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2015 ANNUAL REPORT
vision | execution | results
As a relatively young publicly traded company, it is to be
expected that the velocity of change experienced by RPAI
will exceed that of our more mature peers. We all know
that positive change goes hand in hand with opportunity,
but only if the change is properly embraced. For that
reason, I’m very proud of what we accomplished in 2015.
This past year we effectuated a companywide
estate veteran Bonnie Biumi, and Dennis
realignment effort
that
impacted every
Holland, our esteemed General Counsel,
business function. In connection with this
announced his retirement.
effort, we recruited Tim Steffan, formerly of
Macerich, as president of our eastern division,
Amidst all of
this change, we made
and we promoted Gerry Wright to president of
tremendous strides toward achieving our
our western division. Heath Fear, formerly
VISION of owning a best-in-class and
of General Growth Properties, Inc., joined
geographically concentrated portfolio, our
us as our new Chief Financial Officer, and
EXECUTION was
impressive as we once
Julie Swinehart assumed the role of Chief
again met or exceeded expectations, and
Accounting Officer. We made a fantastic
our operational and transactional RESULTS
addition to our Board of Directors with real
speak for themselves.
Our corporate vision statement endeavors
We continue to establish a track record
to define our compass and touchstone:
of success. We have consistently met or
leaders
experienced
RPAI’s talented team of individuals
is
and
committed to providing value for
all of the Company’s stakeholders
the
by
proactively managing
Company’s
portfolio
through a geographically concentrated
approach, consistently delivering on
its operational and financial goals
while positioning the Company for
long-term growth through prudent
capital allocation.
high-quality
exceeded expectations since our initial
listing in 2012, and 2015 was no different.
We posted
full-year same-store NOI
growth of 2.9% and Operating FFO of
$1.06 per share. Operationally, we signed
leases on over 2.7 million square feet of
space achieving blended comparable re-
leasing spreads of nearly 9%, a record
high
for RPAI. From an
investment
perspective, we traded over $500 million
of assets with an ABR per square foot
of approximately $12 and an embedded
rent growth profile of 60 basis points
for nearly $500 million of assets with an
ABR per square foot of approximately
$22 and an embedded rent growth profile
of 130 basis points. We continued to
bolster our balance sheet as we issued
our
first
investment-grade unsecured
bonds and we received commitments
to upsize, reprice and extend our term
As the CEO of RPAI, it is my job to ensure
loan and revolver, while maintaining
that our corporate vision statement
our net debt to adjusted EBITDA ratio at
is more than a collection of carefully
5.8x and increasing our unencumbered
selected words. At RPAI, our corporate
NOI to 58%. By all accounts, this was an
vision statement is a call to action, as well
exceptional year for RPAI, showcasing our
as the lens through which our employees
will, determination and ability to execute
view and evaluate themselves, their peers
on our strategy to build a focused, best-
and their respective contributions.
in-class portfolio to drive long-term value
for our shareholders.
T O T A L S T O C K P E R F O R M A N C E
n
r
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t
e
R
l
a
t
o
T
d
e
x
e
d
n
I
$250
$230
$210
$190
$170
$150
$130
$110
$90
4/12
6/12
9/12
12/12
3/13
6/13
9/13
12/13
3/14
6/14
9/14
12/14
3/15
6/15
9/15
12/15
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, 2015. The graph assumes a $100 investment in each of the indices on April 5, 2012 and the reinvestment of all dividends. Source: Bloomberg
As a result of our efforts in 2015, our portfolio quality and risk profile continue to improve,
which is evident in our ABR, demographics, tenancy, asset diversification and long-term
NOI growth profile. Our ABR per square foot is over $16 for our portfolio and over $18
in our target markets. Our multi-tenant retail five-mile demographic profile consists of
a weighted average population of 260,000 and weighted average household income of
$88,000. Our portfolio has made a significant shift towards lifestyle/mixed-use, which
represents 26% of our multi-tenant retail portfolio, with inline sales of approximately $500
per square foot. Over 40% of our multi-tenant retail properties are anchored or shadow-
anchored by a traditional grocery tenant, with grocer sales of approximately $530 per
square foot. Lastly, we continued to acquire assets with a long-term NOI growth profile in
the 3% range.
To conclude, I would like to thank the Board of Directors and our employees for their
continued support and dedication. I applaud our team’s commitment and effort towards
driving long-term value for our shareholders, and thank them for their unwavering efforts.
Our pulse on the business has never been stronger, and we look forward to continued
EXECUTION on our VISION and delivering RESULTS in 2016.
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, 2015
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35481
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, 2015, the aggregate market value of the Class A common stock held by non-affiliates was approximately $3.3 billion based upon
the closing price as reported on the New York Stock Exchange on June 30, 2015 of $13.93 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 12, 2016:
Class A common stock:
237,260,967 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 26, 2016 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, 2015.
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
48
51
108
108
110
110
110
110
110
110
111
114
All dollar amounts and share 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.
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, 2015, we owned 198 retail operating
properties representing 28,930,000 square feet of gross leasable area (GLA). Our retail operating portfolio includes (i) power
centers, (ii) neighborhood and community centers, and (iii) lifestyle centers and multi-tenant retail-focused mixed-use properties,
as well as single-user retail properties.
The following table summarizes our operating portfolio as of December 31, 2015:
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
(a) Includes leases signed but not commenced.
Number of
Properties
GLA
(in thousands)
Occupancy
Percent Leased
Including Leases
Signed (a)
52
85
14
151
47
198
1
199
11,973
10,527
5,214
27,714
1,216
28,930
895
29,825
96.1%
92.9%
90.5%
93.8%
100.0%
94.1%
100.0%
94.3%
97.0%
93.9%
90.8%
94.7%
100.0%
94.9%
100.0%
95.1%
In addition to our operating portfolio, we owned one development property that was not under active development as of
December 31, 2015.
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 enhance our
operating performance. To date, we have identified 10 target markets: Dallas, Washington, D.C./Baltimore, New York, Atlanta,
Seattle, Chicago, Houston, San Antonio, Phoenix and Austin, 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;
strong barriers to entry, whether topographical, regulatory or density driven; and
1
•
ability to create critical mass and realize operational efficiencies.
Since the beginning of 2012, we have sold 113 properties, primarily in our non-target markets, for aggregate consideration of
$1,756,593, including our pro rata share of unconsolidated joint ventures and two development properties, one of which had been
held in a consolidated joint venture, with a majority of the proceeds used for debt reduction and the acquisition of high quality,
multi-tenant retail assets within our target markets. Since we began executing on our external growth initiatives in the fourth quarter
of 2013, we have purchased 23 properties for aggregate consideration of $1,006,803, including our pro rata share of unconsolidated
joint ventures, resulting in an increase in consolidated GLA in our target markets by 3.5 million square feet and an increase in
concentration to over 60% of multi-tenant retail annualized base rent (ABR) from our target markets as of December 31, 2015.
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 equity funds, private individuals and other real estate
companies, some of which may have a lower cost of capital than ours.
From an operational perspective, we compete with other property owners on a variety of factors, including, but not limited to,
location, visibility, quality and aesthetic value of construction, and strength and name recognition of tenants. 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 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 enhances our ability to drive revenue growth by more thoroughly understanding
the local market dynamics and by increasing our market relevancy.
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, determined without regard
to the dividends paid deduction 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 allow 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 incur 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 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.
Independent environmental consultants conducted Phase I Environmental Site Assessments or similar environmental audits for
all of our investment properties. 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.
Insurance coverage is not provided for losses attributable to riots or certain acts of God.
Employees
As of December 31, 2015, we had 240 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 our 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, preferred stock or unsecured debt. 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 RELATED 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 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 financial difficulties, lease defaults or
bankruptcies;
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
potential buyers and tenants of our properties, to obtain financing on favorable terms or at all;
changes in, and changes in the 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 funds 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, as well as
the market price of our debt securities, 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 where 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, corporate layoffs or downsizing, relocations of businesses, decreased consumer confidence,
adverse changes in demographics, increases in real estate and other taxes, increased regulation and natural disasters. As of
December 31, 2015, approximately 24.7% of our GLA and approximately 27.1% of our ABR in our retail operating portfolio was
in the state of Texas. More specifically, approximately 13.9% of our GLA and approximately 17.6% of our ABR in our retail
operating portfolio is located in the Dallas-Fort Worth-Arlington area, which is our largest market. 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
A shift in retail shopping from brick and mortar stores to online shopping may have an adverse impact on our cash flow,
financial condition and results of operations.
Many retailers operating brick and mortar stores have made online sales a vital piece of their business. Although many of the
retailers operating in our properties sell groceries and other necessity-based soft goods or provide services, including entertainment
and dining options, the shift to online shopping may cause certain of our tenants to reduce the size or number of their retail locations
in the future. As a result, our cash flow, financial condition and results of operations could be adversely affected.
We may choose to not renew leases or be unable to renew leases, lease vacant space or re-lease space as leases expire. In
addition, 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 5.1% of the total GLA in our retail operating portfolio was vacant as of December 31, 2015, excluding leases
signed but not commenced. In addition, leases accounting for approximately 29.2% of the ABR in our retail operating portfolio
as of December 31, 2015 are scheduled to expire between 2016 and 2018. 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. 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. 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 or if tenants encounter other significant financial hardships, 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 we may not be able to collect all pre-petition amounts owed by that party, which may adversely affect 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 40.3% of GLA and 33.9% of ABR as of December 31, 2015.
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 another 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, consequently, 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 28.9% of GLA, but
41.3% of ABR as of December 31, 2015. Such tenants generally have more limited resources than larger tenants and, as a result,
5
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 their space and continue to pay rent through the end of their lease term, which inhibits
our ability to re-lease the space during that period. Additionally, many of the leases at our 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, depending on 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 cause a decrease
in customer traffic and related decreased sales for 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 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 be unable 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.
A key component of our strategic plan is to pursue targeted dispositions. However, real estate investments generally cannot be
sold quickly. Our ability to dispose of properties on advantageous terms depends on factors beyond our control, including
competition from other sellers, increases in market capitalization rates 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 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
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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.
A key component of our strategic plan is to execute our investment strategy of acquiring high quality, multi-tenant retail assets
within our target markets. 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:
• we may be unable to acquire a desired property because of competition from other real estate investors with substantial
capital, including 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 are subsequently not completed;
• we may be unable to finance acquisitions on favorable terms and in the time period we desire, or at all;
• 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; 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, obtain financing 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.
Future joint venture investments could be adversely affected by our lack of sole decision-making authority.
As of December 31, 2015, we had no properties held in joint ventures. Any joint venture arrangements in which we may engage
in the future could be subject to various risks including, among others: (i) lack of exclusive control over the joint venture, which
may prevent us from taking actions that are in our best interest, (ii) future capital constraints of our partners, which may force us
to contribute more capital than we anticipated to cover the joint venture’s liabilities, (iii) 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 (iv) 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.
Development and redevelopment activities have inherent risks, which could adversely impact our cash flow, financial condition
and results of operations.
As of December 31, 2015, we do not have any active development projects but we anticipate engaging in redevelopment activities
within our portfolio in 2016. In addition to the risks associated with real estate investments in general as described elsewhere, the
risks associated with future development and redevelopment activities include:
•
•
expenditure of capital and time on projects that may never be completed;
failure or inability to obtain financing on favorable terms or at all;
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•
•
•
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, delays or failure to receive 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 delayed returns and greater risks due to
fluctuations in the general economy, shifts in demographics and competition; and
•
occupancy and rental rates at a newly completed project that may not meet expectations.
If any of the above events were to occur, the development or redevelopment of the properties may hinder our growth and may
have an adverse effect on our cash flow, financial condition and results of operations. In addition, new development and significant
redevelopment 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 that is owned by third parties and leased to
us pursuant to ground leases. 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 and that breach cannot be cured, 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 2048 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, is 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 and, specific to net leases, tenants may fail to obtain
adequate insurance. Additionally, losses of a catastrophic nature including loss due to wars, acts of terrorism, earthquakes, floods,
hurricanes, wind, 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 be unable 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. 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, some
of our properties are located in California and other regions that are especially susceptible to earthquakes.
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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.
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 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 may also 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 may also 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
may also 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, which 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, 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 these
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.
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When excessive moisture accumulates in buildings or on building materials, mold growth may occur if 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 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 and adversely affected.
We may experience a decline in the fair value of our assets, 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 on 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 asset’s carrying value. 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,
2015, 2014 and 2013, we recognized aggregate impairment charges related to investment properties of $19,937, $72,203 and
$92,033, respectively (including $32,547 reflected in discontinued operations for the year ended December 31, 2013). 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 (v) 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. 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 certain 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 could
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 publicly-traded debt
or preferred shares. 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 debt or preferred shares of any change in our 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 prices of our publicly-traded debt or preferred shares.
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
(the Unsecured Credit Agreement), or other debt agreements, including the Indenture, as supplemented, governing our 4.00%
notes (the Indenture) and the note purchase agreement governing our Series A and Series B notes (the Note Purchase
Agreement).
The Unsecured Credit Agreement, the Indenture, the Note Purchase Agreement and any future debt agreements require, or may
require, compliance with certain financial and operating covenants, including, among others, the requirement to maintain maximum
unencumbered, secured and consolidated leverage ratios, minimum interest, fixed charge, debt service and unencumbered interest
coverage ratios, a minimum ratio of assets to unsecured debt and a minimum consolidated net worth. They also contain or may
contain customary events of default, including defaults on any of our recourse indebtedness in excess of $50,000. The provisions
of these agreements could limit our ability to obtain additional funds needed to address cash shortfalls or pursue growth opportunities
or other accretive transactions.
In addition, our senior unsecured debt obligations, including our Unsecured Credit Facility, 4.00% notes and our Series A and
Series B notes, are pari passu in priority of payment. Therefore, a breach of these covenants or other events of default would allow
the lenders to require us to accelerate payment of amounts outstanding under one or all of 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, we have a cross-collateralized pool of mortgages that is secured by IW JV 2009, LLC (IW JV), a previously
consolidated joint venture that became wholly-owned in April 2012. This pool of mortgages is subject to a lockbox and cash
management agreement pursuant to which substantially all of the income generated by the 48 properties, which secured the
outstanding mortgages payable as of December 31, 2015, 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. In the event of a default, cash will not be distributed to
us from these accounts until the earlier of a cash sweep event cure or the repayment of the mortgage loans. As of December 31,
2015, 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 to pursue strategic opportunities 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 outstanding unhedged variable rate debt and would 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 may also remain liable for any deficiency
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
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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 extinguished
debt 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. The Company has also
established an at-the-market equity program under which it may sell shares of its Class A common stock having an aggregate
offering price of up to $250,000 from time to time. 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.
Certain 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
our common stockholders 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
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
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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
shareholder recourse in the event of actions that our shareholders do not believe are in their 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, at 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 vote 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 RELATED 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.
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 we do 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 adversely affect
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.
Complying with REIT requirements may cause us to forego otherwise attractive opportunities or 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
14
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 our 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 prices and trading volume of our debt and equity securities may be volatile.
The market prices of our debt and equity securities depend on various factors which may be unrelated to our operating performance
or prospects. We cannot assure you that the market prices of our debt and equity securities, including our Class A common stock,
will not fluctuate or decline significantly in the future.
A number of factors could negatively affect, or result in fluctuations in, the prices or trading volume of our debt and equity securities,
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;
equity issuances or buybacks by us or the perception that such issuances or buybacks 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;
15
•
•
•
•
•
•
•
•
•
•
•
changes in real estate valuations;
additions or departures of key management personnel;
changes in the real estate industry, including increased competition due to shopping center supply growth, and 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 publicly-traded debt and equity securities.
One of the factors that may influence the prices of our publicly-traded debt and equity securities is the interest rate on our publicly-
traded debt and 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, our borrowing costs could rise and result in less funds being
available for distribution. We therefore may not be able to, or we may choose not 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 prices of our publicly-traded debt and equity securities.
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, $500,000 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 bear the risk of our future offerings reducing the market prices
of our common and preferred stock and diluting their proportionate ownership.
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 preferred 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.
16
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 our 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 they 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.
Changes in accounting standards may adversely impact our financial results.
The Financial Accounting Standards Board, in conjunction with the SEC, has several key projects on its agenda that could impact
how we currently account for material transactions, including lease accounting and other convergence projects with the International
Accounting Standards Board. At this time, we are unable to predict with certainty which, if any, proposals may be passed or what
level of impact any such proposal could have on the presentation of our consolidated financial statements, results of operations
and financial ratios required by our debt covenants.
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, 2015.
Dollars (other than per square foot information) and square feet of GLA are presented in thousands. This information is grouped
into divisions 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.
Division
Eastern Division
Alabama, Connecticut, Florida, Georgia, Indiana,
Maine, Maryland, Massachusetts, Michigan,
Missouri, New Jersey, New York, North Carolina,
Ohio, Pennsylvania, Rhode Island, South
Carolina, Tennessee, Vermont, Virginia
Western Division
Arizona, California, Colorado, Illinois, Louisiana,
New Mexico, Oklahoma, Texas, Utah, Washington
Number of
Properties
ABR
% of Total
Retail
ABR (a)
ABR per
Occupied
Sq. Ft.
% of Total
Retail
GLA (a)
Occupancy
(b)
GLA
120
$
238,269
53.8% $
15.56
16,207
56.0%
94.5%
78
204,768
46.2%
17.19
12,723
44.0%
93.6%
Total retail operating portfolio
Office
Total consolidated operating portfolio
198
1
443,037
10,476
199
$
453,513
100.0%
16.27
11.71
16.12
$
28,930
895
29,825
100.0%
94.1%
100.0%
94.3%
(a) Percentages are only provided for our retail operating portfolio.
(b) Calculated as the percentage of economically occupied GLA as of December 31, 2015. Including leases signed but not commenced, our
retail operating portfolio and our consolidated operating portfolio were 94.9% and 95.1% leased, respectively, as of December 31, 2015.
17
The following table sets forth information regarding the 20 largest tenants in our retail operating portfolio based on ABR as of
December 31, 2015. Dollars (other than per square foot information) and square feet of GLA are presented in thousands.
Tenant
Ahold U.S.A. Inc.
Best Buy Co., Inc.
Primary DBA
Giant Foods, Stop & Shop, Martin's
Best Buy, Pacific Sales
The TJX Companies, Inc.
HomeGoods, Marshalls, T.J. Maxx
Ross Stores, Inc.
Bed Bath & Beyond Inc.
Rite Aid Corporation
PetSmart, Inc.
The Home Depot, Inc.
AB Acquisition LLC
Bed Bath & Beyond, Buy Buy
Baby, The Christmas Tree Shops,
Cost Plus World Market
Safeway, Jewel-Osco, Shaw’s
Supermarket, Tom Thumb
Regal Entertainment Group
Edwards Cinema
Michaels Stores, Inc.
Michaels, Aaron Brothers Art &
Frame
The Sports Authority, Inc.
Pier 1 Imports, Inc.
Office Depot, Inc.
Ascena Retail Group Inc.
Publix Super Markets Inc.
Dick's Sporting Goods, Inc.
The Gap, Inc.
The Kroger Co.
Barnes & Noble, Inc.
Total Top Retail Tenants
Office Depot, OfficeMax
Dress Barn, Lane Bryant, Justice,
Catherine’s, Ann Taylor, Maurices,
LOFT
Dick's Sporting Goods, Golf
Galaxy, Field & Stream
Old Navy, Banana Republic, The
Gap, Gap Factory Store
Kroger, Harris Teeter, King
Soopers, QFC
Number
of Stores
ABR
% of
Total ABR
ABR per
Occupied
Sq. Ft.
Occupied
GLA
% of
Occupied
GLA
$
13,275
3.0% $
12,697
10,833
10,583
9,492
9,388
8,398
7,303
7,117
6,911
6,167
5,785
5,564
5,551
5,416
5,405
5,403
5,065
4,978
4,686
2.9%
2.4%
2.4%
2.1%
2.1%
1.9%
1.7%
1.6%
1.6%
1.4%
1.3%
1.3%
1.3%
1.2%
1.2%
1.2%
1.1%
1.1%
1.1%
$ 150,017
33.9% $
19.67
15.24
9.17
11.22
13.72
22.95
14.63
8.39
13.53
31.56
11.38
13.18
20.09
14.16
20.91
10.58
10.92
14.72
9.84
16.74
13.68
675
833
1,181
943
692
409
574
870
526
219
542
439
277
392
259
511
495
344
506
280
10,967
2.5%
3.1%
4.3%
3.5%
2.5%
1.5%
2.1%
3.2%
1.9%
0.8%
2.0%
1.6%
1.0%
1.4%
1.0%
1.9%
1.8%
1.3%
1.9%
1.0%
40.3%
11
21
40
32
26
32
28
8
10
2
24
10
27
19
48
12
10
25
9
11
405
18
The following table sets forth a summary, as of December 31, 2015, of lease expirations scheduled to occur during 2016 and each
of the nine calendar years from 2017 to 2025 and thereafter, assuming no exercise of renewal options or early termination rights
for all leases in our retail operating portfolio. The following table is based on leases commenced as of December 31, 2015. Dollars
(other than per square foot information) and square feet of GLA are presented in thousands.
Lease Expiration Year
Lease
Count
ABR
% of Total
ABR
ABR per
Occupied
Sq. Ft.
GLA
% of
Occupied
GLA
2016 (a)
2017
2018
2019
2020
2021
2022
2023
2024
2025
Thereafter
Month-to-month
Total
381
435
487
520
390
211
104
98
155
112
88
49
3,030
$
$
31,187
43,390
55,073
73,472
51,572
36,748
28,675
24,583
32,807
24,468
39,201
1,861
443,037
7.0% $
9.8%
12.4%
16.5%
11.7%
8.2%
6.6%
5.6%
7.4%
5.5%
8.9%
0.4%
100.0% $
19.26
15.27
18.08
17.99
15.45
15.99
13.91
15.19
14.88
16.25
15.76
16.47
16.27
1,619
2,842
3,046
4,084
3,339
2,298
2,062
1,618
2,205
1,506
2,488
113
27,220
6.0%
10.4%
11.2%
15.0%
12.3%
8.4%
7.6%
6.0%
8.1%
5.5%
9.1%
0.4%
100.0%
(a) Excludes month-to-month leases.
As of December 31, 2015, the remaining term of the lease at our office property was 11 months.
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, 2015 and 2014:
2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Sales Price
High
Low
Dividends
per Share
$
$
$
$
$
$
$
$
15.60
15.39
16.18
18.24
16.99
16.15
15.65
14.00
$
$
$
$
$
$
$
$
13.79
13.10
13.83
15.42
14.43
13.48
13.42
12.07
$
$
$
$
$
$
$
$
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 12, 2016, as reported on the NYSE, was $14.66.
We have determined that the dividends paid during 2015 and 2014 on our Class A common stock qualify for the following tax
treatment:
Ordinary dividends
Non-dividend distributions
Total distribution per common share
2015
0.499116
0.163384
0.662500
$
$
2014
0.447492
0.215008
0.662500
$
$
As of February 12, 2016, there were approximately 16,400 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 REIT taxable income, determined without regard to the dividends paid deduction
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 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, and (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.
As of December 31, 2015, our unsecured revolving line of credit and our unsecured term loan (collectively, the Unsecured Credit
Facility) limited our distributions to the greater of 95% of funds from operations (FFO), as defined in the unsecured credit agreement
(which equals FFO attributable to common shareholders, as set forth in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Funds From Operations Attributable to Common Shareholders,” excluding gains or losses
from extraordinary items, impairment charges not already excluded from FFO attributable to common shareholders and other non-
cash charges) or the amount necessary for us to maintain our qualification as a REIT. Subsequent to December 31, 2015, we entered
20
into our fourth amended and restated unsecured credit agreement, which does not include a similar limitation on our distributions
though it does require us to distribute at least an amount necessary to maintain our qualification as a REIT.
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 tenants at 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, 2015.
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, 2015 to October 31, 2015
November 1, 2015 to November 30, 2015
December 1, 2015 to December 31, 2015
Total
Total number
of shares of
Class A common
stock purchased
Average price
paid per share
of Class A
common stock
20
$
— $
— $
20
$
14.16
—
—
14.16
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 (a)
N/A
N/A
N/A
N/A
$
$
N/A
N/A
250,000
250,000
(a) As disclosed on the Form 8-K dated December 15, 2015, represents amount outstanding under our $250,000 common stock repurchase
program. There is no scheduled expiration date to this program. As of December 31, 2015, we had not repurchased any shares under this
program.
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. “Total assets” and “Total debt” in the table below reflect the early adoption
of the accounting pronouncement related to the presentation of debt issuance costs. See Note 2 to the consolidated financial
statements for further details. The adoption of this pronouncement resulted in the reclassification of $15,730, $19,046, $24,883
and $27,984 of unamortized capitalized loan fees from “Total assets” to “Total debt” as of December 31, 2014, 2013, 2012 and
2011, respectively. In addition, $141 and $12 of unamortized capitalized loan fees associated with properties held for sale were
reclassified from “Total assets” to “Liabilities associated with investment properties held for sale, net” as of December 31, 2014
and 2013, respectively.
RETAIL PROPERTIES OF AMERICA, INC.
As of and for the years ended December 31, 2015, 2014, 2013, 2012 and 2011
(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 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
2014
4,314,905
4,787,989
2,318,735
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2013
4,474,044
4,858,518
2,280,587
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2015
4,254,647
4,621,251
2,166,238
2,155,337
603,960
214,706
248,184
462,890
141,070
—
—
—
—
—
(138,938)
1,700
3,832
—
121,792
125,624
(528)
125,096
(9,450)
115,646
0.49
—
0.49
9,450
1.75
157,173
0.66
265,813
25,288
(351,969)
236,380
236,382
22
2012
4,687,091
5,212,544
2,567,206
2,374,259
531,171
208,658
187,949
396,607
134,564
3,879
—
(6,307)
—
—
(171,295)
24,791
(14,368)
6,078
7,843
(447)
—
(447)
(263)
(710)
(0.03)
0.03
$
$
2011
5,260,788
5,913,910
3,453,234
2,135,024
531,077
$
$
$
$
$
213,623
192,282
405,905
125,172
15,345
—
(6,437)
—
—
(203,914)
(1,658)
(71,492)
(6,992)
5,906
(72,578)
(31)
(72,609)
—
(72,609)
(0.34)
(0.04)
— $
(0.38)
— $
— $
$
$
$
$
$
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
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,” “intends,” “plans,” “estimates,” “continues” or
“anticipates” and variations of such words or similar expressions or the negative of such words. You can also identify forward-
looking statements by discussions of strategies, plans or intentions. Risks, uncertainties and 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;
bankruptcy or insolvency of a major tenant or a significant number of smaller 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;
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 impact of
construction delays and cost overruns;
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, 2015, we owned 198 retail operating properties representing 28,930,000
square feet of GLA. Our retail operating portfolio includes (i) power centers, (ii) neighborhood and community centers, and (iii)
lifestyle centers and multi-tenant retail-focused mixed-use properties, as well as single-user retail properties.
The following table summarizes our operating portfolio as of December 31, 2015:
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
(a) Includes leases signed but not commenced.
Number of
Properties
GLA
(in thousands)
Occupancy
Percent Leased
Including Leases
Signed (a)
52
85
14
151
47
198
1
199
11,973
10,527
5,214
27,714
1,216
28,930
895
29,825
96.1%
92.9%
90.5%
93.8%
100.0%
94.1%
100.0%
94.3%
97.0%
93.9%
90.8%
94.7%
100.0%
94.9%
100.0%
95.1%
In addition to our operating portfolio, we owned one development property that was not under active development as of
December 31, 2015.
24
2015 Company Highlights
Acquisitions
During the year ended December 31, 2015, we continued to execute our investment strategy by acquiring eight multi-tenant retail
operating properties and three parcels at existing wholly-owned multi-tenant retail operating properties for a total purchase price
of $463,136.
The following table summarizes our 2015 acquisitions:
Date
Property Name
January 8, 2015
Downtown Crown
January 23, 2015
Merrifield Town Center
January 23, 2015
Fort Evans Plaza II
February 19, 2015
Cedar Park Town Center
March 24, 2015
Lake Worth Towne Crossing – Parcel (a)
May 4, 2015
June 10, 2015
July 31, 2015
Tysons Corner
Woodinville Plaza
Southlake Town Square – Outparcel (b)
August 27, 2015
Coal Creek Marketplace
October 27, 2015
Royal Oaks Village II – Outparcel (a)
November 13, 2015
Towson Square
Metropolitan
Statistical Area
(MSA)
Washington, D.C.
Washington, D.C.
Washington, D.C.
Austin
Dallas
Washington, D.C.
Seattle
Dallas
Seattle
Houston
Baltimore
Property Type
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Land
Multi-tenant retail
Multi-tenant retail
Single-user outparcel
Multi-tenant retail
Single-user outparcel
Multi-tenant retail
Square
Footage
Acquisition
Price
258,000
$
162,785
84,900
228,900
179,300
—
37,700
170,800
13,800
55,900
12,300
138,200
56,500
65,000
39,057
400
31,556
35,250
8,440
17,600
6,841
39,707
1,179,800
$
463,136
(a) We acquired a parcel located at our Lake Worth Towne Crossing multi-tenant retail operating property and a single-user outparcel located
at our Royal Oaks Village II multi-tenant retail operating property.
(b) We acquired a single-user outparcel located at our Southlake Town Square multi-tenant retail operating property that was subject to a ground
lease with us (as lessor) prior to the transaction.
Subsequent to December 31, 2015, we acquired two multi-tenant retail assets aggregating 251,200 square feet for a total purchase
price of $72,231. In total for 2016, we expect to acquire approximately $375,000 to $475,000 of strategic acquisitions in our target
markets.
Dispositions
During the year ended December 31, 2015, we continued to pursue targeted dispositions of select non-target and single-user
properties. Consideration from dispositions totaled $516,444 and included the sale of 16 multi-tenant retail operating properties,
five single-user office properties, three single-user retail properties and two development properties, one of which had been held
in a consolidated joint venture.
25
The following table summarizes our 2015 dispositions:
Date
Property Name
January 20, 2015
Aon Hewitt East Campus
February 27, 2015
Promenade at Red Cliff
April 7, 2015
April 30, 2015
May 15, 2015
June 4, 2015
June 5, 2015
June 17, 2015
June 17, 2015
June 17, 2015
July 17, 2015
July 28, 2015
July 30, 2015
August 6, 2015
August 24, 2015
August 31, 2015
Hartford Insurance Building
Rasmussen College
Mountain View Plaza
Massillon Commons
Citizen's Property Insurance Building
Pine Ridge Plaza
Bison Hollow
The Village at Quail Springs
Greensburg Commons
Arvada Connection and
Arvada Marketplace
Traveler's Office Building
Shaw's Supermarket
Harvest Towne Center
Trenton Crossing & McAllen Shopping Center (a)
September 15, 2015
The Shops at Boardwalk
September 29, 2015
Best on the Boulevard
September 29, 2015
Montecito Crossing
October 29, 2015
Green Valley Crossing (b)
November 12, 2015
Lake Mead Crossing
December 2, 2015
December 9, 2015
Golfsmith
Wal-Mart – Turlock
December 18, 2015
Southgate Plaza
December 31, 2015
Bellevue Mall
Property Type
Single-user office
Multi-tenant retail
Single-user office
Single-user office
Multi-tenant retail
Multi-tenant retail
Single-user office
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Single-user office
Single-user retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Development
Multi-tenant retail
Single-user retail
Single-user retail
Multi-tenant retail
Development
Square
Footage
Consideration
343,000
$
94,500
97,400
26,700
162,000
245,900
59,800
236,500
134,800
100,400
272,500
367,500
50,800
65,700
39,700
265,900
122,400
204,400
179,700
96,400
219,900
14,900
61,000
86,100
369,300
3,917,200
$
17,233
19,050
6,015
4,800
28,500
12,520
3,650
33,200
18,800
11,350
18,400
54,900
4,841
3,000
7,800
39,295
27,400
42,500
52,200
35,000
42,565
4,475
6,200
7,000
15,750
516,444
(a) The terms of the disposition of Trenton Crossing and McAllen Shopping Center were negotiated as a single transaction.
(b) The development property had been held in a consolidated joint venture and was sold to an affiliate of the joint venture partner. Concurrent
with the sale, the joint venture was dissolved.
Subsequent to December 31, 2015, we sold two multi-tenant retail operating properties aggregating 765,800 square feet for total
consideration of $92,500, including The Gateway which was disposed of through a lender-directed sale in full satisfaction of our
mortgage obligation. During 2016, we expect targeted dispositions to be approximately $525,000 to $625,000.
26
Market Summary
As a result of our capital recycling efforts over the past several years, we increased the amount of ABR in our target markets to
more than 60% of our total multi-tenant retail ABR. The following table summarizes our operating portfolio by market as of
December 31, 2015:
Property Type/Market
Multi-Tenant Retail:
Target Markets
Dallas, Texas
Washington, D.C. /
Baltimore, Maryland
New York, New York
Atlanta, Georgia
Seattle, Washington
Chicago, Illinois
Houston, Texas
San Antonio, Texas
Phoenix, Arizona
Austin, Texas
Subtotal
Non-Target – Top 50 MSAs
Subtotal Target Markets
and Top 50 MSAs
Non-Target – Other
Total Multi-Tenant Retail
Single-User Retail
Total Retail
Office
Number of
Properties
ABR
% of Total
Multi-Tenant
Retail ABR
ABR per
Occupied
Sq. Ft.
% of Total
Multi-Tenant
Retail GLA
GLA
Occupancy
% Leased
Including
Signed
19
$
77,424
18.5% $
20.85
4,006
52,860
33,319
19,006
15,864
14,899
14,856
12,420
10,251
5,366
256,265
69,566
12.6%
8.0%
4.5%
3.8%
3.6%
3.6%
3.0%
2.3%
1.3%
61.2%
16.6%
18.65
24.39
12.94
14.14
18.10
13.61
16.35
16.64
15.97
18.13
14.59
3,111
1,404
1,513
1,238
893
1,141
779
632
350
15,067
5,292
14.4%
11.2%
5.1%
5.5%
4.5%
3.2%
4.1%
2.8%
2.3%
1.3%
54.4%
92.7%
94.4%
91.1%
97.3%
97.1%
90.6%
92.2%
95.7%
97.5%
97.5%
96.0%
93.8%
91.8%
97.8%
97.1%
91.4%
95.1%
96.8%
97.5%
97.7%
96.5%
94.8%
19.1%
90.1%
91.3%
325,831
77.8%
17.25
20,359
73.5%
92.8%
93.9%
92,637
22.2%
418,468
100.0%
24,569
443,037
10,476
13.04
16.10
20.20
16.27
11.71
7,355
26.5%
96.6%
96.9%
27,714
100.0%
93.8%
94.7%
1,216
28,930
895
100.0%
100.0%
94.1%
94.9%
100.0%
100.0%
13
8
9
7
5
9
4
3
4
81
32
113
38
151
47
198
1
Total Operating Portfolio
199
$ 453,513
$
16.12
29,825
94.3%
95.1%
Leasing Activity
The following table summarizes the leasing activity in our retail operating portfolio during the year ended December 31, 2015.
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
325
59
137
521
1,750
$
285
695
2,730
$
18.77
20.96
19.38
19.07
$
$
17.63
17.01
n/a
17.54
6.47%
23.22%
n/a
8.72%
4.70
8.44
8.21
6.03
$
$
1.41
32.23
30.83
12.12
(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.
We expect modest increases in occupancy in 2016, with the majority of expected leasing activity attributable to small shop tenants.
In addition, as portfolio occupancy increases and available inventory of vacant space decreases, we expect our leasing volume to
decline as we focus on the merchandising of our properties to ensure the right mix of operators and unique retailers. We continue
to anticipate that a large proportion of our new leasing activity will be non-comparable in nature as the leased space is more likely
to have been vacant for longer than 12 months.
27
Capital Markets
On March 12, 2015, we completed a public offering of $250,000 in aggregate principal amount of our 4.00% senior unsecured
notes due 2025 (4.00% notes). The 4.00% notes were priced at 99.526% of the principal amount to yield 4.058% to maturity and
will mature on March 15, 2025, unless earlier redeemed. The proceeds were used to repay a portion of our unsecured revolving
line of credit.
On December 21, 2015, we established a new ATM equity program under which we may issue and sell shares of our Class A
common stock, having an aggregate offering price of up to $250,000, from time to time. Actual sales may depend on a variety of
factors, including, among others, market conditions and the trading price of our Class A common stock. Any net proceeds are
expected to be used for general corporate purposes, which may include the funding of acquisitions and redevelopment activities
and the repayment of debt, including our Unsecured Credit Facility. As of December 31, 2015, we had Class A common shares
having an aggregate offering price of up to $250,000 remaining available for sale under our ATM equity program.
On December 15, 2015, our board of directors authorized a common stock repurchase program under which we may repurchase,
from time to time, up to a maximum of $250,000 of shares of our Class A common stock. The shares may be repurchased in the
open market or in privately negotiated transactions. The timing and actual number of shares repurchased will depend on a variety
of factors including price in absolute terms and in relation to the value of our assets, corporate and regulatory requirements, market
conditions and other corporate liquidity requirements and priorities. The common stock repurchase program may be suspended
or terminated at any time without prior notice. As of December 31, 2015, we had not repurchased any shares under this program.
Additionally, during the year ended December 31, 2015, we continued to enhance balance sheet flexibility by repaying or defeasing
mortgage debt, including certain longer dated maturities, in amounts totaling $495,456 (excluding scheduled principal payments
of $16,126 related to amortizing loans). We also borrowed $100,000, net of repayments, on our unsecured revolving line of credit.
Subsequent to December 31, 2015, we entered into our fourth amended and restated unsecured credit agreement with a syndicate
of financial institutions led by KeyBank National Association serving as administrative agent and Wells Fargo Bank, National
Association serving as syndication agent to provide for an unsecured credit facility aggregating $1,200,000. Our 2016 unsecured
credit facility consists of a $750,000 unsecured revolving line of credit, a $200,000 unsecured term loan and a $250,000 unsecured
term loan (collectively, our 2016 Unsecured Credit Facility) and will be priced on a leverage grid at a rate of LIBOR plus a credit
spread. The following table summarizes the key terms of our 2016 Unsecured Credit Facility:
2016 Unsecured Credit Facility
$200,000 unsecured term loan
$250,000 unsecured term loan
$750,000 unsecured revolving line of credit
1/5/2021
1/5/2020
Maturity
Date
Extension
Option
Extension
Fee
Credit
Spread
Unused Fee
Credit
Spread
Facility Fee
Leverage-Based Pricing
Ratings-Based Pricing
5/11/2018
2 one year
0.15%
1.45% - 2.20%
N/A
N/A
1.30% - 2.20%
N/A
N/A
1.05% - 2.05%
0.90% - 1.75%
N/A
N/A
2 six month
0.075%
1.35% - 2.25% 0.15% - 0.25% 0.85% - 1.55% 0.125% - 0.30%
Our 2016 Unsecured Credit Facility has a $400,000 accordion option that allows us, at our election, to increase the total credit
facility up to $1,600,000, subject to (i) customary fees and conditions including, but not limited to, the absence of an event of
default as defined in the agreement and (ii) our ability to obtain additional lender commitments.
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 2015.
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 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 have on our operating results.
28
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 attributable to common shareholders as computed
in accordance with GAAP has been presented. We include a reconciliation for each comparable period presented.
Comparison of the Years Ended December 31, 2015 and 2014
The following table presents NOI for our same store portfolio and “Other investment properties” along with a reconciliation to
net income attributable to common shareholders. For the year ended December 31, 2015, our same store portfolio consisted of
180 operating properties acquired or placed in service and stabilized prior to January 1, 2014. The number of properties in our
same store portfolio decreased to 180 as of December 31, 2015 from 197 as of December 31, 2014 as a result of the following:
•
•
•
the removal of 22 same store investment properties sold during the year ended December 31, 2015;
the removal of one investment property that was impaired below its debt balance during 2014; and
the removal of one investment property where we have begun activities in anticipation of a redevelopment, which we
expected to have a significant impact to property NOI during 2015,
partially offset by
•
the addition of seven investment properties acquired during the year ended December 31, 2013.
The sales of Aon Hewitt East Campus on January 20, 2015 and Promenade at Red Cliff on February 27, 2015 did not impact the
number of same store properties as they were classified as held for sale as of December 31, 2014. In addition, the sales of Green
Valley Crossing on October 29, 2015 and Bellevue Mall on December 31, 2015 did not impact the number of same store properties
as they were both development properties and consequently did not meet the criteria to be included in our same store portfolio.
The properties and financial results reported in “Other investment properties” primarily include the following:
•
•
•
•
•
•
properties acquired during 2014 and 2015;
our development property;
two properties where we have begun activities in anticipation of future redevelopment;
one property that was impaired below its debt balance during 2014;
properties that were sold or held for sale in 2014 and 2015 that did not qualify for discontinued 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 the first quarter of 2014.
In addition, the financial results reported in “Other investment properties” for the year ended December 31, 2015 include the net
income from our wholly-owned captive insurance company, which was formed on December 1, 2014, and the financial results
reported in “Other investment properties” for the year ended December 31, 2014 include the historical intercompany expense
elimination related to our former insurance captive unconsolidated joint venture investment, in which we terminated our
participation effective December 1, 2014. For the year ended December 31, 2014, the historical captive insurance expense related
to our portfolio was recorded in equity in loss of unconsolidated joint ventures, net.
29
Year Ended December 31,
2015
2014
Change
Percentage
1.9
1.6
16.6
4.0
(3.9)
2.9
(0.0)
Operating revenues:
Same store investment properties (180 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 (180 properties):
Property operating expenses
Real estate taxes
Other investment properties:
Property operating expenses
Real estate taxes
NOI from continuing operations:
Same store investment properties
Other investment properties
Total NOI 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 change in control of investment properties
Interest expense
Other income, net
Total other expense
Income from continuing operations
Discontinued operations:
Loss, net
Gain on sales of investment properties
Income from discontinued operations
Gain on sales of investment properties
Net income
Net income attributable to noncontrolling interest
Net income attributable to the Company
Preferred stock dividends
Net income attributable to common shareholders
$
$
385,502
95,574
4,051
80,570
23,962
4,272
(71,804)
(66,823)
(19,814)
(15,987)
346,500
73,003
419,503
3,498
3,621
(847)
3,757
(3,722)
560
(214,706)
(19,937)
(50,657)
—
—
—
(138,938)
1,700
(415,671)
$
378,201
94,054
3,475
90,333
21,665
4,069
(74,763)
(64,333)
(18,706)
(14,440)
336,634
82,921
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)
7,301
1,520
576
(9,763)
2,297
203
2,959
(2,490)
(1,108)
(1,547)
9,866
(9,918)
(52)
(1,283)
1,545
(140)
1,090
167
—
1,260
52,266
(16,428)
(4,258)
2,088
(24,158)
(5,103)
(3,759)
3,287
3,832
597
3,235
—
—
—
121,792
125,624
(528)
125,096
(9,450)
115,646
$
$
(148)
655
507
42,196
43,300
—
43,300
(9,450)
33,850
$
148
(655)
(507)
79,596
82,324
(528)
81,796
—
81,796
Same store net operating income increased $9,866, or 2.9%, primarily due to the following:
•
•
rental income increased $7,301 primarily due to increases of $3,385 from contractual rent changes, $2,280 from re-leasing
spreads and a net increase of $2,168 as a result of an increase in our small shop occupancy and a decrease in our anchor
occupancy, partially offset by a decrease of $373 from rent abatements; and
total operating expenses, net of tenant recovery income, decreased $1,989 primarily as a result of a decrease in certain
non-recoverable property operating expenses, partially offset by an increase in real estate taxes, bad debt expense and
certain recoverable property operating expenses.
30
In 2016, we expect same store net operating income growth of 2.5% to 3.5%.
Total NOI decreased $52, or (0.0)%, due to a decrease in NOI related to the properties sold in 2014 and 2015, partially offset by
an increase in NOI related to the properties acquired during 2014 and 2015 and the increase of $9,866 from the same store portfolio
described above.
Other income (expense). This category decreased $3,287, or 0.8%, primarily due to:
•
•
•
a $52,266 decrease in provision for impairment of investment properties. Based on the results of our evaluations for
impairment (see Notes 15 and 16 to the accompanying consolidated financial statements), we recognized impairment
charges of $19,937 and $72,203 for the years ended December 31, 2015 and 2014, respectively;
partially offset by
a $24,158 gain on change in control of investment properties recognized during the year ended December 31, 2014
associated with the dissolution of our MS Inland Fund, LLC (MS Inland) unconsolidated joint venture (see Note 11 to
the accompanying consolidated financial statements). No such gain was recorded during the year ended December 31,
2015;
a $16,428 increase in general and administrative expenses primarily consisting of an increase in compensation expense,
including bonuses and amortization of unvested restricted shares and performance restricted stock units, of $13,140 and
executive and realignment separation charges of $4,730;
•
a $5,103 increase in interest expense primarily consisting of:
•
•
a $13,551 increase in interest on our unsecured notes payable, which were issued in June 2014 and March 2015; and
an $8,162 increase in prepayment penalties and defeasance premiums;
partially offset by
•
a $16,619 decrease in interest on mortgages payable due to the repayment of mortgage debt.
•
a $4,258 gain on extinguishment of other liabilities recognized during the year ended December 31, 2014 related to the
acquisition of the fee interest in one of our existing investment properties that was previously subject to a ground lease
with a third party. The amount recognized represents the reversal of a straight-line ground rent liability associated with
the ground lease.
During 2016, we expect general and administrative expenses to moderate as we do not expect to incur executive and realignment
separation charges in 2016.
Discontinued operations. We elected to early adopt the revised discontinued operations pronouncement effective January 1, 2014.
No discontinued operations were reported for the year ended December 31, 2015. Discontinued operations for the year ended
December 31, 2014 consists of one property, 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, and was sold on March 11, 2014.
Comparison of the Years Ended December 31, 2014 to 2013
The following table presents NOI for the properties that were included in our same store portfolio for the periods presented, which
consisted of 197 operating properties acquired or placed in service prior to January 1, 2013, and “Other investment properties,”
along with a reconciliation to net income attributable to common shareholders.
31
Year Ended December 31,
2014
2013
Change
Percentage
2.3
5.3
(0.1)
(1.1)
(2.5)
3.3
8.8
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
NOI from continuing operations:
Same store investment properties
Other investment properties
Total NOI 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
Net income attributable to common shareholders
$
$
$
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
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
$
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.
32
Total NOI increased $33,859, or 8.8%, primarily due to an increase of $28,937 in NOI 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 NOI related to the properties sold in 2014.
Other (expense) income. This category 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. Based on the results of our evaluations for
impairment (see Notes 15 and 16 to the accompanying consolidated financial statements), we recognized impairment
charges of $72,203 and $59,486 for the years ended December 31, 2014 and 2013, respectively.
•
•
•
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.
Funds From Operations Attributable to Common Shareholders
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 attributable
to common shareholders. Management believes that, subject to the following limitations, FFO attributable to common shareholders
provides a basis for comparing our performance and operations to those of other REITs.
33
We define Operating FFO attributable to common shareholders as FFO attributable to common shareholders 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, executive and realignment separation
charges 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 attributable to common shareholders.
We believe that FFO attributable to common shareholders and Operating FFO attributable to common shareholders, which are
non-GAAP performance measures, provide additional and useful means to assess the operating performance of REITs. Neither
FFO attributable to common shareholders nor Operating FFO attributable to common shareholders represent alternatives to “Net
income” or “Net income attributable to common shareholders” 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. Other
REITs may use different methodologies for calculating similarly titled measures, and accordingly, our calculation of Operating
FFO attributable to common shareholders may not be comparable to similarly titled measures of other REITs.
FFO attributable to common shareholders and Operating FFO attributable to common shareholders are calculated as follows:
Net income attributable to common shareholders
Depreciation and amortization
Provision for impairment of investment properties
Gain on sales of investment properties, net of noncontrolling interest (a)
FFO attributable to common shareholders
Impact on earnings from the early extinguishment of debt, net
Provision for hedge ineffectiveness
Joint venture investment impairment
Reversal of excise tax accrual
Gain on extinguishment of other liabilities
Executive and realignment separation charges (b)
Other (c)
Operating FFO attributable to common shareholders
Year Ended December 31,
2014
2013
2015
$
$
$
115,646
213,602
19,937
(121,264)
227,921
18,864
(25)
—
—
—
4,730
(224)
251,266
$
$
$
33,850
216,676
72,203
(67,009)
255,720
10,479
12
—
(4,594)
(4,258)
—
(199)
257,160
$
$
$
4,176
241,152
92,319
(70,996)
266,651
(15,914)
(912)
1,834
—
(3,511)
—
(1,349)
246,799
(a) Results for the year ended December 31, 2014 include 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. Results
for the year ended December 31, 2013 include 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.
(b) Included in “General and administrative expenses” in the accompanying consolidated statements of operations and other comprehensive
income.
(c) Consists of the impact on earnings from net settlements and easement proceeds, which are included in “Other income, net” in the
accompanying consolidated statements of operations and other comprehensive income.
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 allowances 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 our unsecured notes.
34
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 capital markets transactions
Proceeds from asset dispositions
Tenant allowances and leasing costs
Improvements made to individual properties that are not
recoverable through common area maintenance charges to tenants
Acquisitions
Debt repayments
Distribution payments
Redevelopment, renovation or expansion activities
New development
Repurchases of our common stock
We have made substantial progress over the last several years in strengthening our balance sheet and addressing debt maturities,
funded primarily through asset dispositions and capital markets transactions, including public offerings of our common stock and
preferred stock and private and public offerings of senior unsecured notes. As of December 31, 2015, we had $48,876 of debt
scheduled to mature through the end of 2016, comprised of $35,546 related to mortgages payable maturing in 2016 and $13,330
of principal amortization related to longer-dated maturities, which we plan on satisfying through a combination of proceeds from
asset dispositions, capital markets transactions and our unsecured revolving line of credit.
The table below summarizes our consolidated indebtedness as of December 31, 2015:
Debt
Aggregate
Principal
Amount
Weighted
Average
Interest Rate
Fixed rate mortgages payable (a) (b)
$
1,128,505
6.08%
Unsecured notes payable:
Senior notes – 4.12% Series A due 2021
Senior notes – 4.58% Series B due 2024
Senior notes – 4.00% due 2025
Total unsecured notes payable (b)
Unsecured credit facility (c):
Term loan – fixed rate portion (d)
Term loan – variable rate portion
Revolving line of credit – variable rate
Total unsecured credit facility (b)
100,000
150,000
250,000
500,000
300,000
150,000
100,000
550,000
Total consolidated indebtedness
$
2,178,505
4.12%
4.58%
4.00%
4.20%
1.99%
1.88%
1.93%
1.95%
4.61%
Maturity Date
various
June 30, 2021
June 30, 2024
March 15, 2025
May 11, 2018
May 11, 2018
May 12, 2017
Weighted
Average Years
to Maturity
3.9 years
5.5 years
8.5 years
9.2 years
8.3 years
2.4 years
2.4 years
1.4 years
2.2 years
4.5 years
(a) Includes $7,910 of variable rate mortgage debt that has been swapped to a fixed rate as of December 31, 2015.
(b) Fixed rate mortgages payable excludes mortgage premium of $1,865, discount of $(1) and capitalized loan fees of $(7,233), net of accumulated
amortization, as of December 31, 2015. Unsecured notes payable excludes discount of $(1,090) and capitalized loan fees of $(3,334), net
of accumulated amortization, as of December 31, 2015. Term loan excludes capitalized loan fees of $(2,474), net of accumulated amortization,
as of December 31, 2015. Capitalized loan fees related to the revolving line of credit are included in “Other assets, net” in the accompanying
consolidated balance sheets.
(c) Subsequent to December 31, 2015, we entered into our fourth amended and restated unsecured credit agreement with a syndicate of financial
institutions to provide for an unsecured credit facility aggregating $1,200,000. See Note 9 to the accompanying consolidated financial
statements for further details.
(d) Reflects $300,000 of London Interbank Offered Rate (LIBOR)-based variable rate debt that has been swapped to a fixed rate of 0.53875%
plus a credit spread based on a leverage grid through February 2016. The applicable credit spread was 1.45% as of December 31, 2015.
Mortgages Payable
During the year ended December 31, 2015, we repaid or defeased mortgages payable in the total amount of $495,456 (excluding
scheduled principal payments of $16,126 related to amortizing loans). The loans repaid or defeased during the year ended
December 31, 2015 had a weighted average fixed interest rate of 5.82%.
35
In August 2015, the servicing of the Commercial Mortgage-Backed Security (CMBS) loan encumbering The Gateway was
transferred to the special servicer at our request. This servicing transfer occurred notwithstanding the fact that the CMBS loan was
performing. In 2014, this property was impaired below its debt balance, which was $94,463 as of December 31, 2015. The loan
was non-recourse to us, except for customary non-recourse carve-outs. Subsequent to December 31, 2015, we disposed of The
Gateway through a lender-directed sale in full satisfaction of our mortgage obligation.
Unsecured Notes Payable
On March 12, 2015, we completed a public offering of $250,000 in aggregate principal amount of our 4.00% notes. The 4.00%
notes were priced at 99.526% of the principal amount to yield 4.058% to maturity. In addition, on June 30, 2014, we completed a
private placement of $250,000 of unsecured notes, consisting of $100,000 of 4.12% Series A senior notes due 2021 and $150,000
of 4.58% Series B senior notes due 2024 (collectively, Series A and B notes). The proceeds from the 4.00% notes and the Series
A and B notes were used to repay a portion of our unsecured revolving line of credit.
The indenture, as supplemented, governing the 4.00% notes (the Indenture) contains customary covenants and events of default.
Pursuant to the terms of the Indenture, we are subject to various financial covenants, including the requirement to maintain the
following: (i) maximum secured and total leverage ratios; (ii) a debt service coverage ratio; and (iii) maintenance of an unencumbered
assets to unsecured debt ratio.
The note purchase agreement governing the 4.12% Series A senior notes due 2021 and 4.58% Series B senior notes due 2024
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, 2015, management believes we were in compliance with the financial covenants under the Indenture and the
note purchase agreement.
Unsecured Credit Facility
In May 2013, we entered into our third amended and restated unsecured credit agreement with a syndicate of financial institutions
to provide for the Unsecured Credit Facility aggregating to $1,000,000, consisting of a $550,000 unsecured revolving line of credit
and a $450,000 unsecured term loan. The Unsecured Credit Facility had a $450,000 accordion option that allowed us, at our
election, to increase the availability thereunder up to $1,450,000, subject to (i) customary fees and conditions including, but not
limited to, the absence of an event of default as defined in the agreement and (ii) our ability to obtain additional lender commitments.
As of December 31, 2015, the Unsecured Credit Facility was priced on a leverage grid at a rate of LIBOR plus a credit spread.
We received investment grade credit ratings from two rating agencies in 2014 and in accordance with the unsecured credit agreement,
we may elect to convert to an investment grade pricing grid. As of December 31, 2015, making such an election would have
resulted in a higher interest rate and, as such, we did not make the election to convert to an investment grade pricing grid. The
following table summarizes the leverage-based and ratings-based credit spreads and additional pricing terms of our Unsecured
Credit Facility as of December 31, 2015:
Unsecured Credit Facility
Term loan
Revolving line of credit
Leverage-Based Pricing
Ratings-Based Pricing
Credit Spread
1.45% – 2.00%
1.50% – 2.05%
Unused Fee
N/A
0.25% – 0.30%
Credit Spread
1.05% – 2.05%
0.90% – 1.70%
Facility Fee
N/A
0.15% – 0.35%
The unsecured credit agreement contained customary representations, warranties and covenants, and events of default. Pursuant
to the terms of the unsecured credit agreement, we were 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, 2015,
management believes we were in compliance with the financial covenants and default provisions under the unsecured credit
agreement.
Subsequent to December 31, 2015, we entered into our fourth amended and restated unsecured credit agreement with a syndicate
of financial institutions led by KeyBank National Association serving as administrative agent and Wells Fargo Bank, National
Association serving as syndication agent to provide for an unsecured credit facility aggregating $1,200,000, or our 2016 Unsecured
36
Credit Facility. Our 2016 Unsecured Credit Facility consists of a $750,000 unsecured revolving line of credit, a $200,000 unsecured
term loan and a $250,000 unsecured term loan and will be priced on a leverage grid at a rate of LIBOR plus a credit spread. The
following table summarizes the key terms of our 2016 Unsecured Credit Facility:
2016 Unsecured Credit Facility
$200,000 unsecured term loan
$250,000 unsecured term loan
$750,000 unsecured revolving line of credit
1/5/2021
1/5/2020
Maturity
Date
Extension
Option
Extension
Fee
Credit
Spread
Unused Fee
Credit
Spread
Facility Fee
Leverage-Based Pricing
Ratings-Based Pricing
5/11/2018
2 one year
0.15%
1.45% - 2.20%
N/A
N/A
1.30% - 2.20%
N/A
N/A
1.05% - 2.05%
0.90% - 1.75%
N/A
N/A
2 six month
0.075%
1.35% - 2.25% 0.15% - 0.25% 0.85% - 1.55% 0.125% - 0.30%
Our 2016 Unsecured Credit Facility has a $400,000 accordion option that allows us, at our election, to increase the total credit
facility up to $1,600,000, subject to (i) customary fees and conditions including, but not limited to, the absence of an event of
default as defined in the agreement and (ii) our ability to obtain additional lender commitments.
The fourth amended and restated unsecured credit agreement contains customary representations, warranties and covenants, and
events of default. Pursuant to the terms of the fourth amended and restated 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; and (ii) minimum fixed charge and unencumbered interest coverage ratios.
Debt Maturities
The following table shows the scheduled maturities and principal amortization of our indebtedness as of December 31, 2015 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, 2015. The table does not reflect the impact of any 2016 debt activity, such as our 2016 Unsecured Credit
Facility.
2016
2017
2018
2019
2020
Thereafter
Total
Fair Value
Debt:
Fixed rate debt:
Mortgages payable (a)
$ 48,876
$ 319,633
$ 10,801
$ 443,447
$
3,424
$ 302,324
$1,128,505
$ 1,213,620
Unsecured credit facility – fixed rate
portion of term loan (b)
Unsecured notes payable (c)
—
—
—
—
300,000
—
—
—
—
—
Total fixed rate debt
48,876
319,633
310,801
443,447
3,424
—
500,000
802,324
300,000
500,000
300,000
486,701
1,928,505
2,000,321
Variable rate debt:
Unsecured credit facility
—
100,000
150,000
—
—
—
250,000
250,000
Total debt (d)
$ 48,876
$ 419,633
$ 460,801
$ 443,447
$
3,424
$ 802,324
$2,178,505
$ 2,250,321
Weighted average interest rate on debt:
Fixed rate debt
Variable rate debt (e)
Total
4.92%
—
4.92%
5.52%
1.93%
4.66%
2.16%
1.88%
2.07%
7.50%
—
7.50%
4.80%
—
4.80%
4.42%
—
4.42%
4.96%
1.90%
4.61%
(a) Includes $7,910 of variable rate mortgage debt that has been swapped to a fixed rate as of December 31, 2015. Excludes mortgage premium
of $1,865 and discount of $(1), net of accumulated amortization, as of December 31, 2015.
(b) $300,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through February 2016. The swap effectively converts one-
month floating rate LIBOR to a fixed rate of 0.53875% over the term of the swap.
(c) Excludes discount of $(1,090), net of accumulated amortization, as of December 31, 2015.
(d) Total debt excludes capitalized loan fees of $(13,041), net of accumulated amortization, as of December 31, 2015 which are included as a
reduction to the respective debt balances. The weighted average years to maturity of consolidated indebtedness was 4.5 years as of
December 31, 2015. The $71,816 difference between total debt outstanding and its fair value is primarily attributable to a $68,947 difference
related to our IW JV pool of mortgages. This pool matures in 2019, has an interest rate of 7.50% and an outstanding principal balance of
$395,402 as of December 31, 2015.
(e) Represents interest rates as of December 31, 2015.
We plan on addressing our debt maturities through a combination of proceeds from asset dispositions, capital markets transactions
and our unsecured revolving line of credit.
37
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 REIT taxable income, determined without regard to the dividends paid deduction and excluding
net capital gains. The Code imposes tax on any undistributed REIT taxable income.
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, as of December 31, 2015, limited our distributions
to the greater of 95% of FFO, as defined in the unsecured credit agreement (which equals FFO attributable to common shareholders,
as set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Funds From Operations
Attributable to Common Shareholders,” excluding gains or losses from extraordinary items, impairment charges not already
excluded from FFO attributable to common shareholders and other non-cash charges) or the amount necessary for us to maintain
our qualification as a REIT. Subsequent to December 31, 2015, we entered into our fourth amended and restated unsecured credit
agreement, which does not include a similar limitation on our distributions though it does require us to distribute at least an amount
necessary to maintain our 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.
In March 2013, we established an at-the-market (ATM) equity program under which we sold 5,547 shares of our Class A common
stock during the year ended December 31, 2013. The shares were issued at a weighted average price per share of $15.29 for
proceeds of $83,527, net of commissions and offering costs. No shares were issued during the years ended December 31, 2014
and 2015 and the 2013 ATM equity program expired in November 2015.
In December 2015, we established a new ATM equity program under which we may issue and sell shares of our Class A common
stock, having an aggregate offering price of up to $250,000, from time to time. Actual sales may depend on a variety of factors,
including, among others, market conditions and the trading price of our Class A common stock. Any net proceeds are expected to
be used for general corporate purposes, which may include the funding of acquisitions and redevelopment activities and the
repayment of debt, including our Unsecured Credit Facility. As of December 31, 2015, we had Class A common shares having an
aggregate offering price of up to $250,000 remaining available for sale under our ATM equity program.
In December 2015, our board of directors authorized a common stock repurchase program under which we may repurchase, from
time to time, up to a maximum of $250,000 of shares of our Class A common stock. The shares may be repurchased in the open
market or in privately negotiated transactions. The timing and actual number of shares repurchased will depend on a variety of
factors including price in absolute terms and in relation to the value of our assets, corporate and regulatory requirements, market
conditions and other corporate liquidity requirements and priorities. The common stock repurchase program may be suspended
or terminated at any time without prior notice. As of December 31, 2015, we had not repurchased any shares under this 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.
As of December 31, 2015, we owned one development property, South Billings Center located in Billings, Montana, with a carrying
value of $5,157 which is not under active development.
38
Dispositions
We continue to execute our long-term portfolio repositioning strategy of disposing of select non-target and single-user properties
in order to facilitate our external growth initiatives. The following table highlights our property dispositions during 2015, 2014
and 2013:
2015 Dispositions
2014 Dispositions
2013 Dispositions
Number of
Properties Sold
26
24
20
Square
Footage
3,917,200
2,490,100
2,833,900
Consideration
516,444
$
322,989
$
328,045
$
Aggregate
Proceeds, Net (a)
505,524
$
314,377
$
320,574
$
Debt
Extinguished
$
$
$
25,724 (b)
9,713 (b)
— (c)
(a) Represents total consideration net of transaction costs. 2015 dispositions include the disposition of two development properties, one of
which had been held in a consolidated joint venture.
(b) Excludes $95,881 and $114,404 of mortgages payable repayments or defeasances completed prior to disposition of the respective property
for the years ended December 31, 2015 and 2014, respectively.
(c) Excludes $52,221 of mortgages payable repayments completed prior to disposition of the respective property. In addition, we received
$19,615 of debt forgiveness during the ended December 31, 2013.
In addition to the transactions presented in the preceding table, we (i) received net proceeds of $300, $1,023 and $6,192 from other
transactions, including condemnation awards, earnouts and the sale of parcels at certain of our properties during the years ended
December 31, 2015, 2014 and 2013, respectively, and (ii) generated aggregate net proceeds of $108,257, on a pro-rata basis, from
dispositions at our unconsolidated joint ventures during the year ended December 31, 2013, which 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.
Acquisitions
We continue to execute our investment strategy of acquiring high quality, multi-tenant retail assets within our target markets. The
following table highlights our asset acquisitions during 2015, 2014 and 2013:
2015 Acquisitions (b)
2014 Acquisitions (c)
2013 Acquisitions
Number of
Assets Acquired
11
11
7
Square
Footage
1,179,800
1,339,400
1,088,100
Acquisition
Price
Pro Rata
Acquisition
Price (a)
Mortgage
Debt
Pro Rata
Mortgage
Debt (a)
$
$
$
463,136
348,061
317,213
$
$
$
463,136
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) 2015 acquisitions include the purchase of the following: 1) a land parcel at our Lake Worth Towne Crossing multi-tenant retail operating
property, 2) 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 3) a single-user outparcel located at our Royal Oaks Village II multi-tenant retail operating property.
The total number of properties in our portfolio was not affected by these transactions.
(c) 2014 acquisitions include the purchase of the following: 1) the fee interest in our Bed Bath & Beyond Plaza multi-tenant retail operating
property that was previously subject to a ground lease with a third party, 2) 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 3) 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.
39
Summary of Cash Flows
Cash provided by operating activities
Cash provided by investing activities
Cash used in financing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, at beginning of year
Cash and cash equivalents, at end of year
Cash Flows from Operating Activities
Year Ended December 31,
2014
Change
2015
$
$
265,813
25,288
(351,969)
(60,868)
112,292
51,424
$
$
254,014
77,900
(277,812)
54,102
58,190
112,292
$
11,799
(52,612)
(74,157)
(114,970)
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 2015 increased $11,799 primarily due to the following:
•
•
•
a $12,396 reduction in cash paid for interest;
a $339 decrease in cash paid for leasing fees and inducements; and
ordinary course fluctuations in working capital accounts;
partially offset by
•
a $1,476 decrease in net lease termination 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. Net cash provided by investing activities in 2015 decreased $52,612 primarily due to the following:
•
a $281,096 increase in cash paid to purchase investment properties;
partially offset by
•
•
a $190,424 increase in proceeds from the sales of investment properties; and
a $39,101 net change in restricted escrow activity, of which $16,510 relates to acquisition deposits.
We will continue to execute our investment strategy by pursuing targeted dispositions. The majority of the proceeds from disposition
activity in 2016 is expected to be used to acquire high quality, multi-tenant retail assets within our target markets and repay debt.
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
Cash flows from financing activities primarily consist of distribution payments, repayments of our Unsecured Credit Facility,
principal payments on mortgages payable and the purchase of U.S. Treasury Securities in connection with defeasance of mortgages
payable, partially offset by proceeds from our Unsecured Credit Facility and the issuance of debt instruments and equity securities.
Net cash used in financing activities in 2015 increased $74,157 primarily due to the following:
•
•
a $249,246 increase in principal payments on mortgages payable; and
an $81,283 increase in purchases of U.S. Treasury securities in connection with defeasance of mortgages payable;
partially offset by
•
a $265,000 increase in net proceeds from our Unsecured Credit Facility.
40
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 our debt obligations and lease agreements
as of December 31, 2015 and does not reflect the impact of any 2016 activity, such as our 2016 Unsecured Credit Facility:
Long-term debt (a):
Fixed rate
Variable rate
Interest (d)
Operating lease obligations (e)
Less than
1 year (b)
1-3
years (c)
3-5
years
More than
5 years
Total
Payment due by period
$
$
48,876
—
100,151
8,458
157,485
$
$
630,434
250,000
158,707
16,844
1,055,985
$
$
446,871
—
102,107
17,950
566,928
$
$
802,324
—
94,792
510,790
1,407,906
$
$
1,928,505
250,000
455,757
554,042
3,188,304
(a) Amounts exclude mortgage premium of $1,865, mortgage discount of $(1), unsecured notes payable discount of $(1,090) and capitalized
loan fees of $(13,041), net of accumulated amortization, as of December 31, 2015. 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, 2015.
(b) Included in fixed rate debt is $7,910 of variable rate mortgage debt that has been swapped to a fixed rate through its maturity on September
30, 2016. We plan on addressing our 2016 mortgages payable maturities through a combination of proceeds from asset dispositions, capital
markets transactions and our unsecured revolving line of credit.
(c) Included in fixed rate debt is $300,000 of LIBOR-based variable rate debt that has been swapped to a fixed rate through February 2016.
(d) Represents expected interest payments on our consolidated debt obligations as of December 31, 2015, including any capitalized interest.
(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 2016 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 these 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 known trends, events or uncertainties 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.
41
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.
For tangible assets acquired, including land, building and other improvements, we consider available comparable market and
industry information in estimating the 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
intangibles 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:
•
•
•
•
•
•
•
•
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 or
redevelopment 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;
42
•
•
•
•
estimated interest and internal costs expected to be capitalized, dates of construction completion and grand opening dates
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, 2015 and 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 other 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.
Development and Redevelopment Projects
During the development or redevelopment period, we capitalize direct project costs such as construction, insurance, architectural
and legal, as well as certain indirect project costs such as interest, other financing costs, real estate taxes and internal salaries and
related benefits of personnel directly involved in the project. Capitalization of the indirect project costs ceases and all project-
related costs included in developments in progress are reclassified to land and building and other improvements at the time when
development or redevelopment is considered substantially complete. Additionally, we make estimates as to the probability of
completion of development and redevelopment projects. If we determine that completion of the development or redevelopment
project is no longer probable, we expense any capitalized costs that are not recoverable.
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 building improvements and tenant 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
43
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
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 as discontinued operations for all periods presented. However, the
revised discontinued operations pronouncement, which we early adopted effective January 1, 2014, limits what qualifies for
discontinued operations presentation. As a result, the investment properties that were sold or classified as held for sale during 2015
and 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.
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: (i) execution of a termination letter agreement; (ii) when
all of the conditions of such agreement have been fulfilled; (iii) the tenant is no longer occupying the property and (iv) 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.
44
Profits from sales of real estate are not recognized under the full accrual method unless: (i) a sale is consummated; (ii) the buyer’s
initial and continuing investments are adequate to demonstrate a commitment to pay for the property; (iii) our receivable, if
applicable, is not subject to future subordination; (iv) we have transferred to the buyer the usual risks and rewards of ownership,
and (v) 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.
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, 2016, with early adoption permitted, the concept of extraordinary items is eliminated from GAAP and entities
are no longer 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 is retained. We elected to early adopt this
pronouncement effective January 1, 2015. The adoption of this pronouncement did not have any effect on our consolidated financial
statements.
Effective January 1, 2016, with early adoption permitted, companies are required to present debt issuance costs related to a
recognized debt liability, excluding revolving debt arrangements, as a direct reduction of the carrying amount of that debt liability
on the balance sheet. The recognition and measurement guidance for debt issuance costs is not affected. We elected to early adopt
this pronouncement effective December 31, 2015. This pronouncement requires a full retrospective method of adoption and the
adoption resulted in the reclassification of $15,730 of unamortized capitalized loan fees as of December 31, 2014 from “Other
assets” to direct reductions of our indebtedness on the consolidated balance sheets. In addition, the adoption resulted in the
reclassification of $141 of unamortized capitalized loan fees from “Assets associated with investment properties held for sale” to
“Liabilities associated with investment properties held for sale, net.” Unamortized capitalized loan fees attributable to our unsecured
revolving line of credit continue to be recorded in “Other assets” as they relate to a revolving debt arrangement.
Effective January 1, 2016, with early adoption permitted, a company’s management is 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 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 adoption of this pronouncement on January 1, 2016 will not have
any effect on our consolidated financial statements.
Effective January 1, 2016, with early adoption permitted, companies are required to evaluate whether they should consolidate
certain legal entities under a revised consolidation model. All legal entities are subject to reevaluation under the revised consolidation
model, which modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities,
eliminates the presumption that a general partner should consolidate a limited partnership, affects the consolidation analysis of
reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, and
provides a scope exception from consolidation guidance for registered money market funds. This pronouncement allows either a
full or a modified retrospective method of adoption. The adoption of this pronouncement on January 1, 2016 under the modified
retrospective method will not have any effect on our consolidated financial statements.
Effective January 1, 2016, with early adoption permitted, the acquirer in a business combination is required to recognize any
adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment
amounts are determined and is no longer required to retrospectively account for those adjustments. A company must present
45
separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings
by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been
recognized as of the acquisition date. The adoption of this pronouncement on January 1, 2016 will not have any effect on our
consolidated financial statements.
Effective January 1, 2017, registrants will be required to disclose the following in any annual report, proxy or information statement,
or registration statement that requires executive compensation disclosure: 1) the median of the annual total compensation of all
its employees (excluding the chief executive officer), 2) the annual total compensation of its chief executive officer, and 3) the
ratio of the median of the annual total compensation of all its employees to the annual total compensation of its chief executive
officer. We do not expect the adoption of this final rule will have a material effect on our consolidated financial statements.
Effective January 1, 2018, with early adoption permitted beginning 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. 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, 2015, we:
•
•
•
entered into our fourth amended and restated unsecured credit agreement with a syndicate of financial institutions to
provide for an unsecured credit facility aggregating $1,200,000. See Note 9 to the accompanying consolidated financial
statements for further details;
closed on the acquisition of a two-property portfolio consisting of Shoppes at Hagerstown, a 113,200 square foot multi-
tenant retail property located in Hagerstown, Maryland, for a gross purchase price of $27,055 and Merrifield Town Center
II, a 138,000 square foot property, consisting of 76,000 square feet of retail space and 62,000 square feet of storage space,
located in Falls Church, Virginia, for a gross purchase price of $45,676;
closed on the disposition of The Gateway, a 623,200 square foot multi-tenant retail property located in Salt Lake City,
Utah, through a lender-directed sale in full satisfaction of our mortgage obligation. Immediately prior to the disposition,
the lender reduced our loan obligation to $75,000 which was assumed by the buyer in connection with the disposition,
resulting in an anticipated gain on extinguishment of debt of approximately $13,653 and an anticipated gain on sale of
approximately $3,868; and
•
closed on the disposition of Stateline Station, a 142,600 square foot multi-tenant retail property located in Kansas City,
Missouri, for a sales price of $17,500 with an anticipated gain on sale of approximately $4,253.
46
On February 11, 2016, our board of directors declared the cash dividend for the first quarter of 2016 for our 7.00% Series A
cumulative redeemable preferred stock. The dividend of $0.4375 per preferred share will be paid on March 31, 2016 to preferred
shareholders of record at the close of business on March 21, 2016.
On February 11, 2016, our board of directors declared the distribution for the first quarter of 2016 of $0.165625 per share on our
outstanding Class A common stock, which will be paid on April 8, 2016 to Class A common shareholders of record at the close
of business on March 28, 2016.
47
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We may be exposed to interest rate changes primarily as a result of our long-term debt that is 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, 2015, we had $307,910 of variable rate debt based on LIBOR that has been swapped to fixed rate debt through
interest rate swaps. Our interest rate swaps as of December 31, 2015 are summarized in the following table:
Fixed rate portion of Unsecured Credit Facility
Heritage Towne Crossing
Notional
Amount
$
$
300,000
7,910
307,910
Termination Date
February 24, 2016
September 30, 2016
Fair Value of
Derivative
Liability
$
$
32
53
85
A decrease of 1% in market interest rates would result in a hypothetical increase in our derivative liability of approximately $141.
The combined carrying amount of our mortgages payable, unsecured notes payable and Unsecured Credit Facility is approximately
$84,083 lower than the fair value as of December 31, 2015.
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.
48
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, 2015, 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, 2015. The table does not reflect the impact
of any 2016 debt activity, such as our 2016 Unsecured Credit Facility.
2016
2017
2018
2019
2020
Thereafter
Total
Fair Value
Debt:
Fixed rate debt:
Mortgages payable (a)
$ 48,876
$ 319,633
$ 10,801
$ 443,447
$
3,424
$ 302,324
$1,128,505
$ 1,213,620
Unsecured credit facility – fixed rate
portion of term loan (b)
Unsecured notes payable (c)
—
—
—
—
300,000
—
—
—
—
—
Total fixed rate debt
48,876
319,633
310,801
443,447
3,424
—
500,000
802,324
300,000
500,000
300,000
486,701
1,928,505
2,000,321
Variable rate debt:
Unsecured credit facility
—
100,000
150,000
—
—
—
250,000
250,000
Total debt (d)
$ 48,876
$ 419,633
$ 460,801
$ 443,447
$
3,424
$ 802,324
$2,178,505
$ 2,250,321
Weighted average interest rate on debt:
Fixed rate debt
Variable rate debt (e)
Total
4.92%
—
4.92%
5.52%
1.93%
4.66%
2.16%
1.88%
2.07%
7.50%
—
7.50%
4.80%
—
4.80%
4.42%
—
4.42%
4.96%
1.90%
4.61%
(a) Includes $7,910 of variable rate mortgage debt that has been swapped to a fixed rate as of December 31, 2015. Excludes mortgage premium
of $1,865 and discount of $(1), net of accumulated amortization, as of December 31, 2015.
(b) $300,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through February 2016. The swap effectively converts one-
month floating rate LIBOR to a fixed rate of 0.53875% over the term of the swap.
(c) Excludes discount of $(1,090), net of accumulated amortization, as of December 31, 2015.
(d) Total debt excludes capitalized loan fees of $(13,041), net of accumulated amortization, as of December 31, 2015 which are included as a
reduction to the respective debt balances. The weighted average years to maturity of consolidated indebtedness was 4.5 years as of
December 31, 2015. The $71,816 difference between total debt outstanding and its fair value is primarily attributable to a $68,947 difference
related to our IW JV pool of mortgages. This pool matures in 2019, has an interest rate of 7.50% and an outstanding principal balance of
$395,402 as of December 31, 2015.
(e) Represents interest rates as of December 31, 2015.
We had $250,000 of variable rate debt, excluding $307,910 of variable rate debt that has been swapped to fixed rate debt and debt
issuance costs, with interest rates varying based upon LIBOR, with a weighted average interest rate of 1.90% as of December 31,
2015. 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, 2015, interest expense would increase by approximately $2,500 on an annualized basis.
The table incorporates only those interest rate exposures that existed as of December 31, 2015. 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.
49
Subsequent to December 31, 2015, we entered into our fourth amended and restated unsecured credit agreement with a syndicate
of financial institutions led by KeyBank National Association serving as administrative agent and Wells Fargo Bank, National
Association serving as syndication agent to provide for an unsecured credit facility aggregating $1,200,000. Our 2016 Unsecured
Credit Facility consists of a $750,000 unsecured revolving line of credit, a $200,000 unsecured term loan and a $250,000 unsecured
term loan and will be priced on a leverage grid at a rate of LIBOR plus a credit spread. The following table summarizes the key
terms of our 2016 Unsecured Credit Facility:
2016 Unsecured Credit Facility
$200,000 unsecured term loan
$250,000 unsecured term loan
$750,000 unsecured revolving line of credit
1/5/2021
1/5/2020
Maturity
Date
Extension
Option
Extension
Fee
Credit
Spread
Unused Fee
Credit
Spread
Facility Fee
Leverage-Based Pricing
Ratings-Based Pricing
5/11/2018
2 one year
0.15%
1.45% - 2.20%
N/A
N/A
1.30% - 2.20%
N/A
N/A
1.05% - 2.05%
0.90% - 1.75%
N/A
N/A
2 six month
0.075%
1.35% - 2.25% 0.15% - 0.25% 0.85% - 1.55% 0.125% - 0.30%
50
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, 2015 and 2014
Consolidated Statements of Operations and Other Comprehensive Income for the Years Ended
December 31, 2015, 2014 and 2013
Consolidated Statements of Equity for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
Valuation and Qualifying Accounts (Schedule II)
Real Estate and Accumulated Depreciation (Schedule III)
Schedules not filed:
52
53
54
55
56
58
93
94
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.
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Retail Properties of America, Inc.
Oak Brook, Illinois
We have audited the accompanying consolidated balance sheets of Retail Properties of America, Inc. and subsidiaries (the
“Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations and other comprehensive
income, equity, and cash flows for each of the three years in the period ended December 31, 2015. 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, 2015 and 2014, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2015, 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 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, 2015, 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 17, 2016 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 17, 2016
52
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
Accounts and notes receivable (net of allowances of $7,910 and $7,497, 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, net
Unsecured term loan, net
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, net
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, 2015
and 2014; liquidation preference $135,000
Class A common stock, $0.001 par value, 475,000 shares authorized, 237,267 and 236,602
shares issued and outstanding as of December 31, 2015 and 2014, respectively
Additional paid-in capital
Accumulated distributions in excess of earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements
December 31,
2015
December 31,
2014
$
$
$
$
1,254,131
4,428,554
5,157
5,687,842
(1,433,195)
4,254,647
51,424
82,804
138,766
—
93,610
4,621,251
1,123,136
495,576
447,526
100,000
69,800
39,297
114,834
—
75,745
2,465,914
5
237
4,931,395
(2,776,215)
(85)
2,155,337
—
2,155,337
4,621,251
$
$
$
$
1,195,369
4,442,446
42,561
5,680,376
(1,365,471)
4,314,905
112,292
86,013
125,490
33,499
115,790
4,787,989
1,623,729
248,541
446,465
—
61,129
39,187
100,641
8,062
70,860
2,598,614
5
237
4,922,864
(2,734,688)
(537)
2,187,881
1,494
2,189,375
4,787,989
53
RETAIL PROPERTIES OF AMERICA, INC.
Consolidated Statements of Operations and Other Comprehensive Income
(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 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
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 noncontrolling interest
Net income attributable to the Company
Preferred stock dividends
Net income 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
Other comprehensive income:
Net unrealized gain on derivative instruments (Note 10)
Comprehensive income
Comprehensive income attributable to noncontrolling interest
Comprehensive income attributable to the Company
Year Ended December 31,
2014
2013
2015
$
$
$
$
$
$
472,344
119,536
12,080
603,960
94,780
82,810
214,706
19,937
50,657
462,890
141,070
—
—
—
—
(138,938)
1,700
3,832
—
—
—
121,792
125,624
(528)
125,096
(9,450)
115,646
0.49
—
0.49
125,624
452
126,076
(528)
125,548
$
$
$
$
$
$
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
Weighted average number of common shares outstanding – basic
236,380
236,184
234,134
Weighted average number of common shares outstanding – diluted
236,382
236,187
234,134
See accompanying notes to consolidated financial statements
54
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
(Loss) Income
Total
Shareholders’
Equity
Noncontrolling
Interest
Total
Equity
$ 4,835,370
$ (2,460,093) $
(1,254) $
2,374,259
$
1,494
$ 2,375,753
Balance as of January 1, 2013
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 shares
Conversion of Class B common stock to Class A
common stock
Stock-based compensation expense, net of forfeitures
Shares withheld for employee taxes
Balance as of December 31, 2013
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 shares
Exercise of stock options
Stock-based compensation expense, net of forfeitures
Shares withheld for employee taxes
Balance as of December 31, 2014
Net income
Other comprehensive income
Distribution upon dissolution of consolidated
joint venture
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 shares
Stock-based compensation expense, net of forfeitures
Shares withheld for employee taxes
Balance as of December 31, 2015
—
—
—
—
—
—
—
—
—
5,400
$
— $
—
—
—
—
—
—
—
—
5,400
$
— $
—
—
—
—
—
—
—
—
5,400
$
5
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
5
133,606
$
133
97,037
$
—
—
—
—
5,547
116
97,037
—
(4)
—
—
—
—
5
—
98
—
—
—
—
—
—
—
—
(97,037)
—
—
98
—
—
—
—
—
—
(98)
—
—
—
—
—
—
83,491
—
—
817
(45)
13,626
—
(9,713)
(155,616)
—
—
—
—
—
—
516
—
—
—
—
—
—
—
13,626
516
(9,713)
(155,616)
83,496
—
—
817
(45)
236,302
$
236
— $
— $ 4,919,633
$ (2,611,796) $
(738) $
2,307,340
— $
—
—
—
—
303
2
—
(5)
—
—
—
—
—
1
—
—
—
— $
— $
— $
43,300
$
— $
43,300
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(145)
—
23
3,420
(67)
—
(9,450)
(156,742)
—
—
—
—
—
201
—
—
—
—
—
—
—
201
(9,450)
(156,742)
(145)
1
23
3,420
(67)
236,602
$
237
— $
— $ 4,922,864
$ (2,734,688) $
(537) $
2,187,881
— $
—
—
—
—
—
801
(4)
(132)
—
—
—
—
—
—
—
—
—
— $
— $
— $
125,096
$
— $
125,096
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(216)
—
10,755
(2,008)
—
—
(9,450)
(157,173)
—
—
—
—
452
—
—
—
—
—
—
—
452
—
(9,450)
(157,173)
(216)
—
10,755
(2,008)
$
$
$
$
—
—
—
—
—
—
—
—
—
13,626
516
(9,713)
(155,616)
83,496
—
—
817
(45)
1,494
$ 2,308,834
— $
43,300
—
—
—
—
—
—
—
—
201
(9,450)
(156,742)
(145)
1
23
3,420
(67)
1,494
$ 2,189,375
528
$
125,624
—
452
(2,022)
(2,022)
—
—
—
—
—
—
(9,450)
(157,173)
(216)
—
10,755
(2,008)
237,267
$
237
— $
— $ 4,931,395
$ (2,776,215) $
(85) $
2,155,337
$
— $ 2,155,337
See accompanying notes to consolidated financial statements
55
RETAIL PROPERTIES OF AMERICA, INC.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
2014
2013
2015
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities
$
125,624
$
43,300
$
13,626
(including discontinued operations):
Depreciation and amortization
Provision for impairment of investment properties
Gain on sales of investment properties
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 and debt premium and discount, net
Amortization of stock-based compensation
Premium paid in connection with defeasance of mortgages payable
Equity in loss of unconsolidated joint ventures, net
Distributions on investments in unconsolidated joint ventures
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:
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:
Proceeds from mortgages payable
Principal payments on mortgages and notes payable
Proceeds from unsecured notes payable
Proceeds from unsecured credit facility
Repayments of unsecured credit facility
Payment of loan fees and deposits, net
Purchase of U.S. Treasury securities in connection with defeasance of mortgages payable
Proceeds from issuance of common stock
Distributions paid
Other, net
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, at beginning of year
Cash and cash equivalents, at end of year
56
214,706
19,937
(121,792)
—
—
—
—
5,129
10,755
17,343
—
—
(8,184)
4,420
1,976
(469)
(3,632)
265,813
22,344
(454,085)
(45,649)
505,824
(2,371)
—
—
—
(775)
25,288
1,049
(441,490)
248,815
610,000
(510,000)
(2,243)
(87,435)
—
(166,513)
(4,152)
(351,969)
215,966
72,203
(42,851)
—
(4,258)
—
(24,158)
4,926
3,420
1,322
2,088
1,360
(8,523)
(5,762)
3,220
(7,499)
(740)
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
479
—
1,246
7,105
(12,930)
(2,574)
(6,043)
(4,836)
7,570
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)
(60,868)
112,292
51,424
$
54,102
58,190
112,292
$
(79,879)
138,069
$
58,190
(continued)
RETAIL PROPERTIES OF AMERICA, INC.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
2014
2013
2015
Supplemental cash flow disclosure, including non-cash activities:
Cash paid for interest
Distributions payable
Accrued capital expenditures and tenant improvements
Developments in progress placed in service
U.S. 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
$
$
$
$
$
$
$
$
115,249
39,297
6,079
2,288
87,435
70,092
$
$
$
$
$
$
127,645
39,187
6,731
4,047
6,152
4,830
$
$
$
$
$
$
144,975
39,138
6,662
523
—
—
— $
— $
—
— $
19,615
— $
6,716
—
97,036
of our partners’ joint venture interests):
Land, building and other improvements, net
Accounts receivable, acquired lease intangibles and other assets
Acquired ground lease intangibles
Accounts payable, acquired lease intangibles and other liabilities
Mortgages payable assumed, net
Gain on change in control of investment properties
Proceeds from sales of investment properties:
Net investment properties
Accounts receivable, acquired lease intangibles and other assets
Accounts payable, acquired lease intangibles and other liabilities
Mortgages payable
Deferred gains
Gain on extinguishment of other liabilities
Gain on sales of investment properties
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
$ (442,763) $ (337,906) $ (298,695)
(41,597)
14,791
13,369
69,177
5,435
$ (454,085) $ (172,989) $ (237,520)
(31,116)
—
25,390
146,485
24,158
(47,498)
—
36,176
—
—
$
$
$
$
379,419
8,959
(4,378)
—
32
—
121,792
505,824
$
$
265,127
12,053
(4,631)
—
—
—
42,851
315,400
$
$
275,749
15,928
(14,368)
(26)
(1,113)
3,511
47,085
326,766
— $
—
—
—
— $
— $
—
—
—
— $
35,574
(447)
447
17,499
53,073
See accompanying notes to consolidated financial statements
57
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.
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 its 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. 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) and is subject to U.S. federal, state and local income taxes at regular
corporate tax rates. The income tax expense incurred by 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 these estimates.
The Company elected to early adopt the accounting pronouncement related to the presentation of debt issuance costs in the
accompanying consolidated balance sheets effective December 31, 2015 (see Note 2 to the consolidated financial statements for
further details). The adoption, which is applied retrospectively, resulted in the following reclassifications of unamortized capitalized
loan fees as of December 31, 2014:
Assets associated with investment properties held for sale
Other assets, net
Mortgages payable, net
Unsecured notes payable, net
Unsecured term loan, net
Liabilities associated with investment properties held for sale, net
$
$
Originally
Reported
33,640
131,520
1,634,465
250,000
450,000
8,203
Reclassification
(141)
$
(15,730)
$
(10,736)
(1,459)
(3,535)
(141)
$
$
Adjusted
33,499
115,790
1,623,729
248,541
446,465
8,062
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 accompanying consolidated financial statements include the accounts of the Company, as well as all wholly-owned subsidiaries.
Wholly-owned subsidiaries generally consist of limited liability companies (LLCs), limited partnerships (LPs) and statutory trusts.
As of December 31, 2015, all of the Company’s properties were wholly owned and consisted of 199 operating properties and one
development property.
The Company consolidates 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 a controlling financial interest, are accounted for pursuant to the equity
method of accounting. Accordingly, the Company’s share of the loss of these unconsolidated joint ventures is included in “Equity
58
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
in loss of unconsolidated joint ventures, net” in the accompanying consolidated statements of operations and other comprehensive
income. Refer to Note 11 to the consolidated financial statements 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, 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 consolidated joint venture
investments, if any, on an ongoing basis as facts and circumstances necessitate.
On October 29, 2015, the Company dissolved its remaining less-than-wholly owned consolidated joint venture concurrent with
the sale of Green Valley Crossing to an affiliate of the joint venture partner. The Company was entitled to a preferred return on its
capital contributions to the entity. The noncontrolling interest holder was allocated $528 as its share of the gain on sale of the
development property and received a distribution of $2,022 upon dissolution of the joint venture. No adjustments to the carrying
value of the noncontrolling interest for contributions, distributions or allocation of net income or loss were made during the years
ended December 31, 2014 and 2013. As of December 31, 2015, the Company did not have any less-than-wholly-owned consolidated
entities.
(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.
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 $25,913, $28,977 and $32,241 (including $0, $0 and $1,717, respectively,
reflected as discontinued operations) for the years ended December 31, 2015, 2014 and 2013, 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 intangibles of $4,807, $4,170 and $3,053 (including $0, $0 and $25,
respectively, reflected as discontinued operations) for the years ended December 31, 2015, 2014 and 2013, respectively, was
recorded as a reduction to rental income. Amortization pertaining to below market lease intangibles of $8,428, $6,246 and $4,187
59
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(including $0, $0 and $183, respectively, reflected as discontinued operations) for the years ended December 31, 2015, 2014 and
2013, respectively, was recorded as an increase to rental income.
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 ground 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 ground lease intangibles of $560, $560 and $93 for the
years ended December 31, 2015, 2014 and 2013, respectively, was recorded as a reduction to property operating expenses.
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, 2015:
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)
2016
2017
2018
2019
2020
Thereafter
Total
$
$
$
$
3,968
20,724
24,692
(5,946)
(560)
(6,506)
$
$
$
$
3,499
17,420
20,919
(5,786)
(560)
(6,346)
$
$
$
$
2,970
14,164
17,134
(5,596)
(560)
(6,156)
$
$
$
$
1,760
10,812
12,572
(5,354)
(560)
(5,914)
$
$
$
$
1,238
8,805
10,043
(5,208)
(560)
(5,768)
$
$
$
$
4,301
49,105
53,406
$
$
17,736
121,030
138,766
(73,366)
(10,778)
$ (101,256)
(13,578)
(84,144)
$ (114,834)
(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 $304,145 and $48,758 of accumulated
amortization, respectively, as of December 31, 2015.
(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, including capitalized internal leasing incentives, are amortized on
a straight-line basis over the life of the related lease as a component of depreciation and amortization expense. The Company
capitalized $474, $0 and $0 of internal leasing incentives during the years ended December 31, 2015, 2014 and 2013, respectively.
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 or
redevelopment 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.
60
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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, 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 interest and internal costs expected to be capitalized, dates of construction completion and grand opening dates
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, 2015 and 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, 2015, 2014 and 2013:
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,
2014
2013
2015
$
$
$
19,937
—
—
$
$
$
72,203
—
—
$
$
$
92,033
1,834
286
(a) Included in “Provision for impairment of investment properties” in the accompanying consolidated statements of operations and other
comprehensive income, except for $32,547 which is included in discontinued operations in 2013.
(b) Included in “Equity in loss of unconsolidated joint ventures, net” in the accompanying consolidated statements of operations and other
comprehensive income 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 to the consolidated financial statements
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 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, 2015 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 2016 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
61
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
Company will continue to monitor circumstances and events in future periods to determine whether additional impairment charges
are warranted. Refer to Note 15 to the consolidated financial statements for further discussion.
Development and Redevelopment Projects: During the development or redevelopment period, the Company capitalizes direct
project costs such as construction, insurance, architectural and legal, as well as certain indirect project costs such as interest, other
financing costs, real estate taxes and internal salaries and related benefits of personnel directly involved in the project. Capitalization
of the indirect project costs ceases and all project-related costs included in developments in progress are reclassified to land and
building and other improvements at the time when development or redevelopment is considered substantially complete.
Additionally, the Company makes estimates as to the probability of completion of development and redevelopment projects. If
the Company determines that completion of the development or redevelopment project is no longer probable, the Company expenses
any capitalized costs that are not recoverable. The Company did not capitalize any indirect project costs related to development,
redevelopment or other property improvements during the years ended December 31, 2015, 2014 and 2013.
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. No properties qualified for held for sale accounting treatment as of December 31, 2015 and two properties were classified
as held for sale as of December 31, 2014.
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 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 2015 and 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. Refer to Note 4 to the consolidated financial statements 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 Note 11 to the consolidated
financial statements 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 balance 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.
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, 2015 and 2014, the Company had $35,804 and $58,469,
respectively, in restricted cash and escrows.
62
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 its 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, 2015, the balance in accumulated other comprehensive loss relating to derivatives was $85. 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.
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, 2015 and 2014.
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
63
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
intangibles and other assets or adjusts the remaining useful life of the assets if determined to be appropriate. The Company recorded
lease termination income of $3,757, $2,667 and $15,787 (including $0, $0 and $7,182, respectively, reflected as discontinued
operations) for the years ended December 31, 2015, 2014 and 2013, respectively.
The Company recorded percentage rental income in lieu of base rent and other contingent percentage rental income of $4,693,
$5,229 and $4,744 (including $0, $0 and $55, respectively, reflected as discontinued operations) for the years ended December 31,
2015, 2014 and 2013, 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 26, 24 and 20 consolidated investment properties during the years ended December 31, 2015, 2014 and 2013, respectively.
Refer to Note 4 to the consolidated financial statements 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 to the consolidated financial statements 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.
The Company elected to early adopt the pronouncement on debt issuance costs effective December 31, 2015 and therefore, presents
unamortized capitalized loan fees, excluding those related to its unsecured revolving line of credit, as direct reductions of the
carrying amounts of the related debt liabilities in the accompanying consolidated balance sheets. Unamortized capitalized loan
fees attributable to the Company’s unsecured revolving line of credit are recorded in “Other assets” in the accompanying
consolidated balance sheets.
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 2012 through 2015 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, market, 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.
64
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
Recent Accounting Pronouncements
Effective January 1, 2016, with early adoption permitted, the concept of extraordinary items is eliminated from GAAP and entities
are no longer 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 is retained. The Company elected to early adopt this
pronouncement effective January 1, 2015. 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, companies are required to present debt issuance costs related to a
recognized debt liability, excluding revolving debt arrangements, as a direct reduction of the carrying amount of that debt liability
on the balance sheet. The recognition and measurement guidance for debt issuance costs is not affected. The Company elected to
early adopt this pronouncement effective December 31, 2015. This pronouncement requires a full retrospective method of adoption
and the adoption resulted in the reclassification of $15,730 of unamortized capitalized loan fees as of December 31, 2014 from
“Other assets” to direct reductions of the Company’s indebtedness on the consolidated balance sheets. In addition, the adoption
resulted in the reclassification of $141 of unamortized capitalized loan fees from “Assets associated with investment properties
held for sale” to “Liabilities associated with investment properties held for sale, net.” Unamortized capitalized loan fees attributable
to the Company’s unsecured revolving line of credit continue to be recorded in “Other assets” as they relate to a revolving debt
arrangement.
Effective January 1, 2016, with early adoption permitted, a company’s management is 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 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 adoption of this pronouncement on January 1, 2016 will not have any effect
on the Company’s consolidated financial statements.
Effective January 1, 2016, with early adoption permitted, companies are required to evaluate whether they should consolidate
certain legal entities under a revised consolidation model. All legal entities are subject to reevaluation under the revised consolidation
model, which modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities,
eliminates the presumption that a general partner should consolidate a limited partnership, affects the consolidation analysis of
reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, and
provides a scope exception from consolidation guidance for registered money market funds. This pronouncement allows either a
full or a modified retrospective method of adoption. The adoption of this pronouncement on January 1, 2016 under the modified
retrospective method will not have any effect on the Company’s consolidated financial statements.
Effective January 1, 2016, with early adoption permitted, the acquirer in a business combination is required to recognize any
adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment
amounts are determined and is no longer required to retrospectively account for those adjustments. A company must present
separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings
by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been
recognized as of the acquisition date. The adoption of this pronouncement on January 1, 2016 will not have any effect on the
Company’s consolidated financial statements.
Effective January 1, 2017, registrants will be required to disclose the following in any annual report, proxy or information statement,
or registration statement that requires executive compensation disclosure: 1) the median of the annual total compensation of all
its employees (excluding the chief executive officer), 2) the annual total compensation of its chief executive officer, and 3) the
ratio of the median of the annual total compensation of all its employees to the annual total compensation of its chief executive
officer. The Company does not expect the adoption of this final rule will have a material effect on its consolidated financial
statements.
Effective January 1, 2018, with early adoption permitted beginning 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
65
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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.
(3) Acquisitions
The Company closed on the following acquisitions during the year ended December 31, 2015:
Date
Property Name
January 8, 2015
Downtown Crown
January 23, 2015
Merrifield Town Center
January 23, 2015
Fort Evans Plaza II
February 19, 2015
Cedar Park Town Center
March 24, 2015
Lake Worth Towne Crossing – Parcel (a)
May 4, 2015
June 10, 2015
July 31, 2015
Tysons Corner
Woodinville Plaza
Southlake Town Square – Outparcel (b)
August 27, 2015
Coal Creek Marketplace
October 27, 2015
Royal Oaks Village II – Outparcel (a)
November 13, 2015
Towson Square
Metropolitan
Statistical Area
(MSA)
Washington, D.C.
Washington, D.C.
Washington, D.C.
Austin
Dallas
Washington, D.C.
Seattle
Dallas
Seattle
Houston
Baltimore
Property Type
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Land
Multi-tenant retail
Multi-tenant retail
Single-user outparcel
Multi-tenant retail
Single-user outparcel
Multi-tenant retail
Square
Footage
Acquisition
Price
258,000
$
162,785
84,900
228,900
179,300
—
37,700
170,800
13,800
55,900
12,300
138,200
56,500
65,000
39,057
400
31,556
35,250
8,440
17,600
6,841
39,707
1,179,800
$
463,136
(a) The Company acquired a parcel located at its Lake Worth Towne Crossing multi-tenant retail operating property and a single-user outparcel
located at its Royal Oaks Village II multi-tenant retail operating property.
(b) 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 (as lessor) prior to the transaction.
The Company closed on the following acquisitions during the year ended December 31, 2014:
Date
Property Name
February 27, 2014
Heritage Square
February 27, 2014
June 5, 2014
June 23, 2014
Bed Bath & Beyond Plaza – Fee
Interest (a)
MS Inland Portfolio (b)
Southlake Town Square – Outparcel (c)
November 20, 2014 Avondale Plaza
December 30, 2014
Lakewood Towne Center – Parcel
MSA
Seattle
Miami
Various
Dallas
Seattle
Seattle
Property Type
Square
Footage
Acquisition
Price
Pro Rata
Acquisition
Price
Multi-tenant retail
53,100
$
18,022
$
18,022
Ground lease interest
—
Multi-tenant retail
1,194,800
Single-user outparcel
Multi-tenant retail
Multi-tenant parcel
8,500
39,000
44,000
10,350
292,500
6,369
15,070
5,750
10,350
234,000
6,369
15,070
5,750
1,339,400
$
348,061
$
289,561
(a) 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.
(b) As discussed in Note 11 to the consolidated financial statements, 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.
(c) 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 (as lessor) prior to the transaction.
66
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The Company closed on the following acquisitions during the year ended December 31, 2013:
Date
Property Name
October 1, 2013
RioCan Portfolio (a)
November 6, 2013
Pelham Manor Shopping Plaza
November 13, 2013
Fordham Place
MSA
Various
New York
New York
Property Type
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Square
Footage
Acquisition
Price
Pro Rata
Acquisition
Price
598,100
$
124,783
$
228,000
262,000
58,530
133,900
1,088,100
$
317,213
$
99,826
58,530
133,900
292,256
(a) As discussed in Note 11 to the consolidated financial statements, 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.
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.
The following table summarizes the acquisition date fair values, before prorations, the Company recorded in conjunction with the
acquisitions completed during the years ended December 31, 2015, 2014 and 2013 discussed above:
Land
Building and other improvements
Acquired lease intangible assets (a)
Acquired lease intangible liabilities (b)
Mortgages payable (c)
Net assets acquired (d)
2015
2014
2013
161,114
281,649
45,474
(25,101)
—
463,136
$
$
118,732
219,174
35,520
(20,578)
(146,485)
206,363
$
$
60,307
238,388
46,357
(26,525)
(69,177)
249,350
$
$
(a) The weighted average amortization period for acquired lease intangible assets is 15 years, eight years and 12 years for acquisitions
completed during the years ended December 31, 2015, 2014 and 2013, respectively.
(b) The weighted average amortization period for acquired lease intangible liabilities is 21 years, 16 years and 23 years for acquisitions
completed during the years ended December 31, 2015, 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, respctively.
(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 $1,591, $2,271 and $937 for the years ended December 31, 2015, 2014 and
2013, respectively, were expensed as incurred and included within “General and administrative expenses” in the accompanying
consolidated statements of operations and other comprehensive income.
Included in the Company’s consolidated statements of operations and other comprehensive income from the properties acquired
that were accounted for a business combinations are $97,893, $55,303 and $6,390 in total revenues, and $18,334, $6,733 and $597
in net income attributable to common shareholders from the date of acquisition through December 31, 2015, 2014, and 2013,
respectively. These amounts do not include the total revenue and net income attributable to common shareholders from the 2015
Lake Worth Towne Crossing and 2014 Bed Bath & Beyond Plaza acquisitions as they were accounted for as asset acquisitions.
Subsequent to December 31, 2015, the Company acquired a two-property portfolio consisting of the following:
•
Shoppes at Hagerstown, a multi-tenant retail property located in Hagerstown, Maryland, for a gross purchase price of
$27,055. The property was acquired on January 15, 2016 and contains approximately 113,200 square feet; and
• Merrifield Town Center II, a property located in Falls Church, Virginia, for a gross purchase price of $45,676. The property
was acquired on January 15, 2016 and contains approximately 138,000 square feet, consisting of 76,000 square feet of
retail space and 62,000 square feet of storage space.
67
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The Company has not completed the allocation of the acquisition date fair values for the properties acquired subsequent to
December 31, 2015; however, it expects that the purchase price of these properties will primarily be allocated to land, building
and acquired lease intangibles.
Condensed Pro Forma Financial Information
The results of operations of the acquisitions accounted for as business combinations, for which financial information was available,
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 following unaudited condensed pro forma financial information is
presented as if the 2016 acquisitions were completed as of January 1, 2015, the 2015 acquisitions were completed as of January
1, 2014, and the 2014 acquisitions were completed as of January 1, 2013. The results of operations associated with the 2015
acquisitions of Towson Square and outparcels at Royal Oaks Village II and Southlake Town Square and the 2014 acquisition of
an outparcel at Southlake Town Square have not been adjusted in the pro forma presentation due to a lack of historical financial
information. The results of operations associated with the 2015 acquisition of a parcel at Lake Worth Towne Crossing and the 2014
acquisition of the fee interest at Bed Bath & Beyond Plaza have not been adjusted in the pro forma presentation as they have been
accounted for as asset acquisitions. These pro forma results are for comparative purposes only and are not necessarily indicative
of what the Company’s actual results of operations would have been had the acquisitions occurred at the beginning of the periods
presented, nor are they necessarily indicative of future operating results.
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
Year Ended December 31,
2014
2013
2015
$
$
$
$
612,758
125,408
115,430
0.49
236,380
$
$
$
$
635,240
18,313
8,863
0.04
236,184
$
$
$
$
605,708
24,964
15,514
0.07
234,134
68
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(4) Dispositions
The Company closed on the following dispositions during the year ended December 31, 2015:
Citizen's Property Insurance Building
Single-user office
Date
Property Name
January 20, 2015
Aon Hewitt East Campus
February 27, 2015
Promenade at Red Cliff
April 7, 2015
April 30, 2015
May 15, 2015
June 4, 2015
June 5, 2015
June 17, 2015
June 17, 2015
June 17, 2015
July 17, 2015
July 28, 2015
July 30, 2015
Hartford Insurance Building
Rasmussen College
Mountain View Plaza
Massillon Commons
Pine Ridge Plaza
Bison Hollow
The Village at Quail Springs
Greensburg Commons
Arvada Connection and
Arvada Marketplace
Traveler's Office Building
August 6, 2015
Shaw's Supermarket
August 24, 2015
Harvest Towne Center
August 31, 2015
Trenton Crossing &
McAllen Shopping Center (b)
September 15, 2015
The Shops at Boardwalk
September 29, 2015
Best on the Boulevard
September 29, 2015 Montecito Crossing
October 29, 2015
Green Valley Crossing (c)
November 12, 2015
Lake Mead Crossing
December 2, 2015
Golfsmith
December 9, 2015
Wal-Mart – Turlock
December 18, 2015
Southgate Plaza
December 31, 2015
Bellevue Mall
Property Type
Single-user office
Multi-tenant retail
Single-user office
Single-user office
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Single-user office
Single-user retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Development
Multi-tenant retail
Single-user retail
Single-user retail
Multi-tenant retail
Development
Square
Footage
Consideration
Aggregate
Proceeds, Net (a)
Gain
343,000
$
17,233
$
16,495
$
94,500
97,400
26,700
162,000
245,900
59,800
236,500
134,800
100,400
272,500
367,500
50,800
65,700
39,700
265,900
122,400
204,400
179,700
96,400
219,900
14,900
61,000
86,100
369,300
19,050
6,015
4,800
28,500
12,520
3,650
33,200
18,800
11,350
18,400
54,900
4,841
3,000
7,800
39,295
27,400
42,500
52,200
35,000
42,565
4,475
6,200
7,000
15,750
18,848
5,663
4,449
27,949
12,145
3,368
31,858
18,657
11,267
18,283
53,159
4,643
2,769
7,381
38,410
26,634
41,542
51,415
34,200
41,930
4,298
5,996
6,665
17,500
—
4,572
860
1,334
10,184
—
440
12,938
4,061
3,824
2,810
20,208
—
—
1,217
13,760
3,146
15,932
17,928
3,904
507
1,010
3,157
—
—
3,917,200
$
516,444
$
505,524
$
121,792
(a) Aggregate proceeds are net of transaction costs and exclude $300 of condemnation proceeds, which did not result in any additional gain
recognition.
(b) The terms of the disposition of Trenton Crossing and McAllen Shopping Center were negotiated as a single transaction.
(c) The development property had been held in a consolidated joint venture and was sold to an affiliate of the joint venture partner. Concurrent
with the sale, the joint venture was dissolved. Approximately $528 of the gain on sale was allocated to the noncontrolling interest holder
as its share of the gain.
During the year ended December 31, 2015, the Company repaid or defeased $121,605 in mortgages payable prior to or in connection
with the 2015 dispositions.
Subsequent to December 31, 2015, the Company sold two multi-tenant retail operating properties aggregating 765,800 square feet
for total consideration of $92,500, including The Gateway which was disposed of through a lender-directed sale in full satisfaction
of the Company’s mortgage obligation.
69
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The Company closed on the following dispositions during the year ended December 31, 2014:
Date
Property Name
Property Type
Square
Footage
Consideration
Aggregate
Proceeds, Net (a)
Gain
Continuing Operations:
April 1, 2014
Midtown Center
Multi-tenant retail
408,500
$
47,150
$
46,043
$
—
May 16, 2014
Beachway Plaza &
Cornerstone Plaza (b)
August 1, 2014
Battle Ridge Pavilion
August 15, 2014
Stanley Works/Mac Tools
August 15, 2014
Fisher Scientific
August 19, 2014
Boston Commons
August 19, 2014
Greenwich Center
August 26, 2014
Crossroads Plaza CVS
August 27, 2014
Four Peaks Plaza
October 2, 2014
Gloucester Town Center
October 20, 2014
Various (c)
October 29, 2014
October 31, 2014
Shoppes at Stroud
The Market at Clifty Crossing
November 5, 2014
Crockett Square
November 24, 2014 Mission Crossing (d)
December 4, 2014
Plaza at Riverlakes
December 16, 2014
Diebold Warehouse
December 22, 2014
Newburgh Crossing
Discontinued Operations:
Multi-tenant retail
Multi-tenant retail
Single-user office
Single-user office
Multi-tenant retail
Multi-tenant retail
Single-user retail
Multi-tenant retail
Multi-tenant retail
Single-user retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Single-user industrial
Multi-tenant retail
189,600
103,500
72,500
114,700
103,400
182,600
16,000
140,400
107,200
65,400
136,400
175,900
107,100
178,200
102,800
158,700
62,900
24,450
14,100
10,350
14,000
9,820
22,700
7,650
9,900
10,350
24,400
26,850
19,150
9,750
24,250
17,350
11,500
10,000
23,584
13,722
10,184
13,715
9,586
21,977
7,411
9,381
9,722
23,846
26,466
18,883
9,565
23,545
17,021
10,752
9,770
819
1,327
1,375
3,732
—
5,871
2,863
—
—
6,362
485
5,292
822
5,936
4,127
2,879
—
2,425,800
313,720
305,173
41,890
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 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.
(c) The Company sold a portfolio of five drug stores located in Pennsylvania, Wisconsin and Alabama in a single transaction.
(d) 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.
During the year ended December 31, 2014, 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 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 the year ended December 31, 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.
As of December 31, 2015, no properties qualified for held for sale accounting treatment. Promenade at Red Cliff and Aon Hewitt
East Campus, both of which were sold during the year ended December 31, 2015, were classified as held for sale as of December 31,
2014.
70
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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
Mortgage payable, net
Other liabilities
Liabilities associated with investment properties held for sale, net
December 31,
2014
$
$
$
$
36,020
(5,358)
30,662
2,837
33,499
7,934
128
8,062
There was no activity during the year ended December 31, 2015 related to discontinued operations. The results of operations for
the years ended December 31, 2014 and 2013 for the investment properties accounted for as discontinued operations, which consists
of investment properties sold or 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, net
Total expenses
Year Ended December 31,
2014
2013
$
$
(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
(Loss) income from discontinued operations, net
$
(148)
$
9,396
(5) Equity Compensation Plans
The Company’s 2014 Long-Term Equity Compensation Plan, subject to certain conditions, authorizes the issuance of incentive
and non-qualified stock options, restricted stock and restricted stock units, stock appreciation rights and other similar awards as
well as 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.
71
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The following table summarizes the Company’s unvested restricted shares as of and for the years ended December 31, 2015, 2014
and 2013:
Balance as of January 1, 2013
Shares granted (a)
Shares vested
Shares forfeited
Balance as of December 31, 2013
Shares granted (a)
Shares vested
Shares forfeited
Balance as of December 31, 2014
Shares granted (a)
Shares vested
Shares forfeited
Balance as of December 31, 2015 (b)
Unvested
Restricted
Shares
46
116
(9)
(1)
152
303
(58)
(1)
396
801
(405)
(4)
788
Weighted Average
Grant Date Fair
Value per
Restricted Share
$
$
$
$
$
$
$
$
$
$
$
$
$
17.30
14.27
15.53
15.61
15.11
13.89
14.50
15.61
14.26
15.82
14.89
16.01
15.52
(a) Shares granted in 2013, 2014 and 2015 vest over periods ranging from 0.6 to five years, one to three years and 0.4 to
3.4 years, respectively, in accordance with the terms of applicable award documents.
(b) As of December 31, 2015, total unrecognized compensation expense related to unvested restricted shares was $4,465,
which is expected to be amortized over a weighted average term of 1.4 years.
In addition, during the year ended December 31, 2015, performance restricted stock units (RSUs) were granted for the first time
to the Company’s executives. In 2018, following the performance period which concludes on December 31, 2017, one-third of
the RSUs will convert into shares of common stock and two-thirds will convert into restricted shares with a one year vesting term.
As long as the minimum hurdle is achieved and the executive remains employed during the performance period, the RSUs will
convert into shares of common stock and restricted shares at a conversion rate of between 50% and 200% based upon the Company’s
Total Shareholder Return as compared to that of the other companies within the National Association of Real Estate Investment
Trusts (NAREIT) Shopping Center Index for 2015 through 2017. If an executive terminates employment during the performance
period by reason of a qualified termination, as defined in the agreement, only a prorated portion of his outstanding RSUs will be
eligible for conversion based upon the period in which the executive was employed during the performance period. If an executive
terminates for any reason other than a qualified termination during the performance period, he would forfeit his outstanding RSUs.
In 2018, additional shares of common stock will also be issued in an amount equal to the accumulated value of the dividends that
would have been paid during the performance period on the shares of common stock and restricted shares issued at the end of the
performance period divided by the then-current market price of the Company’s common stock. The Company calculated the grant
date fair value per unit using a Monte Carlo simulation based on the probability of satisfying the market performance hurdles over
the remainder of the performance period. Assumptions include a weighted average risk-free interest rate of 0.80%, the Company’s
historical common stock performance relative to the other companies within the NAREIT Shopping Center Index and the Company’s
weighted average common stock dividend yield of 4.26%.
72
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The following table summarizes the Company’s unvested RSUs as of and for the year ended December 31, 2015:
RSUs eligible for future conversion as of January 1, 2015
RSUs granted
RSUs ineligible for conversion
RSUs eligible for future conversion as of December 31, 2015 (a)
Unvested
RSUs
Weighted Average
Grant Date
Fair Value
per RSU
—
180
(6)
174
$
$
$
$
—
14.19
14.10
14.20
(a) As of December 31, 2015, total unrecognized compensation expense related to unvested RSUs was $1,825, which is expected
to be amortized over a weighted average term of 2.7 years.
During the years ended December 31, 2015, 2014 and 2013, the Company recorded compensation expense of $10,755, $3,417
and $455, respectively, related to unvested restricted shares and RSUs. Included within compensation expense recorded during
the year ended December 31, 2015 is compensation expense of $2,159 related to the accelerated vesting of 194 restricted shares
in conjunction with the departure of the Company’s former Chief Financial Officer and Treasurer and former Executive Vice
President and President of Property Management. 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 restricted shares vested during the years ended December 31, 2015,
2014 and 2013 was $6,188, $840 and $139, respectively.
Prior to 2013, non-employee directors had been granted options to acquire shares under the Company’s Third Amended and
Restated Independent Director Stock Option and Incentive Plan. As of December 31, 2015, options to purchase 84 shares of
common stock had been granted, of which options to purchase three shares had been exercised, options to purchase seven shares
had expired and options to purchase 21 shares had been forfeited. 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. The Company did not grant any options in 2013, 2014 or 2015.
Compensation expense of $0, $3 and $24 related to stock options was recorded during the years ended December 31, 2015, 2014
and 2013, 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. 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.
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. Such taxes remitted to governmental
authorities, which are reimbursed by tenants, exclusive of amounts attributable to discontinued operations, were $2,071, $1,985
and $1,791 for the years ended December 31, 2015, 2014 and 2013, respectively.
73
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:
2016
2017
2018
2019
2020
Thereafter
Total
Minimum Lease
Payments
$
$
441,553
393,790
347,324
282,837
220,910
824,493
2,510,907
The remaining lease terms range from less than one year to more than 67 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, including straight-line rent expense.
Ground lease rent expense (a)
Office rent expense (b)
Year Ended December 31,
2014
2013
2015
$
$
11,461
1,246
$
$
11,676
1,210
$
$
9,758
962
(a) Included in “Property operating expenses” in the accompanying consolidated statements of operations and other comprehensive
income. Excludes amounts attributable to discontinued operations, but includes straight-line ground rent expense of $3,722,
$3,889 and $3,486 for the years ended December 31, 2015, 2014 and 2013, 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.
Minimum future rental obligations to be paid under the ground and office leases, including fixed rental increases, are as follows:
2016
2017
2018
2019
2020
Thereafter
Total
Minimum Lease
Obligations
$
$
8,458
8,396
8,448
8,776
9,174
510,790
554,042
74
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(7) Mortgages Payable
The following table summarizes the Company’s mortgages payable:
December 31, 2015
December 31, 2014
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)
Variable rate construction loan (b)
Mortgages payable
Premium, net of accumulated amortization
Discount, net of accumulated amortization
Capitalized loan fees, net of accumulated amortization
$ 1,128,505
—
1,128,505
1,865
(1)
(7,233)
Mortgages payable, net
$ 1,123,136
6.08%
—%
6.08%
3.9
—
3.9
$ 1,616,063
14,900
1,630,963
6.03%
2.44%
5.99%
4.0
0.8
3.9
3,972
(470)
(10,736)
$ 1,623,729
(a) Includes $7,910 and $8,124 of variable rate mortgage debt that has been swapped to a fixed rate as of December 31, 2015 and 2014,
respectively, and excludes mortgages payable of $8,075 associated with one investment property classified as held for sale as of December 31,
2014. The fixed rate mortgages had interest rates ranging from 3.35% to 8.00% as of December 31, 2015 and 2014.
(b) The variable rate construction loan bore interest at a floating rate of London Interbank Offered Rate (LIBOR) plus 2.25%. On October 29,
2015, the construction loan was repaid in conjunction with the disposition of Green Valley Crossing.
During the year ended December 31, 2015, the Company repaid or defeased mortgages payable in the total amount of $495,456
(excluding scheduled principal payments of $16,126 related to amortizing loans). The loans repaid or defeased during the year
ended December 31, 2015 had a weighted average fixed interest rate of 5.82%.
In August 2015, the servicing of the Commercial Mortgage-Backed Security (CMBS) loan encumbering The Gateway was
transferred to the special servicer at the request of the Company. This servicing transfer occurred notwithstanding the fact that the
CMBS loan was performing. In 2014, this property was impaired below its debt balance, which was $94,463 as of December 31,
2015. The loan was non-recourse to the Company, except for customary non-recourse carve-outs. Subsequent to December 31,
2015, the Company disposed of The Gateway through a lender-directed sale in full satisfaction of its mortgage obligation.
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 its mortgages
payable. 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, 2015, the Company had guaranteed $1,978 of
its outstanding mortgage loans related to one mortgage loan with a maturity date of September 30, 2016 (see Note 17 to the
consolidated financial statements). 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, 2015, the Company
had a pool of mortgages with a principal balance of $395,402 that was cross-collateralized by the 48 properties in its IW JV 2009,
LLC portfolio.
75
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,
2015, 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 2016 debt activity, such as the Company’s 2016 unsecured credit facility. See Note 9 to the consolidated financial
statements for further details.
2016
2017
2018
2019
2020
Thereafter
Total
Debt:
Fixed rate debt:
Mortgages payable (a)
$
48,876
$ 319,633
$
10,801
$ 443,447
$
3,424
$
302,324
$ 1,128,505
Unsecured credit facility – fixed rate
portion of term loan (b)
Unsecured notes payable (c)
—
—
—
—
300,000
—
—
—
—
—
Total fixed rate debt
48,876
319,633
310,801
443,447
3,424
—
500,000
802,324
300,000
500,000
1,928,505
Variable rate debt:
Unsecured credit facility
—
100,000
150,000
—
—
—
250,000
Total debt (d)
$
48,876
$ 419,633
$ 460,801
$ 443,447
$
3,424
$
802,324
$ 2,178,505
Weighted average interest rate on debt:
Fixed rate debt
Variable rate debt (e)
Total
4.92%
—
4.92%
5.52%
1.93%
4.66%
2.16%
1.88%
2.07%
7.50%
—
7.50%
4.80%
—
4.80%
4.42%
—
4.42%
4.96%
1.90%
4.61%
(a) Includes $7,910 of variable rate mortgage debt that has been swapped to a fixed rate as of December 31, 2015. Excludes mortgage premium
of $1,865 and discount of $(1), net of accumulated amortization, as of December 31, 2015.
(b) $300,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through February 2016. The swap effectively converts one-
month floating rate LIBOR to a fixed rate of 0.53875% over the term of the swap.
(c) Excludes discount of $(1,090), net of accumulated amortization, as of December 31, 2015.
(d) Total debt excludes capitalized loan fees of $(13,041), net of accumulated amortization, as of December 31, 2015 which are included as a
reduction to the respective debt balances. The weighted average years to maturity of consolidated indebtedness was 4.5 years as of
December 31, 2015.
(e) Represents interest rates as of December 31, 2015.
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 March 12, 2015, the Company completed a public offering of $250,000 in aggregate principal amount of its 4.00% senior
unsecured notes due 2025 (4.00% notes). The 4.00% notes were priced at 99.526% of the principal amount to yield 4.058% to
maturity. In addition, on June 30, 2014, the Company completed a private placement of $250,000 of unsecured notes, consisting
of $100,000 of 4.12% Series A senior notes due 2021 and $150,000 of 4.58% Series B senior notes due 2024 (collectively, Series
A and B notes). The proceeds from the 4.00% notes and the Series A and B notes were used to repay a portion of the Company’s
unsecured revolving line of credit.
76
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The following table summarizes the Company’s unsecured notes payable:
Unsecured Notes Payable
Senior notes – 4.12% Series A due 2021
Senior notes – 4.58% Series B due 2024
Senior notes – 4.00% due 2025
Maturity Date
June 30, 2021
$
June 30, 2024
March 15, 2025
Discount, net of accumulated amortization
Capitalized loan fees, net of accumulated amortization
December 31, 2015
December 31, 2014
Principal
Balance
Interest Rate/
Weighted Average
Interest Rate
Principal
Balance
Interest Rate/
Weighted Average
Interest Rate
100,000
150,000
250,000
500,000
(1,090)
(3,334)
4.12% $
4.58%
4.00%
4.20%
100,000
150,000
—
250,000
—
(1,459)
4.12%
4.58%
—%
4.40%
Total
$
495,576
$
248,541
The indenture, as supplemented, governing the 4.00% notes (the Indenture) contains customary covenants and events of default.
Pursuant to the terms of the Indenture, the Company is subject to various financial covenants, including the requirement to maintain
the following: (i) maximum secured and total leverage ratios; (ii) a debt service coverage ratio; and (iii) maintenance of an
unencumbered assets to unsecured debt ratio.
The note purchase agreement governing the Series A and B notes 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, 2015, management believes the Company was in compliance with the financial covenants under the Indenture
and the note purchase agreement.
(9) Unsecured 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 serving as administrative agent and Wells Fargo Bank, National Association
serving as syndication agent to provide for an unsecured credit facility aggregating $1,000,000. As of December 31, 2015, the
unsecured credit facility consisted 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 had a $450,000 accordion option that allowed the Company, at its
election, to increase the total credit facility up to $1,450,000, subject to (i) customary fees and conditions including, but not limited
to, the absence of an event of default as defined in the agreement and (ii) the Company’s ability to obtain additional lender
commitments. The following table summarizes the Company’s Unsecured Credit Facility:
December 31, 2015
December 31, 2014
Unsecured Credit Facility
Maturity Date
Balance
Term loan – fixed rate portion (a)
Term loan – variable rate portion
Subtotal
Capitalized loan fees, net of accumulated amortization
Term loan, net
May 11, 2018
$
May 11, 2018
Revolving line of credit – variable rate (b)
May 12, 2017 (c)
Total unsecured credit facility, net
$
300,000
150,000
450,000
(2,474)
447,526
100,000
547,526
Interest Rate/
Weighted Average
Interest Rate
Interest Rate/
Weighted Average
Interest Rate
Balance
1.99% $
1.88%
1.93%
300,000
150,000
450,000
(3,535)
446,465
—
1.95% $
446,465
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 credit spread based on a leverage grid ranging from 1.45%
to 2.00% through February 2016. The applicable credit spread was 1.45% as of December 31, 2015 and 2014.
(b) Excludes capitalized loan fees, which are included in “Other assets, net” in the accompanying consolidated balance sheets.
(c) The Company had a one year extension option on the unsecured revolving line of credit, which it could have exercised as long as it was in
compliance with the terms of the unsecured credit agreement and it paid an extension fee equal to 0.15% of the commitment amount being
extended.
77
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
As of December 31, 2015, the Unsecured Credit Facility was priced on a leverage grid at a rate of LIBOR plus a credit spread.
The Company received investment grade credit ratings from two rating agencies in 2014 and in accordance with the unsecured
credit agreement, the Company may elect to convert to an investment grade pricing grid. As of December 31, 2015, 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 leverage-based and ratings-based credit spreads and additional
pricing terms of the Company’s Unsecured Credit Facility as of December 31, 2015:
Unsecured Credit Facility
Term loan
Revolving line of credit
Leverage-Based Pricing
Ratings-Based Pricing
Credit Spread
1.45% – 2.00%
1.50% – 2.05%
Unused Fee
N/A
0.25% – 0.30%
Credit Spread
1.05% – 2.05%
0.90% – 1.70%
Facility Fee
N/A
0.15% – 0.35%
The unsecured credit agreement contained customary representations, warranties and covenants, and events of default. Pursuant
to the terms of the unsecured credit agreement, the Company was 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, 2015, management
believes the Company was in compliance with the financial covenants and default provisions under the unsecured credit agreement.
Subsequent to December 31, 2015, the Company entered into its fourth amended and restated unsecured credit agreement with a
syndicate of financial institutions led by KeyBank National Association serving as administrative agent and Wells Fargo Bank,
National Association serving as syndication agent to provide for an unsecured credit facility aggregating $1,200,000. The
Company’s 2016 unsecured credit facility consists of a $750,000 unsecured revolving line of credit, a $200,000 unsecured term
loan and a $250,000 unsecured term loan (collectively, the Company’s 2016 Unsecured Credit Facility) and will be priced on a
leverage grid at a rate of LIBOR plus a credit spread. The following table summarizes the key terms of the Company’s 2016
Unsecured Credit Facility:
2016 Unsecured Credit Facility
$200,000 unsecured term loan
$250,000 unsecured term loan
$750,000 unsecured revolving line of credit
1/5/2021
1/5/2020
Maturity
Date
Extension
Option
Extension
Fee
Credit
Spread
Unused Fee
Credit
Spread
Facility Fee
Leverage-Based Pricing
Ratings-Based Pricing
5/11/2018
2 one year
0.15%
1.45% - 2.20%
N/A
N/A
1.30% - 2.20%
N/A
N/A
1.05% - 2.05%
0.90% - 1.75%
N/A
N/A
2 six month
0.075%
1.35% - 2.25% 0.15% - 0.25% 0.85% - 1.55% 0.125% - 0.30%
The Company’s 2016 Unsecured Credit Facility has a $400,000 accordion option that allows the Company, at its election, to
increase the total credit facility up to $1,600,000, subject to (i) customary fees and conditions including, but not limited to, the
absence of an event of default as defined in the agreement and (ii) the Company’s ability to obtain additional lender commitments.
The fourth amended and restated unsecured credit agreement contains customary representations, warranties and covenants, and
events of default. Pursuant to the terms of the fourth amended and restated 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; and (ii) minimum fixed charge and unencumbered interest coverage ratios.
(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 $85 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.
78
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,
2015
December 31,
2014
December 31,
2015
December 31,
2014
2
2
$
307,910
$
308,124
The table below presents the estimated fair value of the Company’s derivative financial instruments, which are presented within
“Other liabilities” in the accompanying 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
$
85
$
562
Fair Value
December 31,
2015
December 31,
2014
The following table presents the effect of the Company’s derivative financial instruments on the accompanying consolidated
statements of operations and other comprehensive income:
Derivatives in
Cash Flow
Hedging
Relationships
Amount of Loss
Recognized in Other
Comprehensive Income
on Derivative
(Effective Portion)
2015
2014
Location of Loss
Reclassified from
Accumulated Other
Comprehensive
Income (AOCI)
into Income
(Effective Portion)
Location of
(Gain) Loss
Recognized In
Income on Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing)
Amount of (Gain) Loss
Recognized in Income
on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
2015
2014
Amount of Loss
Reclassified from
AOCI into Income
(Effective Portion)
2015
2014
Interest rate swaps
$
643
$
981
Interest expense
$
1,095
$
1,182
Other income, net
$
(25) $
12
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, 2015, 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 $96. As of December 31,
2015, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions
as of December 31, 2015, it could have been required to settle its obligations under the agreements at their termination value of
$96.
(11) Investment in Unconsolidated Joint Ventures
The Company did not have any investments in unconsolidated joint ventures as of December 31, 2015 and 2014.
On June 5, 2014, the Company dissolved its joint venture arrangement with its partner in MS Inland, an unconsolidated joint
venture formed with a large state pension fund, through the acquisition of the six properties owned by the joint venture. The
Company was the managing member of the venture and earned fees for providing property management and leasing services. The
Company had the ability to exercise significant influence, but did not have financial or operating control over the joint venture,
and as a result, the Company accounted for its investment pursuant to the equity method of accounting.
Through December 1, 2014, Oak Property & Casualty LLC (the Captive) was an insurance association owned by the Company
and three other unaffiliated parties that was formed to insure/reimburse the members’ deductible obligations for property and
general liability insurance claims subject to certain limitations. The Captive was determined to be 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
79
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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 it 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 to the consolidated financial statements for further details.
Under the equity method of accounting, the Company’s net equity investment in each unconsolidated joint venture was reflected
in the accompanying consolidated balance sheets and its share of net income or loss from each unconsolidated joint venture was
reflected in the accompanying consolidated statements of operations and other comprehensive income. Distributions that were
related to income from operations were included as operating activities and distributions that were related to capital transactions
were included as investing activities in the accompanying consolidated statements of cash flows.
Combined condensed financial information of the Company’s unconsolidated joint ventures (at 100%) for the periods attributable
to the Company’s ownership is summarized as follows:
RioCan (a)
Hampton (b)
Other Joint Ventures (c)
Combined Condensed Total
2014
2013
2014
2013
2014
2013
2014
2013
Year ended December 31,
$
$
— $ 36,758
—
—
36,758
—
— $
—
—
— $
—
—
$
11,853
6,679
18,532
$
27,841
8,174
36,015
$
11,853
6,679
18,532
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
64,599
8,174
72,773
8,523
11,454
31,565
917
12,404
1,576
66,439
—
—
—
—
—
—
—
—
—
—
5,001
6,187
21,964
457
7,033
(4,436)
36,206
552
(1,026)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6
(1,758)
(13)
(1,765)
1,660
2,339
3,948
268
3,028
11,921
23,164
3,522
5,267
9,601
454
7,129
6,025
31,998
1,660
2,339
3,948
268
3,028
11,921
23,164
1,765
(4,632)
4,017
(4,632)
6,334
(117)
1,019
2,667
—
—
52
—
—
—
$
(4,632) $
4,069
$
(4,632) $
(1,091)
1,019
6,262
Net (loss) income
$
— $
(474) $
— $
(a) On October 1, 2013, the Company dissolved its joint venture arrangement with its partner in RioCan.
(b) During 2013, the Company dissolved its joint venture arrangement with its partner in 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.
80
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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
2014
2013
2014
2013
MS Inland (a)
Hampton (b)
RioCan (c)
Captive (d)
$
$
241
—
—
(2,444)
(2,203)
$
$
661
2,576
(176)
(2,589)
472
$
$
1,360
—
—
(25)
1,335
$
$
2,369
855
(2,394)
(2,503)
(1,673)
$
$
338
—
—
—
338
$
$
859
1
1,648
—
2,508
(a) On June 5, 2014, the Company dissolved its joint venture arrangement with its partner in MS Inland.
(b) During the year ended December 31, 2013, Hampton determined that the carrying value of one of its assets was not recoverable and,
accordingly, recorded a property level impairment charge in the amount of $298, of which the Company’s share was $286. The joint venture’s
estimate of fair value relating to this impairment assessment was based upon a bona fide purchase offer. During 2013, the Company dissolved
its joint venture arrangement with its partner in Hampton.
(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 accompanying consolidated statements of operations
and other comprehensive income. 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 and
$116, which was accretive to net income, related to these differences during the years ended December 31, 2014 and 2013,
respectively.
The Company did not have any unconsolidated joint ventures as of December 31, 2015 and 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 the 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 its 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. The Company did not record any impairment charges to its investments in unconsolidated joint ventures during the year
ended December 31, 2014.
81
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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 properties owned by the joint venture (see Note 3 to the consolidated financial statements). 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 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. The five
properties had, at acquisition, a combined 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 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. 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
$
$
$
56,919
11,384
5,949
5,435
• The Company sold to its partner its 20% ownership interest in the remaining eight properties owned by the joint venture.
The properties had, at disposition, a combined 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 its 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 discussed 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
In addition, 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
82
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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 sold 5,547 shares of its Class
A common stock during the year ended December 31, 2013. The shares were issued at a weighted average price per share of $15.29
for proceeds of $83,527, net of commissions and offering costs. No shares were issued during the years ended December 31, 2014
and 2015 and the 2013 ATM equity program expired in November 2015.
On December 21, 2015, the Company established a new ATM equity program under which it may issue and sell shares of its Class
A common stock, having an aggregate offering price of up to $250,000, 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. Any net
proceeds are expected to be used for general corporate purposes, which may include the funding of acquisitions and redevelopment
activities and the repayment of debt, including the Company’s Unsecured Credit Facility. As of December 31, 2015, the Company
had Class A common shares having an aggregate offering price of up to $250,000 remaining available for sale under its ATM
equity program.
On December 15, 2015, the Company’s board of directors authorized a common stock repurchase program under which the
Company may repurchase, from time to time, up to a maximum of $250,000 of shares of its Class A common stock. The shares
may be repurchased in the open market or in privately negotiated transactions. The timing and actual number of shares repurchased
will depend on a variety of factors including price in absolute terms and in relation to the value of the Company’s assets, corporate
and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The common stock
repurchase program may be suspended or terminated at any time without prior notice. As of December 31, 2015, the Company
had not repurchased any shares under this program.
(13) Earnings per Share
The following table summarizes the components used in the calculation of basic and diluted earnings per share (EPS):
Numerator:
Income (loss) from continuing operations
Gain on sales of investment properties
Net income from continuing operations attributable to noncontrolling interest
Preferred stock dividends
Income (loss) from continuing operations attributable to common shareholders
Income from discontinued operations
Net income attributable to common shareholders
Distributions paid on unvested restricted shares
Net income 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
RSUs
Denominator for earnings (loss) per common share – diluted:
Weighted average number of common and common equivalent
shares outstanding
Year Ended December 31,
2014
2013
2015
$
$
3,832
121,792
(528)
(9,450)
115,646
—
115,646
(481)
597
42,196
—
(9,450)
33,343
507
33,850
(225)
$
(42,855)
5,806
—
(9,450)
(46,499)
50,675
4,176
(59)
$
115,165
$
33,625
$
4,117
236,380 (a)
236,184 (b)
234,134 (c)
2 (d)
— (e)
3 (d)
—
— (d)
—
236,382
236,187
234,134
(a) Excludes 788 shares of unvested restricted common stock, which equate to 768 shares on a weighted average basis for the year ended
December 31, 2015. These shares will continue to be excluded from the computation of basic EPS until contingencies are resolved and the
shares are released.
83
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(b) Excludes 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 were excluded from the computation of basic EPS as the contingencies remained and the shares had not
been released as of the end of the reporting period.
(c) Excludes 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 were excluded from the computation of basic EPS as the contingencies remained and the shares had not
been released as of the end of the reporting period.
(d) There were outstanding options to purchase 53, 64 and 78 shares of common stock as of December 31, 2015, 2014 and 2013, respectively,
at a weighted average exercise price of $19.39, $19.32 and $19.10, respectively. Of these totals, outstanding options to purchase 45, 54 and
78 shares of common stock as of December 31, 2015, 2014 and 2013, respectively, at a weighted average exercise price of $20.74, $20.72
and $19.10, respectively, have been excluded from the common shares used in calculating diluted earnings per share as including them
would be anti-dilutive.
(e) There were 174 RSUs eligible for future conversion following the performance period as of December 31, 2015 (see Note 5 to the consolidated
financial statements). These contingently issuable shares are included in diluted EPS based on the weighted average number of shares that
would be outstanding during the period, if any, assuming the end of the reporting period was the end of the contingency period. Assuming
December 31, 2015 was the end of the contingency period, none of these contingently issuable shares would be outstanding.
(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, determined without regard to the dividends paid deduction 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 years ended December 31, 2015 and 2014.
The Company recorded $189 of income tax expense related to the TRS for the year ended December 31, 2013. As a REIT, the
Company may also be subject to certain U.S. federal excise taxes if it engages in certain types of transactions.
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.
84
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The Company’s deferred tax assets and liabilities as of December 31, 2015 and 2014 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
2015
2014
$
$
$
1,109
9,885
12,543
81
23,618
(23,618)
—
—
—
$
14,211
3,225
2,995
140
20,571
(20,355)
216
(216)
—
The Company’s deferred tax assets and liabilities result from the activities of the TRS. As of December 31, 2015, the TRS had a
capital loss carryforward and a federal net operating loss carryforward of $24,567 and $31,171, respectively, which if not utilized,
will begin to expire in 2019 and 2031, respectively.
Differences between net income from the consolidated statements of operations and other comprehensive income and the Company’s
taxable income 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 to REIT taxable income before the dividends paid deduction for the
years ended December 31, 2015, 2014 and 2013:
Net income attributable to the Company
Book/tax differences
REIT taxable income subject to 90% dividend requirement
2015
2014
2013
$
$
125,096
2,344
127,440
$
$
43,300
71,910
115,210
$
$
13,626
60,098
73,724
The Company’s dividends paid deduction for the years ended December 31, 2015, 2014 and 2013 is summarized below:
Cash distributions paid
Less: non-dividend distributions
Total dividends paid deduction attributable to earnings and profits
2015
2014
2013
$
$
166,064
(38,624)
127,440
$
$
166,025
(50,815)
115,210
$
$
164,391
(90,667)
73,724
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, 2015, 2014 and 2013 follows:
Preferred stock
Ordinary dividends
Non-dividend distributions
Total distributions per share
Common stock
Ordinary dividends
Non-dividend distributions
Total distributions per share
2015
2014
2013
$
$
$
$
1.75
—
1.75
0.50
0.16
0.66
$
$
$
$
1.75
—
1.75
0.45
0.21
0.66
$
$
$
$
1.80
—
1.80
0.27
0.39
0.66
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, 2015 or 2014 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
85
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
December 31, 2015. Returns for the calendar years 2012 through 2015 remain subject to examination by federal and various state
tax jurisdictions.
(15) Provision for Impairment of Investment Properties
As of December 31, 2015, 2014 and 2013, the Company identified indicators of impairment at certain of its properties. 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 following table summarizes the results of these analyses as of December 31, 2015, 2014
and 2013:
2015
December 31,
2014
2013
Number of properties for which indicators of impairment were identified
Less: number of properties for which an impairment charge was recorded
Less: number of properties that were held for sale as of the date the analysis was performed
for which indicators of impairment were identified but no impairment charge was recorded
Remaining properties for which indicators of impairment were identified but
no impairment charge was considered necessary
3
—
—
3
(a)
8
3
1
4
(b)
14
3
1
10
Weighted average percentage by which the projected undiscounted cash flows exceeded
its respective carrying value for each of the remaining properties (c)
42%
48%
20%
(a) Includes seven properties which have subsequently been sold as of December 31, 2015.
(b) Includes 11 properties which have subsequently been sold as of December 31, 2015.
(c) Based upon the estimated holding period for each asset where an undiscounted cash flow analysis was performed.
The Company recorded the following investment property impairment charges during the year ended December 31, 2015:
Provision for
Impairment of
Investment
Properties
$
$
2,289
1,655
169
2,484
13,340
19,937
43,720
Property Name
Massillon Commons (a)
Traveler’s Office Building (a)
Shaw’s Supermarket (a)
Southgate Plaza (a)
Bellevue Mall (a)
Property Type
Multi-tenant retail
Single-user office
Single-user retail
Multi-tenant retail
Development
Impairment Date
June 4, 2015
June 30, 2015
August 6, 2015
December 18, 2015
December 31, 2015
Square
Footage
245,900
50,800
65,700
86,100
369,300
Estimated fair value of impaired properties as of impairment date $
(a) The Company recorded impairment charges based upon the terms and conditions of an executed sales contract for the respective properties,
which were sold during 2015.
86
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The Company recorded the following investment property impairment charges during the year ended December 31, 2014:
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.
(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.
(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.
The Company recorded the following investment property impairment charges during the year ended December 31, 2013:
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.
(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.
87
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(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 the final disposition price, as applicable.
The Company can provide no assurance that material impairment charges with respect to its 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:
Financial liabilities:
Mortgages payable, net
Unsecured notes payable, net
Unsecured credit facility
Derivative liability
December 31, 2015
December 31, 2014
Carrying
Value
Fair Value
Carrying
Value
Fair Value
$
$
$
$
1,123,136
495,576
547,526
85
$
$
$
$
1,213,620
486,701
550,000
85
$
$
$
$
1,623,729
248,541
446,465
562
$
$
$
$
1,749,671
258,360
451,502
562
The carrying values of mortgages payable, net and unsecured notes payable, net in the table are included in the accompanying
consolidated balance sheets under the indicated captions. The carrying value of the Unsecured Credit Facility is comprised of the
“Unsecured term loan, net” and the “Unsecured revolving line of credit” and the carrying value of the derivative liability is included
in “Other liabilities” in the accompanying consolidated balance sheets.
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, 2015
Derivative liability
December 31, 2014
Derivative liability
Level 1
Level 2
Level 3
Total
Fair Value
$
$
— $
85
— $
562
$
$
— $
85
— $
562
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
88
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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,
2015 and 2014, 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 to the
consolidated financial statements.
Nonrecurring Fair Value Measurements
The Company did not have any assets measured at fair value on a nonrecurring basis as of December 31, 2015.
The following table presents the Company’s assets measured at fair value on a nonrecurring basis as of December 31, 2014
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 year ended December 31, 2014, except for those properties sold prior to
December 31, 2014. Methods and assumptions used to estimate the fair value of these assets are described after the table.
Fair Value
Level 1
Level 2
Level 3
Total
Provision for
Impairment (a)
December 31, 2014
Investment properties
Investment properties – held for sale (c)
$
$
—
—
$
$
—
17,233
$
$
86,500 (b) $
$
—
86,500
17,233
$
$
59,352
563
(a) Excludes impairment charges recorded on investment properties sold prior to December 31, 2014.
(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, the date the assets
were measured at fair value:
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 but were included in
the calculation of the impairment charge.
89
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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, 2015
Mortgages payable, net
Unsecured notes payable, net
Unsecured credit facility
December 31, 2014
Mortgages payable, net
Unsecured notes payable
Unsecured credit facility
Level 1
Level 2
Level 3
Total
Fair Value
$
$
$
$
$
$
239,482
— $
$
— $
— $
— $
— $
1,213,620
247,219
550,000
— $
— $
— $
— $
— $
— $
1,749,671
258,360
451,502
$
$
$
$
$
$
1,213,620
486,701
550,000
1,749,671
258,360
451,502
Mortgages payable, net: The Company estimates the fair value of its mortgages payable by discounting the anticipated 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 6.0% and
2.2% to 4.0% as of December 31, 2015 and 2014, respectively.
Unsecured notes payable, net: The quoted market price as of December 31, 2015 was used to value the Company’s 4.00% notes.
The Company estimates the fair value of its Series A and B notes 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 4.64% and 3.97%
as of December 31, 2015 and 2014, respectively.
Unsecured Credit Facility: The Company estimates the fair value of its Unsecured Credit Facility by discounting the anticipated
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 1.30% and 1.35% for the unsecured term loan as of December 31,
2015 and 2014, respectively, and 1.35% for the unsecured revolving line of credit as of December 31, 2015. There were no amounts
drawn on the unsecured revolving line of credit as of December 31, 2014.
There were no transfers between the levels of the fair value hierarchy during the years ended December 31, 2015 and 2014.
(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, 2015, the Company had guaranteed $1,978 of its outstanding
mortgage loans related to one mortgage loan with a maturity date of September 30, 2016.
90
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, 2015, the Company:
•
•
•
entered into its fourth amended and restated unsecured credit agreement with a syndicate of financial institutions to provide
for an unsecured credit facility aggregating $1,200,000. See Note 9 to the consolidated financial statements for further
details;
closed on the acquisition of a two-property portfolio consisting of Shoppes at Hagerstown, a 113,200 square foot multi-
tenant retail property located in Hagerstown, Maryland, for a gross purchase price of $27,055 and Merrifield Town Center
II, a 138,000 square foot property, consisting of 76,000 square feet of retail space and 62,000 square feet of storage space,
located in Falls Church, Virginia, for a gross purchase price of $45,676;
closed on the disposition of The Gateway, a 623,200 square foot multi-tenant retail property located in Salt Lake City,
Utah, through a lender-directed sale in full satisfaction of its mortgage obligation. Immediately prior to the disposition,
the lender reduced the Company’s loan obligation to $75,000 which was assumed by the buyer in connection with the
disposition, resulting in an anticipated gain on extinguishment of debt of approximately $13,653 and an anticipated gain
on sale of approximately $3,868; and
•
closed on the disposition of Stateline Station, a 142,600 square foot multi-tenant retail property located in Kansas City,
Missouri, for a sales price of $17,500 with an anticipated gain on sale of approximately $4,253.
On February 11, 2016, the Company’s board of directors declared the cash dividend for the first quarter of 2016 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,
2016 to preferred shareholders of record at the close of business on March 21, 2016.
On February 11, 2016, the Company’s board of directors declared the distribution for the first quarter of 2016 of $0.165625 per
share on the Company’s outstanding Class A common stock, which will be paid on April 8, 2016 to Class A common shareholders
of record at the close of business on March 28, 2016.
91
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
Net income
Net income attributable to common shareholders
Net income 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
Net income (loss)
Net income (loss) attributable to common shareholders
Net income (loss) per common share attributable to common
shareholders – basic and diluted
2015
Dec 31
148,920
3,535
644
Sep 30
150,955
78,329
75,967
$
$
$
— $
0.32
Jun 30
150,888
30,684
28,321
0.12
$
$
$
$
Mar 31
153,197
13,076
10,714
0.05
$
$
$
$
236,477
236,439
236,354
236,250
236,479
236,553
236,356
236,253
Dec 31
153,531
25,865
23,502
0.10
2014
Sep 30
151,446
(26,736)
(29,098)
(0.12)
$
$
$
$
$
$
$
$
Jun 30
146,446
30,043
27,680
0.12
Mar 31
149,191
14,128
11,766
0.05
$
$
$
$
$
$
$
$
$
$
$
$
Weighted average number of common shares outstanding – basic
236,204
236,203
236,176
236,151
Weighted average number of common shares outstanding – diluted
236,207
236,203
236,179
236,153
92
RETAIL PROPERTIES OF AMERICA, INC.
Schedule II
Valuation and Qualifying Accounts
For the Years Ended December 31, 2015, 2014 and 2013
(in thousands)
Year ended December 31, 2015
Allowance for doubtful accounts
Tax valuation allowance
Year ended December 31, 2014
Allowance for doubtful accounts
Tax valuation allowance
Year ended December 31, 2013
Allowance for doubtful accounts
Tax valuation allowance
Balance at
beginning
of year
Charged to
costs and
expenses
Write-offs
Balance at
end of year
$
$
$
$
$
$
7,497
20,355
8,197
18,631
6,452
7,852
3,069
3,263
2,689
1,724
4,600
10,779
(2,656)
$
— $
7,910
23,618
(3,389)
$
— $
7,497
20,355
(2,855)
$
— $
8,197
18,631
93
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2015
(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
$
2,863
$
1,300
$
5,319
$
871
$
1,300
$
6,190
$
7,490
$
2,311
2003
Date
Acquired
12/04
—
—
—
—
—
1,230
1,340
1,050
3,215
1,045
3,752
2,943
3,954
3,963
5,700
1,102
—
21,052
—
4,573
9,497
—
3
6
—
394
507
31
11,313
6,375
21,304
1,670
—
—
3,280
318
8,482
10,350
4,530
—
—
10,348
—
18,367
11,901
63
341
680
—
2,230
4,170
—
—
45,300
5,500
12,038
26,657
14,002
3,510
5,125
3,220
94
1,230
1,340
1,050
3,215
1,045
3,752
2,946
3,960
3,963
6,094
4,982
4,286
5,010
7,178
7,139
1,569
2004
1,205
2004
1,621
2004
1,586
2004
2,494
2003
—
21,559
21,559
8,300
2002
4,573
6,375
3,280
318
9,528
14,101
405
2005
22,974
29,349
9,763
2004
10,411
13,691
3,147
2007
341
659
28
n/a
10,350
19,047
29,397
7,817
2004
07/04
07/04
07/04
07/04
04/04
05/05
11/14
10/04
10/07
05/06
10/04
4,530
11,901
16,431
4,541
2000-2002
07/05
4,170
15,548
19,718
6,022
1994
45,300
31,782
77,082
12,253
1977/2004
04/05
5,500
17,222
22,722
6,279
1960/1999-
2000
09/05
09/04
04/05
—
114,703
(28,975)
—
85,728
85,728
24,907
2004
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
Ashland & Roosevelt
Chicago, IL
Avondale Plaza
Redmond, WA
Azalea Square I
Summerville, SC
Azalea Square III
Summerville, SC
Beachway Plaza outparcel
Bradenton, FL
Bed Bath & Beyond Plaza
Miami, FL
Bed Bath & Beyond Plaza
Westbury, NY
Boulevard at The Capital Centre
Largo, MD
Boulevard Plaza
Pawtucket, RI
The Brickyard
Chicago, IL
Broadway Shopping Center
Bangor, ME
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2015
(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
2,600
13,255
15,855
5,116
1985
Encumbrance
Land
4,659
2,600
—
23,923
45,357
13,000
12,005
13,829
47,559
1,250
129
7,562
19,000
8,406
16,761
7,100
8,500
33,212
16,060
11,728
1,833
2,290
15
1,775
5,023
7,026
1,180
12,382
—
—
—
—
—
—
—
23,923
13,000
18,700
7,100
8,500
3,450
1,775
5,023
13,958
37,881
562
2013
55,121
68,121
17,456
2004
25,467
44,167
8,975
2005
35,045
42,145
13,467
1996
18,350
26,850
6,939
2004
11,743
15,193
4,412
2000
8,206
9,981
3,166
2003-2004
04/05
12,382
17,405
170
1991
16,700
22,775
2,103
16,700
24,878
41,578
8,381
1997
11,671
5,830
19,439
—
6,413
9,802
191
15
5,830
6,413
19,630
25,460
8,131
2004
9,817
16,230
687
2001
25,606
12,000
35,887
1,567
12,000
37,454
49,454
14,617
1999
10,589
2,919
13,281
57
2,919
13,338
16,257
1,209
1999
13,183
10,200
26,178
3,031
10,200
29,209
39,409
11,681
2004
14,213
6,900
10,146
3,000
23,851
19,158
(30)
340
95
6,900
3,000
23,821
30,721
10,534
1999-2003
01/04
19,498
22,498
7,722
2004-2005
02/05
Date
Acquired
04/05
02/15
12/06
02/06
06/05
05/05
03/05
08/15
05/06
8/04 &
10/04
06/14
04/05
10/13
12/04
Property Name
Brown's Lane
Middletown, RI
Cedar Park Town Center
Cedar Park, TX
Central Texas Marketplace
Waco, TX
Centre at Laurel
Laurel, MD
Century III Plaza
West Mifflin, PA
Chantilly Crossing
Chantilly, VA
Woodridge, IL
Clearlake Shores
Clear Lake, TX
Coal Creek Marketplace
Newcastle, WA
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
Corwest Plaza
New Britain, CT
Cottage Plaza
Pawtucket, RI
Cinemark Seven Bridges
4,659
3,450
Cuyahoga Falls Market Center
3,440
3,350
11,083
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2015
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
Encumbrance
Land
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
10,408
3,000
18,736
1,303
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
Date
Acquired
20,039
23,039
8,255
1996-1997
07/04
954
8,212
665
2000
11,658
15,008
4,524
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
1,113
1999
1,068
2003
759
1999
1,040
2004
1,959
2003
1,379
1999
1,282
2004
1,012
2004
10,061
15,023
1,028
2004
07/05
04/05
06/05
12/03
05/05
05/05
12/03
06/05
03/05
10/04
10/13
7,013
8,684
2,788
2003-2004
06/04
55,065
61,065
22,289
2003-2004
10/04
3,000
7,258
3,350
910
975
750
600
932
620
1,100
600
4,962
1,671
6,000
—
7,318
954
—
2,095
—
—
3,309
—
—
—
—
—
910
975
750
600
932
620
1,100
600
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)
575
—
2
—
—
—
—
—
3
85
1,153
1,035
1,375
25,737
6,000
43,434
11,631
20,210
17,025
29,478
17,025
30,513
47,538
13,528
2003-2004
3/04 & 7/04
—
—
43,367
110,785
43,367
112,160
155,527
4,115
2014
2,900
28,714
(747)
2,826
28,041
30,867
9,727
2005
96
01/15
06/06
Property Name
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
Downtown Crown
Gaithersburg, MD
East Stone Commons
Kingsport, TN
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2015
(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
—
12,000
65,067
3,797
12,000
68,864
80,864
28,315
2002
Date
Acquired
05/04
11/04
05/05
05/05
12/04
6,138
3,500
8,977
—
12,979
11,800
4,028
1,700
—
—
—
4,800
2,540
17,209
7,991
2,430
—
16,118
8,525
3,755
3,500
11,361
14,861
4,591
2003
—
35,421
35,421
13,853
1988
11,800
33,098
44,898
12,944
1997
10,956
35,421
33,098
6,425
405
—
—
911
13,490
4,354
7,336
9,036
2,754
1995
17,213
22,644
6,695
2002-2004
01/05
1,700
5,431
2,540
6,393
96,547
14,836
44,880
15,563
458
(218)
800
—
6,851
9,391
17,209
96,329
113,538
2,725
7,549
1999/2004-
2005
Redev: 2009
12/04 &
3/05
11/13
2,430
15,636
18,066
6,497
2002
16,118
44,880
60,998
1,780
2008
07/04
01/15
(930)
3,755
14,633
18,388
6,063
2003-2004
11/04
26,522
—
47,403
2,884
—
50,287
50,287
20,690
1988
—
1,250
4,947
36,523
12,348
56,199
378
421
1,250
5,325
6,575
2,051
2004
12,348
56,620
68,968
3,330
2000
06/04
06/05
06/14
94,328
28,665
110,945
(62,566)
18,163
58,881
77,044
4,469
2001-2003
05/05
22,920
9,880
—
—
55,195
26,371
1,358
3,693
97
9,880
56,553
66,433
22,605
2003-2004
12/04
—
30,064
30,064
12,204
2000
07/04
Property Name
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
Simpsonville, SC
Fordham Place
Bronx, NY
Forks Town Center
Easton, PA
Fort Evans Plaza II
Leesburg, VA
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
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2015
(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
5,018
6,068
1,986
2003-2004
12/04
11,604
14,884
3,314
2006-2007
05/07
Property Name
Gateway Station
College Station, TX
Gateway Station II & III
College Station, TX
Gateway Village
Annapolis, MD
Gerry Centennial Plaza
Oswego, IL
Governor's Marketplace
Tallahassee, FL
Grapevine Crossing
Grapevine, TX
Green's Corner
Cumming, GA
Gurnee Town Center
Gurnee, IL
Henry Town Center
McDonough, GA
Heritage Square
Issaquah, WA
—
—
1,050
3,280
35,428
8,550
—
—
—
5,370
—
4,100
5,017
3,200
14,286
7,000
—
—
10,650
6,377
Heritage Towne Crossing
7,904
3,065
Euless, TX
Hickory Ridge
Hickory, NC
High Ridge Crossing
High Ridge, MO
Holliday Towne Center
Duncansville, PA
Home Depot Center
Pittsburgh, PA
Home Depot Plaza
Orange, CT
HQ Building
San Antonio, TX
18,242
6,860
4,659
3,075
7,352
2,200
—
—
10,682
9,700
—
5,200
3,911
1,107
11,557
39,298
12,968
30,377
16,938
8,663
35,147
46,814
11,385
10,729
33,323
9,148
11,609
16,758
17,137
10,010
47
4,950
9,214
3,037
235
262
4,644
6,873
1,271
1,442
612
(204)
(333)
—
1,666
4,209
98
1,050
3,280
8,550
5,370
44,248
52,798
18,061
1996
22,182
27,552
6,618
2006
—
33,414
33,414
13,918
2001
3,894
3,200
7,000
17,379
21,273
6,726
2001
8,925
12,125
3,594
1997
39,791
46,791
15,793
2000
10,650
53,687
64,337
19,826
2002
6,377
3,065
6,860
3,075
2,200
12,656
19,033
852
1985
12,171
15,236
5,226
2002
33,935
40,795
13,819
1999
8,944
12,019
3,554
2004
11,276
13,476
4,589
2003
—
16,758
16,758
6,451
1996
07/04
06/07
08/04
04/05
12/04
10/04
12/04
02/14
03/04
01/04
03/05
02/05
06/05
06/05
9,700
5,200
18,803
28,503
7,047
1992
14,219
19,419
5,218
Redev: 2004
12/05
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2015
(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
18,087
64,884
82,971
3,766
1996
—
—
18,087
2,200
4,750
2,600
—
—
—
—
23,097
14,446
3,710
16,005
1,536
2,075
6,600
4,750
—
—
—
64,731
12,823
9,247
52,762
23,932
19,144
37,744
4,009
30,910
23,904
153
1,042
1,219
1,432
90
(150)
3,928
101
7,802
2,718
25,896
38,329
17,772
327
—
—
—
13,000
46,482
22,731
2,910
7,423
16,614
799
(277)
(8)
6,629
4,710
16,265
1,875
6,000
2,635
15,040
(767)
38,329
13,110
2,486
7,415
4,710
2,635
99
2,200
2,579
23,097
14,446
13,865
16,065
4,800
Renov: 2005
11/05
10,487
13,066
4,045
1980 & 1985
12/04
54,194
77,291
15,596
2005
24,022
38,468
1,566
2004
3,710
18,994
22,704
7,053
2005
16,005
41,672
57,677
17,323
1996/1999
01/04
2,065
6,600
4,750
4,120
6,185
1,685
1999
38,712
45,312
12,245
2005
26,622
31,372
9,979
2004
Date
Acquired
06/14
02/08
06/14
11/05
10/04
06/06
05/05
06/04
06/14
69,103
82,213
24,947
2001-2004
09/05
16,761
19,247
6,905
2004 & 2005
799
8,214
550
2005
06/04 &
09/05
08/05
18,140
22,850
7,830
1995-1996
02/04
14,273
16,908
5,779
2004
02/05
12,555
74,612
(14,100)
12,555
60,512
73,067
24,647
18,099
56,428
1,106
1998/2002-
2003
1997
Property Name
Huebner Oaks Center
San Antonio, TX
Humblewood Shopping Center
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 Worth Towne Crossing (a)
Lake Worth, TX
Lakepointe Towne Center
Lewisville, TX
Lakewood Towne Center
Lakewood, WA
Lincoln Park
Dallas, TX
Lincoln Plaza
Worcester, MA
Low Country Village I & II
Bluffton, SC
Lowe's/Bed, Bath & Beyond
Butler, NJ
MacArthur Crossing
Los Colinas, TX
Magnolia Square
Houma, LA
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2015
(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
Manchester Meadows
Town and Country, MO
Mansfield Towne Crossing
Mansfield, TX
Maple Tree Place
Williston, VT
Merrifield Town Center
Falls Church, VA
Mid-Hudson Center
Poughkeepsie, NY
Mitchell Ranch Plaza
New Port Richey, FL
New Forest Crossing
Houston, TX
Newnan Crossing I & II
Newnan, GA
Newton Crossroads
Covington, GA
—
—
—
—
—
—
—
—
14,700
3,300
28,000
18,678
9,900
5,550
4,390
39,738
12,195
67,361
36,496
29,160
26,213
11,313
2,852
3,625
4,950
18
60
795
(6)
14,700
42,590
57,290
16,870
1994-1995
08/04
3,300
15,820
19,120
6,408
2003-2004
11/04
28,000
18,678
9,900
5,550
4,390
72,311
100,311
28,245
2004-2005
05/05
36,514
55,192
1,297
2008
29,220
39,120
11,149
2000
27,008
32,558
11,111
2003
11,307
15,697
1,100
2003
01/15
07/05
08/04
10/13
15,100
33,987
5,911
15,100
39,898
54,998
16,422
3,533
3,350
6,927
7,233
10,583
2,816
1999 &
2004
1997
12/03 &
02/04
12/04
North Rivers Towne Center
9,516
3,350
15,720
Charleston, SC
Northgate North
Seattle, WA
Northpointe Plaza
Spokane, WA
Northwood Crossing
Northport, AL
Northwoods Center
Wesley Chapel, FL
Orange Plaza (Golfland Plaza)
Orange, CT
The Orchard
New Hartford, NY
Oswego Commons
Oswego, IL
26,645
7,540
49,078
(14,640)
22,016
13,800
—
3,770
8,035
3,415
—
—
4,350
3,200
21,000
6,454
37,707
13,658
9,475
4,834
17,151
16,004
4,667
1,191
6,659
2,362
225
502
100
306
323
3,350
3,350
7,540
16,043
19,393
6,848
2003-2004
04/04
34,438
41,978
14,920
1999-2003
06/04
13,800
42,374
56,174
17,531
1991-1993
05/04
3,770
3,415
4,350
3,200
6,454
14,849
18,619
5,361
1979/2004
01/06
16,134
19,549
6,360
2002-2004
12/04
7,196
11,546
2,539
1995
05/05
17,376
20,576
6,526
2004-2005
16,506
22,960
1,168
2002-2004
07/05 &
9/05
06/14
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2015
(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
—
—
13,420
—
—
—
—
6,142
—
24,073
6,995
3,937
2,600
10,507
11,200
8,766
6,600
—
—
12,975
4,200
—
—
2,400
1,790
32,784
43,355
20,425
20,423
406
1,147
785
6,561
13,400
33,210
46,610
11,454
2004 & 2006
—
44,502
44,502
16,519
1999
6,590
6,142
21,210
27,800
9,117
2002
26,984
33,126
9,427
2010
10,274
12,392
12,144
10,274
24,536
34,810
—
67,936
67,936
8,451
5,894
2002-2003
& 2005
2008
67,870
32,816
6,776
11,751
13,728
28,588
29,085
9,246
6,178
66
3,886
321
2,080
862
3,237
3,610
25
219
8,495
2,600
35,202
43,697
14,925
7,097
9,697
2,889
2002-2003
& 2005
2004
11,200
13,831
25,031
5,269
1973/2000
12/04
6,600
14,590
21,190
5,948
1995
07/04
—
31,825
31,825
13,449
2000-2002
06/04
4,200
2,400
1,790
32,695
36,895
12,803
2004
12/04
9,271
11,671
3,509
2004-2005
09/05
6,397
8,187
2,459
2004
12/05
07/05 &
06/07
05/05
04/04
08/06
12/03 &
06/06
11/13
03/04 &
05/05
12/04
Paradise Valley Marketplace
8,707
6,590
Property Name
Pacheco Pass Phase I & II
Gilroy, CA
Page Field Commons
Fort Myers, FL
Phoenix, AZ
Parkway Towne Crossing
Frisco, TX
Pavilion 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
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
Red Bug Village
Winter Springs, FL
Reisterstown Road Plaza
Baltimore, MD
46,169
15,800
70,372
14,642
15,791
85,023
100,814
33,975
1986/2004
08/04
Rite Aid Store (Eckerd), Sheridan Dr.
Amherst, NY
Rite Aid Store (Eckerd), Transit Rd.
Amherst, NY
—
—
2,000
2,500
2,722
2,764
—
2
101
2,000
2,500
2,722
2,766
4,722
5,266
1,014
1999
1,031
2003
11/05
11/05
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2015
(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
Initial Cost (A)
Gross amount carried at end of period
Rite Aid Store (Eckerd), E. Main St.
Batavia, NY
Rite Aid Store (Eckerd), W. Main St.
Batavia, NY
Rite Aid Store (Eckerd), Ferry St.
Buffalo, NY
Rite Aid Store (Eckerd), Main St.
Buffalo, NY
Rite Aid Store (Eckerd)
Canandaigua, NY
Rite Aid Store (Eckerd)
Chattanooga, TN
Rite Aid Store (Eckerd)
Cheektowaga, NY
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
—
—
—
—
—
—
—
1,860
1,510
900
1,340
1,968
750
2,080
2,903
3,000
1,557
1,241
—
—
900
600
900
470
1,495
1,050
—
—
2,060
1,940
1,778
700
—
1,710
2,786
2,627
2,677
2,192
2,575
2,042
1,393
3,955
2,377
2,033
2,475
2,657
2,047
1,873
2,736
2,960
1,207
1,860
1,510
900
1,340
1,968
750
2,080
3,000
900
600
900
470
1,050
2,060
1,913
700
1,710
2,805
2,627
2,677
2,192
2,576
2,042
1,393
3,977
2,377
2,034
2,475
2,657
2,048
1,873
2,736
2,961
1,207
4,665
4,137
3,577
3,532
4,544
2,792
3,473
6,977
3,277
2,634
3,375
3,127
3,098
3,933
4,649
3,661
2,917
19
—
—
—
1
—
—
22
—
1
—
—
1
—
(27)
1
—
102
1,042
2004
979
998
817
960
786
519
2001
2000
1998
2004
1999
1999
1,548
2005
Date
Acquired
11/05
11/05
11/05
11/05
11/05
06/05
11/05
05/05
1,036
2003-2004
06/04
863
2003-2004
06/04
917
990
1999
1998
11/05
11/05
869
2003-2004
06/04
698
2002
1,020
2002
11/05
11/05
1,257
2003-2004
06/04
450
1999
11/05
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2015
(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
Property Name
Rite Aid Store (Eckerd)
Lockport, NY
Rite Aid Store (Eckerd)
North Chili, NY
Rite Aid Store (Eckerd)
Olean, NY
Rite Aid Store (Eckerd), Culver Rd.
Rochester, NY
Rite Aid Store (Eckerd), Lake Ave.
Rochester, NY
Rite Aid Store (Eckerd)
Tonawanda, NY
Rite Aid Store (Eckerd), Harlem Rd.
West Seneca, NY
Rite Aid Store (Eckerd), Union Rd.
West Seneca, NY
Rite Aid Store (Eckerd)
Yorkshire, NY
Rivery Town Crossing
Georgetown, TX
Royal Oaks Village II (a)
Houston, TX
Saucon Valley Square
Bethlehem, PA
Sawyer Heights Village
Houston, TX
Shoppes at Park West
Mt. Pleasant, SC
—
—
—
—
—
—
—
—
—
—
—
1,650
820
1,190
1,590
2,220
800
2,830
1,610
810
2,900
3,450
8,071
3,200
18,851
24,214
5,020
2,240
The Shoppes at Quarterfield
—
2,190
Severn, MD
Shoppes of New Hope
Dallas, GA
3,441
1,350
Shoppes of Prominence Point I&II
—
3,650
Canton, GA
2,788
1,935
2,809
2,279
3,025
3,075
1,683
2,300
1,434
6,814
16,955
12,642
15,797
9,357
8,840
11,045
12,652
—
—
—
—
2
—
—
—
—
376
262
(155)
452
25
135
5
160
103
2,788
1,935
2,809
2,279
3,027
3,075
1,683
2,300
1,434
4,438
2,755
3,999
3,869
5,247
3,875
4,513
3,910
2,244
1,039
2002
721
2000
1,047
1999
849
2001
1,128
2001
1,146
2000
627
857
534
2003
2000
1997
7,190
10,090
2,486
2005
1,650
820
1,190
1,590
2,220
800
2,830
1,610
810
2,900
3,450
3,200
17,217
20,667
4,391
2004-2005
11/05
12,487
15,687
4,702
1999
24,214
16,249
40,463
1,492
2007
2,240
2,190
1,350
3,650
9,382
11,622
3,854
2004
8,975
11,165
3,899
1999
11,050
12,400
4,636
2004
12,812
16,462
5,399
2004 & 2005
Date
Acquired
11/05
11/05
11/05
11/05
11/05
11/05
11/05
11/05
11/05
10/06
09/04
10/13
11/04
01/04
07/04
06/04 &
09/05
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2015
(in thousands)
Property Name
Shops at Forest Commons
Round Rock, TX
The Shops at Legacy
Plano, TX
Shops at Park Place
Plano, TX
Southlake Corners
Southlake, TX
Initial Cost (A)
Gross amount carried at end of period
Encumbrance
Land
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
—
—
1,050
8,800
6,133
261
108,940
14,057
7,616
9,096
21,118
6,612
13,175
23,605
625
85
1,050
8,800
9,096
6,612
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
6,394
7,444
2,539
2002
122,997
131,797
38,554
2002
13,800
22,896
6,427
2001
23,690
30,302
2,101
2004
Southlake Town Square I - VII (a)
138,623
41,490
201,028
23,610
41,490
224,638
266,128
75,937
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
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
Towson Square
Towson, MD
—
6,500
23,780
(14,003)
4,801
2,200
—
1,000
9,426
5,783
431
315
8,079
6,735
17,564
1,536
—
—
—
—
1,900
3,440
2,300
212
34,920
8,700
16,750
9,700
—
—
9,050
13,757
5,106
79
22,111
2,881
8,760
30
61,247
18,264
17,840
21,958
660
—
6,062
1,667
(788)
—
104
3,829
2,200
1,000
6,735
1,900
3,440
2,300
212
8,700
9,700
6,874
12,448
16,277
3,682
2003-2004
9,857
12,057
3,834
1997
6,098
7,098
2,345
1997
19,100
25,835
8,370
2003
5,185
7,085
1,919
2005
24,992
28,432
9,099
2005
9,420
11,720
3,606
1999
30
242
21
2004
67,309
76,009
26,559
1979/1994
07/04
19,931
29,631
7,267
2004
19,228
26,102
7,773
1998
13,757
21,958
35,715
140
2014
Date
Acquired
12/04
06/07
10/03
10/13
12/04, 5/07,
9/08 & 3/09
03/05
12/04
08/05
12/03
11/05
12/05
11/05
11/05
12/05
07/04
11/15
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2015
(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)
—
22,525
7,184
22,525
7,184
29,709
170
University Town Center
4,206
—
9,557
Tuscaloosa, AL
Vail Ranch Plaza
Temecula, CA
—
6,200
16,275
Village Shoppes at Gainesville
19,651
4,450
36,592
1,281
—
144
174
Date
Constructed
1980
Renov:2004,
2012/2013
2002
Date
Acquired
05/15
11/04
9,701
9,701
3,973
16,449
22,649
6,414
2004-2005
04/05
37,873
42,323
14,281
2004
10,884
13,084
4,528
2004
5,074
5,524
1,909
2000
14,500
17,453
31,953
6,111
2005
27,634
32,819
11,882
2003-2004
05/04
10,665
11,835
4,096
2004
35,789
43,989
13,620
2000
7,919
12,319
3,109
1999
16,073
20,950
37,023
507
1981
7,900
137,109
145,009
53,529
1986 & 1990
11/04
—
6,200
4,450
2,200
450
5,185
1,170
8,200
4,400
09/05
08/04
04/05
07/06
06/05
07/05
11/04
06/15
3,176
2,200
10,874
—
—
—
—
—
450
14,500
5,185
1,170
8,200
5,376
4,400
5,074
16,914
27,504
10,488
35,538
7,471
—
—
16,073
20,933
7,900
137,096
10
—
539
130
177
251
448
17
13
Property Name
Tysons Corner
Vienna, VA
Gainesville, GA
Village Shoppes at Simonton
Lawrenceville, GA
Walgreens
Northwoods, MO
Walter's Crossing
Tampa, FL
Watauga Pavilion
Watauga, TX
West Town Market
Fort Mill, SC
Wilton Square
Saratoga Springs, NY
Winchester Commons
Memphis, TN
Woodinville Plaza
Woodinville, WA
Zurich Towers
Schaumburg, IL
Total Operating Properties
1,123,136
1,268,577
4,237,385
176,723
1,254,131
4,428,554
5,682,685
1,433,195
105
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2015
(in thousands)
Property Name
Development Property
South Billings Center (b)
Billings, MT
Total Development Property
Developments in Progress
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
—
—
—
—
—
5,009
—
—
148
—
—
—
—
—
—
—
—
—
5,009
148
5,157
—
—
—
Total Investment Properties
$
1,123,136
$1,273,586
$
4,237,533
$
176,723
$
1,259,140
$
4,428,702
$ 5,687,842
$
1,433,195
(a) The Company acquired a parcel at this property during 2015.
(b) The cost basis associated with this property is included in Developments in Progress.
106
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, 2015 for U.S. federal income tax purposes was approximately $5,745,906.
(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
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,
2015
5,680,376
508,924
(498,833)
—
(4,786)
(15,311)
17,472
5,687,842
2015
1,365,471
183,639
(111,346)
—
(2,497)
(2,072)
—
1,433,195
$
$
$
$
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
$
$
$
$
Depreciation is computed based upon the following estimated useful lives in the accompanying consolidated statements of operations and other comprehensive income:
Building and improvements
Site improvements
Tenant improvements
Years
30
15
Life of related lease
107
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, 2015, 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, 2015 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, 2015. The effectiveness of our internal control over financial reporting as of December 31, 2015 has been
audited by Deloitte & Touche LLP, an Independent Registered Public Accounting Firm, as stated in their report which is included
herein.
108
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Retail Properties of America, Inc.
Oak Brook, Illinois
We have audited the internal control over financial reporting of Retail Properties of America, Inc. and its subsidiaries (the
“Company”) as of December 31, 2015, 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 effectiveness to future periods are subject to the risk that 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, 2015, based on 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, 2015 of the Company
and our report dated February 17, 2016 expressed an unqualified opinion on those consolidated financial statements and financial
statement schedules.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 17, 2016
109
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 2016 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 2016 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 2016 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 2016 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 2016 Annual Meeting of Stockholders
and is incorporated herein by reference.
110
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, 2015 are submitted herewith:
Valuation and Qualifying Accounts (Schedule II)
Real Estate and Accumulated Depreciation (Schedule III)
Page
93
94
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
4.1
4.2
4.3
10.1
10.2
10.3
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).
Indenture, dated March 12, 2015, by and between the Registrant as Issuer and U.S. Bank National Association as Trustee
(Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 12, 2015).
First Supplemental Indenture, dated March 12, 2015, by and between the Registrant as Issuer and U.S. Bank National Association
as Trustee (Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on March 12,
2015).
Form of 4.00% Senior Notes due 2025 (attached as Exhibit A to the First Supplemental Indenture filed as Exhibit 4.2)
(Incorporated herein by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed on March 12, 2015).
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).
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 10.560 - 10.561 and 10.568 - 10.570 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, 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, Exhibit 10.3 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2015 and filed on August 5, 2015 and Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and filed on November 4, 2015).
111
Exhibit No.
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
12.1
21.1
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).
Fourth Amended and Restated Credit Agreement dated as of January 6, 2016 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, KeyBanc Capital Markets Inc., U.S. Bank National
Association, PNC Capital Markets LLC, and Regions Capital Markets as Co-Lead Arrangers and Joint Book Managers, each
of U.S. Bank National Association, PNC Capital Markets LLC, Regions Capital Markets, Bank of America, N.A., Citibank,
N.A., The Bank of Nova Scotia, Capital One, N.A., Deutsche Bank Securities Inc., and Morgan Stanley Senior Funding, Inc.
as Documentation Agents, and Certain Lenders from time to time parties hereto, as Lenders (filed herewith).
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).
Amendment to Retention Agreement dated February 19, 2015 by and between Registrant and Steven P. Grimes (Incorporated
herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
and filed on May 5, 2015).
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).
Amendment to Retention Agreement dated February 19, 2015 by and between Registrant and Angela M. Aman (Incorporated
herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
and filed on May 5, 2015).
Separation Agreement and General Release, dated May 7, 2015, by and between the Registrant and Angela M. Aman
(Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2015 and filed on August 5, 2015).
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).
Amendment to Retention Agreement dated February 19, 2015 by and between Registrant and Niall J. Byrne (Incorporated
herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
and filed on May 5, 2015).
Separation Agreement and General Release, dated October 2, 2015, by and between the Registrant and Niall J. Byrne
(Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2015 and filed on November 4, 2015).
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).
Amendment to Retention Agreement dated February 19, 2015 by and between Registrant and Shane C. Garrison (Incorporated
herein by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
and filed on May 5, 2015).
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).
Amendment to Retention Agreement dated February 19, 2015 by and between Registrant and Dennis K. Holland (Incorporated
herein by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015
and filed on May 5, 2015).
Offer Letter, dated July 13, 2015, by and between the Registrant and Heath R. Fear (Incorporated herein by reference to Exhibit
10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 and filed on August 5, 2015).
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (filed herewith).
List of Subsidiaries of Registrant (filed herewith).
112
Exhibit No.
Description
23.1
31.1
31.2
32.1
101
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, 2015 and 2014, (ii) Consolidated Statements of Operations and Other
Comprehensive Income for the Years Ended December 31, 2015, 2014 and 2013, (iii) Consolidated Statements of Equity for
the Years Ended December 31, 2015, 2014 and 2013, (iv) Consolidated Statements of Cash Flows for the Years Ended December
31, 2015, 2014 and 2013, (v) Notes to Consolidated Financial Statements and (vi) Financial Statement Schedules.
113
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 17, 2016
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/ Bonnie S. Biumi
/s/ Peter L. Lynch
By:
Steven P. Grimes
Director, President and
Chief Executive Officer
Date: February 17, 2016
By:
Bonnie S. Biumi
Director
By:
Peter L. Lynch
Director
Date:
February 17, 2016
Date:
February 17, 2016
/s/ Heath R. Fear
/s/ Frank A. Catalano, Jr.
/s/ Kenneth E. Masick
By:
Heath R. Fear
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
By:
Frank A. Catalano, Jr.
Director
By:
Kenneth E. Masick
Director
Date: February 17, 2016
Date:
February 17, 2016
Date:
February 17, 2016
/s/ Julie M. Swinehart
/s/ Paul R. Gauvreau
/s/ Thomas J. Sargeant
By:
Julie M. Swinehart
Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
By:
Paul R. Gauvreau
Director
By:
Thomas J. Sargeant
Director
Date: February 17, 2016
Date:
February 17, 2016
Date:
February 17, 2016
/s/ Gerald M. Gorski
/s/ Richard P. Imperiale
By:
Gerald M. Gorski
Chairman of the Board and Director
Date: February 17, 2016
By:
Date:
Richard P. Imperiale
Director
February 17, 2016
114
Reconciliation of Non-GAAP Financial Measures
(amounts in thousands, except ratios)
Reconciliation of Net Income Attributable to Common Shareholders to Adjusted EBITDA
Three Months Ended December 31,
2015
2014
$
$
Net income attributable to common shareholders
Preferred stock dividends
Interest expense
Depreciation and amortization
Gain on sales of investment properties, net of noncontrolling interest
Provision for impairment of investment properties
Realignment separation charges (a)
Adjusted EBITDA
Annualized
644
2,363
28,328
51,361
(8,050)
15,824
1,193
91,663
366,652
23,502
2,363
32,743
52,385
(26,501)
11,825
-
96,317
385,268
$
$
$
$
Reconciliation of Borrowed Debt to Total Net Debt
December 31, 2015
December 31, 2014
Total borrowed debt
Less: consolidated cash and cash equivalents
Total net debt (b)
Adjusted EBITDA
Net Debt to Adjusted EBITDA
$
$
$
$
$
$
2,178,505
(51,424)
2,127,081
366,652
5.8x
2,339,038
(112,292)
2,226,746
385,268
5.8x
(a) Included in "General and administrative expenses" in the consolidated statements of operations.
(b) Total net debt as of December 31, 2014 has been recast to exclude unamortized mortgage premium and discount. The
current presentation does not change the Net Debt to Adjusted EBITDA ratio previously presented.
B O A R D O F
D I R E C T O R S
Gerald M. Gorski, Chairman
Partner, Gorski & Good LLP
Bonnie S. Biumi
Former President and Chief
Financial Officer of Kerzner
International Resorts, Inc.
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, is
available on our website at
www.rpai.com, by e-mail request
to ir@rpai.com or via telephone at
800.541.7661.
Steven P. Grimes
President and Chief Executive Officer
Heath R. Fear
Executive Vice President,
Chief Financial Officer and Treasurer
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
RPAI
2021 Spring Road, Suite 200
Oak Brook, Illinois 60523
855.247.RPAI
www.rpai.com
Frank A. Catalano, Jr.
President of Catalano & Associates
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
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
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,”
“may,” “should,” “intend,” “plan,” “estimate,” “continue,” or “anticipate” and variations of such words or similar expressions or the negative of such words. 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 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.
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2021 Spring Road, Suite 200 | Oak Brook, IL 60523 | 855.247.RPAI | www.rpai.com | NYSE: RPAI