2
0
1
6
A
N
N
U
A
L
R
E
P
O
R
T
2016 ANNUAL REPORT
TO OUR SHAREHOLDERS
2016 was another tremendous year for RPAI. While it is tempting to just rattle off a list of the year’s results and
accomplishments, it would deny a deeper appreciation of our organization and our strategy. To that end, our
time is better spent highlighting some of the underlying principles that enabled RPAI to, once again, outperform.
OUR TRANSPARENCY IS AN OUTGROWTH OF
OUR CONVICTION
OUR CONVICTION RELIES ON OUR PROVEN
ABILITY TO EXECUTE ON ALL FRONTS
At our inaugural Investor Day in 2013, RPAI
announced a ten-year plan to migrate the
portfolio from more than 80 markets into ten of
the most desirable markets in the United States.
This past September, at our second Investor Day,
we boldly announced our plans to cut the ten-year
time frame in half by substantially completing our
capital recycling activities by the end of 2018. We
benchmarked the incredible transformation of
our portfolio and our balance sheet to date. We
gave a transactional roadmap through the end of
2018 that detailed our intention to be a net seller
of assets and to reduce our leverage such that
RPAI would be offensively poised. We told our
investors when we thought our earnings would
inflect and highlighted our impressive and
ever-growing redevelopment pipeline.
Many of our investors praised us for what they
felt was an unprecedented level of transparency.
A handful asked us why we felt compelled to
provide so much detail. We didn’t set out to raise
the bar, and we certainly didn’t feel compelled.
We simply wanted to ensure that no question
would go unanswered.
When we look back at what we accomplished
over the past three-plus years, it is impossible
not to have an enormous amount of passion
and conviction around our plans for the next two
years. We materially improved every single retail
operating and demographic metric: occupancy,
annualized base rent (ABR) per square foot, re-
increases,
leasing spreads, contractual rent
recovery ratios, population and average household
income. We sold our riskiest assets, acquired
assets with embedded growth, exited non-target
markets, entered SuperZips, and recaptured and
redeployed big box space. We obtained investment
grade credit ratings from S&P and Moody’s,
reduced leverage, originated unsecured debt and
unencumbered a significant amount of our net
operating income (NOI). The transformation is
notable. Our peer group has been refined, and we
are setting our sights on 2019 and beyond.
It’s worth acknowledging the current macro
headwinds, especially as they relate to the retail
industry. What we view as a necessary purge of
retailers that have failed to properly embrace an
omnichannel strategy is being viewed by others as
a game-changing reconciliation of e-commerce
and physical stores. The speculation is putting
pressure on pricing for assets, especially power
centers, in secondary and tertiary markets. While
TOTAL STOCK PERFORMANCE
n
r
u
t
e
R
l
a
t
o
T
d
e
x
e
d
n
I
$300
$270
$240
$210
$180
$150
$120
$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
3/16
6/16
9/16
12/16
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, 2016. The graph assumes a $100 investment in each of the indices on April 5, 2012, and the reinvestment of all dividends. Source: Bloomberg
this trend validates our plans to be a net
seller over the next two years, we anticipate
that it will be more difficult to meet our short-
term disposition goals. Despite the increased
challenge, our resolve is intact because we
have high-quality assets to sell and are armed
with a world-class team of high performers
that consistently deliver. The fact is, we have
turned over nearly 30% of our portfolio over
the last three-plus years. I assure you that
there isn’t a team that has more talent or
passion than we do.
OUR WORLD-CLASS TEAM IS KEENLY
FOCUSED ON OUR STRATEGY
Our strategy to concentrate our portfolio in
ten of the most desirable markets stems
from two critical acknowledgments. The
first is that real estate is a local business.
By focusing on just ten markets, we are able
to build strong relationships with local and
regional tenants, property owners and local
governments which translates into pricing
power, operational efficiencies and superior
market optics. The second acknowledgment
is that we are in the early stages of a shift in
the retail paradigm. The most successful and
durable retailers will leverage the synergies
between their online platforms and physical
store locations. These synergies undoubtedly
favor the demographics associated with our
target markets.
The rise in e-commerce is further causing a
bifurcation in retail real estate where commodity-
like properties are at the highest risk for
obsolescence. RPAI’s “bookended” investment
thesis discussed at our recent Investor Day
guides us on how to best position ourselves in
each of our target markets. At one end of the
spectrum, we seek out assets in highly dense,
transit-oriented and in-fill locations characterized
by extreme convenience and strong barriers to
entry. At the other end of the spectrum, we seek
out assets that appeal to customers’ desires to
live, work, shop and play in proximity. Now more
than ever, people, especially millennials, crave
real experiences and we want to own assets that
can meet this growing demand. In all instances
we prefer to invest in assets that have the ability to
densify over time as evidenced by our investments
in Downtown Crown, Tysons Corner, Towson
Square, Merrifield Town Center, One Loudoun
Downtown and Main Street Promenade.
OUR HIGH QUALITY PORTFOLIO
$26.91
$20.21
$19.92
F
S
P
R
B
A
l
i
a
t
e
R
)
6
1
/
1
3
/
2
1
f
o
s
a
(
$30
$25
$20
$15
$10
$5
$0
$19.21
$17.11
$17.93
$17.13
$15.46
$15.08
$12.99
FRT
REG
ROIC
RPAI
WRI
UE
DDR
KIM
BRX
Target Markets Retail Portfolio
Source: Company filings.
THE RESULTS OF OUR STRATEGY
Our 2016 results are proof positive that our strategy is working. At year end, our retail portfolio was
95% leased and nearly 70% of our multi-tenant ABR was located in our target markets. Our target
market ABR per square foot stood at $19.21 and we experienced 3.5% same store NOI growth, which
was one of the strongest prints in our sector. Our Operating FFO per share of $1.09 was three cents
more than the prior year, notwithstanding the fact that we were a net seller of assets and experienced
the effects of The Sports Authority bankruptcy. We identified $142 million of air rights value within our
portfolio, and we broke ground on one redevelopment and will soon do so on another.
At the onset of this letter, I promised to highlight our underlying principles and not just rattle off
statistics, so I will leave you with this...Our strategy is working.
I would like to thank the Board of Directors and our team members for their continued support
and unwavering efforts.
We are the best in retail, from every angle.
Sincerely,
Steven P. Grimes
President & Chief Executive Officer
Table of Contents
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, 2016
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, 2016, the aggregate market value of the Class A common stock held by non-affiliates was approximately $4.0 billion based upon
the closing price as reported on the New York Stock Exchange on June 30, 2016 of $16.90 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 10, 2017:
Class A common stock:
236,847,007 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 25, 2017 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, 2016.
RETAIL PROPERTIES OF AMERICA, INC.
TABLE OF CONTENTS
PART I
Table of Contents
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
4
18
18
20
20
21
23
24
53
56
111
111
113
113
113
113
113
113
114
117
Table of Contents
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) that owns and operates high quality, strategically located
shopping centers in the United States. As of December 31, 2016, we owned 156 retail operating properties representing 25,832,000
square feet of gross leasable area (GLA). Our retail operating portfolio includes (i) neighborhood and community centers, (ii)
power 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, 2016:
Property Type
Operating portfolio:
Multi-tenant retail
Neighborhood and community centers
Power centers
Lifestyle centers and mixed-use properties
Total multi-tenant retail
Single-user retail
Total retail operating portfolio
Office
Total operating portfolio (b)
(a) Includes leases signed but not commenced.
Number of
Properties
GLA
(in thousands)
Occupancy
Percent Leased
Including Leases
Signed (a)
81
50
14
145
11
156
1
157
9,958
11,430
3,868
25,256
576
25,832
895
26,727
94.2%
95.8%
89.7%
94.2%
100.0%
94.3%
1.1%
91.2%
94.4%
96.9%
90.3%
94.9%
100.0%
95.0%
44.3%
93.3%
(b) Excludes one multi-tenant retail operating property and one single-user retail operating property classified as held for sale as of December 31,
2016.
In addition to our operating portfolio, as of December 31, 2016, we owned two properties where we have begun redevelopment
activities.
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 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, high
disposable income and/or a highly educated employment base;
•
fiscal and regulatory environment conducive to business activity and growth;
1
Table of Contents
•
•
strong barriers to entry, whether topographical, regulatory or density driven; and
ability to create critical mass and realize operational efficiencies.
Since the beginning of 2012, we have sold 159 properties, primarily in our non-target markets, for aggregate consideration of
$2,296,955, including our pro rata share of unconsolidated joint ventures and three development properties, 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 30 properties for aggregate
consideration of $1,396,761, including our pro rata share of unconsolidated joint ventures, resulting in an increase in consolidated
GLA in our target markets by 4.5 million square feet and an increase in concentration to over 66% of multi-tenant retail annualized
base rent (ABR) from our target markets as of December 31, 2016. Depending on whether favorable market conditions exist,
among other factors, we expect to substantially complete our portfolio repositioning efforts by the end of 2018.
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
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.
2
Table of Contents
Regulation
General
The properties in our portfolio, including common areas, are subject to various laws, ordinances and regulations.
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 adverse
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, seismic activity, 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. Refer to 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, 2016, we had 237 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 including exhibits 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.
3
Table of Contents
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.
RISKS RELATED TO OUR BUSINESS AND OUR PROPERTIES
There are inherent risks associated with real estate investments and 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, but not limited to, the following:
•
•
•
•
•
•
•
•
•
national, regional and local economies, which may be negatively impacted by inflation, deflation, government deficits,
high unemployment rates, severe weather or other natural disasters, decreased consumer confidence, industry slowdowns,
reduced corporate profits, lack of 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 platforms 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 seismic activity and floods, which may result in
uninsured and underinsured losses.
During a period of economic slowdown or recession, or the public perception that such a period may occur, declining demand for
real estate 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 our target markets 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.
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
4
Table of Contents
December 31, 2016, approximately 59.2% of our GLA and approximately 65.1% of our ABR in our retail operating portfolio was
in our target markets, including amounts attributable to our redevelopments. Depending on whether favorable market conditions
exist, among other factors, we expect to increase our concentration in our target markets over the next two years, with a goal of
having 90% of our multi-tenant retail ABR in our target markets by the end of 2018. Notably, approximately 27.0% of our GLA
and approximately 29.5% of our ABR in our retail operating portfolio is located in the state of Texas, where four of our target
markets are located. Poor economic or market conditions in our target markets, including those that are in Texas, may adversely
affect our cash flow, financial condition and results of operations.
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 declines in brick and mortar sales generated by certain of our tenants
and/or 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 5.0% of the total GLA in our retail operating portfolio was vacant as of December 31, 2016, excluding leases
signed but not commenced. In addition, leases accounting for approximately 35.6% of the ABR in our retail operating portfolio
as of December 31, 2016 are scheduled to expire within the next three years. We may choose to not renew leases based on various
strategic factors such as operating strength of the occupying tenant, the tenant’s retail category, merchandising composition of the
property, other leasing opportunities available to us or redevelopment plans for the property. 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 and co-tenancy 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 not to or are unable to renew existing leases, lease vacant space or re-lease space as leases expire, or if 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 or experiencing
other significant financial hardship 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 39.2% of occupied GLA and 31.7% of ABR as of December 31,
2016. 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
5
Table of Contents
business of any of our anchor tenants could result in another tenant vacating its space, defaulting on its lease obligations, terminating
its lease, exercising co-tenancy rights 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 29.1% of occupied
GLA, but 44.8% of ABR as of December 31, 2016. Such tenants may have more limited resources than larger tenants and, as a
result, may be more vulnerable to negative economic conditions. If a significant number of our small shop tenants experience
financial difficulties or are unable to remain open, our cash flow, financial condition and results of operations could be adversely
affected.
Many of the leases at our retail properties contain provisions, which, if triggered, may allow tenants to pay reduced rent, cease
operations or terminate their leases, any of which could adversely affect our cash flow, financial condition and results of
operations.
Some anchor tenants have the right to vacate 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, 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’s occupancy decreases, 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
fully 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 redevelop 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.
6
Table of Contents
We may be unable to sell a property at the time we desire and 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
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, 2016, 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.
7
Table of Contents
Development, redevelopment, expansions and pad development activities have inherent risks, which could adversely impact
our cash flow, financial condition and results of operations.
As of December 31, 2016, we had two properties in redevelopment and three active expansions and pad developments. We have
invested a total of approximately $12,357 in these projects, which are at various stages of completion, and based on our current
plans and estimates, we anticipate that to complete these projects, it will require an additional $40,700 to $43,700, net of proceeds
from land sales, reimbursement from third parties and contributions from project partners, as applicable. We anticipate engaging
in additional redevelopment, expansions and pad development activities in the future. In addition to the risks associated with real
estate investments in general as described elsewhere, the risks associated with future development, redevelopment, expansions
and pad development 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;
inability to secure necessary zoning or regulatory approvals;
higher than estimated construction or operating costs, including labor and material costs;
inability to complete construction on schedule due to a number of factors, including inclement 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, seismic activity or floods);
significant time lag between commencement and stabilization resulting in delayed returns and greater risks due to
fluctuations in the general economy, shifts in demographics and competition;
decrease in customer traffic during the redevelopment period causing a decrease in tenant sales;
inability to secure key anchor or other tenants at anticipated pace of lease-up or at all; 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, redevelopment, expansion or pad development 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 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 may not be able to 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 12 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 2049 and 2115. 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.
8
Table of Contents
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
its 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 net leases 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, seismic activity,
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 to the extent they
are located in impacted areas. In addition, some of our properties are located in California and other regions that are especially
susceptible to seismic activity.
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 become liable 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 funds 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
9
Table of Contents
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.
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,
2016, 2015 and 2014, we recognized aggregate impairment charges related to investment properties of $20,376, $19,937 and
$72,203, respectively. 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 or ransomware,
(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
10
Table of Contents
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 agreements with the members of our executive management team that provide for certain
payments in the event of a change of control or termination without cause, we do not have employment agreements with the
members of our executive management team. Therefore, we cannot guarantee their continued service. The loss of their services,
and our inability to find suitable replacements, could have an adverse effect on our operations.
RISKS RELATED TO OUR DEBT FINANCING
We are generally subject to the risks associated with debt financing and our debt service obligations could adversely affect our
financial health and operating flexibility.
Required principal and interest payments on our indebtedness reduce funds available for general business purposes 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 on favorable terms, or at all, which could adversely affect our cash flow, financial condition and results of
operations.
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 Credit Facility or our other debt agreements.
Our Unsecured Credit Facility, which is comprised of our unsecured revolving line of credit and two unsecured term loans, is
governed by our unsecured credit agreement (the Unsecured Credit Agreement). Our other debt agreements include, but are not
limited to, the Indenture, as supplemented, governing our Notes Due 2025 (the Indenture), the note purchase agreements governing
our Notes Due 2021, 2024, 2026 and 2028 (the Note Purchase Agreements) and the credit agreement governing our Term Loan
Due 2023, which closed during the year ended December 31, 2016 and funded on January 3, 2017 (the Term Loan Agreement).
The Unsecured Credit Agreement, the Indenture, the Note Purchase Agreements, the Term Loan 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, Notes Due 2021, 2024, 2025, 2026
and 2028 and Term Loan Due 2023, 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.
Given the restrictions in our debt covenants, 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.
11
Table of Contents
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.
We may choose to retire debt prior to its stated maturity date and may incur debt prepayment costs as a result, some of which
may be significant.
At times, management has decided to retire debt prior to its stated maturity date, and in doing so, we have incurred prepayment
or defeasance premiums in accordance with the relevant loan agreements. If we choose to retire debt prior to its stated maturity
date in the future, we may incur significant debt prepayment costs or defeasance premiums, which could have an adverse effect
on our cash flow and results of operations.
Defaults on secured indebtedness may result in foreclosure.
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 the related 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.
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.
12
Table of Contents
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
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
13
Table of Contents
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.
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 subject to adverse legislative or regulatory tax changes that could negatively impact our cash flow, financial condition
and results of operations.
At any time, the U.S. federal income tax laws governing REITs or the administrative interpretation of those laws (or other laws
affecting our business) may be amended. We cannot predict if or when any new or amended U.S. federal income tax law, regulation
or administrative interpretation (or any repeal thereof) will become effective, and any such law, regulation, interpretation or repeal
may take effect retroactively. Any such changes could adversely affect our cash flow, financial condition and results of operations.
14
Table of Contents
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
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.
If a transaction intended to qualify as an Internal Revenue Code Section 1031 tax-deferred exchange (1031 Exchange) is later
determined to be taxable, we may face adverse consequences, and if the laws applicable to such transactions are amended or
repealed, we may be unable to dispose of properties on a tax-deferred basis.
From time to time we may dispose of properties in transactions that are intended to qualify as 1031 Exchanges. It is possible that
the qualification of a transaction as a 1031 Exchange could be successfully challenged and determined to be currently taxable. In
such case, our taxable income and earnings and profits would increase, which could increase the ordinary dividend income to our
stockholders. In some circumstances, we may be required to pay additional dividends or, in lieu of that, corporate income tax,
possibly including interest and penalties. As a result, we may be required to borrow funds in order to pay additional dividends or
taxes, and the payment of such taxes could cause us to have less cash available to distribute to our stockholders. In addition, if a
1031 Exchange were later determined to be taxable, we may be required to amend our tax returns for the applicable year in question,
including any information reports we sent our stockholders. Moreover, it is possible that legislation could be enacted that could
modify or repeal the laws with respect to 1031 Exchanges, which could make it more difficult or impossible for us to dispose of
properties on a tax-deferred basis.
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
15
Table of Contents
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;
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;
16
Table of Contents
•
•
•
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. Therefore, we 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, $700,000 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.
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
17
Table of Contents
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 (FASB) recently issued new guidance on a variety of topics, including, among others,
lease accounting and revenue recognition, that may impact how we account for certain transactions. Specifically, the new lease
accounting guidance will require the recognition of a lease liability and a right-of-use asset for operating leases where we are the
lessee, such as ground leases and office and equipment leases. We are continuing to assess the impact of adoption of the new
standards at this time and, as such, are unable to predict the full impact these new standards, or other new accounting standards
that we have not yet adopted, 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 operating portfolio as of December 31, 2016. 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 operating portfolio, see “Real Estate and Accumulated Depreciation (Schedule III)” herein.
Division
Eastern Division
Alabama, Connecticut, Florida, Georgia, Indiana,
Maryland, Massachusetts, Michigan, Missouri,
New Jersey, New York, North Carolina, Ohio,
Pennsylvania, Rhode Island, South Carolina,
Tennessee, Virginia
Western Division
Arizona, California, Colorado, Illinois, Louisiana,
New Mexico, Oklahoma, Texas, Washington
Number of
Properties
ABR
% of Total
Retail
ABR (a)
ABR per
Occupied
Sq. Ft.
% of Total
Retail
GLA (a)
Occupancy
(b)
GLA
89
$
213,990
51.3% $
16.22
13,903
53.8%
94.9%
67
202,917
48.7%
18.15
11,929
46.2%
93.7%
Total retail operating portfolio
Office
Total operating portfolio (c)
156
1
416,907
100.0%
69
157
$
416,976
$
17.11
7.01
17.11
25,832
895
26,727
100.0%
94.3%
1.1%
91.2%
(a) Percentages are only provided for our retail operating portfolio.
(b) Calculated as the percentage of economically occupied GLA as of December 31, 2016. Including leases signed but not commenced, our
retail operating portfolio and our consolidated operating portfolio were 95.0% and 93.3% leased, respectively, as of December 31, 2016.
(c) Excludes one multi-tenant retail operating property and one single-user retail operating property classified as held for sale as of December 31,
2016, as well as two properties where we have begun redevelopment activities.
18
Table of Contents
The following table sets forth information regarding the 20 largest tenants in our retail operating portfolio based on ABR as of
December 31, 2016. Dollars (other than per square foot information) and square feet of GLA are presented in thousands.
Tenant
Best Buy Co., Inc.
Ahold U.S.A. Inc.
Ross Stores, Inc.
Primary DBA
Best Buy, Pacific Sales
Giant Foods, Stop & Shop, Martin's
Ross Dress for Less
The TJX Companies, Inc.
HomeGoods, Marshalls, T.J. Maxx
Bed Bath & Beyond Inc.
Bed Bath & Beyond, Buy Buy
Baby, The Christmas Tree Shops,
Cost Plus World Market
PetSmart, Inc.
Regal Entertainment Group
Edwards Cinema
AB Acquisition LLC
Michaels Stores, Inc.
The Gap, Inc.
Dick's Sporting Goods, Inc.
The Kroger Co.
Ascena Retail Group Inc.
Pier 1 Imports, Inc.
Publix Super Markets Inc.
Safeway, Jewel-Osco, Shaw’s
Supermarket, Tom Thumb
Michaels, Aaron Brothers Art &
Frame
Old Navy, Banana Republic, The
Gap, Gap Factory Store, Athleta
Dick's Sporting Goods, Golf
Galaxy, Field & Stream
Kroger, Harris Teeter, King
Soopers, QFC
Dress Barn, Lane Bryant, Justice,
Catherine’s, Ann Taylor, Maurices,
LOFT
Office Depot, Inc.
Office Depot, OfficeMax
Lowe’s Companies, Inc.
BJ’s Wholesale Club, Inc.
Party City Holdings Inc.
Mattress Firm Holding Corp.
Total Top Retail Tenants
Mattress Firm, Sleepy’s
Number
of Stores
ABR
% of
Total ABR
ABR per
Occupied
Sq. Ft.
Occupied
GLA
% of
Occupied
GLA
20
9
30
33
24
26
2
8
23
26
9
10
47
24
11
17
6
2
23
30
$
12,219
2.9% $
11,006
9,752
9,406
8,434
7,993
6,911
6,134
6,108
5,396
5,325
5,289
5,182
4,970
4,964
4,953
4,790
4,609
4,496
4,257
2.6%
2.3%
2.3%
2.0%
1.9%
1.7%
1.5%
1.5%
1.3%
1.3%
1.3%
1.2%
1.2%
1.2%
1.2%
1.1%
1.1%
1.1%
1.0%
380
$ 132,194
31.7% $
15.53
19.87
11.04
9.95
13.43
14.91
31.56
13.19
11.86
16.35
13.55
10.02
20.32
20.45
10.65
14.19
6.44
18.81
14.50
28.57
13.85
787
554
883
945
628
536
219
465
515
330
393
528
255
243
466
349
744
245
310
149
3.2%
2.3%
3.6%
3.9%
2.6%
2.2%
0.9%
1.9%
2.1%
1.4%
1.6%
2.2%
1.0%
1.0%
1.9%
1.4%
3.1%
1.0%
1.3%
0.6%
9,544
39.2%
19
Table of Contents
The following table sets forth a summary, as of December 31, 2016, of lease expirations scheduled to occur during 2017 and each
of the nine calendar years from 2018 to 2026 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, 2016. 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
2017 (a)
2018
2019
2020
2021
2022
2023
2024
2025
2026
Thereafter
Month-to-month
Total
356
472
533
379
339
199
117
161
105
89
80
22
2,852
$
$
25,470
52,328
69,138
47,443
50,077
40,206
25,364
30,299
23,282
16,640
35,265
1,395
416,907
6.2% $
12.5%
16.6%
11.4%
12.0%
9.6%
6.0%
7.3%
5.6%
4.0%
8.5%
0.3%
100.0% $
18.51
19.17
18.76
15.97
18.05
14.34
15.36
16.14
16.51
18.74
16.51
20.82
17.11
1,376
2,729
3,685
2,971
2,775
2,804
1,651
1,877
1,410
888
2,136
67
24,369
5.6%
11.2%
15.1%
12.2%
11.4%
11.6%
6.7%
7.7%
5.8%
3.7%
8.7%
0.3%
100.0%
(a) Excludes month-to-month leases.
The single-user lease at our one remaining office property expired on November 30, 2016. We continue to focus on leasing the
vacant space at this property and have leased 397,000 square feet of the available 895,000 square feet as of December 31, 2016.
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 may not 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.
20
Table of Contents
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, 2016 and 2015:
2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Sales Price
High
Low
Dividends
per Share
$
$
$
$
$
$
$
$
16.97
17.78
17.00
16.09
15.60
15.39
16.18
18.24
$
$
$
$
$
$
$
$
14.42
16.29
15.55
14.02
13.79
13.10
13.83
15.42
$
$
$
$
$
$
$
$
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 10, 2017, as reported on the NYSE, was $15.23.
We have determined that the dividends paid during 2016 and 2015 on our Class A common stock qualify for the following tax
treatment:
Ordinary dividends
Non-dividend distributions
Total distribution per common share
2016
0.449528
0.212972
0.662500
$
$
2015
0.499116
0.163384
0.662500
$
$
As of February 10, 2017, there were approximately 14,900 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 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 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
to 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 and potential future share repurchases, (iv) the market
of available acquisitions of new properties and redevelopment, expansions and pad development opportunities, (v) the timing of
significant re-leasing activities and the establishment of additional cash reserves for anticipated tenant allowances and general
property capital improvements, (vi) our ability to continue to access additional sources of capital, (vii) the amount required to be
distributed to maintain our status as a REIT, which is a requirement of our unsecured credit agreement, and to reduce any income
and excise taxes that we otherwise would be required to pay and (viii) 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. 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.
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
21
Table of Contents
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, 2016.
Issuer Purchases of Equity Securities
The following table summarizes our common stock repurchases, including shares of common stock surrendered to the Company
by employees to satisfy their tax withholding obligations in connection with the vesting of restricted shares, during the quarter
ended December 31, 2016:
Period
October 1, 2016 to October 31, 2016
November 1, 2016 to November 30, 2016
December 1, 2016 to December 31, 2016
Total
Total number
of shares of
Class A common
stock purchased
Average price
paid per share
of Class A
common stock
Total number of
shares purchased
as part of publicly
announced plans
or programs
Maximum number
(or approximate dollar
value) of shares that
may yet be purchased
under the plans
or programs (a)
1
505
105
611
$
$
$
$
15.99
14.92
15.06 (b)
14.94
— $
505
86
591
$
$
$
250,000
242,454
241,159
241,159
(a) As disclosed on the Form 8-K dated December 15, 2015, represents the amount outstanding under our $250,000 common stock repurchase
program, which has no scheduled expiration date.
(b) Under the repurchase program, the average repurchase price per share was $14.99 for the period from December 1, 2016 to December 31,
2016.
22
Table of Contents
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the accompanying consolidated financial statements and
related notes appearing elsewhere in this annual report.
RETAIL PROPERTIES OF AMERICA, INC.
As of and for the years ended December 31, 2016, 2015, 2014, 2013 and 2012
(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, net
Income (loss) from continuing operations
Income from discontinued operations, net
Gain on sales of investment properties, net
Net income (loss)
Net income attributable to noncontrolling interest
Net income (loss) attributable to the Company
Preferred stock dividends
Net income (loss) attributable to common shareholders
Earnings (loss) per common share – basic and diluted:
Continuing operations
Discontinued operations
Net income per common share attributable to
common shareholders
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2016
4,056,173
4,452,973
1,997,925
2,152,086
583,143
224,430
232,567
456,997
126,146
13,653
6,978
—
—
—
$
$
$
$
$
2015
4,254,647
4,621,251
2,166,238
2,155,337
603,960
214,706
248,184
462,890
141,070
—
—
—
—
—
(109,730)
(138,938)
63
37,110
—
129,707
166,817
—
166,817
(9,450)
157,367
0.66
—
0.66
9,450
1.75
157,168
0.66
263,748
17,537
(279,590)
236,651
236,951
$
$
$
$
$
$
$
$
$
$
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
—
—
—
146,769
0.66
167,085
471,829
(636,854)
220,464
220,464
23
Table of Contents
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”, “continue” 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 our target markets 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;
our leverage;
our ability to generate sufficient cash flows to service our outstanding indebtedness and make distributions to our
shareholders;
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 and dispositions, including our ability to identify and pursue
acquisition and disposition opportunities;
risks generally associated with redevelopment, including the impact of construction delays and cost overruns, our ability
to lease redeveloped space and our ability to identify and pursue redevelopment opportunities;
composition of members of our senior management team;
our ability to attract and retain qualified personnel;
our ability to continue to qualify as a REIT;
24
Table of Contents
•
•
•
•
•
governmental regulations, tax laws and rates and similar matters;
our compliance with laws, rules and regulations;
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 that owns and operates high quality, strategically located shopping centers in the
United States. As of December 31, 2016, we owned 156 retail operating properties representing 25,832,000 square feet of GLA.
Our retail operating portfolio includes (i) neighborhood and community centers, (ii) power 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, 2016:
Property Type
Operating portfolio:
Multi-tenant retail
Neighborhood and community centers
Power centers
Lifestyle centers and mixed-use properties
Total multi-tenant retail
Single-user retail
Total retail operating portfolio
Office
Total operating portfolio (b)
(a) Includes leases signed but not commenced.
Number of
Properties
GLA
(in thousands)
Occupancy
Percent Leased
Including Leases
Signed (a)
81
50
14
145
11
156
1
157
9,958
11,430
3,868
25,256
576
25,832
895
26,727
94.2%
95.8%
89.7%
94.2%
100.0%
94.3%
1.1%
91.2%
94.4%
96.9%
90.3%
94.9%
100.0%
95.0%
44.3%
93.3%
(b) Excludes one multi-tenant retail operating property and one single-user retail operating property classified as held for sale as of December 31,
2016.
In addition to our operating portfolio, as of December 31, 2016, we owned two properties where we have begun redevelopment
activities.
We are in the midst of a portfolio repositioning effort, the core objective of which 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. To date, we have identified
10 target markets: Dallas, Washington, D.C./Baltimore, New York, Atlanta, Seattle, Chicago, Houston, San Antonio, Phoenix and
Austin. Depending on whether favorable market conditions exist, among other factors, we expect to substantially complete our
portfolio repositioning efforts by the end of 2018.
25
Table of Contents
2016 Company Highlights
Acquisitions
During the year ended December 31, 2016, we continued to execute our investment strategy by acquiring seven multi-tenant retail
operating properties, the fee interest in an existing wholly-owned multi-tenant retail operating property and the anchor space
improvements at an existing wholly-owned multi-tenant retail operating property for a total purchase price of $408,308.
The following table summarizes our 2016 acquisitions:
Date
Property Name
January 15, 2016
Shoppes at Hagerstown (a)
January 15, 2016
Merrifield Town Center II (a)
March 29, 2016
Oak Brook Promenade
April 1, 2016
April 29, 2016
May 5, 2016
June 15, 2016
The Shoppes at Union Hill (b)
Ashland & Roosevelt – Fee Interest (c)
Tacoma South
Eastside
August 30, 2016
Woodinville Plaza – Anchor Space
Improvements (d)
Metropolitan
Statistical Area (MSA)
Hagerstown
Washington, D.C.
Chicago
New York
Chicago
Seattle
Dallas
Seattle
November 22, 2016
One Loudoun Downtown – Phase I (e)
Washington, D.C.
Property Type
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Ground lease interest (c)
Multi-tenant retail
Multi-tenant retail
Anchor space
improvements (d)
Multi-tenant retail
Square
Footage
Acquisition
Price
113,000
$
76,000
183,200
91,700
—
230,700
67,100
—
340,600
1,102,300
$
27,055
45,676
65,954
63,060
13,850
39,400
23,842
4,500
124,971
408,308
(a) These properties were acquired as a two-property portfolio. Merrifield Town Center II also contains 62,000 square feet of storage space for
a total of 138,000 square feet.
(b) In conjunction with this acquisition, we assumed mortgage debt with a principal balance of $15,971 and an interest rate of 3.75% that
matures in 2031.
(c) We acquired the fee interest in an existing wholly-owned multi-tenant retail operating property located in Chicago, Illinois, which was
previously subject to a ground lease with a third party. In conjunction with this transaction, we reversed the straight-line ground rent liability
of $6,978, which is reflected as “Gain on extinguishment of other liabilities” in the accompanying consolidated statements of operations
and other comprehensive income.
(d) We acquired the anchor space improvements, which were previously subject to a ground lease with us, at an existing wholly-owned multi-
tenant retail operating property located in Woodinville, Washington.
(e) The remaining phases at One Loudoun Downtown, representing an aggregate gross purchase price of up to $35,500, are expected to close
throughout the first three quarters of 2017 as the seller completes construction on stand-alone buildings at the property.
During the year ended December 31, 2016, we also completed a non-monetary transaction in which we received the fee interest
in less than an acre of adjacent land and terminated the ground lease on certain undeveloped parcels at an existing wholly-owned
multi-tenant retail operating property located in Southlake, Texas in exchange for the fee interest in approximately 2.5 acres of
undeveloped parcels. As a result of this transaction, our fee interest in certain undeveloped parcels at the property are no longer
encumbered by the ground lease. We capitalized $113 of costs related to this transaction.
Subsequent to December 31, 2016, we acquired Main Street Promenade, a 181,600 square foot multi-tenant retail property located
in the Chicago MSA, for a gross purchase price of $88,000 through a consolidated variable interest entity (VIE) to facilitate a
potential 1031 Exchange. In total for 2017, we expect to acquire approximately $375,000 to $475,000 of strategic acquisitions in
our target markets, some of which may be structured as 1031 Exchanges.
Dispositions
During the year ended December 31, 2016, we continued to pursue targeted dispositions of select non-target and single-user
properties. Consideration from dispositions totaled $540,362 and included the sales of 10 multi-tenant retail operating properties
aggregating 2,388,000 square feet for total consideration of $386,625, 35 single-user retail properties aggregating 625,900 square
feet for total consideration of $151,487 and one development property, which was not under active development, for consideration
of $2,250.
26
Table of Contents
The following table summarizes our 2016 dispositions:
Date
February 1, 2016
February 10, 2016
March 30, 2016
April 20, 2016
June 2, 2016
June 15, 2016
June 23, 2016
July 8, 2016
July 21, 2016
July 27, 2016
July 29, 2016
August 4, 2016
August 5, 2016
August 12, 2016
August 12, 2016
August 18, 2016
August 22, 2016
September 9, 2016
September 9, 2016
November 9, 2016
November 23, 2016
December 8, 2016
December 15, 2016
December 16, 2016
December 22, 2016
December 29, 2016
December 30, 2016
Property Name
The Gateway (a)
Stateline Station
Six Property Portfolio (b)
CVS Pharmacy – Oklahoma City
Rite Aid Store (Eckerd) – Canandaigua
& Tim Horton Donut Shop (c)
Academy Sports – Midland
Four Rite Aid Portfolio (d)
Broadway Shopping Center
Mid-Hudson Center
Rite Aid Store (Eckerd), Main St. – Buffalo
Rite Aid Store (Eckerd) – Lancaster
Alison’s Corner
Rite Aid Store (Eckerd) – Lake Ave.
Maple Tree Place
CVS Pharmacy – Burleson
Mitchell Ranch Plaza
Rite Aid Store (Eckerd), E. Main St. – Batavia
Rite Aid Store (Eckerd) – Lockport
Rite Aid Store (Eckerd), Ferry St. – Buffalo
Walgreens – Northwoods
Ten Rite Aid Portfolio (e)
Vail Ranch Plaza
Pacheco Pass Phase I & II
South Billings Center (f)
Rite Aid Store (Eckerd) – Colesville
Commons at Royal Palm
CVS Pharmacy (Eckerd) – Edmond &
CVS Pharmacy (Eckerd) – Norman (g)
Property Type
Multi-tenant retail
Multi-tenant retail
Single-user retail
Single-user retail
Single-user retail
Single-user retail
Single-user retail
Multi-tenant retail
Multi-tenant retail
Single-user retail
Single-user retail
Multi-tenant retail
Single-user retail
Multi-tenant retail
Single-user retail
Multi-tenant retail
Single-user retail
Single-user retail
Single-user retail
Single-user retail
Single-user retail
Multi-tenant retail
Multi-tenant retail
Development (f)
Single-user retail
Multi-tenant retail
Single-user retail
Square
Footage
623,200
142,600
230,400
10,900
16,600
61,200
45,400
190,300
235,600
10,900
10,900
55,100
13,200
489,000
10,900
199,600
13,800
13,800
10,900
16,300
119,700
101,800
194,300
—
13,400
156,500
27,600
Consideration
75,000
$
17,500
35,413
4,676
5,400
5,541
15,934
20,500
27,500
3,388
3,425
7,850
5,400
90,000
4,190
55,625
5,050
4,690
3,600
6,450
30,000
27,450
41,500
2,250
7,700
23,700
10,630
540,362
3,013,900
$
(a) The property was disposed of through a lender-directed sale in full satisfaction of our $94,353 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. Along
with the loan reduction, the lender received the balance of the restricted escrows that they held and the rights to unpaid accounts receivable
and forgave accrued interest, resulting in a net gain on extinguishment of debt of $13,653.
(b) Portfolio consists of the following properties: (i) Academy Sports – Houma, (ii) Academy Sports – Port Arthur, (iii) Academy Sports – San
Antonio, (iv) CVS Pharmacy – Moore, (v) CVS Pharmacy – Saginaw and (vi) Rite Aid Store (Eckerd) – Olean.
(c) The terms of the disposition of Rite Aid Store (Eckerd) – Canandaigua and Tim Horton Donut Shop were negotiated as a single transaction.
(d) Portfolio consists of the following properties: (i) Rite Aid Store (Eckerd) – Cheektowaga, (ii) Rite Aid Store (Eckerd), W. Main St. – Batavia,
(iii) Rite Aid Store (Eckerd), Union Rd. – West Seneca and (iv) Rite Aid Store (Eckerd) – Greece.
(e) Portfolio consists of the following properties: (i) Rite Aid Store (Eckerd) – Chattanooga, (ii) Rite Aid Store (Eckerd) – Yorkshire, (iii) Rite
Aid Store (Eckerd), Sheridan Dr. – Amherst, (iv) Rite Aid Store (Eckerd) – Grand Island, (v) Rite Aid Store (Eckerd) – North Chili, (vi)
Rite Aid Store (Eckerd) – Tonawanda, (vii) Rite Aid Store (Eckerd) – Irondequoit, (viii) Rite Aid Store (Eckerd) – Hudson, (ix) Rite Aid
Store (Eckerd), Transit Rd. – Amherst and (x) Rite Aid Store (Eckerd), Harlem Rd. – West Seneca.
(f) South Billings Center was classified as a development property but was not under active development.
(g) The terms of the disposition of CVS Pharmacy (Eckerd) – Edmond and CVS Pharmacy (Eckerd) – Norman were negotiated as a single
transaction.
During the year ended December 31, 2016, we also disposed of a single-user outparcel for consideration of $2,639.
Subsequent to December 31, 2016, we sold Rite Aid Store (Eckerd), Culver Rd., a 10,900 square foot single-user retail operating
property, for consideration of $500. During 2017, we expect targeted dispositions to be approximately $800,000 to $900,000, some
of which may be structured as 1031 Exchanges.
27
Table of Contents
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
66.9% of our total multi-tenant retail ABR, including amounts attributable to our redevelopments. The following table summarizes
our operating portfolio by market as of December 31, 2016:
Property Type/Market
Multi-Tenant Retail:
Target Markets
Dallas, Texas
Washington, D.C. /
Baltimore, Maryland
New York, New York
Chicago, Illinois
Seattle, Washington
Atlanta, Georgia
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 (a)
% of Total
Multi-Tenant
Retail ABR
(a)
ABR per
Occupied
Sq. Ft.
% of Total
Multi-Tenant
Retail GLA
(a)
Occupancy
% Leased
Including
Signed
GLA (a)
20
13
8
6
8
9
9
3
3
4
83
25
108
37
145
11
156
1
$
82,265
20.4% $
21.56
4,098
49,935
34,091
20,117
19,514
19,385
15,423
11,630
10,015
5,199
267,574
51,626
12.4%
8.4%
5.0%
4.8%
4.8%
3.8%
2.8%
2.5%
1.3%
66.2%
12.8%
21.83
27.69
19.72
14.32
12.97
14.08
16.29
17.17
15.99
19.21
15.36
2,611
1,260
1,076
1,473
1,513
1,141
724
632
350
14,878
3,587
16.2%
10.3%
5.0%
4.3%
5.8%
6.0%
4.5%
2.9%
2.5%
1.4%
58.9%
14.2%
93.1%
93.4%
87.6%
97.7%
94.8%
92.5%
98.8%
96.0%
98.6%
92.3%
92.9%
93.6%
88.5%
98.0%
95.0%
94.6%
98.8%
96.2%
98.6%
92.3%
92.9%
94.1%
93.7%
96.0%
319,200
79.0%
18.47
18,465
73.1%
93.6%
94.5%
84,884
21.0%
404,084
100.0%
12,823
416,907
69
13.06
16.98
22.26
17.11
7.01
6,791
25,256
576
25,832
895
26.9%
95.7%
95.9%
100.0%
94.2%
94.9%
100.0%
100.0%
94.3%
95.0%
1.1%
44.3%
Total Operating Portfolio (b)
157
$ 416,976
$
17.11
26,727
91.2%
93.3%
(a) Excludes $7,857 of multi-tenant retail ABR and 816 square feet of multi-tenant retail GLA attributable to our two active redevelopments,
which are located in the Washington, D.C./Baltimore MSA. Including these amounts, 66.9% of our multi-tenant retail ABR and 60.2% of
our multi-tenant retail GLA is located in our target markets.
(b) Excludes one multi-tenant retail operating property and one single-user retail operating property classified as held for sale as of December 31,
2016.
Leasing Activity
The following table summarizes the leasing activity in our retail operating portfolio during the year ended December 31, 2016.
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) (b)
Weighted
Average
Lease Term
Tenant
Allowances
PSF
Comparable Renewal Leases
Comparable New Leases
Non-Comparable New and
Renewal Leases (c)
Total
372
54
114
540
2,321
$
335
676
3,332
$
19.65
18.20
14.04
19.47
$
$
18.43
16.00
N/A
18.12
6.62%
13.75%
N/A
7.45%
4.75
9.53
7.67
5.68
$
$
1.29
31.50
18.07
7.73
(a) Total excludes the impact of Non-Comparable New and Renewal Leases.
28
Table of Contents
(b) Excluding the impact from eight Rite Aid leases executed in the first quarter that were extended to effectuate the planned 2016 disposition
of these single-user assets, all of which were sold during the second and third quarters, combined comparable re-leasing spreads were
approximately 7.8% and comparable renewal re-leasing spreads were approximately 7.0% over previous rental rates for the year ended
December 31, 2016.
(c) Includes (i) leases signed on units that were vacant for over 12 months, (ii) leases signed without fixed rental payments and (iii) leases
signed where the previous and the current lease do not have a consistent lease structure.
We anticipate our leasing efforts in 2017 will focus on (i) natural lease expirations, (ii) anchor spaces previously occupied by
bankrupt tenants and (iii) vacant small shop space. In each case, we look to capitalize on the opportunity to mark rents to market,
upgrade our tenancy and ensure the right mix of operators and unique retailers at our properties. Additionally, we continue to
expect new small shop leases to generally be non-comparable in nature as the leased space is likely to have been vacant for longer
than 12 months.
The single-user lease at our one remaining office property expired on November 30, 2016. We continue to focus on leasing the
vacant space at this property and have leased 397,000 square feet of the available 895,000 square feet as of December 31, 2016.
Capital Markets
During the year ended December 31, 2016, we:
•
•
•
•
•
•
•
•
•
issued $100,000 of 10-year 4.08% senior unsecured notes and $100,000 of 12-year 4.24% senior unsecured notes in
private placement transactions pursuant to a note purchase agreement we entered into with certain institutional investors;
closed on a seven-year $200,000 unsecured term loan, which funded on January 3, 2017;
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, consisting of a $750,000 unsecured revolving line of
credit and two unsecured term loans totaling $450,000 (Unsecured Credit Facility);
repaid $14,000, net of borrowings, on our unsecured revolving line of credit;
repurchased 591 shares of our common stock at an average price per share of $14.93 for a total of $8,841, resulting in
$241,159 remaining available under our $250,000 common stock repurchase program;
entered into the following interest rate swaps that terminate on December 31, 2017: (i) $100,000 interest rate swap that
effectively converts one-month floating rate London Interbank Offered Rate (LIBOR) to a fixed rate of 0.6591% and (ii)
$150,000 interest rate swap that effectively converts one-month floating rate LIBOR to a fixed rate of 0.6735%. We
previously had a $300,000 interest rate swap that matured on February 24, 2016;
repaid or defeased mortgages payable totaling $263,548 and made scheduled principal payments of $13,180 related to
amortizing loans. One of the mortgages repaid, with a principal balance of $7,750 at maturity, had been swapped to a
fixed rate and we had guaranteed a portion of the outstanding balance. Upon repayment of the mortgage on its scheduled
maturity date, the interest rate swap expired and our guarantee was extinguished;
disposed of The Gateway through a lender-directed sale in full satisfaction of our $94,353 mortgage obligation; and
assumed a mortgage payable with a principal balance of $15,971 and an interest rate of 3.75% that matures in 2031 in
conjunction with the acquisition of The Shoppes at Union Hill.
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 2016.
29
Table of Contents
Results of Operations
Comparison of Results for the Years Ended December 31, 2016 and 2015
Revenues
Rental income
Tenant recovery income
Other property income
Total revenues
Expenses
Operating expenses
Real estate taxes
Depreciation and amortization
Provision for impairment of investment properties
General and administrative expenses
Total expenses
Operating income
Gain on extinguishment of debt
Gain on extinguishment of other liabilities
Interest expense
Other income, net
Income from continuing 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
Year Ended December 31,
2016
2015
Change
$
$
455,658
118,569
8,916
583,143
85,895
81,774
224,430
20,376
44,522
456,997
126,146
13,653
6,978
(109,730)
63
37,110
129,707
166,817
—
166,817
(9,450)
157,367
$
$
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
$
$
(16,686)
(967)
(3,164)
(20,817)
(8,885)
(1,036)
9,724
439
(6,135)
(5,893)
(14,924)
13,653
6,978
29,208
(1,637)
33,278
7,915
41,193
528
41,721
—
41,721
Net income attributable to common shareholders increased $41,721 from $115,646 for the year ended December 31, 2015 to
$157,367 for the year ended December 31, 2016 primarily as a result of the following:
•
a $29,208 decrease in interest expense primarily consisting of:
•
•
•
•
•
a $21,387 decrease in interest on mortgages payable due to a reduction in mortgage debt; and
a $12,582 decrease in prepayment penalties and defeasance premiums;
partially offset by
a $2,184 increase in interest on our Unsecured Credit Facility primarily due to higher average balances on our
unsecured revolving line of credit and higher LIBOR interest rates;
a $1,944 increase in interest due to a full year of interest expense from our 4.00% senior unsecured notes due 2025
(Notes Due 2025), which were issued in March 2015; and
a $1,020 increase in interest from our 4.08% senior unsecured notes due 2026 (Notes Due 2026), which were issued
in September 2016;
•
a $13,653 gain on extinguishment of debt recognized during the year ended December 31, 2016 associated with the
disposition of The Gateway through a lender-directed sale in full satisfaction of our mortgage obligation. No such gain
was recorded during the year ended December 31, 2015;
30
Table of Contents
•
•
•
•
•
•
•
an $8,954 decrease in operating expenses and real estate taxes, net of tenant recovery income, primarily as a result of the
operating properties sold during 2015 and 2016 or classified as held for sale as of December 31, 2016 and the impact
from our same store portfolio, partially offset by an increase from our one remaining office property;
a $7,915 increase in gain on sales of investment properties related to the sales of 46 investment properties and one single-
user outparcel, representing approximately 3,013,900 square feet of GLA, during the year ended December 31, 2016
compared to the sales of 26 investment properties, representing approximately 3,917,200 square feet of GLA, during the
year ended December 31, 2015;
a $6,978 gain on extinguishment of other liabilities recognized during the year ended December 31, 2016 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 the straight-line ground rent liability associated with
the ground lease; and
a $6,135 decrease in general and administrative expenses primarily consisting of executive and realignment separation
charges of $4,730 incurred during the year ended December 31, 2015, which were not present in 2016, and a $1,521
decrease in executive and employee bonus expense. During 2017, we expect to incur approximately $42,000 to $44,000
of general and administrative expenses;
partially offset by
a $16,686 decrease in rental income primarily consisting of a $16,324 decrease in base rent resulting from the operating
properties sold during 2015 and 2016 or classified as held for sale as of December 31, 2016, along with our redevelopment
properties and our one remaining office property, partially offset by an increase from the operating properties acquired
during 2015 and 2016 and growth from our same store portfolio;
a $9,724 increase in depreciation and amortization primarily attributable to the write-off of assets taken out of service at
two redevelopment properties during the year ended December 31, 2016; and
a $3,164 decrease in other property income primarily as a result of the operating properties sold during 2015 and 2016
or classified as held for sale as of December 31, 2016, along with our same store portfolio and our redevelopment properties,
partially offset by an increase from the operating properties acquired during 2015 and 2016.
Net operating income (NOI)
We define NOI as all revenues other than (i) straight-line rental income, (ii) amortization of lease inducements, (iii) amortization
of acquired above and below market lease intangibles and (iv) lease termination fee income, less real estate taxes and all operating
expenses other than straight-line ground rent expense and amortization of acquired ground lease intangibles, which are non-cash
items. NOI consists of same store NOI (Same Store NOI) and NOI from other investment properties (NOI from Other Investment
Properties). We believe that NOI, Same Store NOI and NOI from Other Investment Properties, which are supplemental non-GAAP
financial measures, provide an additional and useful operating perspective not immediately apparent from “Operating income” or
“Net income attributable to common shareholders” in accordance with accounting principles generally accepted in the United
States (GAAP). We use these measures to evaluate our performance on a property-by-property basis because they allow management
to evaluate the impact that factors such as lease structure, lease rates and tenant base have on our operating results. NOI, Same
Store NOI and NOI from Other Investment Properties do not represent alternatives to “Net income” or “Net income attributable
to common shareholders” in accordance with GAAP as indicators of our financial performance. Comparison of our presentation
of NOI, Same Store NOI and NOI from Other Investment Properties to similarly titled measures for other REITs may not necessarily
be meaningful due to possible differences in definition and application by such REITs. For reference and as an aid in understanding
our computation of NOI, a reconciliation of net income attributable to common shareholders as computed in accordance with
GAAP to Same Store NOI has been presented for each comparable period presented.
31
Table of Contents
Same store portfolio – 2016 and 2015
For the year ended December 31, 2016, our same store portfolio consisted of 140 retail operating properties acquired or placed in
service and stabilized prior to January 1, 2015. The number of properties in our same store portfolio decreased to 140 as of
December 31, 2016 from 180 as of December 31, 2015 as a result of the following:
•
•
•
the removal of 44 same store investment properties sold during the year ended December 31, 2016;
the removal of two same store investment properties classified as held for sale as of December 31, 2016;
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 2016; and
•
the removal of our one remaining office property;
partially offset by
•
the addition of eight investment properties acquired during the year ended December 31, 2014.
The sale of South Billings Center on December 16, 2016 did not impact the number of same store properties as it was a development
property 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 2015 and 2016;
our one remaining office property;
three properties where we have begun redevelopment and/or activities in anticipation of future redevelopment;
properties that were sold or held for sale in 2015 and 2016;
the net income from our wholly-owned captive insurance company; 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 on April 29, 2016.
32
Table of Contents
The following tables present a reconciliation of net income attributable to common shareholders to Same Store NOI and details
of the components of Same Store NOI for the years ended December 31, 2016 and 2015:
Net income attributable to common shareholders
Adjustments to reconcile to Same Store NOI:
Preferred stock dividends
Net income attributable to noncontrolling interest
Gain on sales of investment properties
Depreciation and amortization
Provision for impairment of investment properties
General and administrative expenses
Gain on extinguishment of debt
Gain on extinguishment of other liabilities
Interest 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
Other income, net
NOI
NOI from Other Investment Properties
Same Store NOI
Same Store NOI:
Base rent
Percentage and specialty rent
Tenant recovery income
Other property operating income
Property operating expenses
Bad debt expense
Real estate taxes
Year Ended December 31,
2016
2015
Change
$
157,367
$
115,646
$
41,721
9,450
—
(129,707)
224,430
20,376
44,522
(13,653)
(6,978)
109,730
(4,601)
(2,991)
1,033
(3,339)
3,253
(560)
(63)
408,269
(81,483)
326,786
$
9,450
528
(121,792)
214,706
19,937
50,657
—
—
138,938
(3,498)
(3,621)
847
(3,757)
3,722
(560)
(1,700)
419,503
(103,832)
315,671
Year Ended December 31,
2016
2015
$
355,077
3,626
96,208
3,405
458,316
64,355
31
67,144
131,530
347,806
3,095
94,354
3,527
448,782
65,722
1,179
66,210
133,111
—
(528)
(7,915)
9,724
439
(6,135)
(13,653)
(6,978)
(29,208)
(1,103)
630
186
418
(469)
—
1,637
(11,234)
22,349
11,115
Change
7,271
531
1,854
(122)
9,534
(1,367)
(1,148)
934
(1,581)
$
$
$
$
Same Store NOI
$
326,786
$
315,671
$
11,115
Same Store NOI increased $11,115, or 3.5%, primarily due to the following:
•
•
base rent and percentage and specialty rent increased $7,802 primarily due to an increase of $2,983 from contractual rent
changes, $2,574 from occupancy growth, $2,353 from re-leasing spreads and $531 from percentage and specialty rent,
partially offset by a decrease of $718 from rent abatements; and
property operating expenses, bad debt expense and real estate taxes, net of tenant recovery income, decreased $3,435
primarily as a result of decreases in certain non-recoverable property operating expenses and bad debt expense combined
with lower net recoverable property operating expenses and net real estate taxes resulting from lower than anticipated
expenses and the receipt of real estate tax refunds.
33
Table of Contents
Comparison of Results for the Years Ended December 31, 2015 to 2014
Revenues
Rental income
Tenant recovery income
Other property income
Total revenues
Expenses
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 change in control of investment properties
Interest expense
Other income, net
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
Year Ended December 31,
2015
2014
Change
$
$
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
$
$
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
$
$
(2,340)
3,817
1,869
3,346
(2,018)
4,037
(1,260)
(52,266)
16,428
(35,079)
38,425
(4,258)
2,088
(24,158)
(5,103)
(3,759)
3,235
148
(655)
(507)
79,596
82,324
(528)
81,796
—
81,796
Net income attributable to common shareholders increased $81,796 from $33,850 for the year ended December 31, 2014 to $115,646
for the year ended December 31, 2015 primarily as a result of the following:
•
•
•
a $79,596 increase in gain on sales of investment properties related to the sales of 26 investment properties, representing
approximately 3,917,200 square feet of GLA, during the year ended December 31, 2015 compared to the sales of 23
investment properties and one single-user outparcel, representing approximately 2,459,700 square feet of GLA, during
the year ended December 31, 2014; and
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;
34
Table of Contents
•
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.
Same store portfolio – 2015 and 2014
For the year ended December 31, 2015, our same store portfolio consisted of 180 retail operating properties acquired or placed in
service and stabilized prior to January 1, 2014.
The following tables present a reconciliation of net income attributable to common shareholders to Same Store NOI and details
of the components of Same Store NOI for the years ended December 31, 2015 and 2014:
Year Ended December 31,
2015
2014
Change
$
115,646
$
33,850
$
81,796
9,450
528
—
(121,792)
214,706
19,937
50,657
—
—
—
138,938
(3,498)
(3,621)
847
(3,757)
3,722
(560)
(1,700)
419,503
(73,003)
346,500
$
9,450
—
(507)
(42,196)
215,966
72,203
34,229
(4,258)
2,088
(24,158)
133,835
(4,781)
(2,076)
707
(2,667)
3,889
(560)
(5,459)
419,555
(82,921)
336,634
$
—
528
507
(79,596)
(1,260)
(52,266)
16,428
4,258
(2,088)
24,158
5,103
1,283
(1,545)
140
(1,090)
(167)
—
3,759
(52)
9,918
9,866
Net income attributable to common shareholders
Adjustments to reconcile to Same Store NOI:
Preferred stock dividends
Net income attributable to noncontrolling interest
Income from discontinued operations
Gain on sales of investment properties
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
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
Other income, net
NOI
NOI from Other Investment Properties
Same Store NOI
$
35
Table of Contents
Same Store NOI:
Base rent
Percentage and specialty rent
Tenant recovery income
Other property operating income
Property operating expenses
Bad debt expense
Real estate taxes
Year Ended December 31,
2015
2014
Change
$
$
382,171
3,331
95,574
4,051
485,127
70,646
1,158
66,823
138,627
$
374,758
3,443
94,054
3,475
475,730
74,229
534
64,333
139,096
7,413
(112)
1,520
576
9,397
(3,583)
624
2,490
(469)
Same Store NOI
$
346,500
$
336,634
$
9,866
Same store NOI increased $9,866, or 2.9%, primarily due to the following:
•
•
base rent and percentage and specialty rent increased $7,301 primarily due to an increase 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.
Funds From Operations Attributable to Common Shareholders
The National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a financial
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. 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.
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 real estate operating portfolio, which is our core business platform. 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, impairment charges to write down the carrying value of assets other than depreciable
real estate, actual or anticipated settlement of litigation involving the Company and executive and realignment separation charges,
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
supplemental non-GAAP financial measures, provide additional and useful means to assess the operating performance of REITs.
FFO attributable to common shareholders and Operating FFO attributable to common shareholders do not represent alternatives
to (i) “Net income” or “Net income attributable to common shareholders” as indicators of our financial performance, or (ii) “Cash
flows from operating activities” in accordance with GAAP as measures of our capacity to fund cash needs, including the payment
of dividends. Comparison of our presentation of Operating FFO attributable to common shareholders to similarly titled measures
for other REITs may not necessarily be meaningful due to possible differences in definition and application by such REITs.
36
Table of Contents
The following table presents a reconciliation of net income attributable to common shareholders to FFO attributable to common
shareholders and Operating FFO attributable to common shareholders:
Net income attributable to common shareholders
Depreciation and amortization of depreciable real estate
Provision for impairment of investment properties
Gain on sales of depreciable investment properties, net of noncontrolling interest (a)
FFO attributable to common shareholders
FFO attributable to common shareholders per common share outstanding
FFO attributable to common shareholders
Impact on earnings from the early extinguishment of debt, net
Provision for hedge ineffectiveness
Provision for impairment of non-depreciable investment property
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
Operating FFO attributable to common shareholders per common share outstanding
Year Ended December 31,
2015
2014
2016
$
$
$
$
$
$
157,367
223,018
17,369
(129,707)
268,047
1.13
268,047
(7,028)
(21)
3,007
—
(6,978)
—
132
257,159
1.09
$
$
$
$
$
$
115,646
213,602
19,937
(121,264)
227,921
0.96
227,921
18,864
(25)
—
—
—
4,730
(224)
251,266
1.06
$
$
$
$
$
$
33,850
216,676
72,203
(67,009)
255,720
1.08
255,720
10,479
12
—
(4,594)
(4,258)
—
(199)
257,160
1.09
(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.
(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 debt agreements.
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, certain of which are not
recoverable through common area maintenance charges to tenants
Acquisitions
Debt repayments and defeasances
Distribution payments
Redevelopment, renovation or expansion activities
New development
Repurchases of our common stock
Redemption of our preferred stock
We have made substantial progress over the last several years in strengthening our balance sheet, as demonstrated by our reduced
leverage, increased liquidity and higher unencumbered asset ratio. Debt maturities have been 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, 2016, we had $35,023 of debt scheduled to mature through the
37
Table of Contents
end of 2017, comprised of $25,054 related to mortgages payable maturing in 2017 and $9,969 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, 2016:
Debt
Aggregate
Principal
Amount
Weighted
Average
Interest Rate
Fixed rate mortgages payable (a)
$
773,395
6.31%
Unsecured notes payable:
Senior notes – 4.12% due 2021
Senior notes – 4.58% due 2024
Senior notes – 4.00% due 2025
Senior notes – 4.08% due 2026
Senior notes – 4.24% due 2028
Total unsecured notes payable (a)
Unsecured credit facility:
Term loan – fixed rate (b)
Term loan – variable rate (c)
Revolving line of credit – variable rate (c)
Total unsecured credit facility (a)
100,000
150,000
250,000
100,000
100,000
700,000
250,000
200,000
86,000
536,000
Total consolidated indebtedness (d)
$
2,009,395
4.12%
4.58%
4.00%
4.08%
4.24%
4.19%
1.97%
2.22%
2.12%
2.09%
4.44%
Maturity Date
Various
June 30, 2021
June 30, 2024
March 15, 2025
September 30, 2026
December 28, 2028
January 5, 2021
May 11, 2018 (c)
January 5, 2020 (c)
Weighted
Average Years
to Maturity
4.2 years
4.5 years
7.5 years
8.2 years
9.8 years
12.0 years
8.3 years
4.0 years
1.4 years
3.0 years
2.9 years
5.3 years
(a) Fixed rate mortgages payable excludes mortgage premium of $1,437, discount of $(622) and capitalized loan fees of $(5,026), net of
accumulated amortization, as of December 31, 2016. Unsecured notes payable excludes discount of $(971) and capitalized loan fees of
$(3,886), net of accumulated amortization, as of December 31, 2016. Term loans exclude capitalized loan fees of $(2,402), net of accumulated
amortization, as of December 31, 2016. Capitalized loan fees related to the revolving line of credit are included in “Other assets, net” in
the accompanying consolidated balance sheets.
(b) Reflects $250,000 of LIBOR-based variable rate debt that has been swapped to a weighted average fixed rate of 0.6677% plus a credit
spread based on a leverage grid ranging from 1.30% to 2.20% through December 31, 2017. The applicable credit spread was 1.30% as of
December 31, 2016.
(c) We have two one year extension options on the term loan due 2018 and two six-month extension options on the revolving line of credit,
which we may exercise as long as we are in compliance with the terms of the unsecured credit agreement and we pay an extension fee equal
to 0.15% for the term loan and 0.075% of the commitment amount being extended for the revolving line of credit.
(d) Excludes the $200,000 unsecured term loan due 2023 (Term Loan Due 2023), which closed during the year ended December 31, 2016 and
funded on January 3, 2017. Refer below for further discussion of the terms of the Term Loan Due 2023.
Mortgages Payable
During the year ended December 31, 2016, we repaid or defeased mortgages payable in the total amount of $263,548 which had
a weighted average fixed interest rate of 5.09% and made scheduled principal payments of $13,180 related to amortizing loans.
One of the mortgages repaid, with a principal balance of $7,750 at maturity, had been swapped to a fixed rate and we had guaranteed
a portion of the outstanding balance. Upon repayment of the mortgage on its scheduled maturity date, the interest rate swap expired
and our guarantee was extinguished. In addition, during the year ended December 31, 2016, we disposed of The Gateway through
a lender-directed sale in full satisfaction of our $94,353 mortgage obligation, which had a fixed interest rate of 6.57%. 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. Along with the loan reduction, the lender received the balance of the restricted escrows that they held and the rights
to unpaid accounts receivable and forgave accrued interest, resulting in a net gain on extinguishment of debt of $13,653. We also
assumed a mortgage payable with a principal balance of $15,971 and an interest rate of 3.75% that matures in 2031 in conjunction
with the acquisition of The Shoppes at Union Hill.
Subsequent to December 31, 2016, we defeased a portfolio of 45 cross-collateralized mortgages payable (known as the IW JV
portfolio of mortgages payable), which had an outstanding principal balance of $379,435, an interest rate of 7.50% and were
scheduled to mature in 2019, and incurred a defeasance premium of $60,198. As a result, the 45 properties that secured the mortgages
payable as of December 31, 2016 are no longer encumbered by mortgages.
38
Table of Contents
Unsecured Notes Payable
Notes Due 2026 and 2028
On September 30, 2016, we issued $100,000 of 10-year 4.08% senior unsecured notes due 2026 in a private placement transaction
pursuant to a note purchase agreement we entered into with certain institutional investors on September 30, 2016. Pursuant to the
same note purchase agreement, on December 28, 2016, we also issued $100,000 of 12-year 4.24% senior unsecured notes (Notes
Due 2026 and 2028). The proceeds were used to pay down our unsecured revolving line of credit, early repay certain longer-dated
mortgages payable and for general corporate purposes.
The note purchase agreement governing the Notes Due 2026 and 2028 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,
including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii)
a minimum interest coverage ratio; (iii) a fixed charge coverage ratio (as set forth in our unsecured credit facility); and (iv) an
unencumbered interest coverage ratio (as set forth in our unsecured credit facility and the note purchase agreement governing the
Notes Due 2021 and 2024).
Notes Due 2025
On March 12, 2015, we completed a public offering of $250,000 in aggregate principal amount of the Notes Due 2025. The Notes
Due 2025 were priced at 99.526% of the principal amount to yield 4.058% to maturity. The proceeds were used to repay a portion
of our unsecured revolving line of credit.
The indenture, as supplemented, governing the Notes Due 2025 (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.
Notes Due 2021 and 2024
On June 30, 2014, we completed a private placement of $250,000 of unsecured notes, consisting of $100,000 of 4.12% senior
unsecured notes due 2021 and $150,000 of 4.58% senior unsecured notes due 2024 (Notes Due 2021 and 2024). The proceeds
were used to repay a portion of our unsecured revolving line of credit.
The note purchase agreement governing the Notes Due 2021 and 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, 2016, management believes we were in compliance with the financial covenants under the Indenture and the
note purchase agreements.
Unsecured Term Loans and Revolving Line of Credit
Unsecured Credit Facility
On January 6, 2016, 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 (Unsecured Credit Facility). Our
Unsecured Credit Facility consists of a $750,000 unsecured revolving line of credit, a $250,000 unsecured term loan and a $200,000
unsecured term loan and is 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. In accordance with the unsecured credit agreement, we may elect to convert to an
investment grade pricing grid. As of December 31, 2016, making such an election would have resulted in a higher interest rate
and, as such, we have not made the election to convert to an investment grade pricing grid.
39
Table of Contents
The following table summarizes the key terms of our Unsecured Credit Facility:
Unsecured Credit Facility
$250,000 unsecured term loan
$200,000 unsecured term loan
Maturity
Date
1/5/2021
Extension
Option
Extension
Fee
Credit
Spread
Unused Fee
Credit
Spread
Facility Fee
Leverage-Based Pricing
Ratings-Based Pricing
N/A
N/A
1.30% - 2.20%
5/11/2018
2 one year
0.15%
1.45% - 2.20%
N/A
N/A
0.90% - 1.75%
1.05% - 2.05%
N/A
N/A
$750,000 unsecured revolving line of credit
1/5/2020
2 six month
0.075%
1.35% - 2.25% 0.15% - 0.25% 0.85% - 1.55% 0.125% - 0.30%
Our 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 (Unsecured Credit Agreement) contains customary representations,
warranties and covenants, and events of default. Pursuant to the terms of the Unsecured Credit Agreement, we are subject to various
financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated
leverage ratios; and (ii) minimum fixed charge and unencumbered interest coverage ratios. As of December 31, 2016, management
believes we were in compliance with the financial covenants and default provisions under the Unsecured Credit Agreement.
As of December 31, 2016, we had letter(s) of credit outstanding totaling $12,296 which serve as collateral for certain capital
improvements and performance obligations on certain redevelopment projects, which will be satisfied upon completion of the
projects, and reduced the available borrowings on our unsecured revolving line of credit.
Term Loan Due 2023
On November 22, 2016, we closed on a seven-year $200,000 unsecured term loan with a group of financial institutions, which
funded on January 3, 2017. The Term Loan Due 2023 is priced on a leverage grid at a rate of LIBOR plus a credit spread ranging
from 1.70% to 2.55%. In accordance with the term loan agreement (Term Loan Agreement), we may elect to convert to an investment
grade pricing grid. As of December 31, 2016, making such an election would have resulted in a higher interest rate and, as such,
we have not made the election to convert to an investment grade pricing grid. The Term Loan Due 2023 matures on November
22, 2023 and has a $100,000 accordion option that allows us, at our election, to increase the total unsecured term loan up to
$300,000, subject to customary fees and conditions, including the absence of an event of default as defined in the Term Loan
Agreement.
The Term Loan Agreement contains customary representations, warranties and covenants, and events of default, including financial
covenants that require us to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; and
(ii) minimum fixed charge and unencumbered interest coverage ratios. As of December 31, 2016, management believes we were
in compliance with the financial covenants and default provisions under the Term Loan Agreement.
In addition, subsequent to December 31, 2016, we entered into two agreements to swap a total of $200,000 of LIBOR-based
variable rate debt to a fixed rate of 1.2628% plus the relevant credit spread through November 22, 2018.
40
Table of Contents
Debt Maturities
The following table shows the scheduled maturities and principal amortization of our indebtedness as of December 31, 2016 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, 2016. The table does not reflect the impact of any 2017 debt activity, such as the defeasance of the IW JV
portfolio of mortgages payable or the funding of the Term Loan Due 2023 on January 3, 2017.
2017
2018
2019
2020
2021
Thereafter
Total
Fair Value
Debt:
Fixed rate debt:
Mortgages payable (a)
Fixed rate term loan (b)
Unsecured notes payable (c)
Total fixed rate debt
35,023
11,463
433,982
4,334
$ 35,023
$ 11,463
$ 433,982
$
4,334
$ 23,249
$ 265,344
$ 773,395
$
833,210
—
—
—
—
—
—
—
—
250,000
100,000
373,249
—
600,000
865,344
250,000
700,000
250,000
679,212
1,723,395
1,762,422
Variable rate debt:
Variable rate term loan and
revolving line of credit
—
200,000
—
86,000
—
—
286,000
286,551
Total debt (d)
$ 35,023
$ 211,463
$ 433,982
$ 90,334
$ 373,249
$ 865,344
$2,009,395
$ 2,048,973
Weighted average interest rate on debt:
Fixed rate debt
Variable rate debt (e)
Total
4.83%
—
4.83%
6.51%
2.22%
2.45%
7.49%
—
7.49%
4.58%
2.12%
2.24%
2.73%
—
2.73%
4.36%
—
4.36%
4.82%
2.19%
4.44%
(a) Excludes mortgage premium of $1,437 and discount of $(622), net of accumulated amortization, as of December 31, 2016.
(b) $250,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through two interest rate swaps. The swaps effectively convert
one-month floating rate LIBOR to a weighted average fixed rate of 0.6677% through December 31, 2017.
(c) Excludes discount of $(971), net of accumulated amortization, as of December 31, 2016.
(d) The weighted average years to maturity of consolidated indebtedness was 5.3 years as of December 31, 2016. Total debt excludes capitalized
loan fees of $(11,314), net of accumulated amortization, as of December 31, 2016, which are included as a reduction to the respective debt
balances, and the Term Loan Due 2023, which funded on January 3, 2017. The $39,578 difference between total debt outstanding and its
fair value is primarily attributable to a $45,120 difference related to the IW JV portfolio of mortgages payable. These mortgages were
scheduled to mature in 2019 and had an interest rate of 7.50% and an outstanding principal balance of $379,435 as of December 31, 2016.
Subsequent to December 31, 2016, we defeased the IW JV portfolio of mortgages payable. As a result, the 45 properties that secured the
mortgages payable as of December 31, 2016 are no longer encumbered by mortgages.
(e) Represents interest rates as of December 31, 2016.
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.
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
to 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 and potential future share repurchases, (iv) the market
of available acquisitions of new properties and redevelopment, expansions and pad development opportunities, (v) the timing of
significant re-leasing activities and the establishment of additional cash reserves for anticipated tenant allowances and general
property capital improvements, (vi) our ability to continue to access additional sources of capital, (vii) the amount required to be
41
Table of Contents
distributed to maintain our status as a REIT, which is a requirement of our unsecured credit agreement, and to avoid or minimize
any income and excise taxes that we otherwise would be required to pay and (viii) 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. 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. 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 entered into 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. We did not sell any shares under our ATM equity program during the
years ended December 31, 2016 and 2015. As of December 31, 2016, 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 and are canceled upon repurchase. 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. We did not repurchase any shares during the year ended
December 31, 2015. During the year ended December 31, 2016, we repurchased 591 shares at an average price per share of $14.93
for a total of $8,841. As of December 31, 2016, $241,159 remained available under the repurchase program.
Capital Expenditures and Redevelopment Activity
We anticipate that obligations related to capital improvements, including expansions and pad developments, at our operating
properties in 2017 can be met with cash flows from operations, asset dispositions and working capital.
We began redevelopment at Reisterstown Road Plaza and Towson Circle in 2016 and have three active expansions and pad
developments. We have invested a total of approximately $12,357 in these projects, which are at various stages of completion,
and based on our current plans and estimates, we anticipate that to complete these projects, it will require an additional $40,700
to $43,700, net of proceeds from land sales, reimbursement from third parties and contributions from project partners, as applicable.
We anticipate funding the redevelopments, expansions and pad developments with cash flows from operations, asset dispositions,
working capital and proceeds from our unsecured revolving line of credit.
Dispositions
We continue to execute our portfolio repositioning strategy of disposing of select non-target and single-user properties. The
following table highlights our property dispositions during 2016, 2015 and 2014:
2016 Dispositions
2015 Dispositions
2014 Dispositions
Number of
Properties Sold
46
26
24
Square
Footage
3,013,900
3,917,200
2,490,100
Consideration
540,362
$
516,444
$
322,989
$
Aggregate
Proceeds, Net (a)
448,216
$
505,524
$
314,377
$
Debt
Extinguished
$
$
$
94,353 (b) (c)
25,724 (c)
9,713 (c)
(a) Represents total consideration net of transaction costs. 2016 dispositions include the disposition of one development property, which was
not under active development. 2015 dispositions include the disposition of two development properties, one of which had been held in a
consolidated joint venture.
(b) Represents The Gateway’s outstanding mortgage payable prior to the lender-directed sale of the property. 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. Along with the loan
reduction, the lender received the balance of the restricted escrows that they held and the rights to unpaid accounts receivable and forgave
accrued interest, resulting in a net gain on extinguishment of debt of $13,653.
(c) Excludes $10,695, $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, 2016, 2015 and 2014, respectively.
42
Table of Contents
In addition to the transactions presented in the preceding table, we received net proceeds of $2,549, $300 and $1,023 from other
transactions, including condemnation awards and the sale of parcels at certain of our properties during the years ended December 31,
2016, 2015 and 2014, respectively.
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 2016, 2015 and 2014:
2016 Acquisitions (b)
2015 Acquisitions (c)
2014 Acquisitions (d)
Number of
Assets Acquired
9
11
11
Square
Footage
1,102,300
1,179,800
1,339,400
Acquisition
Price
Pro Rata
Acquisition
Price (a)
Mortgage
Debt
$
$
$
408,308
463,136
348,061
$
$
$
408,308
463,136
289,561
$
$
$
15,971
$
— $
$
141,698
Pro Rata
Mortgage
Debt (a)
15,971
—
113,358
(a) Includes amounts associated with the 2014 acquisition of our partner’s 80% ownership interest in our MS Inland unconsolidated joint
venture, as well as acquisitions from unaffiliated third parties.
(b) 2016 acquisitions include the purchase of the following: 1) the fee interest in our Ashland & Roosevelt multi-tenant retail operating property
that was previously subject to a ground lease with a third party, and 2) the anchor space improvements at our Woodinville Plaza multi-tenant
retail operating property that was previously subject to a ground lease with us. The total number of properties in our portfolio was not
affected by these transactions.
(c) 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.
(d) 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.
Summary of Cash Flows
Cash provided by operating activities
Cash provided by investing activities
Cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, at beginning of year
Cash and cash equivalents, at end of year
Cash Flows from Operating Activities
Year Ended December 31,
2015
Change
2016
$
$
263,748
17,537
(279,590)
1,695
51,424
53,119
$
$
$
265,813
25,288
(351,969)
(60,868)
112,292
51,424
(2,065)
(7,751)
72,379
62,563
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 and change in control of investment properties, and (iv) gains on extinguishment of debt and other liabilities. Net cash
provided by operating activities in 2016 decreased $2,065 primarily due to the following:
•
•
•
an $11,234 decrease in NOI, consisting of a decrease in NOI from properties that were sold or held for sale in 2015 and
2016 and other properties not included in our same store portfolio of $22,349, partially offset by an increase in Same
Store NOI of $11,115;
a $5,427 increase in cash bonuses paid; and
a $1,456 increase in cash paid for leasing fees and inducements;
partially offset by
43
Table of Contents
•
•
a $13,460 reduction in cash paid for interest; and
ordinary course fluctuations in working capital accounts;
Cash Flows from Investing Activities
Cash flows from investing activities consist primarily of proceeds from the sales of investment properties, net of cash paid to
purchase investment properties and fund capital expenditures, tenant improvements and developments in progress, in addition to
changes in restricted escrows. Net cash provided by investing activities in 2016 decreased $7,751 primarily due to the following:
•
•
a $55,059 decrease in proceeds from the sales of investment properties; and
a $21,950 net change in restricted escrow activity, of which $16,950 relates to acquisition deposits;
partially offset by
•
a $72,649 decrease in cash paid to purchase investment properties.
We will continue to execute our investment strategy by pursuing targeted dispositions. The majority of the proceeds from disposition
activity in 2017 is expected to be used to acquire high quality, multi-tenant retail assets within our target markets, fund
redevelopment, expansion and pad development activities, repay debt, potentially repurchase our common stock or redeem our
preferred stock. In addition, tenant improvement costs associated with re-leasing vacant space may continue to be significant.
Cash Flows from Financing Activities
Cash flows from financing activities primarily consist of proceeds from our Unsecured Credit Facility and the issuance of debt
instruments, partially offset by 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. Net cash
used in financing activities in 2016 decreased $72,379 primarily due to the following:
•
•
•
•
•
•
a $175,457 decrease in principal payments on mortgages payable; and
a $75,005 decrease in the purchase of U.S. Treasury securities in connection with defeasance of mortgages payable;
partially offset by
a $114,000 decrease in net proceeds from our Unsecured Credit Facility;
a $48,815 decrease in proceeds from the issuance of unsecured notes related to a $200,000 private placement transaction
in 2016 and a $248,815 underwritten public offering in 2015;
$8,841 paid in 2016 to repurchase common shares through our share repurchase program; and
a $6,513 increase in the payment of loan fees and deposits.
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 following table presents our obligations and commitments to make future payments under our debt obligations and lease
agreements as of December 31, 2016 and excludes the following:
•
the impact of any 2017 debt activity, such as the defeasance of the IW JV portfolio of mortgages payable and the Term
Loan Due 2023, which closed during the year ended December 31, 2016 and funded on January 3, 2017;
•
recorded debt premiums, discounts and capitalized loan fees, which are not obligations;
44
Table of Contents
•
•
obligations related to development, redevelopment, expansions and pad site developments, as payments are only due
upon satisfactory performance under the contracts; and
letters of credit totaling $12,296 which serve as collateral for certain capital improvements and performance obligations
on certain redevelopment projects, which will be satisfied upon completion of the projects.
Long-term debt (a):
Fixed rate
Variable rate
Interest (d)
Operating lease obligations (e)
Less than
1 year (b)
1-3
years
3-5
years (c)
More than
5 years
Total
Payment due by period
$
$
35,023
—
89,595
7,853
132,471
$
$
445,445
200,000
165,684
15,999
827,128
$
$
377,583
86,000
88,913
16,843
569,339
$
$
865,344
—
112,753
376,939
1,355,036
$
$
1,723,395
286,000
456,945
417,634
2,883,974
(a) 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, 2016.
(b) We plan on addressing our 2017 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 $250,000 of LIBOR-based variable rate debt that has been swapped to a fixed rate through two interest rate
swaps through December 2017.
(d) Represents expected interest payments on our consolidated debt obligations as of December 31, 2016, including any capitalized interest.
(e) We lease land under non-cancellable leases at certain of our properties expiring in various years from 2028 to 2087, 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 2017 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.
Acquisition of Investment Property
We allocate the purchase price of each acquired investment property accounted for as a business combination based upon the
estimated acquisition date fair value of the individual assets acquired and liabilities assumed, which generally include (i) land, (ii)
building and other improvements, (iii) in-place lease value intangibles, (iv) acquired above and below market lease intangibles,
(v) any assumed financing that is determined to be above or below market, (vi) the value of customer relationships and (vii)
goodwill, if any. Transaction costs related to acquisitions accounted for as business combinations are expensed as incurred and
45
Table of Contents
included within “General and administrative expenses” in the accompanying consolidated statements of operations and other
comprehensive income.
We elected to early adopt ASU 2017-01, Business Combinations, on a prospective basis as of October 1, 2016. This new guidance
clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not
considered a business and, thus, accounted for as an asset acquisition as opposed to a business combination. Refer to the “Recently
Adopted Accounting Pronouncements” section within Item 7. “Management’s Discussion and Analysis of Financial Condition
and Results of Operations”. Under this new guidance, we expect most acquisitions of investment property will meet this screen
and, thus, be accounted for as asset acquisitions. We allocate the purchase price of each acquired investment property that is
accounted for as an asset acquisition based upon the relative fair value of the individual assets acquired and liabilities assumed,
which generally include (i) land, (ii) building and other improvements, (iii) in-place lease value intangibles, (iv) acquired above
and below market lease intangibles, (v) any assumed financing that is determined to be above or below market and (vi) the value
of customer relationships. Asset acquisitions do not give rise to goodwill and the related transaction costs are capitalized and
included with the allocated purchase price.
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. Fair value estimates used in acquisition accounting, 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. For
acquisitions accounted for as business combinations, if, up to one year from the acquisition date, information regarding fair value
of the assets acquired and liabilities assumed is received and estimates are refined, appropriate adjustments are made to the purchase
price allocation on a prospective basis.
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
46
Table of Contents
value of an impaired investment property, we make certain complex or subjective assumptions which include, but are not limited
to:
•
•
•
•
•
•
•
projected operating cash flows considering factors such as vacancy rates, rental rates, lease terms, tenant financial strength,
competitive positioning and property location;
estimated holding period or various potential holding periods when considering probability-weighted scenarios;
projected capital expenditures and lease origination costs;
estimated 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, 2016 and 2015. When we do 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,
including internal salaries and related benefits of personnel directly involved in the upgrade or improvement. These costs are
included in the investment properties financial statement caption as an addition to building and other improvements. We capitalized
$1,152, $0 and $0 of internal salaries and related benefits of personnel directly involved in capital upgrades and tenant improvements
during the years ended December 31, 2016, 2015 and 2014, respectively. In addition, we capitalized $423, $474 and $0 of internal
leasing incentives, all of which were incremental to signed leases, during the years ended December 31, 2016, 2015 and 2014,
respectively.
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
Development and redevelopment projects are classified as developments in progress on the accompanying consolidated balance
sheets and include (i) land held for future development, (ii) ground-up developments and (iii) redevelopment properties undergoing
significant renovations and improvements. 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
47
Table of Contents
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.
We capitalized $302 of indirect project costs, which includes $44 of internal salaries and related benefits of personnel directly
involved in the redevelopment projects and $69 of interest, related to redevelopment projects during the year ended December 31,
2016. No costs were capitalized during the years ended December 31, 2015 and 2014.
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
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.
Partially-Owned Entities
We consolidate partially-owned entities if they are VIEs in accordance with the Consolidation Topic of the FASB Accounting
Standards Codification (ASC) and we are considered the primary beneficiary, we have voting control, the limited partners (or non-
managing members) do not have substantive participatory rights, or other conditions exist that indicate that we have control.
Management uses its judgment when determining if we are the primary beneficiary of, or have a controlling financial interest in,
an entity in which we have a variable interest, to determine whether we have the power to direct the activities that most significantly
impact the entity’s economic performance and if we have significant economic exposure to the risk and rewards of ownership. We
assess our interests in VIEs on an ongoing basis to determine if the entity should be consolidated.
We did not have any VIEs as of December 31, 2016 and 2015. During the year ended December 31, 2016, we acquired three
properties through consolidated VIEs in connection with 1031 Exchanges. We loaned $65,419, $39,215 and $23,522 to the VIEs
to acquire Oak Brook Promenade, Tacoma South and Eastside, respectively. Each 1031 Exchange was completed during the year
ended December 31, 2016 and, accordingly, no agreements remained outstanding related to 1031 Exchanges as of December 31,
2016. At the completion of the 1031 Exchanges, the sole membership interests of the VIEs were assigned to us and the respective
outstanding loans were extinguished, resulting in the entities being wholly owned by us and no longer considered VIEs.
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
48
Table of Contents
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.
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.
49
Table of Contents
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
Recently Adopted Accounting Pronouncements
Effective January 1, 2016, we adopted Accounting Standards Update (ASU) 2015-02, Consolidation, which revised the
consolidation guidance for all entities. This new guidance 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
and affects the consolidation analysis of reporting entities that are involved with VIEs. The adoption of this pronouncement under
the modified retrospective method did not have any effect on our consolidated financial statements as we did not have any VIEs
at adoption on January 1, 2016; however, during the year ended December 31, 2016, we acquired three properties through
consolidated VIEs in connection with 1031 Exchanges and, accordingly, applied the revised consolidation guidance. See Note 3
to the consolidated financial statements for further details.
Effective January 1, 2016, we adopted ASU 2015-16, Business Combinations, which requires the acquirer in a business combination
to recognize in the period any adjustments to provisional amounts that are identified during the measurement period rather than
retrospectively accounting for those adjustments. The adoption of this pronouncement did not have any effect on our consolidated
financial statements.
We elected to early adopt ASU 2014-15, Presentation of Financial Statements – Going Concern, on January 1, 2016. This new
guidance requires a company’s management to assess the entity’s ability to continue as a going concern 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 did not have
any effect on our consolidated financial statements.
We elected to early adopt ASU 2016-09, Compensation – Stock Compensation, on January 1, 2016. This new guidance allowed
us to make an accounting policy election to account for share-based payment award forfeitures when they occur, which required
a modified retrospective transition by means of a cumulative-effect adjustment to equity as of the beginning of the period of
adoption and resulted in an adjustment of $17 to additional paid-in capital and accumulated distributions in excess of earnings as
of January 1, 2016.
We elected to early adopt ASU 2017-01, Business Combinations, on a prospective basis as of October 1, 2016. This new guidance
clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not
considered a business and, thus, accounted for as an asset acquisition as opposed to a business combination. The screen requires
that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable
asset or a group of similar identifiable assets, the set is not considered a business. Under this new guidance, we expect most
acquisitions of investment property will meet the screen and, thus, be accounted for as asset acquisitions. Consistent with existing
guidance, transaction costs associated with asset acquisitions are capitalized while transaction costs associated with business
combinations are expensed as incurred. The adoption of this pronouncement resulted in our acquisition of investment properties
subsequent to October 1, 2016 to qualify as asset acquisitions and as such, the related transactions costs of $725 were capitalized.
Other Recently Issued Accounting Pronouncements
In May 2014 with subsequent updates issued in August 2015 and March, April, May and December 2016, the Financial Accounting
Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers. This new guidance is effective January
1, 2018, with early adoption permitted beginning January 1, 2017, and will replace existing revenue recognition standards. The
sale of investment property and any non-lease components contained within lease agreements will be required to follow the new
guidance; however, lease components of lease contracts will be excluded from this guidance. 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. While we anticipate additional disclosure, 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.
50
Table of Contents
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall. This new guidance is effective January 1, 2018
and will require companies to disclose the fair value of financial assets and financial liabilities measured at amortized cost in
accordance with the exit price notion and will no longer require disclosure of the methods and significant assumptions used,
including any changes, to estimate fair value. In addition, companies will be required to disclose all financial assets and financial
liabilities grouped by 1) measurement category and 2) form of financial instrument. 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.
In February 2016, the FASB issued ASU 2016-02, Leases. This new guidance is effective January 1, 2019, with early adoption
permitted, and will require lessees to recognize a liability to make lease payments and a right-of-use asset, initially measured at
the present value of lease payments, for both operating and financing leases. For leases with a term of 12 months or less, lessees
will be permitted to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease
assets. Under this new pronouncement, lessor accounting will be largely unchanged from existing GAAP. The pronouncement
requires a modified retrospective method of adoption, with some optional practical expedients. Upon adoption, we will recognize
a lease liability and a right-of-use asset for operating leases where we are the lessee, such as ground leases and office and equipment
leases. We will continue to evaluate the impact of this guidance until it becomes effective.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses. This new guidance is effective January 1,
2020, with early adoption permitted beginning January 1, 2019, and replaces the current incurred loss impairment methodology
with a methodology that reflects expected credit losses. Financial assets that are measured at amortized cost will be required to be
presented at the net amount expected to be collected with an allowance for credit losses deducted from the amortized cost basis.
In addition, an entity must consider broader information in developing its expected credit loss estimate, including the use of
forecasted information. Generally, the pronouncement requires a modified retrospective method of adoption. We will continue to
evaluate the impact of this guidance until it becomes effective.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows. This new guidance is effective January 1, 2018, with
early adoption permitted, and adds or clarifies guidance on the classification of certain cash receipts and payments in the statement
of cash flows. Of the eight types of cash flows discussed in the new guidance, the classification of debt prepayment costs as a
financing outflow will impact our consolidated statements of cash flows as this item is currently reflected as an operating outflow.
The pronouncement requires a retrospective transition method of adoption. We will continue to evaluate the impact of this guidance
until it becomes effective.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows. This new guidance is effective January 1, 2018,
with early adoption permitted, and requires amounts that are generally described as restricted cash and restricted cash equivalents
to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. The pronouncement requires a retrospective transition method of adoption. Upon adoption, we
will include amounts generally described as restricted cash within the beginning-of-period, change and end-of-period total amounts
on the statement of cash flows rather than within an activity on the statement of cash flows.
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, 2016, we:
•
defeased the IW JV portfolio of mortgages payable, which had an outstanding principal balance of $379,435 and an
interest rate of 7.50%, and incurred a defeasance premium of $60,198. See Note 7 to the accompanying consolidated
financial statements for further details;
51
Table of Contents
•
•
•
•
•
•
•
•
received funding in the amount of $200,000 on the Term Loan Due 2023. See Note 9 to the accompanying consolidated
financial statements for further details;
entered into two agreements to swap a total of $200,000 of LIBOR-based variable rate debt to a fixed interest rate of
1.2628% through November 22, 2018;
closed on the acquisition of Main Street Promenade, a 181,600 square foot multi-tenant retail property located in Naperville,
Illinois, for a gross purchase price of $88,000 through a consolidated VIE to facilitate a potential 1031 Exchange;
closed on the disposition of Rite Aid Store (Eckerd), Culver Rd., a 10,900 square foot single-user retail operating property
located in Rochester, New York, for a sales price of $500 with no anticipated gain on sale or additional impairment due
to previously recognized impairment charges;
granted 88 restricted shares at a grant date fair value of $15.34 per share and 253 RSUs at a grant date fair value of $15.52
per RSU to our executives in conjunction with our long-term equity compensation plan. The restricted shares will vest
over three years and the RSUs granted are subject to a three-year performance period. Refer to Note 5 to the accompanying
consolidated financial statements for additional details regarding the terms of the RSUs;
closed on a transaction whereby we received the fee interest in approximately 50 acres of land at Boulevard at the Capital
Centre, an existing wholly-owned multi-tenant retail operating property located in Largo, Maryland. The property was
previously subject to a ground lease with a third party for approximately 70 acres. In conjunction with this transaction,
we paid consideration of $1,939 and agreed to shorten the term of the ground lease related to the remaining land;
declared the cash dividend for the first quarter of 2017 for our 7.00% Series A cumulative redeemable preferred stock.
The dividend of $0.4375 per preferred share will be paid on March 31, 2017 to preferred shareholders of record at the
close of business on March 20, 2017; and
declared the cash dividend for the first quarter of 2017 of $0.165625 per share on our outstanding Class A common stock,
which will be paid on April 10, 2017 to Class A common shareholders of record at the close of business on March 27,
2017.
52
Table of Contents
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, 2016, we had $250,000 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, 2016 are summarized in the following table:
Fixed rate portion of unsecured credit facility
$
250,000
Notional
Amount
Termination Date
December 31, 2017
Fair Value of
Derivative Asset
$
743
A decrease of 1% in market interest rates would result in a hypothetical decrease in our derivative asset of approximately $2,205.
The combined carrying amount of our mortgages payable, unsecured notes payable and Unsecured Credit Facility is approximately
$51,048 lower than the fair value as of December 31, 2016.
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 highly rated counterparties or with the same party providing the financing, with the right of offset.
53
Table of Contents
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, 2016, 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, 2016. The table does not reflect the impact
of any 2017 debt activity, such as the defeasance of the IW JV portfolio of mortgages payable or the funding of the Term Loan
Due 2023 on January 3, 2017.
2017
2018
2019
2020
2021
Thereafter
Total
Fair Value
Debt:
Fixed rate debt:
Mortgages payable (a)
Fixed rate term loan (b)
Unsecured notes payable (c)
Total fixed rate debt
35,023
11,463
433,982
4,334
$ 35,023
$ 11,463
$ 433,982
$
4,334
$ 23,249
$ 265,344
$ 773,395
$
833,210
—
—
—
—
—
—
—
—
250,000
100,000
373,249
—
600,000
865,344
250,000
700,000
250,000
679,212
1,723,395
1,762,422
Variable rate debt:
Variable rate term loan and
revolving line of credit
—
200,000
—
86,000
—
—
286,000
286,551
Total debt (d)
$ 35,023
$ 211,463
$ 433,982
$ 90,334
$ 373,249
$ 865,344
$2,009,395
$ 2,048,973
Weighted average interest rate on debt:
Fixed rate debt
Variable rate debt (e)
Total
4.83%
—
4.83%
6.51%
2.22%
2.45%
7.49%
—
7.49%
4.58%
2.12%
2.24%
2.73%
—
2.73%
4.36%
—
4.36%
4.82%
2.19%
4.44%
(a) Excludes mortgage premium of $1,437 and discount of $(622), net of accumulated amortization, as of December 31, 2016.
(b) $250,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through two interest rate swaps. The swaps effectively convert
one-month floating rate LIBOR to a weighted average fixed rate of 0.6677% through December 31, 2017.
(c) Excludes discount of $(971), net of accumulated amortization, as of December 31, 2016.
(d) The weighted average years to maturity of consolidated indebtedness was 5.3 years as of December 31, 2016. Total debt excludes capitalized
loan fees of $(11,314), net of accumulated amortization, as of December 31, 2016, which are included as a reduction to the respective debt
balances, and the Term Loan Due 2023, which funded on January 3, 2017. The $39,578 difference between total debt outstanding and its
fair value is primarily attributable to a $45,120 difference related to the IW JV portfolio of mortgages payable. These mortgages were
scheduled to mature in 2019 and had an interest rate of 7.50% and an outstanding principal balance of $379,435 as of December 31, 2016.
Subsequent to December 31, 2016, we defeased the IW JV portfolio of mortgages payable. As a result, the 45 properties that secured the
mortgages payable as of December 31, 2016 are no longer encumbered by mortgages.
(e) Represents interest rates as of December 31, 2016.
We had $286,000 of variable rate debt, excluding $250,000 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 2.19% as of December 31,
2016. 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, 2016, interest expense would increase by approximately $2,860 on an annualized basis.
The table incorporates only those interest rate exposures that existed as of December 31, 2016 and 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.
54
Table of Contents
On November 22, 2016, we closed on a seven-year $200,000 unsecured term loan with a group of financial institutions, which
funded on January 3, 2017. The Term Loan Due 2023 is priced on a leverage grid at a rate of LIBOR plus a credit spread ranging
from 1.70% to 2.55%. In accordance with the Term Loan Agreement, we may elect to convert to an investment grade pricing grid.
As of December 31, 2016, making such an election would have resulted in a higher interest rate and, as such, we have not made
the election to convert to an investment grade pricing grid. The Term Loan Due 2023 matures on November 22, 2023 and has a
$100,000 accordion option that allows us, at our election, to increase the total unsecured term loan up to $300,000, subject to
customary fees and conditions, including the absence of an event of default as defined in the Term Loan Agreement.
In addition, subsequent to December 31, 2016, we entered into two agreements to swap a total of $200,000 of LIBOR-based
variable rate debt to a fixed interest rate of 1.2628% plus the relevant credit spread through November 22, 2018.
55
Table of Contents
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, 2016 and 2015
Consolidated Statements of Operations and Other Comprehensive Income for the Years Ended
December 31, 2016, 2015 and 2014
Consolidated Statements of Equity for the Years Ended December 31, 2016, 2015 and 2014
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014
Notes to Consolidated Financial Statements
Valuation and Qualifying Accounts (Schedule II)
Real Estate and Accumulated Depreciation (Schedule III)
Schedules not filed:
57
58
59
60
61
63
99
100
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.
56
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, 2016 and 2015, 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, 2016. 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, 2016 and 2015, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2016, 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.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for acquisitions
as of October 1, 2016 due to the adoption of Accounting Standards Update 2017-01, Business Combinations.
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, 2016, 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 15, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 15, 2017
57
Table of Contents
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 $6,886 and $7,910, 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 loans, 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
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, 2016
and 2015; liquidation preference $135,000
Class A common stock, $0.001 par value, 475,000 shares authorized, 236,770 and 237,267
shares issued and outstanding as of December 31, 2016 and 2015, respectively
Additional paid-in capital
Accumulated distributions in excess of earnings
Accumulated other comprehensive income (loss)
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements
December 31,
2016
December 31,
2015
$
$
$
1,191,403
4,284,664
23,439
5,499,506
(1,443,333)
4,056,173
53,119
78,941
142,015
30,827
91,898
4,452,973
769,184
695,143
447,598
86,000
83,085
39,222
105,290
864
74,501
2,300,887
$
$
$
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
5
237
4,927,155
(2,776,033)
722
2,152,086
4,452,973
237
4,931,395
(2,776,215)
(85)
2,155,337
4,621,251
$
$
58
Table of Contents
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
Operating expenses
Real estate taxes
Depreciation and amortization
Provision for impairment of investment properties
General and administrative expenses
Total expenses
Operating income
Gain on extinguishment of debt
Gain on extinguishment of other liabilities
Equity in loss of unconsolidated joint ventures, net
Gain on change in control of investment properties
Interest expense
Other income, net
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
Earnings 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,
2015
2014
2016
455,658
118,569
8,916
583,143
85,895
81,774
224,430
20,376
44,522
456,997
126,146
13,653
6,978
—
—
(109,730)
63
37,110
—
—
—
129,707
166,817
—
166,817
(9,450)
157,367
0.66
—
0.66
166,817
807
167,624
—
167,624
$
$
$
$
$
$
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
$
$
$
$
$
$
Weighted average number of common shares outstanding – basic
236,651
236,380
236,184
Weighted average number of common shares outstanding – diluted
236,951
236,382
236,187
See accompanying notes to consolidated financial statements
59
Preferred Stock
Class A
Common Stock
Shares
Amount
Shares
Amount
Accumulated
Distributions
in Excess of
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Total
Shareholders’
Equity
Noncontrolling
Interest
Total
Equity
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Consolidated Statements of Equity
(in thousands, except per share amounts)
Balance as of January 1, 2014
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
Cumulative effect of accounting change
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
Shares repurchased through share repurchase program
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, 2016
$
5,400
—
—
—
—
—
—
—
—
—
5,400
$
$
— $
—
—
—
—
—
—
—
—
5,400
$
— $
—
—
—
—
—
—
—
—
—
—
5,400
$
5
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
—
5
$
236,302
—
—
—
—
—
303
2
—
(5)
236,602
$
236
—
—
—
—
—
1
—
—
—
237
Additional
Paid-in
Capital
$ 4,919,633
—
—
—
—
(145)
—
23
3,420
(67)
$ 4,922,864
$
$
$
(2,611,796)
43,300
—
(9,450)
(156,742)
—
—
—
—
—
(2,734,688)
— $
—
— $
—
— $
—
125,096
—
—
—
—
—
801
(4)
(132)
237,267
$
— $
—
—
—
—
—
(591)
274
2
(10)
(172)
$ 236,770
$
—
—
—
—
—
—
—
237
—
—
—
(216)
—
10,755
(2,008)
$ 4,931,395
17
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
237
(100)
(8,841)
—
23
7,209
(2,548)
$ 4,927,155
—
(9,450)
(157,173)
—
—
—
—
(2,776,215)
(17)
166,817
—
(9,450)
(157,168)
—
—
—
—
—
—
(2,776,033)
$
$
$
$
$
$
$
$
See accompanying notes to consolidated financial statements
60
$
2,308,834
43,300
201
(738)
—
201
—
—
—
—
—
—
—
(537)
$
$
2,307,340
43,300
201
(9,450)
(156,742)
(145)
1
23
3,420
(67)
2,187,881
— $
452
125,096
452
$
$
$
1,494
—
—
—
—
—
—
—
—
—
1,494
528
—
$
$
—
—
—
—
—
—
—
(85)
$
— $
—
807
—
—
—
—
—
—
—
—
722
$
—
(2,022)
(9,450)
(157,173)
(216)
—
10,755
(2,008)
2,155,337
$
— $
166,817
807
(9,450)
(157,168)
(100)
(8,841)
—
23
7,209
(2,548)
2,152,086
$
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
—
—
— $
(9,450)
(156,742)
(145)
1
23
3,420
(67)
2,189,375
125,624
452
(2,022)
(9,450)
(157,173)
(216)
—
10,755
(2,008)
2,155,337
—
166,817
807
(9,450)
(157,168)
(100)
(8,841)
—
23
7,209
(2,548)
2,152,086
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
2015
2014
2016
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities
$
166,817
$
125,624
$
43,300
(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 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
Investment 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 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
Distributions paid
Shares repurchased through share repurchase program
Other, net
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, at beginning of year
Cash and cash equivalents, at end of year
61
224,430
20,376
(129,707)
(13,653)
(6,978)
—
5,781
7,209
1,735
—
—
(9,640)
(1,918)
2,007
(1,776)
(935)
263,748
394
(381,436)
(51,768)
450,765
(1,362)
—
944
17,537
—
(266,033)
200,000
622,500
(636,500)
(8,756)
(12,430)
(166,693)
(8,841)
(2,837)
(279,590)
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)
1,695
51,424
53,119
$
(60,868)
112,292
51,424
$
54,102
58,190
$
112,292
(continued)
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
2015
2014
2016
Supplemental cash flow disclosure, including non-cash activities:
Cash paid for interest, net of interest capitalized
Distributions payable
Accrued capital expenditures and tenant improvements
Accrued leasing fees and inducements
Accrued redevelopment costs
Amounts reclassified to developments in progress
Developments in progress placed in service
U.S. Treasury securities transferred in connection with defeasance of mortgages payable
Defeasance of mortgages payable
Purchase of investment properties (after credits at closing and including acquisition
of our partners’ joint venture interests):
Land, building and other improvements, net
Accounts receivable, acquired lease intangibles and other assets
Accounts payable, acquired lease intangibles and other liabilities
Mortgages payable assumed, net
Gain on change in control of investment properties
$
$
$
$
$
$
$
$
$
101,789
39,222
9,286
952
4,816
17,261
$
$
$
$
$
$
115,249
39,297
6,079
$
$
$
127,645
39,187
6,731
— $
— $
— $
—
—
—
4,047
6,152
4,830
— $
2,288
12,430
10,695
$
$
87,435
70,092
$
$
$
$ (375,022) $ (442,763) $ (337,906)
(31,116)
25,390
146,485
24,158
$ (381,436) $ (454,085) $ (172,989)
(47,498)
36,176
—
—
(40,989)
19,259
15,316
—
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
Deferred gains
Mortgage debt forgiven or assumed
Gain on extinguishment of debt
Gain on sales of investment properties
$
$
393,680
18,183
(11,605)
1,500
(94,353)
13,653
129,707
450,765
$
$
379,419
8,959
(4,378)
32
—
—
121,792
505,824
$
$
265,127
12,053
(4,631)
—
—
—
42,851
315,400
See accompanying notes to consolidated financial statements
62
Table of Contents
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 and its primary purpose is 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.
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
and any consolidated variable interest entities (VIEs). Wholly-owned subsidiaries generally consist of limited liability companies
(LLCs), limited partnerships (LPs) and statutory trusts.
The Company’s property ownership as of December 31, 2016 is summarized below:
Retail operating properties (a)
Office properties
Total operating properties
Redevelopment properties
Wholly-owned
156
1
157
2
(a) Excludes two wholly-owned operating properties classified as held for sale as of December 31, 2016.
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 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.
63
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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 year
ended December 31, 2014. As of December 31, 2016, 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, including internal salaries and related benefits of personnel
directly involved in the improvements, are capitalized.
The Company allocates the purchase price of each acquired investment property accounted for as a business combination based
upon the estimated acquisition date fair value of the individual assets acquired and liabilities assumed, which generally include
(i) land, (ii) building and other improvements, (iii) in-place lease value intangibles, (iv) acquired above and below market lease
intangibles, (v) any assumed financing that is determined to be above or below market, (vi) the value of customer relationships
and (vii) goodwill, if any. Transaction costs related to acquisitions accounted for as business combinations are expensed as incurred
and included within “General and administrative expenses” in the accompanying consolidated statements of operations and other
comprehensive income.
The Company elected to early adopt ASU 2017-01, Business Combinations, on a prospective basis as of October 1, 2016. This
new guidance clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities
is not considered a business and, thus, accounted for as an asset acquisition as opposed to a business combination. Refer to the
“Recently Adopted Accounting Pronouncements” section within Note 2 to the consolidated financial statements. Under this new
guidance, the Company expects most acquisitions of investment property will meet this screen and, thus, be accounted for as asset
acquisitions. The Company allocates the purchase price of each acquired investment property that is accounted for as an asset
acquisition based upon the relative fair value of the individual assets acquired and liabilities assumed, which generally include (i)
land, (ii) building and other improvements, (iii) in-place lease value intangibles, (iv) acquired above and below market lease
intangibles, (v) any assumed financing that is determined to be above or below market and (vi) the value of customer relationships.
Asset acquisitions do not give rise to goodwill and the related transaction costs are capitalized and included with the allocated
purchase price.
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. Fair value estimates used in acquisition accounting,
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. For acquisitions accounted for as business combinations, if, up to one year from the
acquisition date, information regarding fair value of the assets acquired and liabilities assumed is received and estimates are refined,
appropriate adjustments are made to the purchase price allocation on a prospective basis.
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 $27,443, $25,913 and $28,977 for the years ended December 31, 2016,
2015 and 2014, respectively.
64
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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 $4,406, $4,807 and $4,170 for the years ended December 31,
2016, 2015 and 2014, respectively, was recorded as a reduction to rental income. Amortization pertaining to below market lease
intangibles of $7,396, $8,428 and $6,246 for the years ended December 31, 2016, 2015 and 2014, 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 $560 for the
years ended December 31, 2016, 2015 and 2014, 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, 2016:
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)
2017
2018
2019
2020
2021
Thereafter
Total
$
$
$
$
4,474
22,627
27,101
(6,124)
(560)
(6,684)
$
$
$
$
3,850
17,509
21,359
(5,849)
(560)
(6,409)
$
$
$
$
2,527
12,473
15,000
(5,545)
(560)
(6,105)
$
$
$
$
1,890
10,324
12,214
(5,369)
(560)
(5,929)
$
$
$
$
1,373
9,022
10,395
(5,177)
(560)
(5,737)
$
$
$
$
5,368
50,578
55,946
(64,208)
(10,218)
$
$
$
19,482
122,533
142,015
(92,272)
(13,018)
(74,426)
$ (105,290)
(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 $296,309 and $50,672 of accumulated
amortization, respectively, as of December 31, 2016.
(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 $423, $474 and $0 of internal leasing incentives, all of which were incremental to signed leases, during the years ended
December 31, 2016, 2015 and 2014, 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;
65
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
•
•
•
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.
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, 2016 and 2015. When the Company does 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, 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, 2016, 2015 and 2014:
Year Ended December 31,
2015
2014
2016
Impairment of consolidated properties (a)
$
20,376
$
19,937
$
72,203
(a) Included in “Provision for impairment of investment properties” in the accompanying consolidated statements of operations and other
comprehensive income.
The Company’s assessment of impairment as of December 31, 2016 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 2017 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
66
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
recoverable and therefore, under applicable GAAP guidance, no additional impairment charges were recorded. Accordingly, the
Company will continue to monitor circumstances and events in future periods to determine whether additional impairment charges
are warranted. Refer to Note 15 to the consolidated financial statements for further discussion.
Development and Redevelopment Projects: Development and redevelopment projects are classified as developments in progress
on the accompanying consolidated balance sheets and include (i) land held for future development, (ii) ground-up developments
and (iii) redevelopment properties undergoing significant renovations and improvements. 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 capitalized $302
of indirect project costs related to development and redevelopment projects and $1,152 related to expansions, pad developments
and other significant improvements during the year ended December 31, 2016. The Company did not capitalize any indirect project
costs during the years ended December 31, 2015 and 2014.
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. Two properties were classified as held for sale as of December 31, 2016 and no properties qualified for held for sale
accounting treatment as of December 31, 2015.
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 2016, 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.
Partially-Owned Entities: The Company consolidates partially-owned entities if they are VIEs in accordance with the
Consolidation Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) and the
Company is considered the primary beneficiary, the Company has voting control, the limited partners (or non-managing members)
do not have substantive participatory rights, or other conditions exist that indicate that the Company has control. Management
uses its judgment when determining if the Company is the primary beneficiary of, or has a controlling financial interest in, an
entity in which it has a variable interest, to determine whether the Company has the power to direct the activities that most
significantly impact the entity’s economic performance and if it has significant economic exposure to the risk and rewards of
ownership. The Company assesses its interests in VIEs on an ongoing basis to determine if the entity should be consolidated.
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.
67
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The Company maintains its cash and cash equivalents at major financial institutions. The cash and cash equivalents 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, 2016 and 2015, the Company had $29,230 and $35,804,
respectively, in restricted cash and escrows.
Derivative and Hedging Activities: Derivatives are recorded in the accompanying consolidated balance sheets at fair value within
“Other assets, net” and “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 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 that is designated and qualifies as a cash flow hedge that is determined to be highly effective
are recorded in “Accumulated other comprehensive income (loss)” and are reclassified to interest expense as interest payments
are made on the Company’s variable rate debt. As of December 31, 2016, the balance in accumulated other comprehensive income
(loss) relating to derivatives was $722. 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. Thus, the timing and/or method of settlement may be conditional on a future event. Based upon
the Company’s evaluation, no accrual of a liability for asset retirement obligations was warranted as of December 31, 2016 and
2015.
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.
68
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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 as “Other property income” when (i) a termination letter agreement is signed, (ii)
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, the Company provides for losses related to recognized tenant specific
intangibles and other assets or adjusts the remaining useful life of the assets if determined to be appropriate. The Company recorded
lease termination income of $3,339, $3,757 and $2,667 for the years ended December 31, 2016, 2015 and 2014, respectively.
The Company recorded contingent percentage rental income and percentage rental income in lieu of base rent of $4,082, $4,693
and $5,229 for the years ended December 31, 2016, 2015 and 2014, 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 46, 26 and 24 consolidated investment properties during the years ended December 31, 2016, 2015 and 2014, 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 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, net” 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.
69
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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 2013 through 2016 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’s chief operating decision maker evaluates the collective performance of its properties.
Recently Adopted Accounting Pronouncements
Effective January 1, 2016, the Company adopted Accounting Standards Update (ASU) 2015-02, Consolidation, which revised the
consolidation guidance for all entities. This new guidance 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
and affects the consolidation analysis of reporting entities that are involved with VIEs. The adoption of this pronouncement under
the modified retrospective method did not have any effect on the Company’s consolidated financial statements as the Company
did not have any VIEs at adoption on January 1, 2016; however, during the year ended December 31, 2016, the Company acquired
three properties through consolidated VIEs in connection with Internal Revenue Code Section 1031 tax-deferred exchanges (1031
Exchanges) and, accordingly, applied the revised consolidation guidance. See Note 3 to the consolidated financial statements for
further details.
Effective January 1, 2016, the Company adopted ASU 2015-16, Business Combinations, which requires the acquirer in a business
combination to recognize in the period any adjustments to provisional amounts that are identified during the measurement period
rather than retrospectively accounting for those adjustments. The adoption of this pronouncement did not have any effect on the
Company’s consolidated financial statements.
The Company elected to early adopt ASU 2014-15, Presentation of Financial Statements – Going Concern, on January 1, 2016.
This new guidance requires a company’s management to assess the entity’s ability to continue as a going concern 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 did
not have any effect on the Company’s consolidated financial statements.
The Company elected to early adopt ASU 2016-09, Compensation – Stock Compensation, on January 1, 2016. This new guidance
allowed the Company to make an accounting policy election to account for share-based payment award forfeitures when they
occur, which required a modified retrospective transition by means of a cumulative-effect adjustment to equity as of the beginning
of the period of adoption and resulted in an adjustment of $17 to additional paid-in capital and accumulated distributions in excess
of earnings as of January 1, 2016.
The Company elected to early adopt ASU 2017-01, Business Combinations, on a prospective basis as of October 1, 2016. This
new guidance clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities
is not considered a business and, thus, accounted for as an asset acquisition as opposed to a business combination. The screen
requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single
identifiable asset or a group of similar identifiable assets, the set is not considered a business. Under this new guidance, the Company
expects most acquisitions of investment property will meet the screen and, thus, be accounted for as asset acquisitions. Consistent
with existing guidance, transaction costs associated with asset acquisitions are capitalized while transaction costs associated with
business combinations are expensed as incurred. The adoption of this pronouncement resulted in the Company’s acquisition of
investment properties subsequent to October 1, 2016 to qualify as asset acquisitions and as such, the related transactions costs of
$725 were capitalized.
70
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
Other Recently Issued Accounting Pronouncements
In May 2014 with subsequent updates issued in August 2015 and March, April, May and December 2016, the FASB issued ASU
2014-09, Revenue from Contracts with Customers. This new guidance is effective January 1, 2018, with early adoption permitted
beginning January 1, 2017, and will replace existing revenue recognition standards. The sale of investment property and any non-
lease components contained within lease agreements will be required to follow the new guidance; however, lease components of
lease contracts will be excluded from this guidance. 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. While the Company anticipates additional disclosure, it does not expect the adoption of this
pronouncement will have a material effect on its consolidated financial statements; however, it will continue to evaluate this
assessment until the guidance becomes effective.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall. This new guidance is effective January 1, 2018
and will require companies to disclose the fair value of financial assets and financial liabilities measured at amortized cost in
accordance with the exit price notion and will no longer require disclosure of the methods and significant assumptions used,
including any changes, to estimate fair value. In addition, companies will be required to disclose all financial assets and financial
liabilities grouped by 1) measurement category and 2) form of financial instrument. The Company does not expect the adoption
of this pronouncement will have a material effect on its consolidated financial statements; however, it will continue to evaluate
this assessment until the guidance becomes effective.
In February 2016, the FASB issued ASU 2016-02, Leases. This new guidance is effective January 1, 2019, with early adoption
permitted, and will require lessees to recognize a liability to make lease payments and a right-of-use asset, initially measured at
the present value of lease payments, for both operating and financing leases. For leases with a term of 12 months or less, lessees
will be permitted to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease
assets. Under this new pronouncement, lessor accounting will be largely unchanged from existing GAAP. The pronouncement
requires a modified retrospective method of adoption, with some optional practical expedients. Upon adoption, the Company will
recognize a lease liability and a right-of-use asset for operating leases where it is the lessee, such as ground leases and office and
equipment leases. The Company will continue to evaluate the impact of this guidance until it becomes effective.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses. This new guidance is effective January 1,
2020, with early adoption permitted beginning January 1, 2019, and replaces the current incurred loss impairment methodology
with a methodology that reflects expected credit losses. Financial assets that are measured at amortized cost will be required to be
presented at the net amount expected to be collected with an allowance for credit losses deducted from the amortized cost basis.
In addition, an entity must consider broader information in developing its expected credit loss estimate, including the use of
forecasted information. Generally, the pronouncement requires a modified retrospective method of adoption. The Company will
continue to evaluate the impact of this guidance until it becomes effective.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows. This new guidance is effective January 1, 2018, with
early adoption permitted, and adds or clarifies guidance on the classification of certain cash receipts and payments in the statement
of cash flows. Of the eight types of cash flows discussed in the new standard, the classification of debt prepayment costs as a
financing outflow will impact the Company’s consolidated statements of cash flows as this item is currently reflected as an operating
outflow. The pronouncement requires a retrospective transition method of adoption. The Company will continue to evaluate the
impact of this guidance until it becomes effective.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows. This new guidance is effective January 1, 2018,
with early adoption permitted, and requires amounts that are generally described as restricted cash and restricted cash equivalents
to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. The pronouncement requires a retrospective transition method of adoption. Upon adoption, the
Company will include amounts generally described as restricted cash within the beginning-of-period, change and end-of-period
total amounts on the statement of cash flows rather than within an activity on the statement of cash flows.
71
Table of Contents
(3) ACQUISITIONS
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The Company closed on the following acquisitions during the year ended December 31, 2016:
Date
Property Name
January 15, 2016
Shoppes at Hagerstown (a)
January 15, 2016
Merrifield Town Center II (a)
March 29, 2016
Oak Brook Promenade
April 1, 2016
April 29, 2016
May 5, 2016
June 15, 2016
The Shoppes at Union Hill (b)
Ashland & Roosevelt – Fee Interest (c)
Tacoma South
Eastside
August 30, 2016
Woodinville Plaza – Anchor Space
Improvements (d)
Metropolitan
Statistical Area (MSA)
Hagerstown
Washington, D.C.
Chicago
New York
Chicago
Seattle
Dallas
Seattle
November 22, 2016
One Loudoun Downtown – Phase I (e)
Washington, D.C.
Property Type
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Ground lease interest (c)
Multi-tenant retail
Multi-tenant retail
Anchor space
improvements (d)
Multi-tenant retail
Square
Footage
Acquisition
Price
113,000
$
76,000
183,200
91,700
—
230,700
67,100
—
340,600
1,102,300
$
27,055
45,676
65,954
63,060
13,850
39,400
23,842
4,500
124,971
408,308
(a) These properties were acquired as a two-property portfolio. Merrifield Town Center II also contains 62,000 square feet of storage space for
a total of 138,000 square feet.
(b) In conjunction with this acquisition, the Company assumed mortgage debt with a principal balance of $15,971 and an interest rate of 3.75%
that matures in 2031.
(c) The Company acquired the fee interest in an existing wholly-owned multi-tenant retail operating property located in Chicago, Illinois, which
was previously subject to a ground lease with a third party. In conjunction with this transaction, the Company reversed the straight-line
ground rent liability of $6,978, which is reflected as “Gain on extinguishment of other liabilities” in the accompanying condensed consolidated
statements of operations and other comprehensive income.
(d) The Company acquired the anchor space improvements, which were previously subject to a ground lease with the Company, at an existing
wholly-owned multi-tenant retail operating property located in Woodinville, Washington.
(e) The remaining phases at One Loudoun Downtown, representing an aggregate gross purchase price of up to $35,500, are expected to close
throughout the first three quarters of 2017 as the seller completes construction on stand-alone buildings at the property.
During the year ended December 31, 2016, the Company also completed a non-monetary transaction in which it received the fee
interest in less than an acre of adjacent land and terminated the ground lease on certain undeveloped parcels at an existing wholly-
owned multi-tenant retail operating property located in Southlake, Texas in exchange for the fee interest in approximately 2.5 acres
of undeveloped parcels. As a result of this transaction, the Company’s fee interest in certain undeveloped parcels at the property
are no longer encumbered by the ground lease. The Company capitalized $113 of costs related to this transaction.
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
August 27, 2015
Tysons Corner
Woodinville Plaza
Southlake Town Square – Outparcel (b)
Coal Creek Marketplace
October 27, 2015
Royal Oaks Village II – Outparcel (a)
November 13, 2015
Towson Square
Property Type
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Multi-tenant retail
Land (a)
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
Metropolitan
Statistical Area
(MSA)
Washington, D.C.
Washington, D.C.
Washington, D.C.
Austin
Dallas
Washington, D.C.
Seattle
Dallas
Seattle
Houston
Baltimore
72
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(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 (a)
—
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.
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, 2016, 2015 and 2014 discussed above:
Land
Building and other improvements
Acquired lease intangible assets (a)
Acquired lease intangible liabilities (b)
Mortgages payable, net (c)
Net assets acquired (d)
2016
2015
2014
$
$
106,947
268,075
41,002
(8,258)
(15,316)
392,450
$
$
161,114
281,649
45,474
(25,101)
—
463,136
$
$
118,732
219,174
35,520
(20,578)
(146,485)
206,363
(a) The weighted average amortization period for acquired lease intangible assets is nine years, 15 years and eight years for acquisitions
completed during the years ended December 31, 2016, 2015 and 2014, respectively.
(b) The weighted average amortization period for acquired lease intangible liabilities is 18 years, 21 years and 16 years for acquisitions
completed during the years ended December 31, 2016, 2015 and 2014, respectively.
(c) Includes mortgage discount of $(655) for acquisitions completed during the year ended December 31, 2016 and mortgage premium
of $4,787 for acquisitions completed during the year ended December 31, 2014.
(d) Net assets attributable to the MS Inland acquisition are presented at 100%.
The above acquisitions were funded using a combination of available cash on hand, proceeds from dispositions and proceeds from
the Company’s unsecured revolving line of credit. Transaction costs related to acquisitions accounted for as business combinations
totaling $913, $1,591 and $2,271 for the years ended December 31, 2016, 2015 and 2014, respectively, were expensed as incurred
73
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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 as business combinations are $87,161, $97,893 and $55,303 in total revenues and $22,283, $18,334 and
$6,733 in net income attributable to common shareholders from the date of acquisition through December 31, 2016, 2015, and
2014, respectively. These amounts do not include the total revenue and net income attributable to common shareholders from the
2016 acquisitions of One Loudoun Downtown – Phase I, the anchor space improvements at Woodinville Plaza and the fee interest
in Ashland & Roosevelt, the 2015 acquisition of a parcel at Lake Worth Towne Crossing and the 2014 acquisition of the fee interest
in Bed Bath & Beyond Plaza as they have been accounted for as asset acquisitions.
Subsequent to December 31, 2016, the Company acquired Main Street Promenade, a 181,600 square foot multi-tenant retail
property located in the Chicago MSA, for a gross purchase price of $88,000. The property was acquired on January 13, 2017
through a consolidated VIE to facilitate a potential 1031 Exchange. The Company has not completed the allocation of the acquisition
date fair value for Main Street Promenade; however, it expects that this acquisition will be accounted for as an asset acquisition
and that the purchase price of this property 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 that were completed during the period, or
after such period through the financial statement issuance date, 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 2017 acquisition of Main
Street Promenade, the 2016 acquisitions of One Loudoun Downtown – Phase I, the anchor space improvements at Woodinville
Plaza and the fee interest in Ashland & Roosevelt, the 2015 acquisition of a parcel at Lake Worth Towne Crossing and the 2014
acquisition of the fee interest in Bed Bath & Beyond Plaza have not been adjusted in the pro forma presentation as they have been
accounted for as asset acquisitions. The results of operations associated with the 2015 acquisitions of Towson Square on November
13, 2015, single-user outparcels at Southlake Town Square on July 31, 2015 and Royal Oaks Village II on October 27, 2015 and
the 2014 acquisition of a single-user outparcel at Southlake Town Square on June 23, 2014 have not been adjusted in the pro forma
presentation due to a lack of historical financial information. 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
Variable Interest Entities
Year Ended December 31,
2015
2014
2016
$
$
$
$
587,374
165,696
156,246
0.66
236,651
$
$
$
$
627,300
121,406
111,428
0.47
236,380
$
$
$
$
635,240
18,313
8,863
0.04
236,184
During the year ended December 31, 2016, the Company entered into agreements with a qualified intermediary related to three
1031 Exchanges. The Company loaned $65,419, $39,215 and $23,522 to the VIEs to acquire Oak Brook Promenade, Tacoma
South and Eastside, respectively. Each 1031 Exchange was completed during the year ended December 31, 2016 and, accordingly,
no agreements remained outstanding related to 1031 Exchanges as of December 31, 2016. At the completion of the 1031 Exchanges,
the sole membership interests of the VIEs were assigned to the Company and the respective outstanding loans were extinguished,
resulting in the entities being wholly owned by the Company and no longer considered VIEs.
74
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
Prior to the completion of the 1031 Exchanges, the Company was deemed to be the primary beneficiary of the VIEs as it had the
ability to direct the activities of the VIEs that most significantly impacted their economic performance and had all of the risks and
rewards of ownership. Accordingly, the Company consolidated the VIEs. No value or income was attributed to the noncontrolling
interests. The assets of the VIEs consisted of the investment properties which were operated by the Company.
(4) DISPOSITIONS
The Company closed on the following dispositions during the year ended December 31, 2016:
Date
Property Name
Property Type
Square
Footage
Consideration
Aggregate
Proceeds, Net (a)
Gain
Multi-tenant retail
623,200
$
75,000
$
(795) $
February 1, 2016
The Gateway (b)
February 10, 2016
Stateline Station
March 30, 2016
Six Property Portfolio (c)
April 20, 2016
CVS Pharmacy – Oklahoma City
June 2, 2016
June 15, 2016
June 23, 2016
July 8, 2016
July 21, 2016
July 27, 2016
July 29, 2016
August 4, 2016
August 5, 2016
Rite Aid Store (Eckerd) – Canandaigua
& Tim Horton Donut Shop (d)
Academy Sports – Midland
Four Rite Aid Portfolio (e)
Broadway Shopping Center
Mid-Hudson Center
Rite Aid Store (Eckerd), Main St. –
Buffalo
Rite Aid Store (Eckerd) – Lancaster
Alison’s Corner
Multi-tenant retail
Single-user retail
Single-user retail
Single-user retail
Single-user retail
Single-user retail
Multi-tenant retail
Multi-tenant retail
Single-user retail
Single-user retail
Multi-tenant retail
Rite Aid Store (Eckerd) – Lake Ave.
Single-user retail
August 12, 2016
Maple Tree Place
August 12, 2016
CVS Pharmacy – Burleson
August 18, 2016
Mitchell Ranch Plaza
August 22, 2016
Rite Aid Store (Eckerd), E. Main St. –
Batavia
September 9, 2016
Rite Aid Store (Eckerd) – Lockport
September 9, 2016
Rite Aid Store (Eckerd), Ferry St. –
Buffalo
November 9, 2016 Walgreens – Northwoods
November 23, 2016
Ten Rite Aid Portfolio (f)
December 8, 2016
Vail Ranch Plaza
December 15, 2016
Pacheco Pass Phase I & II
December 16, 2016
South Billings Center (g)
December 22, 2016
Rite Aid Store (Eckerd) – Colesville
December 29, 2016
Commons at Royal Palm
Multi-tenant retail
Single-user retail
Multi-tenant retail
Single-user retail
Single-user retail
Single-user retail
Single-user retail
Single-user retail
Multi-tenant retail
Multi-tenant retail
Development (g)
Single-user retail
Multi-tenant retail
142,600
230,400
10,900
16,600
61,200
45,400
190,300
235,600
10,900
10,900
55,100
13,200
489,000
10,900
199,600
13,800
13,800
10,900
16,300
119,700
101,800
194,300
—
13,400
156,500
17,500
35,413
4,676
5,400
5,541
15,934
20,500
27,500
3,388
3,425
7,850
5,400
90,000
4,190
55,625
5,050
4,690
3,600
6,450
30,000
27,450
41,500
2,250
7,700
23,700
10,630
17,210
34,986
4,608
5,333
5,399
14,646
20,103
25,615
3,296
3,349
7,559
5,334
87,047
4,102
54,305
4,924
4,415
3,370
5,793
29,380
27,160
39,549
2,157
7,444
21,460
10,467
3,868
4,253
13,618
1,764
1,444
2,220
2,287
7,958
—
344
625
3,334
907
15,566
1,425
33,612
1,249
753
612
2,199
251
11,247
4,758
—
1,893
6,553
5,069
December 30, 2016
CVS Pharmacy (Eckerd) – Edmond &
CVS Pharmacy (Eckerd) – Norman (h)
Single-user retail
27,600
3,013,900
$
540,362
$
448,216
$
127,809
(a) Aggregate proceeds are net of transaction costs.
(b) The property was disposed of through a lender-directed sale in full satisfaction of the Company’s $94,353 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. Along with the loan reduction, the lender received the balance of the restricted escrows that they held and the rights to
unpaid accounts receivable and forgave accrued interest, resulting in a net gain on extinguishment of debt of $13,653.
(c) Portfolio consists of the following properties: (i) Academy Sports – Houma, (ii) Academy Sports – Port Arthur, (iii) Academy Sports – San
Antonio, (iv) CVS Pharmacy – Moore, (v) CVS Pharmacy – Saginaw and (vi) Rite Aid Store (Eckerd) – Olean.
(d) The terms of the disposition of Rite Aid Store (Eckerd) – Canandaigua and Tim Horton Donut Shop were negotiated as a single transaction.
(e) Portfolio consists of the following properties: (i) Rite Aid Store (Eckerd) – Cheektowaga, (ii) Rite Aid Store (Eckerd), W. Main St. – Batavia,
(iii) Rite Aid Store (Eckerd), Union Rd. – West Seneca and (iv) Rite Aid Store (Eckerd) – Greece.
75
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(f) Portfolio consists of the following properties: (i) Rite Aid Store (Eckerd) – Chattanooga, (ii) Rite Aid Store (Eckerd) – Yorkshire, (iii) Rite
Aid Store (Eckerd), Sheridan Dr. – Amherst, (iv) Rite Aid Store (Eckerd) – Grand Island, (v) Rite Aid Store (Eckerd) – North Chili, (vi)
Rite Aid Store (Eckerd) – Tonawanda, (vii) Rite Aid Store (Eckerd) – Irondequoit, (viii) Rite Aid Store (Eckerd) – Hudson, (ix) Rite Aid
Store (Eckerd), Transit Rd. – Amherst and (x) Rite Aid Store (Eckerd), Harlem Rd. – West Seneca.
(g) South Billings Center was classified as a development property but was not under active development.
(h) The terms of the disposition of CVS Pharmacy (Eckerd) – Edmond and CVS Pharmacy (Eckerd) – Norman were negotiated as a single
transaction.
During the year ended December 31, 2016, the Company also disposed of a single-user outparcel for consideration of $2,639,
received net proceeds of $2,549 and recorded a gain of $1,898 from the transaction. The aggregate proceeds, net of closing costs,
from the property dispositions and this additional transaction totaled $450,765 with aggregate gains of $129,707.
During the year ended December 31, 2016, the Company defeased $10,695 in mortgages payable prior to the 2016 dispositions.
As of December 31, 2016, the Company had entered into contracts to sell Century III Plaza, a 284,100 square foot multi-tenant
retail operating property located in West Mifflin, Pennsylvania, and CVS Pharmacy – Sylacauga, a 10,100 square foot single-user
retail operating property located in Sylacauga, Alabama. These properties qualified for held for sale accounting treatment upon
meeting all applicable GAAP criteria during the quarter ended December 31, 2016, at which time depreciation and amortization
were ceased. As such, the assets and liabilities associated with these properties are separately classified as held for sale in the
accompanying consolidated balance sheet as of December 31, 2016. No properties qualified for held for sale accounting treatment
as of December 31, 2015.
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
Other liabilities
Liabilities associated with investment properties held for sale
December 31,
2016
$
$
$
$
45,395
(15,769)
29,626
1,201
30,827
864
864
There was no activity during the years ended December 31, 2016 and 2015 related to discontinued operations. The results of
operations for the year ended December 31, 2014 for the investment property accounted for as discontinued operations, Riverpark
Phase IIA which was sold on March 11, 2014 but was classified as held for sale as of December 31, 2013, were immaterial.
Subsequent to December 31, 2016, the Company closed on the sale of Rite Aid Store (Eckerd), Culver Rd., a 10,900 square foot
single-user retail operating property, for consideration of $500.
76
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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 (c)
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.
During the year ended December 31, 2014, the Company sold 24 properties. The dispositions and certain additional transactions,
including a pad sale and condemnations, resulted in aggregate proceeds, net of transaction costs, of $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.
(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.
77
Table of Contents
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, 2016, 2015
and 2014:
Balance as of January 1, 2014
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
Shares granted (a)
Shares vested
Shares forfeited (b)
Balance as of December 31, 2016 (c)
Unvested
Restricted
Shares
152
303
(58)
(1)
396
801
(405)
(4)
788
274
(510)
(10)
542
Weighted Average
Grant Date Fair
Value per
Restricted Share
$
$
$
$
$
$
$
$
$
$
$
$
$
15.11
13.89
14.50
15.61
14.26
15.82
14.89
16.01
15.52
14.76
15.38
14.70
15.28
(a) Shares granted in 2014, 2015 and 2016 vest over periods ranging from one year to three years, 0.4 years to 3.4 years and 0.4
years to 3.9 years, respectively, in accordance with the terms of applicable award agreements.
(b) Effective January 1, 2016, the Company made an accounting policy election to account for forfeitures when they occur.
(c) As of December 31, 2016, total unrecognized compensation expense related to unvested restricted shares was $2,674, which
is expected to be amortized over a weighted average term of 1.3 years.
In addition, during the years ended December 31, 2016 and 2015, performance restricted stock units (RSUs) were granted to the
Company’s executives. Following the three-year performance period, 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 peer companies within the National Association of Real Estate Investment Trusts (NAREIT) Shopping Center Index
for the respective performance period. 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 or her 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 or she would forfeit his or her outstanding
RSUs. Following the performance period, 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 values per unit using Monte Carlo simulations based on the probabilities of
satisfying the market performance hurdles over the remainder of the performance period.
78
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The following table summarizes the Company’s unvested RSUs as of and for the years ended December 31, 2016 and 2015:
RSUs eligible for future conversion as of January 1, 2015
RSUs granted (a)
RSUs ineligible for conversion
RSUs eligible for future conversion as of December 31, 2015
RSUs granted (b)
RSUs ineligible for conversion
RSUs eligible for future conversion as of December 31, 2016 (c)
Unvested
RSUs
Weighted Average
Grant Date
Fair Value
per RSU
—
180
(6)
174
246
(29)
391
$
$
$
$
$
$
$
—
14.19
14.10
14.20
13.85
13.56
14.02
(a) Assumptions as of the grant dates included a weighted average risk-free interest rate of 0.80%, the Company’s historical common
stock performance relative to the peer companies within the NAREIT Shopping Center Index and the Company’s weighted average
common stock dividend yield of 4.26%.
(b) Assumptions as of the grant dates included a weighted average risk-free interest rate of 0.89%, the Company’s historical common
stock performance relative to the peer companies within the NAREIT Shopping Center Index and the Company’s weighted average
common stock dividend yield of 4.59%.
(c) As of December 31, 2016, total unrecognized compensation expense related to unvested RSUs was $3,471, which is expected to
be amortized over a weighted average term of 2.4 years.
During the years ended December 31, 2016, 2015 and 2014, the Company recorded compensation expense of $7,209, $10,755
and $3,417, 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. The total fair value of restricted shares vested during the years ended
December 31, 2016, 2015 and 2014 was $7,596, $6,188 and $840, 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. Options to purchase a total of 84 shares of common stock had
been granted under the plan. During the year ended December 31, 2015, options to purchase one share expired and options to
purchase 10 shares were forfeited. During the year ended December 31, 2016, options to purchase two shares were exercised,
options to purchase one share expired and options to purchase 10 shares were forfeited. As of December 31, 2016, options to
purchase 41 shares of common stock remained outstanding and exercisable. The Company did not grant any options in 2014, 2015
or 2016. Compensation expense of $0, $0 and $3 related to stock options was recorded during the years ended December 31, 2016,
2015 and 2014, 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 “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 “Operating expenses” and sales tax reimbursements included in “Other property income” in the accompanying
79
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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 $1,986, $2,071 and $1,985 for the
years ended December 31, 2016, 2015 and 2014, respectively.
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:
2017
2018
2019
2020
2021
Thereafter
Total
Minimum Lease
Payments
$
$
423,207
382,938
321,179
262,571
213,514
720,075
2,323,484
The remaining lease terms range from less than one year to more than 66 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 2028
to 2087, exclusive of any available option periods. In addition, the Company leases office space for certain management offices
and its corporate offices, which were expanded during the year ended December 31, 2016 to include a regional office in Tysons
Corner, Virginia. 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,
2015
2014
2016
$
$
10,464
1,317
$
$
11,461
1,246
$
$
11,676
1,210
(a) Included in “Operating expenses” in the accompanying consolidated statements of operations and other comprehensive income.
Includes straight-line ground rent expense of $3,253, $3,722 and $3,889 for the years ended December 31, 2016, 2015 and
2014, respectively.
(b) Office rent expense related to property management operations is included in “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.
80
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
Minimum future rental obligations to be paid under the ground and office leases, including fixed rental increases, are as follows:
2017
2018
2019
2020
2021
Thereafter
Total
Minimum Lease
Obligations
$
$
7,853
7,842
8,157
8,318
8,525
376,939
417,634
(7) MORTGAGES PAYABLE
The following table summarizes the Company’s mortgages payable:
Fixed rate mortgages payable (a)
$
773,395
6.31%
4.2
$
1,128,505 (b)
6.08%
3.9
December 31, 2016
December 31, 2015
Aggregate
Principal
Balance
Weighted
Average
Interest Rate
Weighted
Average Years
to Maturity
Aggregate
Principal
Balance
Weighted
Average
Interest Rate
Weighted
Average Years
to Maturity
Premium, net of accumulated amortization
Discount, net of accumulated amortization
Capitalized loan fees, net of accumulated
amortization
Mortgages payable, net
1,437
(622)
(5,026)
1,865
(1)
(7,233)
$
769,184
$
1,123,136
(a) The fixed rate mortgages had interest rates ranging from 3.75% to 8.00% and 3.35% to 8.00% as of December 31, 2016 and 2015, respectively.
(b) Includes $7,910 of variable rate mortgage debt that was swapped to a fixed rate as of December 31, 2015.
During the year ended December 31, 2016, the Company repaid or defeased mortgages payable in the total amount of $263,548
which had a weighted average fixed interest rate of 5.09% and made scheduled principal payments of $13,180 related to amortizing
loans. One of the mortgages repaid, with a principal balance of $7,750 at maturity, had been swapped to a fixed rate and the
Company had guaranteed a portion of the outstanding balance. Upon repayment of the mortgage on its scheduled maturity date,
the interest rate swap expired and the Company’s guarantee was extinguished. In addition, during the year ended December 31,
2016, the Company disposed of The Gateway through a lender-directed sale in full satisfaction of its $94,353 mortgage obligation,
which had a fixed interest rate of 6.57%. 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. Along with the loan reduction, the lender received
the balance of the restricted escrows that they held and the rights to unpaid accounts receivable and forgave accrued interest,
resulting in a net gain on extinguishment of debt of $13,653. The Company also assumed a mortgage payable with a principal
balance of $15,971 and an interest rate of 3.75% that matures in 2031 in conjunction with the acquisition of The Shoppes at Union
Hill.
The majority of the Company’s mortgages payable require monthly payments of principal and interest, and some of the mortgages
require 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. At times, the Company has borrowed funds financed as part of a cross-collateralized package,
with cross-default provisions. 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, 2016, the Company had a portfolio of mortgages payable with a principal balance
of $379,435 that was cross-collateralized by 45 properties and scheduled to mature in 2019 (known as the IW JV portfolio of
mortgages payable). Subsequent to December 31, 2016, the Company defeased the IW JV portfolio of mortgages payable. As a
result, the 45 properties that secured the mortgages payable as of December 31, 2016 are no longer encumbered by mortgages.
81
Table of Contents
Debt Maturities
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The following table shows the scheduled maturities and principal amortization of the Company’s indebtedness as of December 31,
2016, 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 2017 debt activity, such as the defeasance of the IW JV portfolio of mortgages payable or the funding of the $200,000
unsecured term loan due 2023 (Term Loan Due 2023), which closed during the year ended December 31, 2016 and funded on
January 3, 2017.
2017
2018
2019
2020
2021
Thereafter
Total
Debt:
Fixed rate debt:
Mortgages payable (a)
Fixed rate term loan (b)
Unsecured notes payable (c)
Total fixed rate debt
35,023
11,463
433,982
4,334
$
35,023
$
11,463
$ 433,982
$
4,334
$
23,249
$
265,344
$
773,395
—
—
—
—
—
—
—
—
250,000
100,000
373,249
—
600,000
865,344
250,000
700,000
1,723,395
Variable rate debt:
Variable rate term loan and
revolving line of credit
—
200,000
—
86,000
—
—
286,000
Total debt (d)
$
35,023
$ 211,463
$ 433,982
$
90,334
$ 373,249
$
865,344
$ 2,009,395
Weighted average interest rate on debt:
Fixed rate debt
Variable rate debt (e)
Total
4.83%
—
4.83%
6.51%
2.22%
2.45%
7.49%
—
7.49%
4.58%
2.12%
2.24%
2.73%
—
2.73%
4.36%
—
4.36%
4.82%
2.19%
4.44%
(a) Excludes mortgage premium of $1,437 and discount of $(622), net of accumulated amortization, as of December 31, 2016.
(b) $250,000 of London Interbank Offered Rate (LIBOR)-based variable rate debt has been swapped to a fixed rate through two interest rate
swaps. The swaps effectively convert one-month floating rate LIBOR to a weighted average fixed rate of 0.6677% through December 31,
2017.
(c) Excludes discount of $(971), net of accumulated amortization, as of December 31, 2016.
(d) The weighted average years to maturity of consolidated indebtedness was 5.3 years as of December 31, 2016. Total debt excludes capitalized
loan fees of $(11,314), net of accumulated amortization, as of December 31, 2016, which are included as a reduction to the respective debt
balances, and the Term Loan Due 2023, which funded on January 3, 2017. Refer to Note 9 to the consolidated financial statements for
further details on the Term Loan Due 2023.
(e) Represents interest rates as of December 31, 2016.
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.
82
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(8) UNSECURED NOTES PAYABLE
The following table summarizes the Company’s unsecured notes payable:
Unsecured Notes Payable
Maturity Date
December 31, 2016
December 31, 2015
Principal
Balance
Interest Rate/
Weighted Average
Interest Rate
Principal
Balance
Interest Rate/
Weighted Average
Interest Rate
Senior notes – 4.12% due 2021
Senior notes – 4.58% due 2024
Senior notes – 4.00% due 2025
Senior notes – 4.08% due 2026
Senior notes – 4.24% due 2028
Discount, net of accumulated amortization
Capitalized loan fees, net of accumulated amortization
Notes Due 2026 and 2028
June 30, 2021
$
June 30, 2024
March 15, 2025
September 30, 2026
December 28, 2028
100,000
150,000
250,000
100,000
100,000
700,000
(971)
(3,886)
4.12% $
4.58%
4.00%
4.08%
4.24%
4.19%
100,000
150,000
250,000
—
—
500,000
(1,090)
(3,334)
Total
$
695,143
$
495,576
4.12%
4.58%
4.00%
—%
—%
4.20%
On September 30, 2016, the Company issued $100,000 of 10-year 4.08% senior unsecured notes due 2026 in a private placement
transaction pursuant to a note purchase agreement it entered into with certain institutional investors on September 30, 2016. Pursuant
to the same note purchase agreement, on December 28, 2016, the Company also issued $100,000 of 12-year 4.24% senior unsecured
notes due 2028 (Notes Due 2026 and 2028). The proceeds were used to pay down the Company’s unsecured revolving line of
credit, early repay certain longer-dated mortgages payable and for general corporate purposes.
The note purchase agreement governing the Notes Due 2026 and 2028 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, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage
ratios; (ii) a minimum interest coverage ratio; (iii) a fixed charge coverage ratio (as set forth in the Company’s unsecured credit
facility); and (iv) an unencumbered interest coverage ratio (as set forth in the Company’s unsecured credit facility and the note
purchase agreement governing the Notes Due 2021 and 2024).
Notes Due 2025
On March 12, 2015, the Company completed a public offering of $250,000 in aggregate principal amount of 4.00% senior unsecured
notes due 2025 (Notes Due 2025). The Notes Due 2025 were priced at 99.526% of the principal amount to yield 4.058% to maturity.
The proceeds were used to repay a portion of the Company’s unsecured revolving line of credit.
The indenture, as supplemented, governing the Notes Due 2025 (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.
Notes Due 2021 and 2024
On June 30, 2014, the Company completed a private placement of $250,000 of unsecured notes, consisting of $100,000 of 4.12%
senior unsecured notes due 2021 and $150,000 of 4.58% senior unsecured notes due 2024 (Notes Due 2021 and 2024). The proceeds
were used to repay a portion of the Company’s unsecured revolving line of credit.
The note purchase agreement governing the Notes Due 2021 and 2024 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.
83
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
As of December 31, 2016, management believes the Company was in compliance with the financial covenants under the Indenture
and the note purchase agreements.
(9) UNSECURED TERM LOANS AND REVOLVING LINE OF CREDIT
Unsecured Credit Facility
On January 6, 2016, 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 (Unsecured Credit
Facility). The Company’s Unsecured Credit Facility consists of a $750,000 unsecured revolving line of credit, a $250,000 unsecured
term loan and a $200,000 unsecured term loan and is 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. In accordance with the unsecured credit agreement, the
Company may elect to convert to an investment grade pricing grid. As of December 31, 2016, 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 key terms of the Company’s Unsecured Credit Facility:
Unsecured Credit Facility
$250,000 unsecured term loan
$200,000 unsecured term loan
Maturity
Date
1/5/2021
Extension
Option
Extension
Fee
Credit
Spread
Unused Fee
Credit
Spread
Facility Fee
Leverage-Based Pricing
Ratings-Based Pricing
N/A
N/A
1.30% - 2.20%
5/11/2018
2 one year
0.15%
1.45% - 2.20%
N/A
N/A
0.90% - 1.75%
1.05% - 2.05%
N/A
N/A
$750,000 unsecured revolving line of credit
1/5/2020
2 six month
0.075%
1.35% - 2.25% 0.15% - 0.25% 0.85% - 1.55% 0.125% - 0.30%
The Company’s 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 following table summarizes the Company’s Unsecured Credit Facility:
December 31, 2016
December 31, 2015
Unsecured Credit Facility
Balance
$250,000 unsecured term loan – fixed rate (a)
$200,000 unsecured term loan – variable rate
$450,000 unsecured term loan – fixed rate portion (b)
$450,000 unsecured term loan – variable rate portion
Subtotal
Capitalized loan fees, net of accumulated amortization
Term loans, net
Revolving line of credit – variable rate (c)
Total unsecured credit facility, net
$
$
250,000
200,000
—
—
450,000
(2,402)
447,598
86,000
533,598
Interest Rate/
Weighted Average
Interest Rate
1.97%
2.22%
—%
—%
Balance
$
—
—
300,000
150,000
450,000
(2,474)
447,526
100,000
547,526
Interest Rate/
Weighted Average
Interest Rate
—%
—%
1.99%
1.88%
1.93%
1.95%
2.12%
2.09%
$
(a) As of December 31, 2016, $250,000 of LIBOR-based variable rate debt has been swapped to a weighted average fixed rate of 0.6677%
plus a credit spread based on a leverage grid ranging from 1.30% to 2.20% through December 31, 2017. The applicable credit spread was
1.30% as of December 31, 2016.
(b) As of December 31, 2015, $300,000 of LIBOR-based variable rate debt had 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.
(c) Excludes capitalized loan fees, which are included in “Other assets, net” in the accompanying consolidated balance sheets.
84
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The fourth amended and restated unsecured credit agreement (Unsecured Credit Agreement) contains customary representations,
warranties and covenants, and events of default. Pursuant to the terms of the Unsecured Credit Agreement, the Company is subject
to various financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and
consolidated leverage ratios; and (ii) minimum fixed charge and unencumbered interest coverage ratios. As of December 31, 2016,
management believes the Company was in compliance with the financial covenants and default provisions under the Unsecured
Credit Agreement.
The Company previously had a $1,000,000 unsecured credit facility that consisted of a $550,000 unsecured revolving line of credit
and a $450,000 unsecured term loan that bore interest at a rate of LIBOR plus a credit spread ranging from 1.45% to 2.05% and
was scheduled to mature on May 12, 2017 for the unsecured revolving line of credit and May 11, 2018 for the unsecured term
loan.
Term Loan Due 2023
On November 22, 2016, the Company closed on a seven-year $200,000 unsecured term loan with a group of financial institutions,
which funded on January 3, 2017. The Term Loan Due 2023 is priced on a leverage grid at a rate of LIBOR plus a credit spread
ranging from 1.70% to 2.55%. In accordance with the term loan agreement (Term Loan Agreement), the Company may elect to
convert to an investment grade pricing grid. As of December 31, 2016, 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 Term Loan
Due 2023 matures on November 22, 2023 and has a $100,000 accordion option that allows the Company, at its election, to increase
the total unsecured term loan up to $300,000, subject to customary fees and conditions, including the absence of an event of default
as defined in the Term Loan Agreement.
The Term Loan Agreement contains customary representations, warranties and covenants, and events of default, including financial
covenants that require the Company to maintain the following: (i) maximum unencumbered, secured and consolidated leverage
ratios; and (ii) minimum fixed charge and unencumbered interest coverage ratios. As of December 31, 2016, management believes
the Company was in compliance with the financial covenants and default provisions under the Term Loan Agreement.
(10) DERIVATIVES
The Company’s objective in using interest rate derivatives is to manage its exposure to interest rate movements and add stability
to interest expense. To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management
strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in
exchange for the Company making fixed rate payments over the life of the agreement without exchange of the underlying notional
amount.
The Company utilizes two interest rate swaps to hedge the variable cash flows associated with variable rate debt. The effective
portion of changes in the fair value of derivatives that are designated and that qualify as cash flow hedges is recorded in “Accumulated
other comprehensive income (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 $722 will be reclassified as a decrease to interest
expense. The ineffective portion of the change in fair value of derivatives is recognized directly in earnings.
During the year ended December 31, 2016, the Company entered into the following two interest rate swaps which effectively
convert one-month floating rate LIBOR to a fixed rate:
Effective Date
March 1, 2016
May 16, 2016
Notional
$
$
100,000
150,000
Fixed
Interest Rate
0.6591%
0.6735%
Termination Date
December 31, 2017
December 31, 2017
The Company previously had a $300,000 interest rate swap that matured on February 24, 2016. In addition, during the year ended
December 31, 2016, the Company repaid a $7,750 variable rate mortgage payable that had been swapped to a fixed rate. Upon
repayment of the mortgage on its scheduled maturity date, the interest rate swap expired. As of December 31, 2015, the outstanding
principal balance of this variable rate mortgage was $7,910.
85
Table of Contents
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,
2016
December 31,
2015
December 31,
2016
December 31,
2015
2
2
$
250,000
$
307,910
The table below presents the estimated fair value of the Company’s derivative financial instruments as well as their classification
in the consolidated balance sheets. The valuation techniques utilized are described in Note 16 to the consolidated financial
statements.
Derivatives designated as cash flow hedges:
Interest rate swaps
Interest rate swaps
December 31, 2016
December 31, 2015
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Other assets, net
N/A
$
$
743
—
N/A
Other liabilities
$
$
—
85
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 (Gain) Loss
Recognized in Other
Comprehensive Income
on Derivative
(Effective Portion)
2016
2015
Location of Loss
Reclassified from
Accumulated Other
Comprehensive
Income (AOCI)
into Income
(Effective Portion)
Amount of Loss
Reclassified from
AOCI into Income
(Effective Portion)
2016
2015
Location of Gain
Recognized In
Income on Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing)
Amount of Gain
Recognized in Income
on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
2016
2015
Interest rate swaps
$
(399) $
643
Interest expense
$
408
$
1,095
Other income, net
$
(21) $
(25)
Subsequent to December 31, 2016, the Company entered into two agreements to swap a total of $200,000 of LIBOR-based variable
rate debt to a fixed interest rate of 1.2628% through November 22, 2018.
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, 2016, the Company did not have any derivatives in a net liability position and has not posted any
collateral related to these agreements.
(11) INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The Company did not have any investments in unconsolidated joint ventures as of December 31, 2016 and 2015.
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.
86
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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
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 year ended December
31, 2014, the period attributable to the Company’s ownership, is summarized as follows:
Revenues
Property related income
Other income
Total revenues
Expenses
Operating expenses
Real estate taxes
Depreciation and amortization
General and administrative expenses
Interest expense
Other expense, net
Total expenses
Loss from continuing operations
Net loss
Other Joint
Ventures (a)
2014
$
11,853
6,679
18,532
1,660
2,339
3,948
268
3,028
11,921
23,164
(4,632)
(4,632)
$
(a) 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.
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 for the year ended December 31, 2014:
Joint Venture
MS Inland (a)
Captive (b)
The Company’s
Share of
Net Income (Loss)
2014
Net Cash
Distributions from/
(Contributions to)
Joint Ventures
2014
Fees Earned by
the Company
2014
$
$
241
(2,444)
(2,203)
$
$
1,360
(25)
1,335
$
$
338
—
338
(a) On June 5, 2014, the Company dissolved its joint venture arrangement with its partner in MS Inland.
(b) Effective December 1, 2014, the Company terminated its participation in the Captive.
87
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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,
which was accretive to net income, related to these differences during the year ended December 31, 2014.
The Company did not have any unconsolidated joint ventures as of December 31, 2016 and 2015. 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. The Company did not record any impairment
charges to its investments in unconsolidated joint ventures during the year ended December 31, 2014.
Acquisitions
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
(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 entered into 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. The Company did not sell any shares
under its ATM equity program during the years ended December 31, 2016 and 2015. As of December 31, 2016, 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 and are canceled upon repurchase. 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. The
88
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
Company did not repurchase any shares during the year ended December 31, 2015. During the year ended December 31, 2016,
the Company repurchased 591 shares at an average price per share of $14.93 for a total of $8,841. As of December 31, 2016,
$241,159 remained available under the repurchase 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 from continuing operations
Gain on sales of investment properties
Net income from continuing operations attributable to noncontrolling interest
Preferred stock dividends
Income 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 per common share – basic:
Year Ended December 31,
2015
2014
2016
$
$
37,110
129,707
—
(9,450)
157,367
—
157,367
(445)
$
3,832
121,792
(528)
(9,450)
115,646
—
115,646
(481)
597
42,196
—
(9,450)
33,343
507
33,850
(225)
$
156,922
$
115,165
$
33,625
Weighted average number of common shares outstanding
236,651 (a)
236,380 (b)
236,184 (c)
Effect of dilutive securities:
Stock options
RSUs
Denominator for earnings per common share – diluted:
Weighted average number of common and common equivalent
shares outstanding
2 (d)
298 (e)
2 (d)
— (f)
3 (d)
—
236,951
236,382
236,187
(a) Excludes 542 shares of unvested restricted common stock, which equate to 637 shares on a weighted average basis for the year ended
December 31, 2016. These shares will continue to be excluded from the computation of basic EPS until contingencies are resolved and the
shares are released.
(b) 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 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 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.
(d) There were outstanding options to purchase 41, 53 and 64 shares of common stock as of December 31, 2016, 2015 and 2014, respectively,
at a weighted average exercise price of $19.25, $19.39 and $19.32, respectively. Of these totals, outstanding options to purchase 35, 45 and
54 shares of common stock as of December 31, 2016, 2015 and 2014, respectively, at a weighted average exercise price of $20.55, $20.74
and $20.72, 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 391 RSUs eligible for future conversion following the performance period as of December 31, 2016 (see Note 5 to the consolidated
financial statements), which equate to 367 RSUs on a weighted average basis for the year ended December 31, 2016. 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 periods.
(f) There were 174 RSUs eligible for future conversion following the performance period as of December 31, 2015, which equate to 101 RSUs
on a weighted average basis for the year ended December 31, 2015. 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 have been outstanding.
89
Table of Contents
(14) INCOME TAXES
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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, 2016, 2015 and
2014. 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.
The Company’s deferred tax assets and liabilities as of December 31, 2016 and 2015 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
2016
2015
$
$
$
—
9,628
10,677
870
21,175
(21,175)
—
1,109
9,885
12,543
81
23,618
(23,618)
—
—
—
$
—
—
The Company’s deferred tax assets and liabilities result from the activities of the TRS. As of December 31, 2016, the TRS had a
capital loss carryforward and a federal net operating loss carryforward of $27,510 and $30,507, 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 the recognition of sales of investment properties, impairment charges recorded on investment
properties and the timing of both revenue recognition and investment property depreciation and amortization.
90
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
The following table reconciles the Company’s net income to REIT taxable income before the dividends paid deduction for the
years ended December 31, 2016, 2015 and 2014:
Net income attributable to the Company
Book/tax differences
REIT taxable income subject to 90% dividend requirement
2016
2015
2014
$
$
166,817
(50,950)
115,867
$
$
125,096
2,344
127,440
$
$
43,300
71,910
115,210
The Company’s dividends paid deduction for the years ended December 31, 2016, 2015 and 2014 is summarized below:
Cash distributions paid
Less: non-dividend distributions
Total dividends paid deduction attributable to earnings and profits
2016
2015
2014
$
$
166,285
(50,418)
115,867
$
$
166,064
(38,624)
127,440
$
$
166,025
(50,815)
115,210
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, 2016, 2015 and 2014 follows:
Preferred stock
Ordinary dividends
Non-dividend distributions
Total distributions per share
Common stock
Ordinary dividends
Non-dividend distributions
Total distributions per share
2016
2015
2014
$
$
$
$
1.75
—
1.75
0.45
0.21
0.66
$
$
$
$
1.75
—
1.75
0.50
0.16
0.66
$
$
$
$
1.75
—
1.75
0.45
0.21
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, 2016 or 2015 as a result of this provision. The Company
expects no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of
December 31, 2016. Returns for the calendar years 2013 through 2016 remain subject to examination by federal and various state
tax jurisdictions.
(15) PROVISION FOR IMPAIRMENT OF INVESTMENT PROPERTIES
As of December 31, 2016, 2015 and 2014, 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, 2016, 2015
and 2014:
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
7
2
2
3
3
—
—
3
2016
December 31,
2015
2014
(a)
(b)
8
3
1
4
Weighted average percentage by which the projected undiscounted cash flows exceeded
its respective carrying value for each of the remaining properties (c)
21%
42%
48%
(a) Includes one property which has subsequently been sold as of December 31, 2016.
91
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
(b) Includes seven properties which have subsequently been sold as of December 31, 2016.
(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, 2016:
Provision for
Impairment of
Investment
Properties
3,007
4,142
4,742
5,985
2,500
20,376
40,850
Provision for
Impairment of
Investment
Properties
2,289
1,655
169
2,484
13,340
19,937
43,720
$
$
$
$
Property Name
South Billings Center (a)
Mid-Hudson Center (b)
Saucon Valley Square (c)
Crown Theater (d)
Rite Aid Store (Eckerd), Culver Rd. (e)
Property Type
Development
Multi-tenant retail
Multi-tenant retail
Single-user retail
Single-user retail
Impairment Date
Various (a)
June 30, 2016
September 30, 2016
December 31, 2016
December 31, 2016
Square
Footage
—
235,600
80,700
74,200
10,900
Estimated fair value of impaired properties as of impairment date $
(a) An impairment charge was recorded on March 31, 2016 based upon the terms and conditions of an executed sales contract, which was
subsequently terminated. The property, which was not under active development, was sold on December 16, 2016 and additional impairment
was recognized pursuant to the terms and conditions of an executed sales contract.
(b) 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 June 30, 2016 and was sold on July 21, 2016.
(c) The Company recorded an impairment charge driven by a change in the estimated holding period for the property.
(d) The Company recorded an impairment charge upon re-evaluating the strategic alternatives for the property.
(e) The Company recorded an impairment charge based upon the terms and conditions of a bona fide purchase offer. This property was sold
on January 27, 2017.
The Company recorded the following investment property impairment charges during the year ended December 31, 2015:
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.
92
Table of Contents
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 (b)
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. This property was sold on February 1, 2016.
(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 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 assets:
Derivative asset
Financial liabilities:
Mortgages payable, net
Unsecured notes payable, net
Unsecured term loans, net
Unsecured revolving line of credit
Derivative liability
December 31, 2016
December 31, 2015
Carrying
Value
Fair Value
Carrying
Value
Fair Value
$
$
$
$
$
$
743
$
743
769,184
695,143
447,598
86,000
$
$
$
$
— $
833,210
679,212
450,421
86,130
—
$
$
$
$
$
$
— $
—
1,123,136
495,576
447,526
100,000
85
$
$
$
$
$
1,213,620
486,701
450,000
100,000
85
The carrying value of the derivative asset is included in “Other assets, net” and the carrying value of the derivative liability is
included in “Other liabilities” in the accompanying consolidated balance sheets.
93
Table of Contents
Fair Value Hierarchy
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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, 2016
Derivative asset
December 31, 2015
Derivative liability
Level 1
Level 2
Level 3
Total
Fair Value
$
$
— $
743
— $
85
$
$
— $
743
— $
85
Derivatives: The fair value of the derivative asset and derivative liability are determined using a discounted cash flow analysis
on the expected future cash flows of each derivative. This analysis utilizes observable market data including forward yield curves
and implied volatilities to determine the market’s expectation of the future cash flows of the variable component. The fixed and
variable components of the derivative are then discounted using calculated discount factors developed based on the LIBOR swap
rate and are aggregated to arrive at a single valuation for the period. The Company also incorporates credit valuation adjustments
to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value
measurements. Although the Company has determined that the majority of the inputs used to value its derivatives fall within
Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as
estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31,
2016 and 2015, 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 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.
94
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
Nonrecurring Fair Value Measurements
The following table presents the Company’s assets measured at fair value on a nonrecurring basis as of December 31, 2016
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, 2016, except for those properties sold prior to
December 31, 2016. 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, 2016
Investment properties
$
—
$
500 (b) $
10,600 (c) $
11,100
$
13,227
(a) Excludes impairment charges recorded on investment properties sold prior to December 31, 2016.
(b) Represents the fair value of the Company’s Rite Aid Store (Eckerd), Culver Rd. investment property. The estimated fair value of Rite Aid
Store (Eckerd), Culver Rd. was based upon the expected sales price from a bona fide purchase offer and determined to be a Level 2 input.
(c) Represents the fair values of the Company’s Crown Theater and Saucon Valley Square investment properties. The estimated fair values of
Crown Theater and Saucon Valley Square of $4,000 and $6,600, 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 financial and 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 values of
Crown Theater as of December 31, 2016 and Saucon Valley Square as of September 30, 2016, the date the assets were measured at fair
value:
Rental growth rates
Operating expense growth rates
Discount rates
Terminal capitalization rates
2016
Low
Varies (i)
3.10%
9.35%
8.35%
High
Varies (i)
18.02%
10.00%
9.50%
(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 Company did not have any assets measured at fair value on a nonrecurring basis as of December 31, 2015.
95
Table of Contents
Fair Value Disclosures
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
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, 2016
Mortgages payable, net
Unsecured notes payable, net
Unsecured term loans, net
Unsecured revolving line of credit
December 31, 2015
Mortgages payable, net
Unsecured notes payable, net
Unsecured term loan, net
Unsecured revolving line of credit
Level 1
Level 2
Level 3
Total
Fair Value
$
$
$
$
$
$
$
$
234,700
— $
$
— $
— $
239,482
— $
$
— $
— $
— $
— $
— $
— $
833,210
444,512
450,421
86,130
— $
— $
— $
— $
1,213,620
247,219
450,000
100,000
$
$
$
$
$
$
$
$
833,210
679,212
450,421
86,130
1,213,620
486,701
450,000
100,000
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 2.9% to 4.6% and
2.2% to 6.0% as of December 31, 2016 and 2015, respectively.
Unsecured notes payable, net: The quoted market price as of December 31, 2016 was used to value the Notes Due 2025. The
Company estimates the fair value of its Notes Due 2021, 2024, 2026 and 2028 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 rates used were
4.48% and 4.64% as of December 31, 2016 and 2015, respectively.
Unsecured term loans, net: The Company estimates the fair value of its unsecured term loans, net by discounting the anticipated
future cash flows related to the credit spreads at rates currently offered to the Company by its lenders for similar 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 to discount the credit spreads was 1.30% as of December 31, 2016 and 2015.
Unsecured revolving line of credit: The Company estimates the fair value of its unsecured revolving line of credit 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 maturity. 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% as of December 31, 2016 and 2015,
respectively.
There were no transfers between the levels of the fair value hierarchy during the years ended December 31, 2016 and 2015.
(17) COMMITMENTS AND CONTINGENCIES
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.
As of December 31, 2016, the Company had letter(s) of credit outstanding totaling $12,296 which serve as collateral for certain
capital improvements and performance obligations on certain redevelopment projects, which will be satisfied upon completion of
the projects, and reduced the available borrowings on its unsecured revolving line of credit.
96
Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Consolidated Financial Statements
As of December 31, 2016, the Company had active redevelopments at Reisterstown Road Plaza located in Baltimore, Maryland
and Towson Circle located in Towson, Maryland. The Company estimates that it will incur net costs of approximately $12,000 to
$13,000 related to the Reisterstown Road Plaza redevelopment and approximately $33,000 to $35,000 related to the Towson Circle
redevelopment, of which $1,417 and $10,053, respectively, has been incurred as of December 31, 2016.
(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, 2016, the Company:
•
•
•
•
•
•
•
•
•
defeased the IW JV portfolio of mortgages payable, which had an outstanding principal balance of $379,435 and an
interest rate of 7.50%, and incurred a defeasance premium of $60,198. See Note 7 to the consolidated financial statements
for further details;
received funding in the amount of $200,000 on the Term Loan Due 2023. See Note 9 to the consolidated financial
statements for further details;
entered into two agreements to swap a total of $200,000 of LIBOR-based variable rate debt to a fixed interest rate of
1.2628% through November 22, 2018;
closed on the acquisition of Main Street Promenade, a 181,600 square foot multi-tenant retail property located in Naperville,
Illinois, for a gross purchase price of $88,000 through a consolidated VIE to facilitate a potential 1031 Exchange;
closed on the disposition of Rite Aid Store (Eckerd), Culver Rd., a 10,900 square foot single-user retail operating property
located in Rochester, New York, for a sales price of $500 with no anticipated gain on sale or additional impairment due
to previously recognized impairment charges;
granted 88 restricted shares at a grant date fair value of $15.34 per share and 253 RSUs at a grant date fair value of $15.52
per RSU to the Company’s executives in conjunction with its long-term equity compensation plan. The restricted shares
will vest over three years and the RSUs granted are subject to a three-year performance period. Refer to Note 5 to the
consolidated financial statements for additional details regarding the terms of the RSUs;
closed on a transaction whereby the Company received the fee interest in approximately 50 acres of land at Boulevard
at the Capital Centre, an existing wholly-owned multi-tenant retail operating property located in Largo, Maryland. The
property was previously subject to a ground lease with a third party for approximately 70 acres. In conjunction with this
transaction, the Company paid consideration of $1,939 and agreed to shorten the term of the ground lease related to the
remaining land;
declared the cash dividend for the first quarter of 2017 for its 7.00% Series A cumulative redeemable preferred stock.
The dividend of $0.4375 per preferred share will be paid on March 31, 2017 to preferred shareholders of record at the
close of business on March 20, 2017; and
declared the cash dividend for the first quarter of 2017 of $0.165625 per share on its outstanding Class A common stock,
which will be paid on April 10, 2017 to Class A common shareholders of record at the close of business on March 27,
2017.
97
Table of Contents
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
Net income attributable to common shareholders
Net income per common share attributable to common
shareholders – basic and diluted
2016
Dec 31
142,752
18,295
15,932
0.07
Sep 30
144,526
72,494
70,132
0.30
$
$
$
$
Jun 30
147,226
28,602
26,239
0.11
$
$
$
$
Mar 31
148,639
47,426
45,064
0.19
$
$
$
$
236,528
236,783
236,716
236,578
236,852
237,108
236,902
236,680
2015
Dec 31
Sep 30
Jun 30
Mar 31
148,920
3,535
644
$
$
$
150,955
78,329
75,967
— $
0.32
$
$
$
$
150,888
30,684
28,321
0.12
$
$
$
$
153,197
13,076
10,714
0.05
$
$
$
$
$
$
$
$
Weighted average number of common shares outstanding – basic
236,477
236,439
236,354
236,250
Weighted average number of common shares outstanding – diluted
236,479
236,553
236,356
236,253
98
RETAIL PROPERTIES OF AMERICA, INC.
Schedule II
Valuation and Qualifying Accounts
For the Years Ended December 31, 2016, 2015 and 2014
(in thousands)
Year ended December 31, 2016
Allowance for doubtful accounts
Tax valuation allowance
Year ended December 31, 2015
Allowance for doubtful accounts
Tax valuation allowance
Year ended December 31, 2014
Allowance for doubtful accounts
Tax valuation allowance
Balance at
beginning
of year
Charged to
costs and
expenses
Write-offs
Balance at
end of year
$
$
$
$
$
$
7,910
23,618
7,497
20,355
8,197
18,631
2,466
(2,443)
(3,490)
$
— $
6,886
21,175
3,069
3,263
2,689
1,724
(2,656)
$
— $
7,910
23,618
(3,389)
$
— $
7,497
20,355
99
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2016
(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
$
2,823
$
1,300
$
5,319
$
900
$
1,300
$
6,219
$
7,519
$
2,578
2003
Bed Bath & Beyond Plaza
8,355
10,350
4,530
4,530
12,214
16,744
4,979
2000-2002
07/05
—
114,703
(28,975)
—
85,728
85,728
28,916
2004
Property Name
23rd Street Plaza
Panama City, FL
Ashland & Roosevelt
Chicago, IL
Avondale Plaza
Redmond, WA
Azalea Square I
Summerville, SC
Azalea Square III
Summerville, SC
Miami, FL
Bed Bath & Beyond Plaza
Westbury, NY
Boulevard at the Capital Centre
Largo, MD
Boulevard Plaza
Pawtucket, RI
The Brickyard
Chicago, IL
Brown's Lane
Middletown, RI
Cedar Park Town Center
Cedar Park, TX
Central Texas Marketplace
Waco, TX
Centre at Laurel
Laurel, MD
Chantilly Crossing
Chantilly, VA
973
—
13,850
21,052
4,573
9,497
642
36
11,127
6,375
21,304
1,793
—
3,280
—
—
—
—
—
—
2,197
4,170
—
45,300
4,585
2,600
23,923
13,000
19,000
10,348
18,367
11,901
90
692
313
12,038
26,657
12,005
13,829
47,559
3,564
7,546
1,254
368
8,757
8,406
16,714
8,500
16,060
2,347
Cinemark Seven Bridges
4,585
3,450
11,728
15
Woodridge, IL
Clearlake Shores
Clear Lake, TX
—
1,775
7,026
1,182
100
13,850
21,694
35,544
9,110
2002
4,573
6,375
3,280
9,533
14,106
779
2005
23,097
29,472
10,703
2004
10,438
13,718
3,529
2007
10,350
19,059
29,409
8,561
2004
4,170
15,602
19,772
6,729
1994
45,300
34,203
79,503
13,589
1977/2004
04/05
2,600
13,259
15,859
5,632
1985
23,923
13,000
18,700
8,500
3,450
1,775
14,197
38,120
1,254
2013
56,316
69,316
19,721
2004
25,420
44,120
9,805
2005
18,407
26,907
7,633
2004
11,743
15,193
4,824
2000
8,208
9,983
3,467
2003-2004
04/05
Date
Acquired
12/04
05/05
11/14
10/04
10/07
10/04
09/04
04/05
04/05
02/15
12/06
02/06
05/05
03/05
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2016
(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
5,023
12,458
17,481
672
1991
12,992
10,200
26,178
3,091
10,200
29,269
39,469
12,854
2004
—
—
5,023
16,700
11,479
5,830
—
—
12,000
2,919
12,382
22,775
19,439
35,887
13,281
76
3,564
415
3,344
59
13,985
6,900
9,980
3,000
23,851
19,158
2
474
10,239
3,000
18,736
1,398
—
7,318
954
(5,481)
—
—
—
750
4,962
1,850
1,958
9,976
5,681
581
—
77
1,181
25,322
6,000
43,434
12,889
19,906
17,025
29,478
—
43,367
110,785
1,057
1,940
101
Date
Acquired
08/15
8/04 &
10/04
04/05
10/13
12/04
16,700
26,339
43,039
9,481
1997
05/06
5,830
19,854
25,684
8,858
2004
12,000
39,231
51,231
16,211
1999
2,919
13,340
16,259
1,744
1999
6,900
3,000
3,000
2,707
3,350
750
4,962
1,671
6,000
23,853
30,753
11,409
1999-2003
01/04
19,632
22,632
8,469
2004-2005
02/05
20,134
23,134
9,061
1996-1997
07/04
84
2,791
—
2000
11,664
15,014
5,006
1998
1,958
2,708
831
1999
10,053
15,015
1,452
2004
07/05
04/05
05/05
10/13
7,041
8,712
3,072
2003-2004
06/04
56,323
62,323
24,358
2003-2004
10/04
17,025
30,535
47,560
14,747
2003-2004
3/04 & 7/04
43,367
112,725
156,092
8,432
2014
01/15
Property Name
Coal Creek Marketplace
Newcastle, WA
Colony Square
Sugar Land, TX
The Columns
Jackson, TN
The Commons at Temecula
Temecula, CA
Coppell Town Center
Coppell, TX
Coram Plaza
Coram, NY
Corwest Plaza
New Britain, CT
Cottage Plaza
Pawtucket, RI
Cranberry Square
Cranberry Township, PA
Crown Theater
Hartford, CT
Cuyahoga Falls, OH
CVS Pharmacy
Lawton, OK
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
Cuyahoga Falls Market Center
3,387
3,350
11,083
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2016
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
Property Name
East Stone Commons
Kingsport, TN
Eastside
Richardson, TX
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
Gateway Pavilions
Avondale, AZ
—
—
—
Encumbrance
Land
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
2,900
4,055
28,714
17,620
(727)
27
2,826
4,055
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
28,061
30,887
10,813
2005
Date
Acquired
06/06
17,647
21,702
455
2008
06/16
05/04
11/04
05/05
05/05
12/04
12,000
65,067
4,574
12,000
69,641
81,641
31,168
2002
6,040
3,500
8,830
—
12,765
11,800
3,965
1,700
—
—
—
4,800
2,540
17,209
7,805
2,430
—
16,118
8,386
3,755
10,956
35,421
33,098
6,425
13,490
6,393
96,547
14,836
44,880
15,563
449
—
—
1,030
4,626
493
(6)
818
174
3,500
11,405
14,905
5,067
2003
—
35,421
35,421
15,151
1988
11,800
33,098
44,898
14,157
1997
1,700
5,431
2,540
7,455
9,155
3,081
1995
17,485
22,916
7,329
2002-2004
01/05
6,886
9,426
3,008
1999/2004-
2005
Redev: 2009
12/04 &
3/05
11/13
17,209
96,541
113,750
11,057
2,430
15,654
18,084
7,077
2002
16,118
45,054
61,172
3,701
2008
07/04
01/15
(913)
3,755
14,650
18,405
6,641
2003-2004
11/04
26,078
—
47,403
3,087
—
50,490
50,490
22,646
1988
—
1,250
4,947
35,741
12,348
56,199
382
673
1,250
5,329
6,579
2,247
2004
12,348
56,872
69,220
5,454
2000
06/04
06/05
06/14
22,538
9,880
55,195
1,165
9,880
56,360
66,240
24,741
2003-2004
12/04
102
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2016
(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
—
26,371
—
32,174
32,174
13,593
2000
—
—
—
1,050
3,280
34,766
8,550
—
—
—
5,370
—
4,100
4,937
3,200
14,050
7,000
—
—
—
10,650
6,377
3,065
17,939
6,860
4,585
3,075
7,233
2,200
—
—
5,803
1,043
(7)
5,397
9,282
3,309
241
741
4,646
6,971
1,441
1,533
613
(159)
(333)
—
3,911
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
1,050
3,280
8,550
5,370
4,954
6,004
2,169
2003-2004
12/04
11,550
14,830
3,791
2006-2007
05/07
44,695
53,245
19,745
1996
22,250
27,620
7,491
2006
—
33,686
33,686
15,267
2001
3,894
3,200
7,000
17,385
21,279
7,382
2001
9,404
12,604
3,952
1997
39,793
46,793
17,484
2000
10,650
53,785
64,435
22,097
2002
6,377
3,065
6,860
3,075
2,200
12,826
19,203
1,266
1985
12,262
15,327
5,720
2002
33,936
40,796
15,155
1999
8,989
12,064
3,897
2004
11,276
13,476
5,007
2003
—
16,758
16,758
7,065
1996
Date
Acquired
07/04
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
10,689
9,700
17,137
1,738
9,700
18,875
28,575
7,805
1992
103
Property Name
Gateway Plaza
Southlake, TX
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
Heritage Towne Crossing
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
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2016
(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
—
—
—
5,200
18,087
2,200
4,674
2,600
—
—
—
—
23,097
14,446
3,710
16,005
1,516
2,075
6,600
4,750
—
—
—
10,010
64,731
12,823
9,247
52,762
23,932
19,144
37,744
4,009
30,910
23,904
4,211
217
1,392
1,231
2,001
568
(150)
4,007
186
9,124
3,027
5,200
14,221
19,421
5,858
Redev: 2004
12/05
18,087
64,948
83,035
6,139
1996
06/14
2,200
2,579
23,097
14,446
14,215
16,415
5,406
Renov: 2005
11/05
10,499
13,078
4,529
1980 & 1985
12/04
54,763
77,860
17,720
2005
24,500
38,946
2,531
2004
3,710
18,994
22,704
7,779
2005
16,005
41,751
57,756
19,057
1996/1999
01/04
2,065
6,600
4,750
4,205
6,270
1,842
1999
40,034
46,634
13,839
2005
26,931
31,681
11,092
2004
02/08
06/14
11/05
10/04
06/06
05/05
06/04
06/14
12,555
74,612
(13,958)
12,555
60,654
73,209
27,077
18,129
56,458
1,821
1998/2002-
2003
1997
25,217
38,329
17,772
357
—
—
—
—
13,000
46,482
22,906
2,910
7,423
4,710
16,614
799
(277)
(8)
16,265
2,242
38,329
13,110
2,486
7,415
4,710
104
69,278
82,388
27,534
2001-2004
09/05
16,761
19,247
7,536
2004 & 2005
799
8,214
604
2005
06/04 &
09/05
08/05
18,507
23,217
8,609
1995-1996
02/04
Property Name
HQ Building
San Antonio, TX
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
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
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2016
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
Encumbrance
Land
5,905
2,635
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
(654)
2,635
14,386
17,021
6,245
2004
15,100
33,987
6,579
15,100
40,566
55,666
18,063
3,478
3,350
6,927
7,468
10,818
3,110
1999 &
2004
1997
Property Name
Magnolia Square
Houma, LA
Manchester Meadows
Town and Country, MO
Mansfield Towne Crossing
Mansfield, TX
Merrifield Town Center
Falls Church, VA
Merrifield Town Center II
Falls Church, VA
New Forest Crossing
Houston, TX
Newnan Crossing I & II
Newnan, GA
Newton Crossroads
Covington, GA
15,040
39,738
12,195
36,496
14,698
11,313
14,700
3,300
18,678
28,797
4,390
—
—
—
—
—
—
North Rivers Towne Center
9,360
3,350
15,720
Charleston, SC
Northgate North
Seattle, WA
Northpointe Plaza
Spokane, WA
Northwood Crossing
Northport, AL
Northwoods Center
Wesley Chapel, FL
Oak Brook Promenade
Oak Brook, IL
One Loudoun Downtown
Ashburn, VA
Orange Plaza (Golfland Plaza)
Orange, CT
The Orchard
New Hartford, NY
26,186
7,540
49,078
(14,262)
21,651
13,800
—
3,770
7,914
3,415
—
—
—
—
10,343
22,113
4,350
3,200
37,707
13,658
9,475
50,057
91,138
4,834
17,151
4,463
1,210
6,668
1,245
1
2,366
250
105
Date
Acquired
02/05
01/15
01/16
10/13
12/03 &
02/04
12/04
6,048
3,625
497
22
66
541
570
18,678
28,797
3,350
3,350
7,540
14,700
45,786
60,486
18,780
1994-1995
08/04
3,300
15,820
19,120
7,013
2003-2004
11/04
36,993
55,671
2,716
2008
14,720
43,517
4,390
11,379
15,769
533
1,550
1972 Renov:
2006-2007
2003
16,290
19,640
7,444
2003-2004
04/04
34,816
42,356
16,401
1999-2003
06/04
13,800
42,170
55,970
19,119
1991-1993
05/04
3,770
3,415
10,343
22,113
4,350
3,200
14,868
18,638
5,966
1979/2004
01/06
16,143
19,558
7,007
2002-2004
12/04
51,302
61,645
1,611
2006
03/16
91,139
113,252
322
2013-2016
11/16
7,200
11,550
2,879
1995
05/05
17,401
20,601
7,170
2004-2005
07/05 &
9/05
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2016
(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
6,454
16,469
22,923
1,931
2002-2004
06/14
Paradise Valley Marketplace
8,565
6,590
—
44,511
44,511
18,522
1999
6,590
6,142
21,181
27,771
9,931
2002
29,163
35,305
11,011
2010
10,274
12,392
12,243
10,274
24,635
34,909
—
67,932
67,932
9,357
8,615
2002-2003
& 2005
2008
—
—
6,454
—
—
—
—
6,142
—
24,082
6,995
3,875
2,600
10,334
11,200
8,565
6,600
—
—
12,773
4,200
—
—
2,400
1,790
16,004
43,355
20,425
20,423
465
1,156
756
8,740
67,870
32,816
6,776
11,751
13,728
28,588
29,085
9,246
6,178
62
3,909
343
2,413
866
3,389
7,091
43
336
05/05
04/04
08/06
12/03 &
06/06
11/13
03/04 &
05/05
12/04
8,495
2,600
35,225
43,720
16,227
7,119
9,719
3,165
2002-2003
& 2005
2004
11,200
14,164
25,364
5,921
1973/2000
12/04
6,600
14,594
21,194
6,520
1995
07/04
—
31,977
31,977
14,870
2000-2002
06/04
4,200
2,400
1,790
36,176
40,376
14,212
2004
12/04
9,289
11,689
3,853
2004-2005
09/05
6,514
8,304
2,722
2004
12/05
Property Name
Oswego Commons
Oswego, IL
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 (a)
Baltimore, MD
Rite Aid Store (Eckerd)
Columbia, SC
Rite Aid Store (Eckerd)
Crossville, TN
46,182
15,800
70,372
6,420
15,791
76,801
92,592
33,874
1986/2004
08/04
1,535
1,224
900
600
2,377
2,033
—
1
106
900
600
2,377
2,034
3,277
2,634
1,126
2003-2004
06/04
938
2003-2004
06/04
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2016
(in thousands)
Initial Cost (A)
Gross amount carried at end of period
Property Name
Rite Aid Store (Eckerd)
Greer, SC
Rite Aid Store (Eckerd)
Kill Devil Hills, NC
Rite Aid Store (Eckerd), Culver Rd.
Rochester, NY
Rivery Town Crossing
Georgetown, TX
Royal Oaks Village II
Houston, TX
Saucon Valley Square
Bethlehem, PA
Sawyer Heights Village
Houston, TX
Schaumburg Towers
Schaumburg, IL
Shoppes at Hagerstown
Hagerstown, MD
Shoppes at Park West
Mt. Pleasant, SC
Denville, NJ
Shoppes of New Hope
Dallas, GA
Shoppes of Prominence Point I & II
Canton, GA
Shops at Forest Commons
Round Rock, TX
The Shops at Legacy
Plano, TX
Shops at Park Place
Plano, TX
Buildings and
Improvements
Adjustments
to Basis (C)
Land and
Improvements
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
Date
Acquired
Encumbrance
Land
1,473
1,050
1,753
700
—
—
—
1,590
2,900
3,450
2,047
2,960
2,279
6,814
17,000
1
1
(3,380)
384
272
2,048
2,961
224
3,098
3,661
489
944
2003-2004
06/04
1,366
2003-2004
06/04
—
2001
7,198
10,098
2,762
2005
17,272
20,722
5,039
2004-2005
11/05
7,941
3,200
12,642
(9,645)
4,379
6,197
87
1999
18,824
24,214
15,797
24,214
16,502
40,716
2,165
2007
1,050
700
265
2,900
3,450
1,818
7,900
4,034
2,240
2,190
11/05
10/06
09/04
10/13
01/16
11/04
01/04
04/16
07/04
06/04 &
09/05
12/04
06/07
10/03
137,501
145,401
58,553
1986 & 1990
11/04
22,068
26,102
987
2008
9,435
11,675
4,201
2004
9,033
11,223
4,232
1999
12,666
45,265
57,931
1,482
2003
1,350
3,650
1,050
8,800
9,096
11,065
12,415
5,060
2004
12,855
16,505
5,901
2004 & 2005
6,427
7,477
2,807
2002
124,183
132,983
43,545
2002
14,257
23,353
6,969
2001
705
405
131
78
193
38
20
203
294
—
—
7,900
4,034
4,940
2,240
3,362
1,350
—
—
—
3,650
1,050
8,800
137,096
21,937
9,357
8,840
45,227
11,045
12,652
6,133
108,940
15,243
7,503
9,096
13,175
1,082
107
The Shoppes at Quarterfield
—
2,190
Severn, MD
The Shoppes at Union Hill
14,757
12,666
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2016
(in thousands)
Property Name
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
Buildings and
Improvements
(D)
Total (B),
(D)
Accumulated
Depreciation
(E)
Date
Constructed
21,090
6,612
23,605
82
6,612
23,687
30,299
3,009
2004
Southlake Town Square I - VII
—
43,790
201,028
23,258
41,603
226,473
268,076
84,812
1998-2007
Southlake, TX
Stilesboro Oaks
Acworth, GA
Stonebridge Plaza
McKinney, TX
Stony Creek I
Noblesville, IN
Stony Creek II
Noblesville, IN
Streets of Yorktown
Houston, TX
Tacoma South
Tacoma, WA
Target South Center
Austin, TX
Tollgate Marketplace
Bel Air, MD
Town Square Plaza
Pottstown, PA
Towson Circle (a)
Towson, MD
Towson Square
Towson, MD
Tysons Corner
Vienna, VA
—
—
—
—
—
—
—
4,725
2,200
—
1,000
9,426
5,783
473
427
7,947
6,735
17,564
1,739
1,900
3,440
5,106
79
22,111
2,893
2,200
1,000
6,735
1,900
3,440
9,899
12,099
4,216
1997
6,210
7,210
2,593
1997
19,303
26,038
9,234
2003
5,185
7,085
2,112
2005
25,004
28,444
10,017
2005
10,976
22,898
10,976
22,903
33,879
617
1984-2015
05/16
2,300
34,933
8,700
16,760
9,700
8,760
61,247
18,264
9,487
11,787
3,951
1999
11/05
68,328
77,028
29,407
1979/1994
07/04
19,932
29,632
8,009
2004
5
727
7,081
1,668
15
337
2,300
8,700
9,700
—
—
4,450
2,200
9,050
17,840
(26,835)
55
55
13,757
22,525
21,958
(174)
13,757
21,784
35,541
7,184
22,525
7,199
29,724
—
959
426
1998
2014
1980
Renov:2004,
2012/2013
2002
9,894
9,894
4,337
38,567
43,017
15,727
2004
10,898
13,098
4,953
2004
University Town Center
Tuscaloosa, AL
4,140
—
9,557
Village Shoppes at Gainesville
19,325
4,450
36,592
1,975
Gainesville, GA
Village Shoppes at Simonton
Lawrenceville, GA
3,102
2,200
10,874
24
108
Date
Acquired
10/13
12/04, 5/07,
9/08 & 3/09
12/04
08/05
12/03
11/05
12/05
12/05
07/04
11/15
05/15
11/04
09/05
08/04
RETAIL PROPERTIES OF AMERICA, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2016
(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
14,500
17,458
31,958
6,837
2005
—
—
—
—
14,500
5,185
1,170
8,200
5,291
4,400
16,914
27,504
10,488
35,538
7,471
—
16,073
25,433
544
986
193
371
571
896
5,185
1,170
8,200
4,400
28,490
33,675
12,913
2003-2004
05/04
10,681
11,851
4,517
2004
35,909
44,109
14,949
2000
8,042
12,442
3,418
1999
16,073
26,329
42,402
1,378
1981
Date
Acquired
07/06
06/05
07/05
11/04
06/15 &
8/16
Property Name
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
Total Operating Properties
769,184
1,208,948
4,039,199
227,920
1,191,403
4,284,664
5,476,067
1,443,333
Developments in Progress
—
15,541
7,898
—
15,541
7,898
23,439
—
Total Investment Properties
$
769,184
$1,224,489
$
4,047,097
$
227,920
$
1,206,944
$
4,292,562
$ 5,499,506
$
1,443,333
(a) The cost basis associated with this property or a portion of this property was reclassified to Developments in Progress.
109
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, 2016 for U.S. federal income tax purposes was approximately $5,524,479.
(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,
2016
5,687,842
435,989
(526,970)
(47,151)
(47,159)
4,586
(7,631)
5,499,506
2016
1,433,195
191,493
(118,925)
(15,769)
(18,500)
(3,947)
(24,214)
1,443,333
$
$
$
$
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
$
$
$
$
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
110
Table of Contents
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, 2016, 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, 2016 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, 2016. The effectiveness of our internal control over financial reporting as of December 31, 2016 has been
audited by Deloitte & Touche LLP, an Independent Registered Public Accounting Firm, as stated in their report which is included
herein.
111
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, 2016, based on the criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal
executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject
to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2016, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2016 of the Company
and our report dated February 15, 2017 expressed an unqualified opinion on those consolidated financial statements and financial
statement schedules and included an explanatory paragraph regarding the Company’s adoption of Accounting Standards Update
2017-01, Business Combinations.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 15, 2017
112
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by this Item 10 will be included in our definitive proxy statement for our 2017 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 2017 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 2017 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 2017 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 2017 Annual Meeting of Stockholders
and is incorporated herein by reference.
113
Table of Contents
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, 2016 are submitted herewith:
Valuation and Qualifying Accounts (Schedule II)
Real Estate and Accumulated Depreciation (Schedule III)
Page
99
100
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, 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, and Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 and filed on November 2, 2016).
114
Table of Contents
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
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 (Incorporated herein by reference
to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 and filed on February
17, 2016).
Note Purchase Agreement dated as of September 30, 2016, 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 October 5, 2016).
Term Loan Agreement, dated as of November 22, 2016, by and among the Registrant as Borrower and Capital One, National
Association as Administrative Agent, Capital One, National Association, PNC Capital Markets LLC, TD Bank, N.A., and
Regions Bank as Joint Lead Arrangers and Joint Book Managers, TD Bank, N.A. as Syndication Agent, PNC Capital Markets
LLC and Regions Bank 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 November 29, 2016).
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).
Amended and Restated Retention Agreement dated October 31, 2016 by and between the Registrant and Steven P. Grimes
(Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2016 and filed on November 2, 2016).
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).
115
Table of Contents
Exhibit No.
Description
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
12.1
21.1
23.1
31.1
31.2
32.1
101
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).
Amended and Restated Retention Agreement dated October 31, 2016 by and between the 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
September 30, 2016 and filed on November 2, 2016).
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).
Retention Agreement dated October 31, 2016 by and between the Registrant and Heath R. Fear (Incorporated herein by reference
to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 and filed on
November 2, 2016).
Offer Letter, dated March 24, 2016, by and between the Registrant and Paula C. Maggio (filed herewith).
Indemnification Agreement, dated May 2, 2016, by and between the Registrant and Paula C. Maggio (filed herewith).
Retention Agreement dated October 31, 2016 by and between the Registrant and Paula C. Maggio (Incorporated herein by
reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 and
filed on November 2, 2016).
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (filed herewith).
List of Subsidiaries of Registrant (filed herewith).
Consent of Deloitte & Touche LLP (filed herewith).
Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
(filed herewith).
Certification of Executive Vice President, Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934 (filed herewith).
Certification of President and Chief Executive Officer and Executive Vice President, Chief Financial Officer and Treasurer
pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C Section 1350 (furnished herewith).
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):
(i) Consolidated Balance Sheets as of December 31, 2016 and 2015, (ii) Consolidated Statements of Operations and Other
Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014, (iii) Consolidated Statements of Equity for
the Years Ended December 31, 2016, 2015 and 2014, (iv) Consolidated Statements of Cash Flows for the Years Ended December
31, 2016, 2015 and 2014, (v) Notes to Consolidated Financial Statements and (vi) Financial Statement Schedules.
116
Table of Contents
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:
Date:
Steven P. Grimes
President and Chief Executive Officer
February 15, 2017
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/ RICHARD P. IMPERIALE
By:
Steven P. Grimes
Director, President and
Chief Executive Officer
Date: February 15, 2017
By:
Bonnie S. Biumi
Director
By:
Richard P. Imperiale
Director
Date:
February 15, 2017
Date:
February 15, 2017
/s/ HEATH R. FEAR
/s/ FRANK A. CATALANO, JR.
/s/ PETER L. LYNCH
By:
Heath R. Fear
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
By:
Frank A. Catalano, Jr.
Director
By:
Peter L. Lynch
Director
Date: February 15, 2017
Date:
February 15, 2017
Date:
February 15, 2017
/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 15, 2017
Date:
February 15, 2017
Date:
February 15, 2017
/s/ GERALD M. GORSKI
/s/ ROBERT G. GIFFORD
By:
Gerald M. Gorski
Chairman of the Board and Director
Date: February 15, 2017
By:
Date:
Robert G. Gifford
Director
February 15, 2017
117
Exhibit 10.27
March 24, 2016
Ms. Paula C. Maggio
715 Forest Avenue
Oak Park, IL 60302
Dear Paula,
Retail Properties of America, Inc. (“RPAI”) is pleased to make an offer of employment to you
for the role of General Counsel. It is expected you would be appointed as Executive Vice
President, General Counsel & Secretary at the Shareholder’s Meeting in May 2016. You will
report to Steven Grimes, President and Chief Executive Officer. This offer is contingent upon
successful completion of your pre-employment screening, professional references and drug
testing. We anticipate that your first day of employment will be on or about May 2, 2016.
Your employment will be at-will, which, among other things, means that you may resign at
any time and RPAI may terminate your employment with or without cause for any reason at
any time. This information is articulated in further detail in our Employee Handbook, which
contains certain policies and procedures which apply to your employment and which are
subject to change at any time with or without notice.
The agreed upon initial annual base salary will be $400,000, paid bi-weekly, at a rate of
$15,384.62. You will be considered a regular, full-time, exempt employee for the purposes
of the Department of Labor’s regulations addressing overtime pay.
In addition to your base salary, you will initially be eligible for an annual, cash, short-term
incentive (“STI”) equal to $325,000 based 60% on the achievement of company goals and
40% on the achievement of your personal goals. Under RPAI’s current compensation
program, the STI has a payout ratio ranging from 50% to 200% on an interpolated basis
assuming at least a minimum level of performance is achieved relative to company goals.
During your initial year, your STI potential will be in accordance with the STI plan and will
not be pro-rated. The STI payout is contingent on you remaining employed by RPAI at the
time of payment, which is scheduled to be on or about February 24, 2017 and similar timing
each year thereafter.
Retail Properties of America, Inc.
T: 855.247.RPAI
www.rpai.com 2021 Spring Road, Suite 200
Oak Brook, IL 60523
Page 2
In addition to your STI, you will also initially be eligible to participate in RPAI’s Long-Term
Incentive Program (“LTIP”). Your LTIP target will be $600,000. LTIP is issued in the form of
restricted stock and restricted stock units, 25% of which are time-based in the form of
restricted stock which will vest over a 4-year period subject to active employment with RPAI.
The remaining 75%, which is performance-based in the form of restricted stock units and
determined by RPAI’s total return relative to its peer group as measured after a three year
measurement period. If earned, stock will be granted for one third of the earned amount,
and the remaining two thirds will be granted in restricted stock that vest one year thereafter
from the grant date; and is, of course, subject to active employment at the time of vesting.
The performance-based LTIP has a payout ratio ranging from 50% to 200% assuming at least
a minimum level of performance, as currently defined, is achieved of RPAI’s total return
relative to its peer for the aforementioned period. Please note, the restricted stock will be
valued based on the closing price of RPAI’s common stock on the trading day immediately
preceding the grant date.
Both pieces of the LTIP will be issued either the second day after your employment start
date, or, the expiration of the blackout period, whichever is later. Given your role within the
organization, a review of your total compensation package will be conducted within the
normal course by the Executive Compensation Committee annually, typically July of each
year.
Finally, you will also be entitled to a benefits package as part of your total compensation
package. RPAI benefits include:
• Medical, dental and vision insurance, effective the first of the month following 60
days of employment;
• Annual, comprehensive, executive physical at Northwestern Executive Health;
• Company paid life insurance equal to one times your annual base salary up to
$400,000. Life, short-term and long-term disability benefits are effective the first of
the month following 60 days of employment;
• Auto enrollment in the RPAI 401(k) plan on the first of the month following date of
hire and immediate participation in company matching under the plan;
• You will be eligible for six weeks paid time-off (“PTO”), which equates to 30 days
each calendar year. You will receive a prorated amount for calendar year 2016. PTO
days will accrue on a monthly basis at a rate of 20 hours/month.
Upon employment, all new hire paperwork for the onboarding process will be completed
electronically. Please be prepared to provide documentation establishing your identity and
authorization to work in the U.S within three days of joining RPAI.
Page 3
By signing and returning this offer of employment, you are confirming that you are not (and
prior to the commencement of your employment with RPAI will not become) bound by the
terms of any agreement with any current or previous employer or other party that, upon
commencement of your employment with RPAI, restricts in any way your engagement in any
business, employment with RPAI or the performance of your proposed duties for RPAI. Your
employment with RPAI will be contingent on the lack of any such restriction and RPAI’s
satisfaction, in its sole discretion that no such restriction exists.
This offer of employment is valid until Wednesday, March 30, 2016 at 5:00 p.m. CST, upon
which time it will become null and void. We expect that we will announce your acceptance
and appointment soon after offer acceptance and we will work with you on the contents of
any press release issued.
Congratulations on your offer of employment! On behalf of the entire RPAI Team, we look
forward to having you on board and are confident you will be successful in your new role. If
you have any questions, please feel free to contact Steve Grimes at 630-634-4160 or me at
630-634-4282 or via my email address at: whaley@rpai.com.
Sincerely yours,
Retail Properties of America, Inc.
/s/ Lauren E. Whaley
Lauren E. Whaley
Vice President, Director of Human Resources
Signature of Acceptance:
/s/ Paula C. Maggio
Paula C. Maggio
3/25/16
Date
Exhibit 10.28
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made and entered into this 2nd day of May,
2016 ("Agreement"), by and between RETAIL PROPERTIES OF AMERICA, INC., a Maryland
corporation (the "Company"), and PAULA C. MAGGIO ("Indemnitee").
WHEREAS, at the request of the Company, Indemnitee currently serves as an officer of the
Company and may, therefore, be subjected to claims, suits or proceedings arising as a result of her
service; and
WHEREAS, as an inducement to Indemnitee to continue to serve as such officer, the
Company has agreed to indemnify and to advance expenses and costs incurred by Indemnitee in
connection with any such claims, suits or proceedings, to the maximum extent permitted by law;
and
WHEREAS, the parties by this Agreement desire to set forth their agreement regarding
indemnification and advance of expenses;
NOW, THEREFORE, in consideration of the premises and the covenants contained herein,
the Company and Indemnitee do hereby covenant and agree as follows:
Section I.
Definitions. For purposes of this Agreement:
(a)
"Change in Control" means a change in control of the Company occurring after the
Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule
14A of Regulation 14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), whether or not
the Company is then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 15% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least two-thirds of the members of the Board
of Directors in office immediately prior to such person attaining such percentage interest; (ii) there
occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of
liquidation or other reorganization not approved by at least two-thirds of the members of the Board
of Directors then in office, as a consequence of which members of the Board of Directors in office
immediately prior to such transaction or event constitute less than a majority of the Board of Directors
thereafter; or (iii) during any period of two consecutive years, other than as a result of an event
described in clause (a)(ii) of this Section 1, individuals who at the beginning of such period
constituted the Board of Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote of at least two-
thirds of the directors then still in office who were directors at the beginning of such period) cease
for any reason to constitute at least a majority of the Board of Directors.
1
(b)
"Corporate Status" means the status of a person who is or was a director, trustee,
officer, employee or agent of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise for which such person is or was serving at the request
of the Company.
(c)
"Disinterested Director" means a director of the Company who is not and was not
a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(d)
"Effective Date" means the date set forth in the first paragraph of this Agreement.
(e)
"Expenses" shall include all reasonable and out-of-pocket attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing
and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or
expenses of the types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding.
(f)
"Independent Counsel" means a law firm, or a member of a law firm, that is
experienced in matters of corporation law and neither is, nor in the past five years has been, retained
to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any
other party to or witness in the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an action to determine Indemnitee's
rights under this Agreement. If a Change of Control has not occurred, Independent Counsel shall
be selected by the Board of Directors, with the approval of Indemnitee, which approval will not be
unreasonably withheld. If a Change of Control has occurred, Independent Counsel shall be selected
by Indemnitee, with the approval of the Board of Directors, which approval will not be unreasonably
withheld.
(g)
"Proceeding" includes any threatened, pending or completed action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative (including on appeal), except
one pending or completed on or before the Effective Date, unless otherwise specifically agreed in
writing by the Company and Indemnitee.
Section 2.
Services by Indemnitee. Indemnitee will serve as an officer of the Company.
However, this Agreement shall not impose any obligation on Indemnitee or the Company to continue
Indemnitee's service to the Company beyond any period otherwise required by law or by other
agreements or commitments of the parties, if any.
Section 3.
Indemnification - General. The Company shall indemnify, and advance
Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the maximum extent
permitted by Maryland law in effect on the date hereof and as amended from time to time; provided,
however, that no change in Maryland law shall have the effect of reducing the benefits available to
Indemnitee hereunder based on Maryland law as in effect on the date hereof. The rights of Indemnitee
2
provided in this Section 3 shall include, without limitation, the rights set forth in the other sections
of this Agreement, including any additional indemnification permitted by Section 2-418(g) of the
Maryland General Corporation Law ("MGCL").
Section 4.
Proceedings Other Than Proceedings by or in the Right of the Company.
Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 if, by reason
of his/her Corporate Status, he/she is, or is threatened to be, made a party to or a witness in any
threatened, pending, or completed Proceeding, other than a Proceeding by or in the right of the
Company. Pursuant to this Section 4, Indemnitee shall be indemnified against all judgments,
penalties, fines and amounts paid in settlement and all Expenses actually and reasonably incurred
by him/her or on his/her behalf in connection with a Proceeding by reason of his/her Corporate
Status unless it is established that (i) the act or omission of Indemnitee was material to the matter
giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and
deliberate dishonesty, (ii) Indemnitee actually received an improper personal benefit in money,
property or services, or (iii) in the case of any criminal Proceeding, Indemnitee had reasonable
cause to believe that his/her conduct was unlawful.
Section 5.
Proceedings by or in the Right of the Company. Indemnitee shall be entitled
to the rights of indemnification provided in this Section 5 if, by reason of his/her Corporate Status,
he/she is, or is threatened to be, made a party to or a witness in any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant
to this Section 5, Indemnitee shall be indemnified against all amounts paid in settlement and all
Expenses actually and reasonably incurred by him/her or on his/her behalf in connection with such
Proceeding unless it is established that (i) the act or omission of Indemnitee was material to the
matter giving rise to such a Proceeding and (a) was committed in bad faith or (b) was the result of
active and deliberate dishonesty or (ii) Indemnitee actually received an improper personal benefit
in money, property or services.
Section 6.
Court-Ordered Indemnification. Notwithstanding any other provision of
this Agreement, a court of appropriate jurisdiction, upon application of Indemnitee and such notice
as the court shall require, may order indemnification in the following circumstances:
(a)
if it determines Indemnitee is entitled to reimbursement under Section 2-418(d)(1)
of the MGCL, the court shall order indemnification, in which case Indemnitee shall be entitled to
recover the expenses of securing such reimbursement; or
(b)
if it determines that Indemnitee is fairly and reasonably entitled to indemnification
in view of all the relevant circumstances, whether or not Indemnitee (i) has met the standards of
conduct set forth in Section 2-418(b) of the MGCL or (ii) has been adjudged liable for receipt of
an improper personal benefit under Section 2-418(c) of the MGCL, the court may order such
indemnification as the court shall deem proper. However, indemnification with respect to any
Proceeding by or in the right of the Company or in which liability shall have been adjudged in the
circumstances described in Section 2-418(c) of the MGCL shall be limited to Expenses actually
and reasonably incurred by him/her or on his/her behalf in connection with a Proceeding.
3
Section 7.
Indemnification for Expenses of a Party Who is Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement, and without limiting any such provision,
to the extent that Indemnitee is, by reason of his/her Corporate Status, made a party to and is
successful, on the merits or otherwise, in the defense of any Proceeding, he/she shall be indemnified
for all Expenses actually and reasonably incurred by him/her or on his/her behalf in connection
therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits
or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the
Company shall indemnify Indemnitee under this Section 7 for all Expenses actually and reasonably
incurred by him/her or on his/her behalf in connection with each successfully resolved claim, issue
or matter, allocated on a reasonable and proportionate basis. For purposes of this Section and without
limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or
without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
Section 8.
Advance of Expenses. The Company shall advance all reasonable Expenses
actually and reasonably incurred by or on behalf of Indemnitee in connection with any Proceeding
(other than a Proceeding brought to enforce indemnification under this Agreement, applicable law,
the Charter or Bylaws of the Company, any agreement or a resolution of the stockholders entitled
to vote generally in the election of directors or of the Board of Directors) to which Indemnitee is,
or is threatened to be, made a party or a witness, within ten days after the receipt by the Company
of a statement or statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such statement or statements
shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded
or accompanied by a written affirmation by Indemnitee of Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Company as authorized by law and by
this Agreement has been met and a written undertaking by or on behalf of Indemnitee, in substantially
the form attached hereto as Exhibit A or in such form as may be required under applicable law as
in effect at the time of the execution thereof, to reimburse the portion of any Expenses advanced to
Indemnitee relating to claims, issues or matters in the Proceeding as to which it shall ultimately be
established that the standard of conduct has not been met and which have not been successfully
resolved as described in Section 7. To the extent that Expenses advanced to Indemnitee do not relate
to a specific claim, issue or matter in the Proceeding, such Expenses shall be allocated on a reasonable
and proportionate basis. The undertaking required by this Section 8 shall be an unlimited general
obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee's
financial ability to repay such advanced Expenses and without any requirement to post security
therefor.
Section 9.
Procedure for Determination of Entitlement to Indemnification.
(a)
To obtain indemnification under this Agreement, Indemnitee shall submit to the
Company a written request, including therein or therewith such documentation and information as
is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what
extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly
upon receipt of such a request for indemnification, advise the Board of Directors in writing that
Indemnitee has requested indemnification.
4
(b)
Upon written request by Indemnitee for indemnification pursuant to the first
sentence of Section 9(a) hereof, a determination, if required by applicable law, with respect to
Indemnitee's entitlement thereto shall promptly be made in the specific case: (i) if a Change in
Control shall have occurred, by Independent Counsel in a written opinion to the Board of Directors,
a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control shall not have
occurred, (A) by the Board of Directors (or a duly authorized committee thereof) by a majority vote
of a quorum consisting of Disinterested Directors (as herein defined), or (B) if a quorum of the
Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to
the Board of Directors, a copy of which shall be delivered to Indemnitee, or (C) if so directed by a
majority of the members of the Board of Directors, by the stockholders of the Company. If it is so
determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made
within ten days after such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to indemnification,
including providing to such person, persons or entity upon reasonable advance request any
documentation or information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such determination in the
discretion of the Board of Directors or Independent Counsel if retained pursuant to clause (ii)(B)
of this Section 9. Any Expenses actually and reasonably incurred by Indemnitee in so cooperating
with the person, persons or entity making such determination shall be borne by the Company
(irrespective of the determination as to Indemnitee's entitlement to indemnification) and the
Company shall indemnify and hold Indemnitee harmless therefrom.
Section 10.
Presumptions and Effect of Certain Proceedings.
(a)
In making a determination with respect to entitlement to indemnification hereunder,
the person or persons or entity making such determination shall presume that Indemnitee is entitled
to indemnification under this Agreement if Indemnitee has submitted a request for indemnification
in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof
to overcome that presumption in connection with the making of any determination contrary to that
presumption.
(b)
The termination of any Proceeding by judgment, order, settlement, conviction, a
plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment,
does not create a presumption that Indemnitee did not meet the requisite standard of conduct
described herein for indemnification.
5
Section 11.
Remedies of Indemnitee.
(a)
If (i) a determination is made pursuant to Section 9 of this Agreement that Indemnitee
is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made
pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification
shall have been made pursuant to Section 9(b) of this Agreement within 60 days after receipt by
the Company of the request for indemnification, (iv) payment of indemnification is not made
pursuant to Section 7 of this Agreement within ten days after receipt by the Company of a written
request therefor, or (v) payment of indemnification is not made within ten days after a determination
has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an
adjudication in an appropriate court located in the State of Maryland, or in any other court of
competent jurisdiction, of his/her entitlement to such indemnification or advance of Expenses.
Alternatively, Indemnitee, at his/her option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the commercial Arbitration Rules of the American Arbitration
Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the right to commence
such proceeding pursuant to this Section 11(a); provided, however, that the foregoing clause shall
not apply to a proceeding brought by Indemnitee to enforce his/her rights under Section 7 of this
Agreement.
(b)
In any judicial proceeding or arbitration commenced pursuant to this Section 11 the
Company shall have the burden of proving that Indemnitee is not entitled to indemnification or
advance of Expenses, as the case may be.
(c)
If a determination shall have been made pursuant to Section 9(b) of this Agreement
that Indemnitee is entitled to indemnification, the Company shall be bound by such determination
in any judicial proceeding or arbitration commenced pursuant to this Section 11, absent a
misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make
Indemnitee's statement not materially misleading, in connection with the request for
indemnification.
(d)
In the event that Indemnitee, pursuant to this Section 11, seeks a judicial adjudication
of or an award in arbitration to enforce his/her rights under, or to recover damages for breach of,
this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified
by the Company for, any and all Expenses actually and reasonably incurred by him/her in such
judicial adjudication or arbitration. If it shall be determined in such judicial adjudication or
arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advance
of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be appropriately prorated.
Section 12.
Defense of the Underlying Proceeding.
(a)
Indemnitee shall notify the Company promptly upon being served with or receiving
any summons, citation, subpoena, complaint, indictment, information, notice, request or other
document relating to any Proceeding which may result in the right to indemnification or the advance
6
of Expenses hereunder; provided, however, that the failure to give any such notice shall not disqualify
Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to
indemnification or the advance of Expenses under this Agreement unless the Company's ability to
defend in such Proceeding or to obtain proceeds under any insurance policy is materially and
adversely prejudiced thereby, and then only to the extent the Company is thereby actually so
prejudiced.
(b)
Subject to the provisions of the last sentence of this Section 12(b) and of Section
12(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may
give rise to indemnification hereunder; provided, however, that the Company shall notify Indemnitee
of any such decision to defend within 15 calendar days following receipt of notice of any such
Proceeding under Section 12(a) above. The Company shall not, without the prior written consent
of Indemnitee, which shall not be unreasonably withheld or delayed, consent to the entry of any
judgment against Indemnitee or enter into any settlement or compromise which (i) includes an
admission of fault of Indemnitee or (ii) does not include, as an unconditional term thereof, the full
release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form
and substance reasonably satisfactory to Indemnitee. This Section 12(b) shall not apply to a
Proceeding brought by Indemnitee under Section 11 above or Section 18 below.
(c)
Notwithstanding the provisions of Section 12(b) above, if in a Proceeding to which
Indemnitee is a party by reason of Indemnitee's Corporate Status, (i) Indemnitee reasonably
concludes, based upon an opinion of counsel approved by the Company, which approval shall not
be unreasonably withheld, that he/she may have separate defenses or counterclaims to assert with
respect to any issue which may not be consistent with other defendants in such Proceeding, (ii)
Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company,
which approval shall not be unreasonably withheld, that an actual or apparent conflict of interest
or potential conflict of interest exists between Indemnitee and the Company, or (iii) if the Company
fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to
be represented by separate legal counsel of Indemnitee's choice, subject to the prior approval of the
Company, which shall not be unreasonably withheld, at the expense of the Company. In addition,
if the Company fails to comply with any of its obligations under this Agreement or in the event that
the Company or any other person takes any action to declare this Agreement void or unenforceable,
or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be
provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee's
choice, subject to the prior approval of the Company, which shall not be unreasonably withheld, at
the expense of the Company (subject to Section 11(d)), to represent Indemnitee in connection with
any such matter.
Section 13.
Non-Exclusivity; Survival of Rights; Subrogation; Insurance.
(a)
The rights of indemnification and advance of Expenses as provided by this
Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time
be entitled under applicable law, the Charter or Bylaws of the Company, any agreement or a
resolution of the stockholders entitled to vote generally in the election of directors or of the Board
of Directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision
7
hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his/her Corporate Status prior to such amendment, alteration
or repeal.
(b)
In the event of any payment under this Agreement, the Company shall be subrogated
to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all
papers required and take all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Company to bring suit to enforce such rights.
(c)
The Company shall not be liable under this Agreement to make any payment of
amounts otherwise indemnifiable or payable or reimbursable as Expenses hereunder if and to the
extent that Indemnitee has otherwise actually received such payment under any insurance policy,
contract, agreement or otherwise.
Section 14.
Insurance. The Company will use its reasonable best efforts to acquire
directors and officers liability insurance, on terms and conditions deemed appropriate by the Board
of Directors of the Company, with the advice of counsel, covering Indemnitee or any claim made
against Indemnitee for service as a director or officer of the Company and covering the Company
for any indemnification or advance of Expenses made by the Company to Indemnitee for any claims
made against Indemnitee for service as a director or officer of the Company. Without in any way
limiting any other obligation under this Agreement, the Company shall indemnify Indemnitee for
any payment by Indemnitee arising out of the amount of any deductible or retention and the amount
of any excess of the aggregate of all judgments, penalties, fines, settlements and reasonable Expenses
actually and reasonably incurred by Indemnitee in connection with a Proceeding over the coverage
of any insurance referred to in the previous sentence.
Section 15.
Indemnification for Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is or may be, by reason of his/her Corporate
Status, a witness in any Proceeding, whether instituted by the Company or any other party, and to
which Indemnitee is not a party but in which the Indemnitee receives a subpoena to testify, he/she
shall be advanced all reasonable Expenses and indemnified against all Expenses actually and
reasonably incurred by him/her or on his/her behalf in connection therewith.
Section 16.
Duration of Agreement; Binding Effect.
(a)
This Agreement shall continue until and terminate ten years after the date that
Indemnitee's Corporate Status shall have ceased; provided, that the rights of Indemnitee hereunder
shall continue until the final termination of any Proceeding then pending in respect of which
Indemnitee is granted rights of indemnification or advance of Expenses hereunder and of any
proceeding commenced by Indemnitee pursuant to Section 11 of this Agreement relating thereto.
(b)
The indemnification and advance of Expenses provided by, or granted pursuant to,
this Agreement shall be binding upon and be enforceable by the parties hereto and their respective
successors and assigns (including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the Company), shall continue as
8
to an Indemnitee who has ceased to be a director, trustee, officer, employee or agent of the Company
or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise
which such person is or was serving at the written request of the Company, and shall inure to the
benefit of Indemnitee and his/her spouse, assigns, heirs, devisees, executors and administrators and
other legal representatives.
(c)
The Company shall require and cause any successor (whether direct or indirect by
purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the
business and/or assets of the Company, by written agreement in form and substance satisfactory to
Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform if no such succession had taken
place.
Section 17.
Severability. If any provision or provisions of this Agreement shall be held
to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and
enforceability of the remaining provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to be invalid, illegal
or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected
or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested thereby.
Section 18.
Exception to Right of Indemnification or Advance of Expenses.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be entitled to
indemnification or advance of Expenses under this Agreement with respect to any Proceeding
brought by Indemnitee, unless (a) the Proceeding is brought to enforce indemnification under this
Agreement, and then only to the extent in accordance with and as authorized by Sections 8 and 11
of this Agreement, or (b) the Company's Bylaws, as amended, the Charter, a resolution of the
stockholders entitled to vote generally in the election of directors or of the Board of Directors or
an agreement approved by the Board of Directors to which the Company is a party expressly provide
otherwise.
Section 19.
Identical Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original but all of which
together shall constitute one and the same Agreement. One such counterpart signed by the party
against whom enforceability is sought shall be sufficient to evidence the existence of this Agreement.
Section 20.
Headings. The headings of the paragraphs of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this Agreement or to affect the
construction thereof.
Section 21. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver
9
of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 22.
Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand
and receipted for by the party to whom said notice or other communication shall have been directed,
or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after
the date on which it is so mailed:
(a)
If to Indemnitee, to: The address set forth on the signature page hereto.
(b)
If to the Company to:
Retail Properties of America, Inc.
2021 Spring Road, Suite 200
Oak Brook, Illinois 60523
Attn: President and Chief Executive Officer
With a copy to:
Retail Properties of America, Inc.
2021 Spring Road, Suite 200
Oak Brook, Illinois 60523
Attn: General Counsel
or to such other address as may have been furnished to Indemnitee by the Company or to the
Company by Indemnitee, as the case may be.
Section 23.
Governing Law. The parties agree that this Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the State of Maryland, without regard
to its conflicts of laws rules.
Section 24. Miscellaneous. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
[SIGNATURE PAGE FOLLOWS]
10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
ATTEST:
COMPANY
/s/ ANN M. SHARP
Ann M. Sharp
Assistant Secretary
RETAIL PROPERTIES OF AMERICA, INC., a
Maryland corporation
By: /s/ STEVEN P. GRIMES
Steven P. Grimes
President and Chief Executive Officer
INDEMNITEE
/s/ PAULA C. MAGGIO
Paula C. Maggio
Address: Retail Properties of America, Inc.
2021 Spring Road, Suite 200
Oak Brook, Illinois 60523
11
EXHIBIT A
FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED
The Board of Directors of Retail Properties of America, Inc.
Re: Undertaking to Repay Expenses Advanced
Ladies and Gentlemen:
This undertaking is being provided pursuant to that certain Indemnification Agreement dated
the ____ day of ___________________, 20___, by and between Retail Properties of America, Inc.
(the "Company") and the undersigned Indemnitee (the "Indemnification Agreement"), pursuant to
which I am entitled to advance of expenses in connection with [description of proceeding] (the
"Proceeding").
Terms used herein and not otherwise defined shall have the meanings specified in the
Indemnification Agreement.
I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged
actions or omissions by me in such capacity. I hereby affirm that at all times, insofar as I was
involved as a [director or officer] of the Company, in any of the facts or events giving rise to the
Proceeding, I (1) acted in good faith and honestly, (2) did not receive any improper personal benefit
in money, property or services and (3) in the case of any criminal proceeding, had no reasonable
cause to believe that any act or omission by me was unlawful.
In consideration of the advance of Expenses by the Company for reasonable attorneys' fees
and related expenses incurred by me in connection with the Proceeding (the "Advanced Expenses"),
I hereby agree that if, in connection with the Proceeding, it is established that (1) an act or omission
by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith
or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper
personal benefit in money, property or services or (3) in the case of any criminal proceeding, I had
reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse
the portion of the Advanced Expenses relating to the claims, issues or matters in the Proceeding as
to which the foregoing findings have been established and which have not been successfully resolved
as described in Section 7 of the Indemnification Agreement. To the extent that Advanced Expenses
do not relate to a specific claim, issue or matter in the Proceeding, I agree that such Expenses shall
be allocated on a reasonable and proportionate basis.
IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this day
of __________________, _______ .
WITNESS:
________________________ (SEAL)
Retail Properties of America, Inc.
Computation of Ratio of Earnings to Fixed Charges
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
Exhibit 12.1
2016
2015
2014
2013
2012
Year Ended December 31,
Earnings
Income (loss) from continuing operations
$
37,110
$
3,832
$
Equity in loss of unconsolidated joint ventures, net
Gain on sales of investment properties, net
Adjustments added:
Fixed charges (see below)
Distributions on investments in unconsolidated joint ventures
—
129,707
113,539
—
—
121,792
142,987
—
597
2,088
42,196
137,944
1,360
$
(42,855)
$
(14,368)
1,246
5,806
150,685
7,105
6,307
7,843
178,306
6,168
Adjustments subtracted:
Interest capitalized
Total earnings
Fixed charges:
Interest expense
Co-venture obligation expense (1)
Interest capitalized
Estimate of interest within rental expense
Total fixed charges
Preferred stock dividends
Total fixed charges and preferred stock dividends
Ratio of earnings to fixed charges
Ratio of earnings to combined fixed charges and preferred
stock dividends
(69)
280,287
$
—
268,611
$
—
184,185
$
—
121,987
$
—
184,256
$
$
109,730
$
138,938
$
133,835
$
146,805
$
171,295
—
69
3,740
113,539
9,450
122,989
$
$
2.47
2.28
—
—
4,049
142,987
9,450
152,437
$
$
1.88
1.76
—
—
4,109
137,944
9,450
147,394
$
$
1.34
1.25
—
—
3,880
150,685
9,450
160,135
$
$
3,300
—
3,711
178,306
263
178,569
$
$
— (2)
1.03
— (3)
1.03
(1) Represents the preferred return and incentive and other compensation with respect to IW JV 2009, LLC. The Company redeemed the full
amount of the noncontrolling interest on April 26, 2012.
(2) The ratio was less than 1:1 for the year ended December 31, 2013 as earnings were inadequate to cover fixed charges by a deficiency of
approximately $28.7 million.
(3) The ratio was less than 1:1 for the year ended December 31, 2013 as earnings were inadequate to cover fixed charges by a deficiency of
approximately $38.1 million.
RETAIL PROPERTIES OF AMERICA, INC.
Subsidiary List
As of December 31, 2016
Exhibit 21.1
Entity
Bel Air Square, LLC
Bellevue Development, LLC
Birch Property & Casualty, LLC
C&S Southlake Capital Partners I, L.P.
Capital Centre LLC
Centre at Laurel, LLC
Colesville One, LLC
Dallas Metro Maintenance, L.L.C.
Denville Union Hill, L.L.C.
Gateway Village LLC
Green Valley Crossing, LLC
Half Day LLC
Inland Bel Air SPE, L.L.C.
Inland Park Place Limited Partnership
Inland Plano Acquisitions, LLC
Inland Plano Investments, LLC
Inland Reisterstown SPE I, L.L.C.
Inland Reisterstown SPE II, L.L.C.
Inland Southeast New Britain, L.L.C.
Inland Southeast Stony Creek, L.L.C.
Inland Western Acworth Stilesboro, L.L.C.
Inland Western Avondale McDowell, L.L.C.
Inland Western Bay Shore Gardiner, L.L.C.
Inland Western Bethlehem Saucon Valley Beneficiary, L.L.C.
Inland Western Bethlehem Saucon Valley DST
Inland Western Birmingham Edgemont, L.L.C.
Inland Western Cedar Hill Pleasant Run GP, L.L.C.
Inland Western Cedar Hill Pleasant Run Limited Partnership
Inland Western Charleston North Rivers, L.L.C.
Inland Western Chicago Ashland, L.L.C.
Inland Western Chicago Ashland I, L.L.C.
Inland Western Cocoa Beach Cornerstone, L.L.C.
Inland Western Colesville New Hampshire SPE, L.L.C.
Inland Western Columbia Broad River, L.L.C.
Inland Western Coppell Town GP, L.L.C.
Inland Western Coppell Town Limited Partnership
Inland Western Coram Plaza, L.L.C.
Inland Western Covington Newton Crossroads, L.L.C.
Inland Western Cranberry Beneficiary, L.L.C.
Inland Western Cranberry DST
Inland Western Crossville Main, L.L.C.
Inland Western Cumming Green’s Corner, L.L.C.
Inland Western Cuyahoga Falls, L.L.C.
Inland Western Dallas Lincoln Park GP, L.L.C.
Inland Western Dallas Lincoln Park Limited Partnership
Inland Western Dallas Lincoln Park LP, L.L.C.
Inland Western Dallas Paradise, L.L.C.
Inland Western Danforth, L.L.C.
Inland Western Denton Crossing GP, L.L.C.
Inland Western Denton Crossing Limited Partnership
Inland Western Duncansville Holliday Beneficiary, L.L.C.
Inland Western Duncansville Holliday DST
Formation
Maryland
Delaware
Vermont
Texas
Maryland
Maryland
Maryland
Delaware
Delaware
Maryland
Nevada
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Entity
Inland Western Easton Forks Town DST
Inland Western El Paso MDS Limited Partnership
Inland Western El Paso MDS LP, L.L.C.
Inland Western Evans, L.L.C.
Inland Western Fresno Blackstone Avenue, L.L.C.
Inland Western Fullerton Metrocenter, L.L.C.
Inland Western Gainesville Village, L.L.C.
Inland Western Glendale, L.L.C.
Inland Western Glendale Outlot D, L.L.C.
Inland Western Glendale Peoria II, L.L.C.
Inland Western Greensburg Commons, L.L.C.
Inland Western Greer Wade Hampton, L.L.C.
Inland Western Gurnee, L.L.C.
Inland Western Hickory-Catawba, L.L.C.
Inland Western High Ridge, L.L.C.
Inland Western Houma Magnolia, L.L.C.
Inland Western Houston Sawyer Heights GP, L.L.C.
Inland Western Houston Sawyer Heights Limited Partnership
Inland Western Irmo Station, L.L.C.
Inland Western Jackson Columns, L.L.C.
Inland Western JV Henderson Green Valley, L.L.C.
Inland Western Kill Devil Hills Croatan, L.L.C.
Inland Western Lake Mary, L.L.C.
Inland Western Lansing Eastwood (Tenant), L.L.C.
Inland Western Lawrenceville Simonton, L.L.C.
Inland Western Longmont Fox Creek, L.L.C.
Inland Western Marysville, L.L.C.
Inland Western McAllen MDS Limited Partnership
Inland Western McAllen MDS LP, L.L.C.
Inland Western MDS Portfolio, L.L.C.
Inland Western Memphis Winchester, L.L.C.
Inland Western Miami 19th Street, L.L.C.
Inland Western Middletown Brown’s Lane, L.L.C.
Inland Western Milwaukee Midtown, L.L.C.
Inland Western Milwaukee Midtown II, L.L.C.
Inland Western Mt. Pleasant Park West, L.L.C.
Inland Western Norman, L.L.C.
Inland Western Ontario 4th Street, L.L.C.
Inland Western Orange 440 Boston, L.L.C.
Inland Western Panama City, L.L.C.
Inland Western Pawtucket Boulevard, L.L.C.
Inland Western Pawtucket Cottage, L.L.C.
Inland Western Phenix City, L.L.C.
Inland Western Phillipsburg Greenwich, L.L.C.
Inland Western Phillipsburg Greenwich II, L.L.C.
Inland Western Phoenix, L.L.C.
Inland Western Placentia, L.L.C.
Inland Western Pottstown GP, L.L.C.
Inland Western Pottstown Limited Partnership
Inland Western Pottstown LP DST
Inland Western Salt Lake City Gateway, L.L.C.
Inland Western Seattle Northgate North, L.L.C.
Inland Western Southlake Corners Kimball GP, L.L.C.
Inland Western Southlake Corners Kimball Limited Partnership
Inland Western Spartanburg, L.L.C.
Inland Western Spartanburg SPE, L.L.C.
Formation
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Entity
Inland Western Spokane Northpointe, L.L.C.
Inland Western Summerville Azalea Square, L.L.C.
Inland Western Temecula Commons, L.L.C.
Inland Western Traverse City Bison Hollow, L.L.C.
Inland Western Tuscaloosa University, L.L.C.
Inland Western Waco Central GP, L.L.C.
Inland Western Waco Central Limited Partnership
Inland Western Waco Central LP, L.L.C.
Inland Western Wesley Chapel Northwoods, L.L.C.
Inland Western West Allis Greenfield, L.L.C.
Inland Western Woodridge Seven Bridges, L.L.C.
IW JV 2009, LLC
IW Mezz 2009, LLC
IW Mezz 2 2009, LLC
IWR Gateway Central Plant, L.L.C.
IWR Protective Corporation
Lake Mead Crossing, LLC
MS Inland Fund, LLC
Reisterstown Plaza Associates, LLC
RPAI Acquisitions, Inc.
RPAI Altamonte Springs State Road, L.L.C.
RPAI Arvada, L.L.C.
RPAI Ashburn Loudoun, L.L.C.
RPAI Austin Mopac GP, L.L.C.
RPAI Austin Mopac Limited Partnership
RPAI Austin Mopac LP, L.L.C.
RPAI Bangor Broadway, L.L.C.
RPAI Bangor Parkade, L.L.C.
RPAI Baton Rouge, L.L.C.
RPAI Bluffton Low Country, L.L.C.
RPAI Bluffton Low Country II, L.L.C.
RPAI Bradenton Beachway, L.L.C.
RPAI Brooklyn Park 93rd Avenue, L.L.C.
RPAI Burleson Wilshire GP, L.L.C.
RPAI Burleson Wilshire Limited Partnership
RPAI Burleson Wilshire LP, L.L.C.
RPAI Butler Kinnelon, L.L.C.
RPAI Canton Paradise, L.L.C.
RPAI Canton Paradise Outlot, L.L.C.
RPAI Capital Centre II, L.L.C.
RPAI Cedar Park Town Center, L.L.C.
RPAI Chanilly Crossing, L.L.C.
RPAI Chattanooga Brainerd Road, L.L.C.
RPAI Chicago Ashland Land, L.L.C.
RPAI Chicago Brickyard, L.L.C.
RPAI Clear Lake Clear Shores GP, L.L.C.
RPAI Clear Lake Clear Shores Limited Partnership
RPAI Clear Lake Clear Shores LP, L.L.C.
RPAI College Station Gateway GP, L.L.C.
RPAI College Station Gateway Limited Partnership
RPAI College Station Gateway LP, L.L.C.
RPAI College Station Gateway II GP, L.L.C.
RPAI College Station Gateway II Limited Partnership
RPAI College Station Gateway II LP, L.L.C.
RPAI College Station Gateway III, L.L.C.
RPAI Continental Rave Houston, L.L.C.
Formation
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Nevada
Delaware
Maryland
Illinois
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Illinois
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Entity
RPAI Coppell Town, L.L.C.
RPAI Cypress Mill, L.L.C.
RPAI Cypress Mill GP, L.L.C.
RPAI Cypress Mill Limited Partnership
RPAI Darien, L.L.C.
RPAI Darien SPE, L.L.C.
RPAI Duluth John’s Creek, L.L.C.
RPAI Duluth John’s Creek SPE, L.L.C.
RPAI Euless GP, L.L.C.
RPAI Euless Limited Partnership
RPAI Euless LP, L.L.C.
RPAI Falls Church Merrifield, L.L.C.
RPAI Falls Church Merrifield II, L.L.C.
RPAI Fordham Place Office, L.L.C.
RPAI Fordham Place Retail, L.L.C.
RPAI Fort Mill West Town, L.L.C.
RPAI Fort Myers Page Field, L.L.C.
RPAI Frisco Parkway GP, L.L.C.
RPAI Frisco Parkway Limited Partnership
RPAI Frisco Parkway LP, L.L.C.
RPAI Gaithersburg Downtown Crown, L.L.C.
RPAI Galveston Galvez GP, L.L.C.
RPAI Galveston Galvez Limited Partnership
RPAI Galveston Galvez LP, L.L.C.
RPAI Georgetown Rivery GP, L.L.C.
RPAI Georgetown Rivery Limited Partnership
RPAI Georgetown Rivery LP, L.L.C.
RPAI Gilroy I, L.L.C.
RPAI Gilroy II, L.L.C.
RPAI Grapevine GP, L.L.C.
RPAI Grapevine Limited Partnership
RPAI Grapevine LP, L.L.C.
RPAI Green Global Gateway, L.L.C.
RPAI Greenville Five Forks, L.L.C.
RPAI Greenville Five Forks Outlot, L.L.C.
RPAI Hagerstown, L.L.C.
RPAI Hartford New Park, L.L.C.
RPAI Hellertown Main Street DST
RPAI HOLDCO Management LLC
RPAI Houma Academy, L.L.C.
RPAI Houston Little York GP, L.L.C.
RPAI Houston Little York Limited Partnership
RPAI Houston New Forest GP, L.L.C.
RPAI Houston New Forest Limited Partnership
RPAI Houston New Forest, L.L.C.
RPAI Houston Royal Oaks Village II GP, L.L.C.
RPAI Houston Royal Oaks Village II Limited Partnership
RPAI Houston Royal Oaks Village II LP, L.L.C.
RPAI Houston Royal Oaks Village III, L.L.C.
RPAI Houston Sawyer Heights, L.L.C.
RPAI Humble Humblewood GP, L.L.C.
RPAI Humble Humblewood Limited Partnership
RPAI Humble Humblewood LP, L.L.C.
RPAI I DST
RPAI II DST
RPAI Irving GP, L.L.C.
Formation
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Texas
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Illinois
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Entity
RPAI Irving Limited Partnership
RPAI Irving LP, L.L.C.
RPAI Issaquah Heritage, L.L.C.
RPAI Jacksonville Southpoint, L.L.C.
RPAI JV Nashville Bellevue, L.L.C.
RPAI Kalamazoo WMU, L.L.C.
RPAI Kalispell Mountain View, L.L.C.
RPAI Kalispell Mountain View II, L.L.C.
RPAI Kansas City, L.L.C.
RPAI Kansas City Stateline, L.L.C.
RPAI King’s Grant GP, L.L.C.
RPAI King’s Grant II GP, L.L.C.
RPAI King’s Grant Limited Partnership
RPAI King’s Grant II Limited Partnership
RPAI Kingsport East Stone, L.L.C.
RPAI Knoxville Corridor Park, L.L.C.
RPAI Knoxville Corridor Park II, L.L.C.
RPAI Lake Worth Towne Crossing GP, L.L.C.
RPAI Lake Worth Towne Crossing Limited Partnership
RPAI Lake Worth Towne Crossing LP, L.L.C.
RPAI Lakewood, L.L.C.
RPAI Lakewood II, L.L.C.
RPAI Lansing Eastwood, L.L.C.
RPAI Las Vegas Montecito, L.L.C.
RPAI Las Vegas Montecito Outlot, L.L.C.
RPAI Lawrence, L.L.C.
RPAI Lawton Lee Blvd., L.L.C.
RPAI Lebanon 9th Street DST
RPAI Leesburg Fort Evans, L.L.C.
RPAI Lewisville Lakepointe GP, L.L.C.
RPAI Lewisville Lakepointe Limited Partnership
RPAI Lewisville Lakepointe LP, L.L.C.
RPAI Mansfield GP, L.L.C.
RPAI Mansfield Limited Partnership
RPAI Mansfield LP, L.L.C.
RPAI Maple Grove Wedgwood, L.L.C.
RPAI McAllen GP, L.L.C.
RPAI McAllen Limited Partnership
RPAI McAllen LP, L.L.C.
RPAI McDonough Henry Town, L.L.C.
RPAI McKinney Stonebridge GP, L.L.C.
RPAI McKinney Stonebridge Limited Partnership
RPAI McKinney Stonebridge LP, L.L.C.
RPAI Miami 19th Street II, L.L.C.
RPAI Middletown Fairgrounds Plaza, L.L.C.
RPAI Midland Academy GP, L.L.C.
RPAI Midland Academy Limited Partnership
RPAI Midland Academy LP, L.L.C.
RPAI Moore 19th Street, L.L.C.
RPAI New Britain Main, L.L.C.
RPAI New Hartford Orchard, L.L.C.
RPAI New Port Richey Mitchell, L.L.C.
RPAI New York Portfolio, L.L.C.
RPAI Newburgh Crossing, L.L.C.
RPAI Newcastle Coal Creek, L.L.C.
RPAI Newnan Crossing, L.L.C.
Formation
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Entity
RPAI Newnan Crossing II, L.L.C.
RPAI Newport News Jefferson, L.L.C.
RPAI North Attleboro Crossroads, L.L.C.
RPAI North Carolina Sales, Inc.
RPAI North Richland Hills Davis GP, L.L.C.
RPAI North Richland Hills Davis Limited Partnership
RPAI North Richland Hills Davis LP, L.L.C.
RPAI Northport Northwood, L.L.C.
RPAI Northwest Management Corp.
RPAI Northwoods Natural Bridge, L.L.C.
RPAI Oak Brook Promenade I, L.L.C.
RPAI Oklahoma City Western Avenue, L.L.C.
RPAI Orange 53 Boston, L.L.C.
RPAI Oswego Douglass, L.L.C.
RPAI Oswego Gerry Centennial, L.L.C.
RPAI Pacific Property Services LLC
RPAI Pelham Manor, L.L.C.
RPAI Pittsburgh William Penn GP, L.L.C.
RPAI Pittsburgh William Penn, L.P.
RPAI Pittsburgh William Penn Member II DST
RPAI Pittsburgh William Penn Partner, L.P.
RPAI Plymouth 5, L.L.C.
RPAI Port Arthur Academy GP, L.L.C.
RPAI Port Arthur Academy Limited Partnership
RPAI Port Arthur Academy LP, L.L.C.
RPAI Poughkeepsie Mid-Hudson, L.L.C.
RPAI Powder Springs Battle Ridge, L.L.C.
RPAI Punxsutawney Mahoning Street DST
RPAI Quakertown GP, L.L.C.
RPAI Quakertown Limited Partnership
RPAI Quakertown LP DST
RPAI Redmond Avondale, L.L.C.
RPAI Richardson Eastside, L.L.C.
RPAI Round Rock Forest Commons GP, L.L.C.
RPAI Round Rock Forest Commons Limited Partnership
RPAI Round Rock Forest Commons LP, L.L.C.
RPAI Royal Palm Beach Commons, L.L.C.
RPAI Saginaw GP, L.L.C.
RPAI Saginaw Limited Partnership
RPAI Saginaw LP, L.L.C.
RPAI San Antonio Academy GP, L.L.C.
RPAI San Antonio Academy Limited Partnership
RPAI San Antonio Academy LP, L.L.C.
RPAI San Antonio GP, L.L.C.
RPAI San Antonio HQ GP, L.L.C.
RPAI San Antonio HQ Limited Partnership
RPAI San Antonio HQ LP, L.L.C.
RPAI San Antonio Huebner Oaks GP, L.L.C.
RPAI San Antonio Huebner Oaks Limited Partnership
RPAI San Antonio Huebner Oaks LP, L.L.C.
RPAI San Antonio Limited Partnership
RPAI San Antonio LP, L.L.C.
RPAI San Antonio Military Drive GP, L.L.C.
RPAI San Antonio Military Drive Limited Partnership
RPAI San Antonio Military Drive LP, L.L.C.
RPAI San Antonio Mission GP, L.L.C.
Formation
Delaware
Delaware
Delaware
Illinois
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Illinois
Delaware
Illinois
Delaware
Delaware
Illinois
Delaware
Delaware
Entity
RPAI San Antonio Mission Limited Partnership
RPAI San Antonio Mission LP, L.L.C.
RPAI Santa Fe, L.L.C.
RPAI Saratoga Springs Wilton, L.L.C.
RPAI Schaumburg American Lane, L.L.C.
RPAI Seekonk Power Center, L.L.C.
RPAI Severn, L.L.C.
RPAI Southlake Corners Kimball, L.L.C.
RPAI Southlake GP, L.L.C.
RPAI Southlake Limited Partnership
RPAI Southlake LP, L.L.C.
RPAI Southwest Management Corp.
RPAI Southwest Management LLC
RPAI Springfield Boston, L.L.C.
RPAI Stony Creek II, L.L.C.
RPAI Stroud Commons DST
RPAI Sugar Land Colony GP, L.L.C.
RPAI Sugar Land Colony Limited Partnership
RPAI Sugar Land Colony LP, L.L.C.
RPAI Summerville Azalea Square III GP, L.L.C.
RPAI Summerville Azalea Square III Limited Partnership
RPAI Summerville Azalea Square III LP, L.L.C.
RPAI Sylacauga Broadway, L.L.C.
RPAI Tacoma South I, L.L.C.
RPAI Tallahassee Governor’s One, L.L.C.
RPAI Tampa Walters, L.L.C.
RPAI Temecula Vail, L.L.C.
RPAI Town and Country Manchester, L.L.C.
RPAI Towson Square, L.L.C.
RPAI Towson Square Parking, L.L.C.
RPAI US Management LLC
RPAI Vienna Tysons, L.L.C.
RPAI Viera Lake Andrew, L.L.C.
RPAI Watauga GP, L.L.C.
RPAI Watauga Limited Partnership
RPAI Watauga LP, L.L.C.
RPAI West Mifflin Century III GP, L.L.C.
RPAI West Mifflin Century III, L.P.
RPAI West Mifflin Century III Member II DST
RPAI West Mifflin Century III Partner, L.P.
RPAI Westbury Merchants Plaza, L.L.C.
RPAI Western Management Corp.
RPAI Williston Maple Tree, L.L.C.
RPAI Winter Springs Red Bug, L.L.C.
RPAI Woodinville Plaza, L.L.C.
RPAI Worcester Lincoln Plaza, L.L.C.
RRP Hecht, LLC
SLTS Grand Avenue II, L.P.
SLTS Grand Avenue II GP, L.L.C.
South Billings Center, LLC
The Shops At Legacy (RPAI) GP, L.L.C.
The Shops At Legacy (RPAI) L.P.
The Shops At Legacy (RPAI) Mezz, L.L.C.
Town Square Ventures, L.P.
Town Square Ventures II, L.P.
Town Square Ventures II GP, L.L.C.
Formation
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Tennessee
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Illinois
Delaware
Delaware
Illinois
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Maryland
Texas
Delaware
Delaware
Delaware
Illinois
Delaware
Illinois
Texas
Texas
Entity
Town Square Ventures III, L.P.
Town Square Ventures III GP, L.L.C.
Town Square Ventures III LP, L.L.C.
Town Square Ventures IV, L.P.
Town Square Ventures IV GP, L.L.C.
Town Square Ventures IV LP, L.L.C.
Town Square Ventures V, L.P.
Town Square Ventures V GP, L.L.C.
Town Square Ventures V LP, L.L.C.
Towson Circle LLC
Western Town Square Ventures GP, L.L.C.
Western Town Square Ventures I GP, L.L.C.
Western Town Square Ventures LP, L.L.C.
Formation
Texas
Delaware
Delaware
Texas
Delaware
Delaware
Texas
Delaware
Delaware
Maryland
Delaware
Delaware
Delaware
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-196264 on Form S-8 and Registration
Statement No. 333-207824 on Form S-3 of our reports dated February 15, 2017, relating to the consolidated financial
statements and financial statement schedules of Retail Properties of America, Inc. and subsidiaries, (the “Company”)
(which report expresses an unqualified opinion on those consolidated financial statements and financial statement
schedules and includes explanatory paragraphs regarding the Company’s adoption of Accounting Standards Update
2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, and Accounting
Standards Update 2017-01, Business Combinations) and the effectiveness of the Company’s internal control over financial
reporting, appearing in this Annual Report on Form 10-K of Retail Properties of America, Inc. for the year ended
December 31, 2016.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 15, 2017
CERTIFICATION
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, Steven P. Grimes, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Retail Properties of America, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
By:
/s/ STEVEN P. GRIMES
Steven P. Grimes
President and Chief Executive Officer
Date: February 15, 2017
CERTIFICATION
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
I, Heath R. Fear, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Retail Properties of America, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
By:
/s/ HEATH R. FEAR
Heath R. Fear
Executive Vice President,
Chief Financial Officer and Treasurer
Date: February 15, 2017
Certification Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Retail Properties of America, Inc. (the “Company”) for the period ended
December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Steven P. Grimes as
President and Chief Executive Officer of the Company and Heath R. Fear as Executive Vice President, Chief Financial Officer
and Treasurer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that, to his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
By:
/s/ STEVEN P. GRIMES
Steven P. Grimes
President and Chief Executive Officer
Date: February 15, 2017
By:
/s/ HEATH R. FEAR
Heath R. Fear
Executive Vice President,
Chief Financial Officer and Treasurer
Date: February 15, 2017
B O A R D O F
D I R E C T O R S
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
Gerald M. Gorski, Chairman
Former Partner, Gorski & Good LLP
Bonnie S. Biumi
Former President and Chief
Financial Officer of Kerzner
International Resorts, Inc.
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.
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, Texas 77842
800.368.5948
www.computershare.com
Paul R. Gauvreau
Former Chief Financial Officer,
Financial Vice President and
Treasurer of Pittway Corporation
Robert G. Gifford
Former President and Chief
Executive Officer of AIG Global
Real Estate
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.
Thomas J. Sargeant
Former Chief Financial Officer of
AvalonBay Communities, Inc.
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
Paula C. Maggio
Executive Vice President,
General Counsel and Secretary
Julie M. Swinehart
Senior Vice President,
Chief Accounting Officer
C O R P O R A T E
O F F I C E
Retail Properties of America, Inc.
2021 Spring Road, Suite 200
Oak Brook, Illinois 60523
855.247.RPAI
www.rpai.com
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 “believes”, “expects”,
“may”, “should”, “intends”, “plans”, “estimates”, “continue”, or “anticipates” 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, as amended, Section 21E of the Securities Exchange Act
of 1934, as amended, 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.
2
0
1
6
A
N
N
U
A
L
R
E
P
O
R
T
2021 Spring Road, Suite 200 | Oak Brook, IL 60523 | 855.247.RPAI | www.rpai.com | NYSE: RPAI