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EX-32.1 - EXHIBIT 32.1 - RETAIL PROPERTIES OF AMERICA, INC.rpai-2017x331xex321.htm
EX-31.2 - EXHIBIT 31.2 - RETAIL PROPERTIES OF AMERICA, INC.rpai-2017x331xex312.htm
EX-31.1 - EXHIBIT 31.1 - RETAIL PROPERTIES OF AMERICA, INC.rpai-2017x331xex311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
or
o
 
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
 
42-1579325
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
2021 Spring Road, Suite 200, Oak Brook, Illinois
 
60523
(Address of principal executive offices)
 
(Zip Code)
(630) 634-4200
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of 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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Number of shares outstanding of the registrant’s classes of common stock as of April 28, 2017:
Class A common stock:    236,888,222 shares



RETAIL PROPERTIES OF AMERICA, INC.
TABLE OF CONTENTS





PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except par value amounts)

 
 
March 31,
2017
 
December 31,
2016
Assets
 
 
 
 
Investment properties:
 
 
 
 
Land
 
$
1,193,803

 
$
1,191,403

Building and other improvements
 
4,268,740

 
4,284,664

Developments in progress
 
25,515

 
23,439

 
 
5,488,058

 
5,499,506

Less accumulated depreciation
 
(1,440,089
)
 
(1,443,333
)
Net investment properties (includes $86,798 and $0 from consolidated
variable interest entities, respectively)
 
4,047,969

 
4,056,173

Cash and cash equivalents
 
40,274

 
53,119

Accounts and notes receivable (net of allowances of $7,903 and $6,886, respectively)
 
71,705

 
78,941

Acquired lease intangible assets, net
 
140,980

 
142,015

Assets associated with investment properties held for sale
 
38,200

 
30,827

Other assets, net
 
127,489

 
91,898

Total assets
 
$
4,466,617

 
$
4,452,973

 
 
 
 
 
Liabilities and Equity
 
 
 
 
Liabilities:
 
 
 
 
Mortgages payable, net
 
$
373,221

 
$
769,184

Unsecured notes payable, net
 
695,287

 
695,143

Unsecured term loans, net
 
646,194

 
447,598

Unsecured revolving line of credit
 
363,000

 
86,000

Accounts payable and accrued expenses
 
58,331

 
83,085

Distributions payable
 
39,235

 
39,222

Acquired lease intangible liabilities, net
 
108,529

 
105,290

Liabilities associated with investment properties held for sale
 
1,060

 
864

Other liabilities
 
79,279

 
74,501

Total liabilities
 
2,364,136

 
2,300,887

 
 
 
 
 
Commitments and contingencies (Note 14)
 

 

 
 
 
 
 
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 March 31, 2017
and December 31, 2016; liquidation preference $135,000
 
5

 
5

Class A common stock, $0.001 par value, 475,000 shares authorized, 236,888 and 236,770
shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively
 
237

 
237

Additional paid-in capital
 
4,927,615

 
4,927,155

Accumulated distributions in excess of earnings
 
(2,826,730
)
 
(2,776,033
)
Accumulated other comprehensive income
 
1,354

 
722

Total equity
 
2,102,481

 
2,152,086

Total liabilities and equity
 
$
4,466,617

 
$
4,452,973


See accompanying notes to condensed consolidated financial statements

1


RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Statements of Operations and Other Comprehensive (Loss) Income
(Unaudited)
(in thousands, except per share amounts)

 
 
Three Months Ended March 31,
 
 
2017
 
2016
Revenues
 
 
 
 
Rental income
 
$
109,974

 
$
115,260

Tenant recovery income
 
30,786

 
30,356

Other property income
 
2,933

 
3,023

Total revenues
 
143,693

 
148,639

 
 
 
 
 
Expenses
 
 
 
 
Operating expenses
 
21,864

 
23,061

Real estate taxes
 
21,879

 
19,939

Depreciation and amortization
 
53,474

 
53,396

Provision for impairment of investment properties
 

 
2,164

General and administrative expenses
 
11,213

 
11,406

Total expenses
 
108,430

 
109,966

 
 
 
 
 
Operating income
 
35,263

 
38,673

 
 
 
 
 
Gain on extinguishment of debt
 

 
13,653

Interest expense
 
(85,532
)
 
(26,764
)
Other income, net
 
5

 
125

(Loss) income from continuing operations
 
(50,264
)
 
25,687

Gain on sales of investment properties
 
41,164

 
21,739

Net (loss) income
 
(9,100
)
 
47,426

Preferred stock dividends
 
(2,362
)
 
(2,362
)
Net (loss) income attributable to common shareholders
 
$
(11,462
)
 
$
45,064

 
 
 
 
 
(Loss) earnings per common share – basic and diluted
 
 
 
 
Net (loss) income per common share attributable to common shareholders
 
$
(0.05
)
 
$
0.19

 
 
 
 
 
Net (loss) income
 
$
(9,100
)
 
$
47,426

Other comprehensive income:
 
 
 
 
Net unrealized gain on derivative instruments (Note 9)
 
632

 
33

Comprehensive (loss) income attributable to the Company
 
$
(8,468
)
 
$
47,459

 
 
 
 
 
Weighted average number of common shares outstanding – basic
 
236,294

 
236,578

 
 
 
 
 
Weighted average number of common shares outstanding – diluted
 
236,294

 
236,680


See accompanying notes to condensed consolidated financial statements

2


RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Statements of Equity
(Unaudited)
(in thousands, except per share amounts)

 
Preferred Stock
 
Class A
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Distributions
in Excess of
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Total
Shareholders’
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance as of January 1, 2016
5,400

 
$
5

 
237,267

 
$
237

 
$
4,931,395

 
$
(2,776,215
)
 
$
(85
)
 
$
2,155,337

Cumulative effect of accounting change

 

 

 

 
17

 
(17
)
 

 

Net income

 

 

 

 

 
47,426

 

 
47,426

Other comprehensive income

 

 

 

 

 

 
33

 
33

Distributions declared to preferred shareholders
($0.4375 per share)

 

 

 

 

 
(2,362
)
 

 
(2,362
)
Distributions declared to common shareholders
($0.165625 per share)

 

 

 

 

 
(39,311
)
 

 
(39,311
)
Issuance of common stock, net of offering costs

 

 

 

 
5

 

 

 
5

Issuance of restricted shares

 

 
207

 

 

 

 

 

Stock-based compensation expense, net of forfeitures

 

 
(6
)
 

 
2,026

 

 

 
2,026

Shares withheld for employee taxes

 

 
(121
)
 

 
(1,736
)
 

 

 
(1,736
)
Balance as of March 31, 2016
5,400

 
$
5

 
237,347

 
$
237

 
$
4,931,707

 
$
(2,770,479
)
 
$
(52
)
 
$
2,161,418

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of January 1, 2017
5,400

 
$
5

 
236,770

 
$
237

 
$
4,927,155

 
$
(2,776,033
)
 
$
722

 
$
2,152,086

Net loss

 

 

 

 

 
(9,100
)
 

 
(9,100
)
Other comprehensive income

 

 

 

 

 

 
632

 
632

Distributions declared to preferred shareholders
($0.4375 per share)

 

 

 

 

 
(2,362
)
 

 
(2,362
)
Distributions declared to common shareholders
($0.165625 per share)

 

 

 

 

 
(39,235
)
 

 
(39,235
)
Issuance of restricted shares

 

 
206

 

 

 

 

 

Stock-based compensation expense

 

 

 

 
1,793

 

 

 
1,793

Shares withheld for employee taxes

 

 
(88
)
 

 
(1,333
)
 

 

 
(1,333
)
Balance as of March 31, 2017
5,400

 
$
5

 
236,888

 
$
237

 
$
4,927,615

 
$
(2,826,730
)
 
$
1,354

 
$
2,102,481


See accompanying notes to condensed consolidated financial statements

3



RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

 
Three Months Ended March 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(9,100
)
 
$
47,426

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
53,474

 
53,396

Provision for impairment of investment properties

 
2,164

Gain on sales of investment properties
(41,164
)
 
(21,739
)
Gain on extinguishment of debt

 
(13,653
)
Amortization of loan fees and debt premium and discount, net
4,965

 
1,997

Amortization of stock-based compensation
1,793

 
2,026

Premium paid in connection with defeasance of mortgages payable
59,968

 

Payment of leasing fees and inducements
(2,152
)
 
(3,954
)
Changes in accounts receivable, net
6,534

 
6,897

Changes in accounts payable and accrued expenses, net
(24,311
)
 
(20,462
)
Changes in other operating assets and liabilities, net
8,242

 
(1,568
)
Other, net
651

 
723

Net cash provided by operating activities
58,900

 
53,253

 
 
 
 
Cash flows from investing activities:
 
 
 
Changes in restricted escrows, net
18,427

 
(2,616
)
Purchase of investment properties
(93,752
)
 
(138,035
)
Capital expenditures and tenant improvements
(12,432
)
 
(7,622
)
Proceeds from sales of investment properties
43,540

 
16,427

Investment in developments in progress
(1,610
)
 

Other, net

 
98

Net cash used in investing activities
(45,827
)
 
(131,748
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Principal payments on mortgages payable
(20,588
)
 
(2,836
)
Proceeds from unsecured term loans
200,000

 

Proceeds from unsecured revolving line of credit
389,000

 
240,000

Repayments of unsecured revolving line of credit
(112,000
)
 
(60,000
)
Payment of loan fees and deposits
(10
)
 
(6,020
)
Purchase of U.S. Treasury securities in connection with defeasance of mortgages payable
(439,403
)
 

Distributions paid
(41,584
)
 
(41,659
)
Other, net
(1,333
)
 
(1,826
)
Net cash (used in) provided by financing activities
(25,918
)
 
127,659

 
 
 
 
Net (decrease) increase in cash and cash equivalents
(12,845
)
 
49,164

Cash and cash equivalents, at beginning of period
53,119

 
51,424

Cash and cash equivalents, at end of period
$
40,274

 
$
100,588

(continued)
 

4



RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

 
Three Months Ended March 31,
 
2017
 
2016
Supplemental cash flow disclosure, including non-cash activities:
 
 
 
Cash paid for interest, net of interest capitalized
$
19,868

 
$
21,538

Distributions payable
$
39,235

 
$
39,311

Accrued capital expenditures and tenant improvements
$
7,649

 
$
9,084

Accrued leasing fees and inducements
$
975

 
$
654

Accrued redevelopment costs
$
5,282

 
$

U.S. Treasury securities transferred in connection with defeasance of mortgages payable
$
439,403

 
$

Defeasance of mortgages payable
$
379,435

 
$

 
 
 
 
Purchase of investment properties (after credits at closing):
 
 
 
Net investment properties
$
(95,622
)
 
$
(129,866
)
Accounts receivable, acquired lease intangibles and other assets
(7,550
)
 
(11,812
)
Accounts payable, acquired lease intangibles and other liabilities
6,896

 
3,643

Deferred gain
2,524

 

 
$
(93,752
)
 
$
(138,035
)
 
 
 
 
Proceeds from sales of investment properties:
 
 
 
Net investment properties
$
64,519

 
$
104,706

Accounts receivable, acquired lease intangibles and other assets
2,327

 
8,970

Accounts payable, acquired lease intangibles and other liabilities
(516
)
 
(3,315
)
Deferred gain
(1,486
)
 

Mortgage debt forgiven or assumed

 
(94,353
)
Gain on extinguishment of debt

 
13,653

Gain on sales of investment properties
41,164

 
21,739

Proceeds temporarily restricted related to potential Internal Revenue Code
Section 1031 tax-deferred exchanges
(62,468
)
 
(34,973
)
 
$
43,540

 
$
16,427


See accompanying notes to condensed consolidated financial statements

5

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Readers of this Quarterly Report should refer to the audited financial statements of Retail Properties of America, Inc. for the year ended December 31, 2016, which are included in its 2016 Annual Report on Form 10-K, as certain footnote disclosures which would substantially duplicate those contained in the Annual Report have been omitted from this Quarterly Report. In the opinion of management, all adjustments necessary, all of which were of normal recurring nature, for a fair presentation have been included in this Quarterly Report.
(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 condensed consolidated financial statements.
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 condensed 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 condensed consolidated financial statements and notes thereto are stated in thousands with the exception of per share amounts and per square foot amounts.
The accompanying condensed consolidated financial statements include the accounts of the Company, as well as all wholly-owned subsidiaries and any consolidated variable interest entities (VIEs). All intercompany balances and transactions have been eliminated in consolidation. Wholly-owned subsidiaries generally consist of limited liability companies, limited partnerships and statutory trusts.
The Company’s property ownership as of March 31, 2017 is summarized below:
 
Wholly-owned
 
Consolidated VIEs
 
Total
Retail operating properties (a)
148

 
1

 
149

Office properties
1

 

 
1

Total operating properties
149

 
1

 
150

 
 
 
 
 
 
Redevelopment properties
2

 

 
2

(a)
Excludes four wholly-owned operating properties classified as held for sale as of March 31, 2017.


6

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Refer to the Company’s 2016 Annual Report on Form 10-K for a summary of its significant accounting policies. Except as disclosed below, there have been no changes to the Company’s significant accounting policies in the three months ended March 31, 2017.
Recently Issued Accounting Pronouncements
In March 2017, the Securities and Exchange Commission issued a final rule, Exhibit Hyperlinks and HTML Format, which is effective September 1, 2017. The final rule will require registrants that file registration statements and reports subject to the exhibit requirements under Item 601 of Regulation S-K, or that file Forms F-10 or 20-F, to include a hyperlink to each exhibit listed in the exhibit index of these filings. To enable the inclusion of such hyperlinks, registrants will be required to submit all such filings in HyperText Markup Language (HTML) format. The Company expects to add hyperlinks to its exhibit index starting with the Form 10-Q for the quarter ended September 30, 2017.
In May 2014 with subsequent updates issued in August 2015 and March, April, May and December 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. This new guidance is effective January 1, 2018, with early adoption permitted, and will replace existing revenue recognition standards. The core principle of this standard is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. 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 subject to the Leases guidance described below. 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 condensed consolidated financial statements as it believes the majority of its revenue falls outside of the scope of this guidance; however, it will continue to evaluate this assessment until the guidance becomes effective. The Company is also evaluating whether it will adopt this guidance on a retrospective basis or a modified retrospective basis.
In February 2017, the FASB issued ASU 2017-05, Other Income–Gains and Losses from the Derecognition of Nonfinancial Assets. This new guidance is required to be adopted concurrently with the amendments in ASU 2014-09, Revenue from Contracts with Customers. The new pronouncement adds guidance for partial sales of nonfinancial assets and clarifies the scope of Subtopic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets, which provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. The pronouncement requires either a retrospective or a modified retrospective method of adoption. The Company does not expect the adoption of this pronouncement will have a material effect on its condensed 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 condensed consolidated financial statements; however, it will continue to evaluate this assessment until the guidance 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 condensed 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

7

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

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.
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 (ROU) 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. Upon adoption, the Company will recognize a lease liability and an ROU asset for operating leases where it is the lessee, such as ground leases and office and equipment leases. The Company is in the process of evaluating the inputs required to calculate the amounts that will be recorded on its balance sheet for each lease. For leases with a term of 12 months or less, the Company expects 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; however, non-lease components of leases, including common area maintenance reimbursements, will be accounted for under the Revenue from Contracts with Customers guidance described above. The pronouncement requires a modified retrospective method of adoption, with some optional practical expedients. The Company has not selected an adoption date and 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.
(3) ACQUISITIONS
The Company closed on the following acquisitions during the three months ended March 31, 2017:
Date
 
Property Name
 
Metropolitan
Statistical Area (MSA)
 
Property Type
 
Square
Footage
 
Acquisition
Price
 
January 13, 2017
 
Main Street Promenade (b)
 
Chicago
 
Multi-tenant retail
 
181,600

 
$
88,000

 
January 25, 2017
 
Boulevard at the Capital Centre –
Fee Interest (c)
 
Washington, D.C.
 
Fee interest (b)
 

 
2,000

 
February 24, 2017
 
One Loudoun Downtown –
Phase II (d)
 
Washington, D.C.
 
Additional phase of multi-tenant retail (d)
 
15,900

 
4,128

 
 
 
 
 
 
 
 
 
197,500

 
$
94,128

(a)
(a)
Acquisition price does not include capitalized closing costs and adjustments totaling $2,394.
(b)
This property was acquired through a consolidated VIE and may be used to facilitate a potential Internal Revenue Code Section 1031 tax-deferred exchange (1031 Exchange).
(c)
The wholly-owned multi-tenant retail operating property located in Largo, Maryland was previously subject to an approximately 70 acre long-term ground lease with a third party. The Company completed a transaction whereby it received the fee interest in approximately 50 acres of the underlying land in exchange for which (i) the Company paid $1,939 and (ii) the term of the ground lease with respect to the remaining approximately 20 acres was shortened to nine months. The Company derecognized building and improvements of $11,347 related to the remaining ground lease, recognized the fair value of land received of $15,200 and recorded a deferred gain of $2,524. The deferred gain will be recognized upon the expiration of the remaining ground lease. The total number of properties in the Company’s portfolio was not affected by this transaction.
(d)
The Company acquired an additional phase at its One Loudoun Downtown multi-tenant retail operating property, which was accounted for as an asset acquisition. The total number of properties in the Company’s portfolio was not affected by this transaction.

8

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The Company closed on the following acquisitions during the three months ended March 31, 2016:
Date
 
Property Name
 
MSA
 
Property Type
 
Square
Footage
 
Acquisition
Price
January 15, 2016
 
Shoppes at Hagerstown (a)
 
Hagerstown
 
Multi-tenant retail
 
113,000

 
$
27,055

January 15, 2016
 
Merrifield Town Center II (a)
 
Washington, D.C.
 
Multi-tenant retail
 
76,000

 
45,676

March 29, 2016
 
Oak Brook Promenade (b)
 
Chicago
 
Multi-tenant retail
 
183,200

 
65,954

 
 
 
 
 
 
 
 
372,200

 
$
138,685

(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)
This property was acquired through a consolidated VIE and was used to facilitate a 1031 Exchange.
The following table summarizes the acquisition date values, before prorations, the Company recorded in conjunction with the acquisitions discussed above:
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Land
 
$
19,926

 
$
43,174

Building and other improvements, net
 
75,696

 
86,692

Acquired lease intangible assets (a)
 
7,343

 
11,787

Acquired lease intangible liabilities (b)
 
(5,367
)
 
(2,968
)
Other liabilities
 
(1,076
)
 

Net assets acquired
 
$
96,522

 
$
138,685

(a)
The weighted average amortization period for acquired lease intangible assets is six years and seven years for acquisitions completed during the three months ended March 31, 2017 and 2016, respectively.
(b)
The weighted average amortization period for acquired lease intangible liabilities is 13 years and 12 years for acquisitions completed during the three months ended March 31, 2017 and 2016, respectively.
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. All of the acquisitions completed during 2017 were considered asset acquisitions and, as such, transaction costs were capitalized upon closing. Transaction costs related to the 2016 acquisitions that were accounted for as business combinations totaled $339 for the three months ended March 31, 2016 and are included in “General and administrative expenses” in the accompanying condensed consolidated statements of operations and other comprehensive (loss) income. In addition, total revenues of $1,274 and net income attributable to common shareholders of $114 are included in the Company’s condensed consolidated statements of operations and other comprehensive (loss) income for the three months ended March 31, 2016 from the properties acquired during the first quarter of 2016 that were accounted for as business combinations.
Subsequent to March 31, 2017, the Company acquired Phase III of One Loudoun Downtown, a 9,800 square foot multi-tenant retail building at the Company’s existing wholly-owned multi-tenant retail operating property located in the Washington, D.C. MSA, for a gross purchase price of $2,193. The acquisition was accounted for as an asset acquisition and the total number of properties in the Company’s portfolio was not affected by this transaction. The remaining phases of One Loudoun Downtown, representing an aggregate gross purchase price of up to $29,200, are expected to close during the second and third quarters of 2017 as the seller completes construction on stand-alone buildings at the property.
Condensed Pro Forma Financial Information
Pro forma financial information is required to be disclosed for acquisitions accounted for as business combinations, if such financial information is available. Pro forma financial information is provided for acquisitions accounted for as business combinations completed during the period, or after such period through the financial statement issuance date, as if these acquisitions had been completed as of the beginning of the year prior to the acquisition date. Pro forma financial information is not required for asset acquisitions.

9

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The following unaudited condensed pro forma financial information is presented as if the acquisitions completed during the first quarter of 2016 and the acquisition of The Shoppes at Union Hill, a 91,700 square foot multi-tenant retail operating property located in the New York MSA, which was acquired on April 1, 2016 for $63,060, were completed as of January 1, 2015. The acquisition of the fee interest in the Company’s Ashland & Roosevelt multi-tenant retail operating property located in the Chicago MSA, which was acquired on April 29, 2016 for $13,850, has not been adjusted in the pro forma presentation as it was accounted for as an asset acquisition. Pro forma financial information is not presented for the acquisitions completed during 2017 as they have been accounted for as asset acquisitions. These pro forma results are for comparative purposes only and are not necessarily indicative of what the Company’s actual results of operations would have been had the acquisitions occurred at the beginning of the period presented, nor are they necessarily indicative of future operating results.
The unaudited condensed pro forma financial information is as follows:
 
 
Three Months Ended March 31, 2016
Total revenues
 
$
151,026

Net income
 
$
46,515

Net income attributable to common shareholders
 
$
44,153

Earnings per common share – basic and diluted
 
 
Net income per common share attributable to common shareholders
 
$
0.19

Weighted average number of common shares outstanding – basic
 
236,578

Variable Interest Entities
During the three months ended March 31, 2017, the Company entered into an agreement with a qualified intermediary related to a potential 1031 Exchange. The Company loaned $87,452 to the VIE to acquire Main Street Promenade on January 13, 2017. The 1031 Exchange must be completed within 180 days after the acquisition date of the property in accordance with the applicable provisions of the Code. At the completion or expiration of the 1031 Exchange, the sole membership interest of the VIE will be assigned to the Company in satisfaction of the outstanding loan, resulting in the entity being wholly owned by the Company.
During the three months ended March 31, 2016, the Company entered into an agreement with a qualified intermediary related to a 1031 Exchange. The Company loaned $65,419 to the VIE to acquire Oak Brook Promenade on March 29, 2016. The 1031 Exchange was completed during the year ended December 31, 2016 and as a result, the sole membership interest of the VIE was assigned to the Company and the outstanding loan extinguished, resulting in the entity being wholly owned by the Company and no longer considered a VIE.
The Company was deemed to be the primary beneficiary of each VIE as it has the ability to direct the activities of each VIE that most significantly impact its economic performance and has all of the risks and rewards of ownership. Accordingly, the Company consolidated the VIEs. No value or income has been attributed to the noncontrolling interest. The assets of the VIEs consist of the respective investment property, Main Street Promenade as of March 31, 2017 and Oak Brook Promenade as of March 31, 2016, which are operated by the Company.

10

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

As of March 31, 2017, the assets and liabilities of the VIE are as follows:
 
March 31, 2017
Assets
 
Land
$
4,318

Building and other improvements
83,275

Less accumulated depreciation
(795
)
Net investment properties
86,798

Acquired lease intangible assets
6,479

   Other assets
1,483

Total assets
$
94,760

 
 
Liabilities
 
Loan due to the Company (a)
$
87,452

Other liabilities
7,309

Total liabilities
$
94,761

(a)
Represents funds loaned by the Company to the VIE to acquire the property and has been eliminated in consolidation.
(4) DISPOSITIONS
The Company closed on the following dispositions during the three months ended March 31, 2017:
Date
 
Property Name
 
Property Type
 
Square
Footage
 
Consideration
 
Aggregate
Proceeds, Net (a)
 
Gain
January 27, 2017
 
Rite Aid Store (Eckerd),
Culver Rd. – Rochester, NY
 
Single-user retail
 
10,900

 
$
500

 
$
332

 
$

February 21, 2017
 
Shoppes at Park West (b)
 
Multi-tenant retail
 
63,900

 
15,383

 
(11
)
 
7,569

March 7, 2017
 
CVS Pharmacy–Sylacauga, AL (c)
 
Single-user retail
 
10,100

 
3,700

 
16

 
1,651

March 8, 2017
 
Rite Aid Store (Eckerd) –
Kill Devil Hills, NC (d)
 
Single-user retail
 
13,800

 
4,297

 
20

 
1,857

March 15, 2017
 
Century III Plaza – Home
Depot (e)
 
Single-user parcel
 
131,900

 
17,519

 
313

 
4,487

March 16, 2017
 
Village Shoppes at Gainesville
 
Multi-tenant retail
 
229,500

 
41,750

 
41,380

 
14,107

March 24, 2017
 
Northwood Crossing (f)
 
Multi-tenant retail
 
160,000

 
22,850

 
4

 
10,007

 
 
 
 
 
 
620,100

 
$
105,999

 
$
42,054

 
$
39,678

(a)
Aggregate proceeds are net of transaction costs.
(b)
Disposition proceeds of $15,272 are temporarily restricted related to a potential 1031 Exchange and are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.
(c)
Disposition proceeds of $3,332 are temporarily restricted related to a potential 1031 Exchange and are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.
(d)
Disposition proceeds of $4,114 are temporarily restricted related to a potential 1031 Exchange and are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.
(e)
Disposition proceeds of $17,031 are temporarily restricted related to a potential 1031 Exchange and are included in “Other assets, net” in the accompanying condensed consolidated balance sheets. The Company disposed of the Home Depot parcel at Century III Plaza, an existing 284,100 square foot multi-tenant retail operating property. The remaining portion of Century III Plaza is classified as held for sale as of March 31, 2017.
(f)
Disposition proceeds of $22,719 are temporarily restricted related to a potential 1031 Exchange and are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.
During the three months ended March 31, 2017, the Company also received proceeds and recognized a gain of $1,486 as a result of the receipt of the escrow related to the disposition of Maple Tree Place on August 12, 2016. The aggregate proceeds, net of closing costs, from the property dispositions and receipt of the escrow during the three months ended March 31, 2017 totaled $43,540, with aggregate gains of $41,164.

11

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The Company closed on the following dispositions during the three months ended March 31, 2016:
Date
 
Property Name
 
Property Type
 
Square
Footage
 
Consideration
 
Aggregate
Proceeds, Net (a)
 
Gain
February 1, 2016
 
The Gateway (b)
 
Multi-tenant retail
 
623,200

 
$
75,000

 
$
(795
)
 
$
3,868

February 10, 2016
 
Stateline Station
 
Multi-tenant retail
 
142,600

 
17,500

 
17,210

 
4,253

March 30, 2016
 
Six Property Portfolio (c)
 
Single-user retail
 
230,400

 
35,413

 
12

 
13,618

 
 
 
 
 
 
996,200

 
$
127,913

 
$
16,427

 
$
21,739

(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, LA, (ii) Academy Sports – Port Arthur, TX, (iii) Academy Sports – San Antonio, TX, (iv) CVS Pharmacy – Moore, OK, (v) CVS Pharmacy – Saginaw, TX and (vi) Rite Aid Store (Eckerd) – Olean, NY. As of March 31, 2016, disposition proceeds of $34,973 were temporarily restricted related to 1031 Exchanges and are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.
None of the dispositions completed during the three months ended March 31, 2017 and 2016 qualified for discontinued operations treatment.
The following properties qualified for held for sale accounting treatment prior to or during the quarter ended March 31, 2017. Upon meeting all applicable GAAP criteria for held for sale accounting treatment, depreciation and amortization were ceased. In addition, the assets and liabilities associated with these properties are separately classified as held for sale in the condensed consolidated balance sheet as of March 31, 2017.
Property Name
 
Property Location
 
Property Type
 
Square Footage
Century III Plaza, excluding the Home Depot parcel
 
West Mifflin, Pennsylvania
 
Multi-tenant retail
 
152,200

University Town Center
 
Tuscaloosa, Alabama
 
Multi-tenant retail
 
57,500

Edgemont Town Center
 
Homewood, Alabama
 
Multi-tenant retail
 
77,700

Phenix Crossing
 
Phenix City, Alabama
 
Multi-tenant retail
 
56,600

 
 
 
 
 
 
344,000

Subsequent to March 31, 2017, the Company sold University Town Center, Edgemont Town Center and Phenix Crossing for total consideration of $46,125. Century III Plaza and CVS Pharmacy – Sylacauga were classified as held for sale as of December 31, 2016. The Home Depot parcel at Century III Plaza and CVS Pharmacy – Sylacauga were sold during the three months ended March 31, 2017.
The following table presents the assets and liabilities associated with the investment properties classified as held for sale:
 
March 31, 2017
 
December 31, 2016
Assets
 
 
 
Land, building and other improvements
$
57,158

 
$
45,395

Less accumulated depreciation
(20,608
)
 
(15,769
)
Net investment properties
36,550

 
29,626

Other assets
1,650

 
1,201

Assets associated with investment properties held for sale
$
38,200

 
$
30,827

 
 
 
 
Liabilities
 
 
 
Other liabilities
$
1,060

 
$
864

Liabilities associated with investment properties held for sale
$
1,060

 
$
864


12

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

In addition to the dispositions of University Town Center, Edgemont Town Center and Phenix Crossing, which were classified as held for sale as of March 31, 2017, the Company closed on the disposition of Brown’s Lane, a 74,700 square foot multi-tenant retail operating property, for consideration of $10,575 subsequent to March 31, 2017.
(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.
The following table summarizes the Company’s unvested restricted shares as of and for the three months ended March 31, 2017:

Unvested
Restricted
Shares

Weighted Average
Grant Date
Fair Value per
Restricted Share
Balance as of January 1, 2017
542


$
15.28

Shares granted (a)
206


$
15.46

Shares vested
(214
)

$
15.24

Balance as of March 31, 2017 (b)
534


$
15.37

(a)
Shares granted vest over periods ranging from one year to three years in accordance with the terms of applicable award agreements.
(b)
As of March 31, 2017, total unrecognized compensation expense related to unvested restricted shares was $4,707, which is expected to be amortized over a weighted average term of 1.6 years.
The following table summarizes the Company’s unvested performance restricted stock units (RSUs) as of and for the three months ended March 31, 2017:
 
Unvested
RSUs
 
Weighted Average
Grant Date
Fair Value
per RSU
RSUs eligible for future conversion as of January 1, 2017
391

 
$
14.02

RSUs granted (a)
253

 
$
15.52

RSUs eligible for future conversion as of March 31, 2017 (b)
644

 
$
14.61

(a)
Assumptions as of the grant date included a risk-free interest rate of 1.50%, the Company’s historical common stock performance relative to the peer companies within the National Association of Real Estate Investment Trusts (NAREIT) Shopping Center Index and the Company’s common stock dividend yield of 4.32%. In 2020, following the performance period which concludes on December 31, 2019, 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.
(b)
As of March 31, 2017, total unrecognized compensation expense related to unvested RSUs was $6,758, which is expected to be amortized over a weighted average term of 2.9 years.
During the three months ended March 31, 2017 and 2016, the Company recorded compensation expense of $1,793 and $2,026, respectively, related to unvested restricted shares and RSUs. The total fair value of restricted shares vested during the three months ended March 31, 2017 was $3,250.
Prior to 2013, non-employee directors had been granted options to acquire shares under the Company’s Third Amended and Restated Independent Director Stock Option and Incentive Plan. As of March 31, 2017, options to purchase 41 shares of common stock remained outstanding and exercisable. The Company did not grant any options in 2017 or 2016 and did not record any compensation expense related to stock options during the three months ended March 31, 2017 and 2016.

13

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(6) MORTGAGES PAYABLE
The following table summarizes the Company’s mortgages payable:
 
March 31, 2017
 
December 31, 2016

Aggregate
Principal
Balance

Weighted
Average
Interest Rate
 
Weighted
Average Years
to Maturity
 
Aggregate
Principal
Balance
 
Weighted
Average
Interest Rate
 
Weighted
Average Years
to Maturity
Fixed rate mortgages payable (a)
$
373,372


5.21
%
 
5.1
 
$
773,395

 
6.31
%
 
4.2
Premium, net of accumulated amortization
1,330

 
 
 
 
 
1,437

 
 
 
 
Discount, net of accumulated amortization
(612
)

 
 
 
 
(622
)
 
 
 
 
Capitalized loan fees, net of accumulated
amortization
(869
)
 
 
 
 
 
(5,026
)
 
 
 
 
Mortgages payable, net
$
373,221


 
 
 
 
$
769,184

 
 
 
 
(a)
The fixed rate mortgages had interest rates ranging from 3.75% to 8.00% as of March 31, 2017 and December 31, 2016.
During the three months ended March 31, 2017, the Company repaid or defeased mortgages payable in the total amount of $398,806, of which $26,147 related to properties that were disposed of during the period, which had a weighted average fixed interest rate of 7.34%, and made scheduled principal payments of $1,217 related to amortizing loans. Included within the total repayments and defeasances for the three months ended March 31, 2017 is the defeasance of a portfolio of mortgages payable with a principal balance of $379,435 as of December 31, 2016 that was cross-collateralized by 45 properties and scheduled to mature in 2019 (known as the IW JV portfolio of mortgages payable). The Company incurred a defeasance premium and associated fees totaling $60,198 in connection with this transaction, which are included within “Interest expense” in the accompanying condensed consolidated statements of operations and other comprehensive (loss) income. As a result, the 45 properties that secured the mortgages payable as of December 31, 2016 are no longer encumbered by mortgages.
Debt Maturities
The following table shows the scheduled maturities and principal amortization of the Company’s indebtedness as of March 31, 2017 for the remainder of 2017, each of the next four years and thereafter and the weighted average interest rates by year. The table does not reflect the impact of any debt activity that occurred after March 31, 2017.
 
2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
 
Total
Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgages payable (a)
$
28,325

 
$
5,065

 
$
65,352

 
$
3,923

 
$
22,820

 
$
247,887

 
$
373,372

Fixed rate term loans (b)

 

 

 

 
250,000

 
200,000

 
450,000

Unsecured notes payable (c)

 

 

 

 
100,000

 
600,000

 
700,000

Total fixed rate debt
28,325

 
5,065

 
65,352

 
3,923

 
372,820

 
1,047,887

 
1,523,372

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable rate debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable rate term loan and
revolving line of credit

 
200,000

 

 
363,000

 

 

 
563,000

Total debt (d)
$
28,325

 
$
205,065

 
$
65,352

 
$
366,923

 
$
372,820

 
$
1,047,887

 
$
2,086,372

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average interest rate on debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate debt
4.22
%
 
5.49
%
 
7.45
%
 
4.62
%
 
2.73
%
 
4.09
%
 
3.91
%
Variable rate debt (e)

 
2.43
%
 

 
2.33
%
 

 

 
2.37
%
Total
4.22
%
 
2.50
%
 
7.45
%
 
2.36
%
 
2.73
%
 
4.09
%
 
3.49
%
(a)
Excludes mortgage premium of $1,330 and discount of $(612), net of accumulated amortization, as of March 31, 2017.
(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 0.67% through December 31, 2017. In addition, $200,000 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 fixed rate of 1.26% through November 22, 2018.

14

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(c)
Excludes discount of $(942), net of accumulated amortization, as of March 31, 2017.
(d)
The weighted average years to maturity of consolidated indebtedness was 5.3 years as of March 31, 2017. Total debt excludes capitalized loan fees of $(8,446), net of accumulated amortization, as of March 31, 2017, which are included as a reduction to the respective debt balances.
(e)
Represents interest rates as of March 31, 2017.
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.
(7) UNSECURED NOTES PAYABLE
The following table summarizes the Company’s unsecured notes payable:
 
 
 
 
March 31, 2017
 
December 31, 2016
Unsecured Notes Payable
 
Maturity Date
 
Principal Balance
 
Interest Rate/
Weighted Average
Interest Rate
 
Principal Balance
 
Interest Rate/
Weighted Average
Interest Rate
Senior notes – 4.12% due 2021
 
June 30, 2021
 
$
100,000

 
4.12
%
 
$
100,000

 
4.12
%
Senior notes – 4.58% due 2024
 
June 30, 2024
 
150,000

 
4.58
%
 
150,000

 
4.58
%
Senior notes – 4.00% due 2025
 
March 15, 2025
 
250,000

 
4.00
%
 
250,000

 
4.00
%
Senior notes – 4.08% due 2026
 
September 30, 2026
 
100,000

 
4.08
%
 
100,000

 
4.08
%
Senior notes – 4.24% due 2028
 
December 28, 2028
 
100,000

 
4.24
%
 
100,000

 
4.24
%
 
 
 
 
700,000

 
4.19
%
 
700,000

 
4.19
%
Discount, net of accumulated amortization
 
 
 
(942
)
 
 
 
(971
)
 
 
Capitalized loan fees, net of accumulated amortization
 
 
 
(3,771
)
 
 
 
(3,886
)
 
 
 
 
Total
 
$
695,287

 
 
 
$
695,143

 
 
Notes Due 2026 and 2028
The note purchase agreement governing the 4.08% senior unsecured notes due 2026 and the 4.24% senior unsecured notes due 2028 (Notes Due 2026 and 2028) contains customary 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) 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); and (iv) a fixed charge coverage ratio (as set forth in the Company’s unsecured credit facility).
Notes Due 2025
The indenture, as supplemented, governing the 4.00% senior unsecured notes due 2025 (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
The note purchase agreement governing the 4.12% senior unsecured notes due 2021 and the 4.58% senior unsecured notes due 2024 (Notes Due 2021 and 2024) contains customary covenants and events of default. Pursuant to the terms of the note purchase agreement, the Company is subject to various financial covenants, some of which are based upon the financial covenants in effect in the Company’s primary credit facility, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) minimum interest coverage and unencumbered interest coverage ratios; and (iii) a minimum consolidated net worth.
As of March 31, 2017, management believes the Company was in compliance with the financial covenants under the Indenture and the note purchase agreements.

15

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(8) UNSECURED TERM LOANS AND REVOLVING LINE OF CREDIT
The following table summarizes the Company’s term loans and revolving line of credit:
 
 
March 31, 2017
 
December 31, 2016
 
 
Balance
 
Interest Rate
 
Balance
 
Interest Rate
$250,000 unsecured credit facility term loan – fixed rate (a)
 
$
250,000

 
1.97
%
 
$
250,000

 
1.97
%
$200,000 unsecured credit facility term loan – variable rate
 
200,000

 
2.43
%
 
200,000

 
2.22
%
$200,000 unsecured term loan due 2023 – fixed rate (b)
 
200,000

 
2.96
%
 

 
%
Subtotal
 
650,000

 
 
 
450,000

 
 
Capitalized loan fees, net of accumulated amortization
 
(3,806
)
 
 
 
(2,402
)
 
 
Term loans, net
 
$
646,194

 
 
 
$
447,598

 
 
 
 
 
 
 
 
 
 
 
Revolving line of credit – variable rate (c)
 
$
363,000

 
2.33
%
 
$
86,000

 
2.12
%
(a)
$250,000 of LIBOR-based variable rate debt has been swapped to a weighted average fixed rate of 0.67% 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 March 31, 2017 and December 31, 2016.
(b)
$200,000 of LIBOR-based variable rate debt has been swapped to a fixed rate of 1.26% plus a credit spread based on a leverage grid ranging from 1.70% to 2.55% through November 22, 2018. The applicable credit spread was 1.70% as of March 31, 2017.
(c)
Excludes capitalized loan fees, which are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.
Unsecured Credit Facility
On January 6, 2016, the Company entered into its fourth amended and restated unsecured credit agreement (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 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 Moody’s and Standard & Poor’s in 2014. In accordance with the unsecured credit agreement, the Company may elect to convert to an investment grade pricing grid. As of March 31, 2017, 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 Unsecured Credit Facility:
 
 
 
 
 
 
 
 
Leverage-Based Pricing
 
Ratings-Based Pricing
Unsecured Credit Facility
 
Maturity Date
 
Extension Option
 
Extension Fee
 
Credit Spread
Unused Fee
 
Credit Spread
Facility Fee
$250,000 unsecured term loan
 
1/5/2021
 
N/A
 
N/A
 
1.30% - 2.20%
N/A
 
0.90% - 1.75%
N/A
$200,000 unsecured term loan
 
5/11/2018
 
2 one year
 
0.15%
 
1.45% - 2.20%
N/A
 
1.05% - 2.05%
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 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 Unsecured Credit Agreement and (ii) the Company’s ability to obtain additional lender commitments.
The Unsecured Credit Agreement contains customary 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 March 31, 2017, management believes the Company was in compliance with the financial covenants and default provisions under the Unsecured Credit Agreement.

16

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Term Loan Due 2023
On January 3, 2017, the Company received funding on a seven-year $200,000 unsecured term loan with a group of financial institutions, which closed during the year ended December 31, 2016. The Term Loan Due 2023 is priced on a leverage grid at a rate of LIBOR plus a credit spread. In accordance with the term loan agreement (Term Loan Agreement), the Company may elect to convert to an investment grade pricing grid. As of March 31, 2017, 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 Term Loan Due 2023:
Term Loan Due 2023
 
Maturity Date
 
Leverage-Based Pricing
Credit Spread
 
Ratings-Based Pricing
Credit Spread
$200,000 unsecured term loan
 
11/22/2023
 
1.70% – 2.55%
 
1.50% – 2.45%
The Term Loan Due 2023 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 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 March 31, 2017, management believes the Company was in compliance with the financial covenants and default provisions under the Term Loan Agreement.
(9) 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.
As of March 31, 2017, the Company utilized four 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” 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 $877 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 three months ended March 31, 2017, the Company entered into the following two interest rate swaps which effectively convert one-month floating rate LIBOR to a fixed rate:
Effective Date
 
Notional
 
Fixed
Interest Rate
 
Termination Date
January 3, 2017
 
$
100,000

 
1.26
%
 
November 22, 2018
January 3, 2017
 
$
100,000

 
1.26
%
 
November 22, 2018
The following table summarizes the Company’s interest rate swaps that were designated as cash flow hedges of interest rate risk:
 
 
Number of Instruments
 
Notional
Interest Rate Derivatives
 
March 31, 2017
 
December 31, 2016
 
March 31, 2017
 
December 31, 2016
Interest rate swaps
 
4

 
2

 
$
450,000

 
$
250,000


17

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The table below presents the estimated fair value of the Company’s derivative financial instruments, which are presented within “Other assets, net” in the condensed consolidated balance sheets. The valuation techniques utilized are described in Note 13 to the condensed consolidated financial statements.
 
 
Fair Value
 
 
March 31, 2017
 
December 31, 2016
Derivatives designated as cash flow hedges:
 
 
 
 
Interest rate swaps
 
$
1,369

 
$
743

The following table presents the effect of the Company’s derivative financial instruments on the accompanying condensed consolidated statements of operations and other comprehensive (loss) income for the three months ended March 31, 2017 and 2016:
Derivatives in
Cash Flow
Hedging
Relationships
 
Amount of (Gain) Loss
Recognized in Other
Comprehensive Income
on Derivative
(Effective Portion)
 
Location of Loss
Reclassified from
Accumulated Other
Comprehensive Income (AOCI)
into Income
(Effective Portion)
 
Amount of Loss
Reclassified from
AOCI into Income
(Effective Portion)
 
Location of Loss
Recognized in
Income on Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing)
 
Amount of Loss
Recognized in Income
on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
 
 
2017
 
2016
 
 
 
2017
 
2016
 
 
 
2017
 
2016
Interest rate swaps
 
$
(472
)
 
$
53

 
Interest expense
 
$
160

 
$
86

 
Other income, net
 
$
6

 
$

(10) EQUITY
In December 2015, the Company entered into an at-the-market (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 revolving line of credit. The Company did not sell any shares under its ATM equity program during the three months ended March 31, 2017 and 2016. As of March 31, 2017, 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.
In December 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 Company did not repurchase any shares during the three months ended March 31, 2017 and 2016. As of March 31, 2017, $241,159 remained available under the repurchase program.

18

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(11) EARNINGS PER SHARE
The following table summarizes the components used in the calculation of basic and diluted earnings per share (EPS):
 
Three Months Ended March 31,
 
 
2017
 
2016
 
Numerator:
 
 
 
 
(Loss) income from continuing operations
$
(50,264
)
 
$
25,687

 
Gain on sales of investment properties
41,164

 
21,739

 
Preferred stock dividends
(2,362
)
 
(2,362
)
 
Net (loss) income attributable to common shareholders
(11,462
)
 
45,064

 
Distributions paid on unvested restricted shares
(90
)
 
(130
)
 
Net (loss) income attributable to common shareholders excluding amounts
attributable to unvested restricted shares
$
(11,552
)
 
$
44,934

 

 
 
 
 
Denominator:
 
 
 
 
Denominator for (loss) earnings per common share – basic:
 
 
 
 
Weighted average number of common shares outstanding
236,294

(a)
236,578

(b)
Effect of dilutive securities:
 
 
 
 
Stock options

(c)
2

(c)
RSUs

(d)
100

(e)
Denominator for (loss) earnings per common share – diluted:
 
 
 
 
Weighted average number of common and common equivalent shares outstanding
236,294

 
236,680

 
(a)
Excludes 534 shares of unvested restricted common stock as of March 31, 2017, which equate to 565 shares on a weighted average basis for the three months ended March 31, 2017. These shares will continue to be excluded from the computation of basic EPS until contingencies are resolved and the shares are released.
(b)
Excludes 659 shares of unvested restricted common stock as of March 31, 2016, which equate to 725 shares on a weighted average basis for the three months ended March 31, 2016. 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)
There were outstanding options to purchase 41 and 53 shares of common stock as of March 31, 2017 and 2016, respectively, at a weighted average exercise price of $19.25 and $19.39, respectively. Of these totals, outstanding options to purchase 41 and 45 shares of common stock as of March 31, 2017 and 2016, respectively, at a weighted average exercise price of $19.25 and $20.74, respectively, have been excluded from the common shares used in calculating diluted EPS as including them would be anti-dilutive.
(d)
There were 644 RSUs eligible for future conversion following the performance periods as of March 31, 2017 (see Note 5 to the condensed consolidated financial statements), which equate to 638 RSUs on a weighted average basis for the three months ended March 31, 2017. These contingently issuable shares have been excluded from the common shares used in calculating diluted EPS as including them would be anti-dilutive.
(e)
There were 397 RSUs eligible for future conversion following the performance periods as of March 31, 2016, which equate to 275 RSUs on a weighted average basis for the three months ended March 31, 2016. These contingently issuable shares are included in diluted EPS based on the weighted average number of shares that would have been outstanding during the period, if any, assuming March 31, 2016 was the end of the contingency periods.

19

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(12) PROVISION FOR IMPAIRMENT OF INVESTMENT PROPERTIES
As of March 31, 2017 and 2016, 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 March 31, 2017 and 2016:
 
 
March 31, 2017
 
March 31, 2016
 
Number of properties for which indicators of impairment were identified
 
8

(a)
5

(b)
Less: number of properties for which an impairment charge was recorded
 

 
1

 
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
 
4

 
1

 
Remaining properties for which indicators of impairment were identified but no impairment
charge was considered necessary
 
4

 
3

 
 
 
 
 
 
 
Weighted average percentage by which the projected undiscounted cash flows exceeded
its respective carrying value for each of the remaining properties (c)
 
17
%
 
9
%
 
(a)
Includes three properties which have subsequently been sold as of March 31, 2017.
(b)
Includes three properties which have subsequently been sold as of March 31, 2017.
(c)
Based upon the estimated holding period for each asset where an undiscounted cash flow analysis was performed.
The Company did not record any investment property impairment charges during the three months ended March 31, 2017.
The Company recorded the following investment property impairment charge during the three months ended March 31, 2016:
Property Name
 
Property Type
 
Impairment Date
 
Square
Footage
 
Provision for
Impairment of
Investment
Properties
South Billings Center (a)
 
Development
 
March 31, 2016
 

 
$
2,164

 
 
Estimated fair value of impaired property as of impairment date
$
3,000

(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.
The Company provides no assurance that material impairment charges with respect to its investment properties will not occur in future periods.
(13) 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:
 
March 31, 2017
 
December 31, 2016
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Financial assets:
 
 
 
 
 
 
 
Derivative asset
$
1,369

 
$
1,369

 
$
743

 
$
743

Financial liabilities:
 
 
 
 
 
 
 
Mortgages payable, net
$
373,221

 
$
391,882

 
$
769,184

 
$
833,210

Unsecured notes payable, net
$
695,287

 
$
690,016

 
$
695,143

 
$
679,212

Unsecured term loans, net
$
646,194

 
$
650,347

 
$
447,598

 
$
450,421

Unsecured revolving line of credit
$
363,000

 
$
363,505

 
$
86,000

 
$
86,130


20

RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The carrying value of the derivative asset is included in “Other assets, net” in the accompanying condensed consolidated balance sheets.
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.
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
March 31, 2017
 
 
 
 
 
 
 
Derivative asset
$

 
$
1,369

 
$

 
$
1,369

 
 
 
 
 
 
 
 
December 31, 2016