662
$
4,443,714
$ 5,680,376
$
1,365,471
100
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2014
(in thousands)
(a) This outparcel was retained after the sale of the property in 2014.
(b) In 2014, the Company combined Five Forks and Five Forks II into one property.
(c) The cost basis associated with this property or a portion of this property is included in Developments in Progress.
(d) The Company acquired a parcel at this property during 2014.
(e) This property was formerly called Rave Theater. Its lease was assigned to another entity in 2014. Therefore, the name of the property was changed.
(f) This property is encumbered by a construction loan and the basis is included in Developments in Progress.
101
Notes:
RETAIL PROPERTIES OF AMERICA, INC.
(A) The initial cost to the Company represents the original purchase price of the property, including amounts incurred subsequent to acquisition which were contemplated
at the time the property was acquired.
(B) The aggregate cost of real estate owned as of December 31, 2014 for U.S. federal income tax purposes was approximately $5,874,366 (unaudited).
(C) Adjustments to basis include payments received under master lease agreements as well as additional tangible costs associated with the investment properties, including
any earnout of tenant space.
(D) Reconciliation of real estate owned:
Balance as of January 1,
Purchase of investment property
Sale of investment property
Property held for sale
Provision for asset impairment
Payments received under master leases
Acquired lease intangible assets
Acquired lease intangible liabilities
Balance as of December 31,
(E) Reconciliation of accumulated depreciation:
Balance as of January 1,
Depreciation expense
Sale of investment property
Property held for sale
Provision for asset impairment
Write-offs due to early lease termination
Other disposals
Balance as of December 31,
2014
5,804,518
397,993
(338,938)
(36,914)
(159,447)
—
5,579
7,585
5,680,376
2014
1,330,474
183,142
(63,460)
(5,358)
(77,390)
(1,937)
—
1,365,471
$
$
$
$
2013
5,962,878
339,955
(341,750)
(10,995)
(150,373)
—
(11,331)
16,134
5,804,518
2013
1,275,787
197,725
(62,009)
(2,206)
(56,969)
(3,056)
(18,798)
1,330,474
$
$
$
$
2012
6,441,555
31,486
(501,369)
(8,746)
(23,819)
(21)
27,454
(3,662)
5,962,878
2012
1,180,767
195,994
(87,218)
(17)
(7,423)
(6,316)
—
1,275,787
$
$
$
$
Depreciation is computed based upon the following estimated useful lives in the consolidated statements of operations and other comprehensive income (loss):
Building and improvements
Site improvements
Tenant improvements
Years
30
15
Life of related lease
102
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information relating to us, including our consolidated
subsidiaries, is made known to the officers who certify our financial reports and to the members of senior management and the
board of directors.
Based on management’s evaluation as of December 31, 2014, our president and chief executive officer and our executive vice
president, chief financial officer and treasurer have concluded that our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that the information required to be disclosed by
us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our president
and chief executive officer and our executive vice president, chief financial officer and treasurer to allow timely decisions regarding
required disclosure.
Changes in Internal Controls
There were no changes to our internal controls over financial reporting during the fiscal quarter ended December 31, 2014 that
have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company,
as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal
Control — Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective
as of December 31, 2014. The effectiveness of our internal control over financial reporting as of December 31, 2014 has been
audited by Deloitte & Touche LLP, an Independent Registered Public Accounting Firm, as stated in their report which is included
herein.
103
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Retail Properties of America, Inc.:
We have audited the internal control over financial reporting of Retail Properties of America, Inc. and subsidiaries (the “Company”)
as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal
executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject
to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2014 of the Company
and our report dated February 18, 2015 expressed an unqualified opinion on those consolidated financial statements and financial
statement schedules and included an explanatory paragraph regarding the Company’s adoption of Accounting Standards Update
2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 18, 2015
104
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information required by this Item 10 will be included in our definitive proxy statement for our 2015 Annual Meeting of Stockholders
and is incorporated herein by reference.
Item 11. Executive Compensation
Information required by this Item 11 will be included in our definitive proxy statement for our 2015 Annual Meeting of Stockholders
and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this Item 12 will be included in our definitive proxy statement for our 2015 Annual Meeting of Stockholders
and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Director Independence
Information required by this Item 13 will be included in our definitive proxy statement for our 2015 Annual Meeting of Stockholders
and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information required by this Item 14 will be included in our definitive proxy statement for our 2015 Annual Meeting of Stockholders
and is incorporated herein by reference.
105
Item 15. Exhibits and Financial Statement Schedules
(a) List of documents filed:
PART IV
(1) The consolidated financial statements of the Company are set forth in this report in Item 8.
(2) Financial Statement Schedules:
The following financial statement schedules for the year ended December 31, 2014 are submitted herewith:
Valuation and Qualifying Accounts (Schedule II)
Real Estate and Accumulated Depreciation (Schedule III)
Page
87
88
Schedules not filed:
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.
Exhibit No.
Description
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
10.1
10.2
10.3
10.4
Sixth Articles of Amendment and Restatement of the Registrant, dated March 20, 2012 (Incorporated herein by reference to
Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on March 22, 2012).
Articles of Amendment to the Sixth Articles of Amendment and Restatement of the Registrant, dated March 20, 2012
(Incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on March 22, 2012).
Articles of Amendment to the Sixth Articles of Amendment and Restatement of the Registrant, dated March 20, 2012
(Incorporated herein by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed on March 22, 2012).
Articles Supplementary to the Sixth Articles of Amendment and Restatement of the Registrant, as amended, dated March 20,
2012 (Incorporated herein by reference to Exhibit 3.4 to the Registrant’s Current Report on Form 8-K filed on March 22,
2012).
Articles Supplementary for the Series A Preferred Stock (Incorporated herein by reference to Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K filed on December 17, 2012).
Certificate of Correction (Incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report/Amended on Form
8-K/A filed on December 20, 2012).
Sixth Amended and Restated Bylaws of the Registrant (Incorporated herein by reference to Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K filed on July 20, 2012).
Amendment No. 1 to the Sixth Amended and Restated Bylaws of the Registrant, dated February 11, 2014 (Incorporated herein
by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on February 12, 2014).
2014 Long-Term Equity Compensation Plan of the Registrant (Incorporated herein by reference to Appendix A to the
Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 31, 2014).
2008 Long-Term Equity Compensation Plan of the Registrant (Incorporated herein by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K filed on March 22, 2012).
Third Amended and Restated Independent Director Stock Option and Incentive Plan of the Registrant (Incorporated herein
by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on August 2, 2013).
Indemnification Agreements by and between the Registrant and its directors and officers (Incorporated herein by reference to
Exhibits 10.6 A-E, and H to the Registrant’s Annual Report/Amended on Form 10-K/A for the year ended December 31, 2006
and filed on April 27, 2007, Exhibits 10.561 - 10.562, 10.567, 10.569 - 10.571 to the Registrant’s Annual Report on Form
10-K for the year ended December 31, 2007 and filed on March 31, 2008, Exhibit 10.4 to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 2011 and filed on February 22, 2012, Exhibit 10.4 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2013 and filed on August 6, 2013 and Exhibit 10.3 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 and filed on August 5, 2014).
106
Exhibit No.
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
12.1
21.1
23.1
31.1
31.2
32.1
101
Description
Third Amended and Restated Credit Agreement dated as of May 13, 2013 among the Registrant as Borrower and KeyBank
National Association as Administrative Agent, Wells Fargo Securities LLC as Co-Lead Arranger and Joint Book Manager,
and Wells Fargo Bank, National Association as Syndication Agent and KeyBanc Capital Markets Inc. as Co-Lead Arranger
and Joint Book Manager, and Citibank, N.A. as Co-Documentation Agent, Deutsche Bank Securities Inc. as Co-Documentation
Agent and Certain Lenders from time to time parties hereto, as Lenders (Incorporated herein by reference to Exhibit 10.1 to
the Registrant’s Current Report on Form 8-K filed on May 16, 2013).
First Amendment to Third Amended and Restated Credit Agreement dated as of February 21, 2014 among the Registrant as
Borrower and KeyBank National Association as Administrative Agent and Certain Lenders from time to time parties hereto,
as Lenders (Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2014 and filed on May 6, 2014).
Note Purchase Agreement dated as of May 16, 2014 among the Registrant as Issuer and Certain Institutions as Purchasers
(Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 22, 2014).
Loan Agreement dated as of December 1, 2009 by and among Colesville One, LLC, JPMorgan Chase Bank, N.A. and certain
subsidiaries of the Registrant (Incorporated herein by reference to Exhibit 10.587 to the Registrant’s Annual Report on Form
10-K/A for the year ended December 31, 2009 and filed on March 5, 2010).
Retention Agreement dated February 19, 2013 by and between the Registrant and Steven P. Grimes (Incorporated herein by
reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 and filed on
February 20, 2013).
Retention Agreement dated February 19, 2013 by and between the Registrant and Angela M. Aman (Incorporated herein by
reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 and filed
on February 20, 2013).
Retention Agreement dated February 19, 2013 by and between the Registrant and Niall J. Byrne (Incorporated herein by
reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 and filed
on February 20, 2013).
Retention Agreement dated February 19, 2013 by and between the Registrant and Shane C. Garrison (Incorporated herein by
reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 and filed
on February 20, 2013).
Retention Agreement dated February 19, 2013 by and between the Registrant and Dennis K. Holland (Incorporated herein by
reference to Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 and filed
on February 20, 2013).
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (filed herewith).
List of Subsidiaries of Registrant (filed herewith).
Consent of Deloitte & Touche LLP (filed herewith).
Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
(filed herewith).
Certification of Executive Vice President, Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934 (filed herewith).
Certification of President and Chief Executive Officer and Executive Vice President, Chief Financial Officer and Treasurer
pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C Section 1350 (furnished herewith).
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):
(i) Consolidated Balance Sheets as of December 31, 2014 and 2013, (ii) Consolidated Statements of Operations and Other
Comprehensive Income (Loss) for the Years Ended December 31, 2014, 2013 and 2012, (iii) Consolidated Statements of
Equity for the Years Ended December 31, 2014, 2013 and 2012, (iv) Consolidated Statements of Cash Flows for the Years
Ended December 31, 2014, 2013 and 2012, (v) Notes to Consolidated Financial Statements and (vi) Financial Statement
Schedules.
107
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
RETAIL PROPERTIES OF AMERICA, INC.
/s/ Steven P. Grimes
By:
Steven P. Grimes
President and Chief Executive Officer
Date:
February 18, 2015
Pursuant to the requirements of the Securities Exchange 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:
/s/ Steven P. Grimes
/s/ Frank A. Catalano, Jr.
/s/ Kenneth E. Masick
By:
Steven P. Grimes
Director, President and
Chief Executive Officer
Date: February 18, 2015
By:
Frank A. Catalano, Jr.
Director
By:
Kenneth E. Masick
Director
Date:
February 18, 2015
Date:
February 18, 2015
/s/ Angela M. Aman
/s/ Paul R. Gauvreau
/s/ Barbara A. Murphy
By:
Angela M. Aman
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
By:
Paul R. Gauvreau
Director
By:
Barbara A. Murphy
Director
Date: February 18, 2015
Date:
February 18, 2015
Date:
February 18, 2015
/s/ Julie M. Swinehart
/s/ Richard P. Imperiale
/s/ Thomas J. Sargeant
By:
Julie M. Swinehart
Senior Vice President and Corporate
Controller (Principal Accounting Officer)
By:
Richard P. Imperiale
Director
By:
Thomas J. Sargeant
Director
Date: February 18, 2015
Date:
February 18, 2015
Date:
February 18, 2015
/s/ Gerald M. Gorski
/s/ Peter L. Lynch
By:
Gerald M. Gorski
Chairman of the Board and Director
Date: February 18, 2015
By:
Date:
Peter L. Lynch
Director
February 18, 2015
108
Reconciliation of Non-GAAP Performance Measures
(amounts in thousands, except ratio)
Reconciliation of Net Income Attributable to Common Shareholders to Adjusted EBITDA
Net income attributable to common shareholders
Preferred stock dividends
Interest expense
Depreciation and amortization
Gain on sales of investment properties
Provision for impairment of investment properties
Adjusted EBITDA
Annualized
Reconciliation of Debt to Total Net Debt
Total consolidated debt
Less: consolidated cash and cash equivalents
Net debt
Adjusted EBITDA
Net debt to Adjusted EBITDA
Three Months Ended
December 31, 2014
23,502
$
2,363
32,743
52,385
(26,501)
11,825
96,317
385,268
$
$
December 31, 2014
2,342,540
$
(112,292)
2,230,248
385,268
5.8x
$
$
I N V E S T O R
I N F O R M A T I O N
E X E C U T I V E
O F F I C E R S
Current stockholder information
including the Annual Report, SEC
filings and press releases are
available on our website at
www.rpai.com, by e-mail request
to ir@rpai.com or via telephone at
800.541.7661.
L E G A L C O U N S E L
Goodwin Procter LLP
Boston, MA
I N D E P E N D E N T
A U D I T O R S
Deloitte & Touche LLP
Chicago, IL
T R A N S F E R
A G E N T
Computershare
P.O. Box 30170
College Station, TX 77842-3170
800.368.5948
www.computershare.com
Steven P. Grimes
President and Chief Executive Officer
Angela M. Aman
Executive Vice President,
Chief Financial Officer and Treasurer
Niall J. Byrne
Executive Vice President and
President of Property Management
Shane C. Garrison
Executive Vice President,
Chief Operating Officer and
Chief Investment Officer
Dennis K. Holland
Executive Vice President,
General Counsel and Secretary
C O R P O R A T E
O F F I C E
Retail Properties of America, Inc.
2021 Spring Road, Suite 200
Oak Brook, Illinois 60523
855.247.RPAI
www.rpai.com
B O A R D O F
D I R E C T O R S
Gerald M. Gorski, Chairman
Partner, Gorski & Good LLP
Frank A. Catalano, Jr.
President of Catalano & Associates
Paul R. Gauvreau
Former Chief Financial Officer,
Financial Vice President and
Treasurer of Pittway Corporation
Steven P. Grimes
President and Chief Executive
Officer
Richard P. Imperiale
President and Founder of the
Uniplan Companies
Peter L. Lynch
Former President and Chief
Executive Officer of Winn-Dixie
Stores, Inc.
Kenneth E. Masick
Former Partner of Wolf &
Company LLP
Barbara A. Murphy
Chairwoman of the
DuPage Republican Party
Committeeman of
The Milton Township Republican
Central Committee in Illinois
Thomas J. Sargeant
Former Chief Financial Officer of
AvalonBay Communities, Inc.
This Annual Report and the Letter to Stockholders contain “forward-looking statements”. Forward-looking statements are statements that are not historical, including statements
regarding management’s intentions, beliefs, expectations, representations, plans or predictions of the future and are typically identified by such words as “believe”, “expect”,
“anticipate”, “intend”, “estimate”, “may”, “should” and “could”. We intend that such forward-looking statements be subject to the safe harbor provisions set forth in Section 27A of
the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Federal Private Securities Litigation Reform Act of 1995 and we include this statement for the
purpose of complying with such safe harbor provisions. Future events and actual results, performance, transactions or achievements, financial or otherwise, may differ materially
from the results, performance, transactions or achievements expressed or implied by the forward-looking statements. Important factors that could cause our actual results to
be materially different from the forward-looking statements are discussed in our Annual Report on Form 10-K. We assume no obligation to update or revise any forward-looking
statements or to update the reasons why actual results could differ from those projected in any forward-looking statements. 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 Retail Properties
of America, Inc. (“RPAI”) by the companies. Further, none of these companies are affiliated with RPAI.
2
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2021 Spring Road, Suite 200 | Oak Brook, IL 60523
| NYSE: RPAI
| www.rpai.com
855.247.RPAI