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EX-10.1 - EXHIBIT 10.1 - RETAIL PROPERTIES OF AMERICA, INC.rpai-2015x331xex101.htm
EX-10.2 - EXHIBIT 10.2 - RETAIL PROPERTIES OF AMERICA, INC.rpai-2015x331xex102.htm
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EX-32.1 - EXHIBIT 32.1 - RETAIL PROPERTIES OF AMERICA, INC.rpai-2015x331xex321.htm
EX-31.1 - EXHIBIT 31.1 - RETAIL PROPERTIES OF AMERICA, INC.rpai-2015x331xex311.htm
EX-10.4 - EXHIBIT 10.4 - RETAIL PROPERTIES OF AMERICA, INC.rpai-2015x331xex104.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, 2015
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, 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 x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a 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 o No x
Number of shares outstanding of the registrant’s classes of common stock as of May 1, 2015:
Class A common stock:    237,186,483 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,
2015
 
December 31,
2014
Assets
 
 
 
 
Investment properties:
 
 
 
 
Land
 
$
1,297,067

 
$
1,195,369

Building and other improvements
 
4,652,456

 
4,442,446

Developments in progress
 
42,983

 
42,561

 
 
5,992,506

 
5,680,376

Less accumulated depreciation
 
(1,411,423
)
 
(1,365,471
)
Net investment properties
 
4,581,083

 
4,314,905

Cash and cash equivalents
 
64,895

 
112,292

Accounts and notes receivable (net of allowances of $7,660 and $7,497, respectively)
 
77,937

 
86,013

Acquired lease intangible assets, net
 
151,437

 
125,490

Assets associated with investment properties held for sale
 
5,041

 
33,640

Other assets, net
 
112,817

 
131,520

Total assets
 
$
4,993,210

 
$
4,803,860

 
 
 
 
 
Liabilities and Equity
 
 
 
 
Liabilities:
 
 
 
 
Mortgages payable, net
 
$
1,560,956

 
$
1,634,465

Unsecured notes payable, net
 
498,822

 
250,000

Unsecured term loan
 
450,000

 
450,000

Unsecured revolving line of credit
 
35,000

 

Accounts payable and accrued expenses
 
54,563

 
61,129

Distributions payable
 
39,284

 
39,187

Acquired lease intangible liabilities, net
 
117,502

 
100,641

Liabilities associated with investment properties held for sale
 
320

 
8,203

Other liabilities
 
75,575

 
70,860

Total liabilities
 
2,832,022

 
2,614,485

 
 
 
 
 
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, 2015
and December 31, 2014; liquidation preference $135,000
 
5

 
5

Class A common stock, $0.001 par value, 475,000 shares authorized, 237,186 and 236,602
shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively
 
237

 
237

Additional paid-in capital
 
4,923,342

 
4,922,864

Accumulated distributions in excess of earnings
 
(2,763,258
)
 
(2,734,688
)
Accumulated other comprehensive loss
 
(632
)
 
(537
)
Total shareholders’ equity
 
2,159,694

 
2,187,881

Noncontrolling interests
 
1,494

 
1,494

Total equity
 
2,161,188

 
2,189,375

Total liabilities and equity
 
$
4,993,210

 
$
4,803,860


See accompanying notes to condensed consolidated financial statements

1


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

 
 
Three Months Ended March 31,
 
 
2015
 
2014
Revenues:
 
 
 
 
Rental income
 
$
119,788

 
$
117,531

Tenant recovery income
 
31,300

 
29,748

Other property income
 
2,109

 
1,912

Total revenues
 
153,197

 
149,191

 
 
 
 
 
Expenses:
 
 
 
 
Property operating expenses
 
25,695

 
26,526

Real estate taxes
 
20,510

 
18,414

Depreciation and amortization
 
54,676

 
53,830

Provision for impairment of investment properties
 

 
394

General and administrative expenses
 
10,992

 
8,450

Total expenses
 
111,873

 
107,614

 
 
 
 
 
Operating income
 
41,324

 
41,577

 
 
 
 
 
Gain on extinguishment of other liabilities
 

 
4,258

Equity in loss of unconsolidated joint ventures, net
 

 
(778
)
Interest expense
 
(34,045
)
 
(31,863
)
Other income, net
 
1,225

 
427

Income from continuing operations
 
8,504

 
13,621

 
 
 
 
 
Discontinued operations:
 
 
 
 
Loss, net
 

 
(148
)
Gain on sales of investment properties
 

 
655

Income from discontinued operations
 

 
507

Gain on sales of investment properties
 
4,572

 

Net income
 
13,076

 
14,128

Net income attributable to the Company
 
13,076

 
14,128

Preferred stock dividends
 
(2,362
)
 
(2,362
)
Net income attributable to common shareholders
 
$
10,714

 
$
11,766

 
 
 
 
 
Earnings per common share — basic and diluted:
 
 
 
 
Continuing operations
 
$
0.05

 
$
0.05

Discontinued operations
 

 

Net income per common share attributable to common shareholders
 
$
0.05

 
$
0.05

 
 
 
 
 
Net income
 
$
13,076

 
$
14,128

Other comprehensive loss:
 
 
 
 
Net unrealized loss on derivative instruments (Note 9)
 
(95
)
 
(18
)
Comprehensive income attributable to the Company
 
$
12,981

 
$
14,110

 
 
 
 
 
Weighted average number of common shares outstanding — basic
 
236,250

 
236,151

 
 
 
 
 
Weighted average number of common shares outstanding — diluted
 
236,253

 
236,153


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
 
Total
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance as of January 1, 2014
5,400

 
$
5

 
236,302

 
$
236

 
$
4,919,633

 
$
(2,611,796
)
 
$
(738
)
 
$
2,307,340

 
$
1,494

 
$
2,308,834

Net income

 

 

 

 

 
14,128

 

 
14,128

 

 
14,128

Other comprehensive loss

 

 

 

 

 

 
(18
)
 
(18
)
 

 
(18
)
Distributions declared to preferred shareholders ($0.4375 per share)

 

 

 

 

 
(2,362
)
 

 
(2,362
)
 

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

 

 

 

 

 
(39,181
)
 

 
(39,181
)
 

 
(39,181
)
Issuance of common stock, net of offering costs

 

 

 

 
(37
)
 

 

 
(37
)
 

 
(37
)
Issuance of restricted common stock

 

 
262

 
1

 

 

 

 
1

 

 
1

Stock-based compensation expense, net of shares withheld for employee taxes and forfeitures

 

 

 

 
589

 

 

 
589

 

 
589

Balance as of March 31, 2014
5,400

 
$
5

 
236,564

 
$
237

 
$
4,920,185

 
$
(2,639,211
)
 
$
(756
)
 
$
2,280,460

 
$
1,494

 
$
2,281,954

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of January 1, 2015
5,400

 
$
5

 
236,602

 
$
237

 
$
4,922,864

 
$
(2,734,688
)
 
$
(537
)
 
$
2,187,881

 
$
1,494

 
$
2,189,375

Net income

 

 

 

 

 
13,076

 

 
13,076

 

 
13,076

Other comprehensive loss

 

 

 

 

 

 
(95
)
 
(95
)
 

 
(95
)
Distributions declared to preferred shareholders ($0.4375 per share)

 

 

 

 

 
(2,362
)
 

 
(2,362
)
 

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

 

 

 

 

 
(39,284
)
 

 
(39,284
)
 

 
(39,284
)
Issuance of common stock, net of offering costs

 

 

 

 
(40
)
 

 

 
(40
)
 

 
(40
)
Issuance of restricted common stock

 

 
637

 

 

 

 

 

 

 

Stock-based compensation expense, net of shares withheld for employee taxes and forfeitures

 

 
(53
)
 

 
518

 

 

 
518

 

 
518

Balance as of March 31, 2015
5,400

 
$
5

 
237,186

 
$
237

 
$
4,923,342

 
$
(2,763,258
)
 
$
(632
)
 
$
2,159,694

 
$
1,494

 
$
2,161,188


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,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
13,076

 
$
14,128

Adjustments to reconcile net income to net cash provided by operating activities
(including discontinued operations):
 
 
 
Depreciation and amortization
54,676

 
53,830

Provision for impairment of investment properties

 
394

Gain on sales of investment properties
(4,572
)
 
(655
)
Gain on extinguishment of other liabilities

 
(4,258
)
Amortization of loan fees and debt premium and discount, net
992

 
1,599

Amortization of stock-based compensation
1,369

 
589

Premium paid in connection with defeasance of mortgages payable
2,604

 

Equity in loss of unconsolidated joint ventures, net

 
778

Distributions on investments in unconsolidated joint ventures

 
755

Payment of leasing fees and inducements
(1,539
)
 
(2,277
)
Changes in accounts receivable, net
10,286

 
5,945

Changes in accounts payable and accrued expenses, net
(12,714
)
 
(10,808
)
Changes in other operating assets and liabilities, net
6,356

 
(1,164
)
Other, net
593

 
(705
)
Net cash provided by operating activities
71,127

 
58,151

 
 
 
 
Cash flows from investing activities:
 
 
 
Changes in restricted escrows, net
17,673

 
1,499

Purchase of investment properties
(316,200
)
 
(28,324
)
Capital expenditures and tenant improvements
(10,946
)
 
(9,558
)
Proceeds from sales of investment properties
35,343

 
9,204

Investment in developments in progress
(380
)
 
(1,441
)
Investment in unconsolidated joint ventures

 
(25
)
Other, net
(25
)
 

Net cash used in investing activities
(274,535
)
 
(28,645
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from mortgages payable
322

 
1,622

Principal payments on mortgages payable
(71,505
)
 
(50,114
)
Proceeds from unsecured notes payable
248,815

 

Proceeds from unsecured credit facility
335,000

 
101,000

Repayments of unsecured credit facility
(300,000
)
 
(36,000
)
Payment of loan fees and deposits, net
(1,812
)
 

Purchase of Treasury securities in connection with defeasance of mortgages payable
(12,379
)
 

Distributions paid
(41,549
)
 
(41,500
)
Other, net
(881
)
 
(37
)
Net cash provided by (used in) financing activities
156,011

 
(25,029
)
 
 
 
 
Net (decrease) increase in cash and cash equivalents
(47,397
)
 
4,477

Cash and cash equivalents, at beginning of period
112,292

 
58,190

Cash and cash equivalents, at end of period
$
64,895

 
$
62,667

(continued)
 

4



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

 
Three Months Ended March 31,
 
2015
 
2014
Supplemental cash flow disclosure, including non-cash activities:
 
 
 
Cash paid for interest
$
24,662

 
$
26,813

Distributions payable
$
39,284

 
$
39,181

Accrued capital expenditures and tenant improvements
$
4,474

 
$
5,217

Accrued leasing fees and inducements
$
533

 
$
338

Accrued development expenditures
$
133

 
$
429

Treasury securities transferred in connection with defeasance of mortgages payable
$
12,379

 
$

Defeasance of mortgages payable
$
9,775

 
$

 
 
 
 
Purchase of investment properties (after credits at closing):
 
 
 
Land, building and other improvements, net
$
(308,728
)
 
$
(28,112
)
Accounts receivable, acquired lease intangible and other assets
(34,929
)
 
(1,492
)
Accounts payable, acquired lease intangible and other liabilities
27,457

 
1,280

 
$
(316,200
)
 
$
(28,324
)
 
 
 
 
Proceeds from sales of investment properties:
 
 
 
Land, building and other improvements, net
$
30,582

 
$
8,079

Accounts receivable, acquired lease intangible and other assets
207

 
494

Accounts payable, acquired lease intangible and other liabilities
(50
)
 
(24
)
Deferred gain
32

 

Gain on sales of investment properties
4,572

 
655

 
$
35,343

 
$
9,204


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, 2014, which are included in its 2014 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 to own and operate high quality, strategically located shopping centers in the United States.
All share amounts and dollar amounts in this Quarterly Report are stated in thousands with the exception of per share amounts and per square foot amounts.
The Company has elected to be taxed as a real estate investment trust (REIT) under the Internal Revenue Code of 1986, as amended (the Code). The Company believes it qualifies for taxation as a REIT and, as such, the Company generally will not be subject to U.S. federal income tax on taxable income that is distributed to shareholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal corporate income tax on its undistributed 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 as a result of 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 those estimates.
The accompanying condensed consolidated financial statements include the accounts of the Company, as well as all wholly-owned subsidiaries and consolidated joint venture investments. Wholly-owned subsidiaries generally consist of limited liability companies (LLCs), limited partnerships and statutory trusts.
The Company’s property ownership as of March 31, 2015 is summarized below:

Wholly-owned
 
Consolidated
Joint Ventures (a)
Operating properties (b)
216

 

Development properties
2

 
1

(a)
The Company has a 50% ownership interest in one LLC.
(b)
Excludes one wholly-owned property classified as held for sale as of March 31, 2015.
As of March 31, 2015, the Company is the controlling member in one less-than-wholly-owned consolidated entity. The Company is entitled to a preferred return on its capital contributions to the entity. No adjustments to the carrying value of the noncontrolling interests for contributions, distributions or allocation of net income or loss were made during the three months ended March 31, 2015 and 2014.

6

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

During the three months ended March 31, 2014, the Company held investments in MS Inland Fund, LLC (MS Inland) and Oak Property & Casualty LLC (Oak), which were unconsolidated joint ventures accounted for under the equity method of accounting. The Company dissolved MS Inland and terminated its participation in Oak prior to December 31, 2014. The Company recorded net equity in loss of unconsolidated joint ventures of $778 and received net cash distributions of $730 during the three months ended March 31, 2014.
(2)   Summary of Significant Accounting Policies
Refer to the Company’s 2014 Annual Report on Form 10-K for a summary of the Company’s 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, 2015.
Recent Accounting Pronouncements
Effective January 1, 2016 with early adoption permitted, the concept of extraordinary items will be eliminated from GAAP and entities will no longer be required to consider whether an underlying event or transaction is extraordinary. However, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained. The Company has elected to early adopt this pronouncement effective January 1, 2015. The adoption of this pronouncement did not have any effect on the Company’s condensed consolidated financial statements.
Effective January 1, 2016 with early adoption permitted, companies will be required to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability on the balance sheet. The recognition and measurement guidance for debt issuance costs will not be affected. This pronouncement requires a full retrospective method of adoption and the adoption will result in the reclassification of unamortized capitalized loan fees from other assets to a direct reduction of the Company’s indebtedness on the condensed consolidated balance sheets.
Effective January 1, 2016 with early adoption permitted, a company’s management will be required to assess the entity’s ability to continue as a going concern every reporting period including interim periods for a period of one year after the date that the financial statements are issued (or available to be issued) and provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The Company does not expect the adoption of this pronouncement will have a material effect on its condensed consolidated financial statements.
Effective January 1, 2016 with early adoption permitted, companies will be required to evaluate whether they should consolidate certain legal entities under a revised consolidation model. All legal entities are subject to reevaluation under the revised consolidation model, which modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership, affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, and provides a scope exception from consolidation guidance for registered money market funds. This pronouncement allows either a full or a modified retrospective method of adoption. The Company does not expect the adoption of this pronouncement will have a material effect on its condensed consolidated financial statements.
Effective January 1, 2017 and currently awaiting Financial Accounting Standards Board approval of a proposal which could potentially defer the effective date by one year to January 1, 2018, companies will be required to apply a five-step model in accounting for revenue arising from contracts with customers. The core principle of this revised revenue model is that a company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Lease contracts will be excluded from this revenue recognition criteria; however, the sale of real estate will be required to follow the new model. This pronouncement allows either a full or a modified retrospective method of adoption. Expanded quantitative and qualitative disclosures regarding revenue recognition will be required for contracts that are subject to this guidance. The Company does not expect the adoption of this pronouncement will have a material effect on its condensed consolidated financial statements; however, it will continue to evaluate this assessment until the guidance becomes effective.

7

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

(3)   Acquisitions
The Company closed on the following acquisitions during the three months ended March 31, 2015:
Date
 
Property Name
 
Metropolitan
Statistical Area
(MSA)
 
Property Type
 
Square
Footage
 
Acquisition
Price
January 8, 2015
 
Downtown Crown
 
Washington, D.C.
 
Multi-tenant retail
 
258,000

 
$
162,785

January 23, 2015
 
Merrifield Town Center
 
Washington, D.C.
 
Multi-tenant retail
 
85,000

 
56,500

January 23, 2015
 
Fort Evans Plaza II
 
Washington, D.C.
 
Multi-tenant retail
 
229,000

 
65,000

February 19, 2015
 
Cedar Park Town Center
 
Austin
 
Multi-tenant retail
 
179,000

 
39,057

March 24, 2015
 
Lake Worth Towne Crossing - Parcel (a)
 
Dallas
 
Land
 

 
400

 
 
 
 
 
 
 
 
751,000

 
$
323,742

(a)
The Company acquired a parcel located at its Lake Worth Towne Crossing multi-tenant retail operating property.
The Company closed on the following acquisitions during the three months ended March 31, 2014:
Date
 
Property Name
 
MSA
 
Property Type
 
Square
Footage
 
Acquisition
Price
February 27, 2014
 
Heritage Square
 
Seattle
 
Multi-tenant retail
 
53,100

 
$
18,022

February 27, 2014
 
Bed Bath & Beyond Plaza - Fee Interest (a)
 
Miami
 
Ground lease interest
 

 
10,350

 
 
 
 
 
 
 
 
53,100

 
$
28,372

(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.
The following table summarizes the acquisition date fair values, before prorations, the Company recorded in conjunction with the acquisitions discussed above:
 
 
Three Months Ended March 31,
 
 
2015
 
2014
Land
 
$
102,487

 
$
16,727

Building and other improvements
 
206,241

 
11,385

Acquired lease intangible assets (a)
 
33,631

 
1,492

Acquired lease intangible liabilities (b)
 
(18,617
)
 
(1,232
)
Net assets acquired
 
$
323,742

 
$
28,372

(a)
The weighted average amortization period for acquired lease intangible assets is 16 years and six years for acquisitions completed during the three months ended March 31, 2015 and 2014, respectively.
(b)
The weighted average amortization period for acquired lease intangible liabilities is 20 years and 12 years for acquisitions completed during the three months ended March 31, 2015 and 2014, respectively.
The above acquisitions were funded using a combination of available cash on hand and proceeds from the Company’s unsecured revolving line of credit. Transaction costs totaling $911 and $98 for the three months ended March 31, 2015 and 2014, respectively, were expensed as incurred and included within “General and administrative expenses” in the accompanying condensed consolidated statements of operations and other comprehensive income.
Included in the Company’s condensed consolidated statements of operations and other comprehensive income from the properties acquired are $4,675 and $161 in total revenues and $1,401 and $61 in net income attributable to common shareholders from the date of acquisition through March 31, 2015 and 2014, respectively.
Subsequent to March 31, 2015, the Company acquired Tysons Corner, a multi-tenant retail property located in the Washington, D.C. MSA, for a gross purchase price of $31,556. The property was acquired on May 4, 2015 and contains approximately 38,000 square feet. The Company has not completed the allocation of the acquisition date fair value for Tysons Corner; however, it expects that the purchase price of this property will primarily be allocated to building, land, and acquired lease intangibles.

8

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

Condensed Pro Forma Financial Information
The results of operations of the acquisitions accounted for as business combinations are included in the following unaudited condensed pro forma financial information as if these acquisitions had been completed as of the beginning of the year prior to the acquisition date. The following unaudited condensed pro forma financial information is presented as if the 2015 acquisitions, including the Tysons Corner acquisition, were completed as of January 1, 2014, and the 2014 acquisitions were completed as of January 1, 2013. The results of operations associated with the 2015 Lake Worth Towne Crossing and 2014 Bed Bath & Beyond Plaza acquisitions have not been included in the pro forma presentation as they have been accounted for as asset acquisitions. These pro forma results are for comparative purposes only and are not necessarily indicative of what the actual results of operations of the Company would have been had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.
The unaudited condensed pro forma financial information is as follows:
 
 
Three Months Ended March 31,
 
 
2015
 
2014
Total revenues
 
$
154,484

 
$
153,847

Net income
 
$
12,990

 
$
13,252

Net income attributable to common shareholders
 
$
10,628

 
$
10,890

Earnings per common share — basic and diluted
 
 
 
 
Net income per common share attributable to common shareholders
 
$
0.04

 
$
0.05

Weighted average number of common shares outstanding — basic
 
236,250

 
236,151

(4)   Dispositions
The Company monitors its investment properties to ensure that each property continues to meet investment and strategic objectives. This approach results in the sale of certain non-strategic and non-core assets that no longer meet the Company’s investment criteria.
The Company closed on the following property dispositions during the three months ended March 31, 2015:
Date
 
Property Name
 
Property Type
 
Square
Footage
 
Consideration
 
Aggregate
Proceeds, Net (a)
 
Gain
January 20, 2015
 
Aon Hewitt East Campus
 
Single-user office
 
343,000

 
$
17,233

 
$
16,495

 
$

February 27, 2015
 
Promenade at Red Cliff
 
Multi-tenant retail
 
94,500

 
19,050

 
18,848

 
4,572

 
 
 
 
 
 
437,500

 
$
36,283

 
$
35,343

 
$
4,572

(a)
Aggregate proceeds are net of transaction costs.
The Company closed on the following property disposition during the three months ended March 31, 2014:
Date
 
Property Name
 
Property Type
 
Square
Footage
 
Consideration
 
Aggregate
Proceeds, Net (a)
 
Gain
March 11, 2014
 
Riverpark Phase IIA
 
Single-user retail
 
64,300

 
$
9,269

 
$
9,204

 
$
655

(a)
Aggregate proceeds are net of transaction costs.
As of March 31, 2015, the Company had entered into a contract to sell Hartford Insurance Building, a 97,400 square foot single-user office property located in Maple Grove, Minnesota. This property qualified for held for sale accounting treatment upon meeting all applicable GAAP criteria during the quarter ended March 31, 2015, at which time depreciation and amortization were ceased. As such, the assets and liabilities associated with this property are separately classified as held for sale in the condensed consolidated balance sheet as of March 31, 2015. Promenade at Red Cliff and Aon Hewitt East Campus, both of which were sold during the three months ended March 31, 2015, were classified as held for sale as of December 31, 2014.

9

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

The following table presents the assets and liabilities associated with the investment properties classified as held for sale:
 
March 31,
2015
 
December 31,
2014
Assets
 
 
 
Land, building and other improvements
$
4,972

 
$
36,020

Accumulated depreciation
(58
)
 
(5,358
)
Net investment properties
4,914

 
30,662

Other assets
127

 
2,978

Assets associated with investment properties held for sale
$
5,041

 
$
33,640

 
 
 
 
Liabilities
 
 
 
Mortgage payable
$

 
$
8,075

Other liabilities
320

 
128

Liabilities associated with investment properties held for sale
$
320

 
$
8,203

There was no activity during the three months ended March 31, 2015 related to discontinued operations. The results of operations for the three months ended March 31, 2014 for the investment property accounted for as discontinued operations, Riverpark Phase IIA which was classified as held for sale as of December 31, 2013, were immaterial.
(5)   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, 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 represents a summary of the Company’s unvested restricted shares as of and for the three months ended March 31, 2015:

Unvested
Restricted
Shares

Weighted Average
Grant Date Fair
Value per
Restricted Share
Balance as of January 1, 2015
396


$
14.26

Shares granted (a)
637


$
16.02

Shares vested
(162
)

$
14.03

Balance as of March 31, 2015
871


$
15.59

(a)
Shares granted vest ratably over periods ranging from one to three years in accordance with the terms of applicable award documents.
During the three months ended March 31, 2015 and 2014, the Company recorded compensation expense of $1,369 and $587, respectively, related to unvested restricted shares. As of March 31, 2015, total unrecognized compensation expense related to unvested restricted shares was $10,919, which is expected to be amortized over a weighted average term of 1.5 years. The total fair value of shares vested during the three months ended March 31, 2015 was $2,613.
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, 2015, options to purchase 84 shares of common stock had been granted, of which options to purchase three shares had been exercised, options to purchase six shares had expired and options to purchase 11 shares had been forfeited. The Company did not grant any options in 2014 or 2015 and did not record any compensation expense related to stock options during the three months ended March 31, 2015. Compensation expense of $2 related to stock options was recorded during the three months ended March 31, 2014.

10

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, 2015
 
December 31, 2014

Aggregate
Principal
Balance

Weighted
Average
Interest Rate
 
Weighted
Average Years
to Maturity
 
Aggregate
Principal
Balance
 
Weighted
Average
Interest Rate
 
Weighted
Average Years
to Maturity
Fixed rate mortgages payable (a)
$
1,542,858


6.01
%
 
3.9
 
$
1,616,063

 
6.03
%
 
4.0
Variable rate construction loan (b)
15,222


2.44
%
 
0.6
 
14,900

 
2.44
%
 
0.8
Mortgages payable
1,558,080

 
5.97
%
 
3.9
 
1,630,963

 
5.99
%
 
3.9
Premium, net of accumulated amortization
3,218

 
 
 
 
 
3,972

 
 
 
 
Discount, net of accumulated amortization
(342
)

 
 
 
 
(470
)
 
 
 
 
Mortgages payable, net
$
1,560,956


 
 
 
 
$
1,634,465

 
 
 
 
(a)
Includes $8,070 and $8,124 of variable rate mortgage debt that was swapped to a fixed rate as of March 31, 2015 and December 31, 2014, respectively, and excludes mortgages payable of $8,075 associated with one investment property classified as held for sale as of December 31, 2014. The fixed rate mortgages had interest rates ranging from 3.35% to 8.00% as of March 31, 2015 and December 31, 2014, respectively.
(b)
The variable rate construction loan bears interest at a floating rate of London Interbank Offered Rate (LIBOR) plus 2.25%.
Mortgages Payable
During the three months ended March 31, 2015, the Company repaid or defeased mortgages payable in the total amount of $77,135 (excluding scheduled principal payments of $4,145 related to amortizing loans). The loans repaid or defeased during the three months ended March 31, 2015 had a weighted average fixed interest rate of 6.53%.
The majority of the Company’s mortgages payable require monthly payments of principal and interest, as well as reserves for real estate taxes and certain other costs. Certain of the Company’s properties and the related tenant leases are pledged as collateral for the fixed rate mortgages payable while a consolidated joint venture property and the related tenant leases are pledged as collateral for the variable rate construction loan. Although the mortgage loans obtained by the Company are generally non-recourse, occasionally, the Company may guarantee all or a portion of the debt on a full-recourse basis. As of March 31, 2015, the Company had guaranteed $8,106 of the outstanding mortgage and construction loans with maturity dates ranging from November 2, 2015 through September 30, 2016 (see Note 14). At times, the Company has borrowed funds financed as part of a cross-collateralized package, with cross-default provisions, in order to enhance the financial benefits of a transaction. In those circumstances, one or more of the Company’s properties may secure the debt of another of the Company’s properties. As of March 31, 2015, the most significant cross-collateralized pool of mortgages was the IW JV 2009, LLC portfolio in the amount of $460,078, which is cross-collateralized by 53 properties.

11

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

Debt Maturities
The following table shows the scheduled maturities and principal amortization of the Company’s indebtedness as of March 31, 2015 for the remainder of 2015, 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, 2015.
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgages payable (a)
$
305,135

 
$
67,703

 
$
321,090

 
$
12,376

 
$
501,308

 
$
335,246

 
$
1,542,858

Unsecured credit facility - fixed rate portion of term loan (b)

 

 

 
300,000

 

 

 
300,000

Unsecured notes payable (c)

 

 

 

 

 
500,000

 
500,000

Total fixed rate debt
305,135

 
67,703

 
321,090

 
312,376

 
501,308

 
835,246

 
2,342,858

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable rate debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction loan
15,222

 

 

 

 

 

 
15,222

Unsecured credit facility

 

 
35,000

 
150,000

 

 

 
185,000

Total variable rate debt
15,222

 

 
35,000

 
150,000

 

 

 
200,222

Total debt (d)
$
320,357

 
$
67,703

 
$
356,090

 
$
462,376

 
$
501,308

 
$
835,246

 
$
2,543,080

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average interest rate on debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate debt
5.39
%
 
5.06
%
 
5.53
%
 
2.18
%
 
7.50
%
 
4.51
%
 
5.11
%
Variable rate debt (e)
2.44
%
 

 
1.68
%
 
1.63
%
 

 

 
1.70
%
Total
5.25
%
 
5.06
%
 
5.15
%
 
2.00
%
 
7.50
%
 
4.51
%
 
4.84
%
(a)
Includes $8,070 of variable rate mortgage debt that was swapped to a fixed rate as of March 31, 2015. Excludes mortgage premium of $3,218 and discount of $(342), net of accumulated amortization, which was outstanding as of March 31, 2015.
(b)
$300,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through February 24, 2016. The swap effectively converts one-month floating rate LIBOR to a fixed rate of 0.53875% over the term of the swap.
(c)
Excludes discount of $(1,178), net of accumulated amortization, which was outstanding as of March 31, 2015.
(d)
As of March 31, 2015, the weighted average years to maturity of consolidated indebtedness was 4.7 years.
(e)
Represents interest rates as of March 31, 2015.
The Company plans on addressing its debt maturities through a combination of proceeds from asset dispositions, capital markets transactions and its unsecured revolving line of credit.
(7)   Unsecured Notes Payable
On March 12, 2015, the Company completed a public offering of $250,000 in aggregate principal amount of its 4.00% senior unsecured notes due 2025 (4.00% notes). The 4.00% notes were priced at 99.526% of the principal amount to yield 4.058% to maturity. In addition, on June 30, 2014, the Company completed a private placement of $250,000 of unsecured notes, consisting of $100,000 of 4.12% Series A senior notes due 2021 and $150,000 of 4.58% Series B senior notes due 2024 (collectively, Series A and B notes). The proceeds from the 4.00% notes and the Series A and B notes were used to repay a portion of the Company’s unsecured revolving line of credit in anticipation of the repayment of future secured debt maturities.

12

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

The following table summarizes the Company’s unsecured notes payable as of March 31, 2015:
Unsecured Notes Payable
 
Maturity Date
 
Principal Balance
 
Interest Rate/
Weighted Average
Interest Rate
Senior notes - 4.12% Series A due 2021
 
June 30, 2021
 
$
100,000

 
4.12
%
Senior notes - 4.58% Series B due 2024
 
June 30, 2024
 
150,000

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

 
4.00
%
 
 
 
 
500,000

 
4.20
%
Discount, net of accumulated amortization
 
 
 
(1,178
)
 
 
 
 
Total
 
$
498,822

 
 
The indenture, as supplemented, governing the 4.00% notes (the Indenture) contains customary covenants and events of default. Pursuant to the terms of the Indenture, the Company is subject to various financial covenants, including the requirement to maintain the following: (i) maximum secured and total leverage ratios; (ii) a debt service coverage ratio; and (iii) maintenance of an unencumbered assets to unsecured debt ratio.
The note purchase agreement governing the Series A and B notes contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the note purchase agreement, the Company is subject to various financial covenants, some of which are based upon the financial covenants in effect in the Company’s primary credit facility, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) minimum interest coverage and unencumbered interest coverage ratios; and (iii) a minimum consolidated net worth.
As of March 31, 2015, management believes the Company was in compliance with the financial covenants under the Indenture and the note purchase agreement.
(8)   Unsecured Credit Facility
On May 13, 2013, the Company entered into its third amended and restated unsecured credit agreement with a syndicate of financial institutions led by KeyBank National Association and Wells Fargo Securities LLC to provide for an unsecured credit facility aggregating $1,000,000. The unsecured credit facility consists of a $550,000 unsecured revolving line of credit and a $450,000 unsecured term loan (collectively, the Unsecured Credit Facility). The Company has the ability to increase available borrowings up to $1,450,000 in certain circumstances.
The Unsecured Credit Facility is currently priced on a leverage grid at a rate of LIBOR plus a margin ranging from 1.50% to 2.05%, plus a quarterly unused fee ranging from 0.25% to 0.30% depending on the undrawn amount, for the unsecured revolving line of credit and LIBOR plus a margin ranging from 1.45% to 2.00% for the unsecured term loan. 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. Upon making such an election and depending on the Company’s credit rating, the interest rate for the unsecured revolving line of credit would equal LIBOR plus a margin ranging from 0.90% to 1.70%, plus a facility fee ranging from 0.15% to 0.35%, and for the unsecured term loan, LIBOR plus a margin ranging from 1.05% to 2.05%. As of March 31, 2015, making such an election would have resulted in a higher interest rate and, as such, the Company has not made the election to convert to an investment grade pricing grid.
The following table summarizes the Company’s Unsecured Credit Facility:
 
 
 
 
March 31, 2015
 
December 31, 2014
Unsecured Credit Facility
 
Maturity Date
 
Balance
 
Interest Rate/
Weighted Average
Interest Rate
 
Balance
 
Interest Rate/
Weighted Average
Interest Rate
Term loan - fixed rate portion (a)
 
May 11, 2018
 
$
300,000

 
1.99
%
 
$
300,000

 
1.99
%
Term loan - variable rate portion
 
May 11, 2018
 
150,000

 
1.63
%
 
150,000

 
1.62
%
Revolving line of credit - variable rate
 
May 12, 2017 (b)
 
35,000

 
1.68
%
 

 
1.67
%
 
 
Total
 
$
485,000

 
1.86
%
 
$
450,000

 
1.87
%
(a)
$300,000 of the term loan has been swapped to a fixed rate of 0.53875% plus a margin based on a leverage grid ranging from 1.45% to 2.00% through February 24, 2016. The applicable margin was 1.45% as of March 31, 2015 and December 31, 2014.

13

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

(b)
The Company has a one year extension option on the unsecured revolving line of credit, which it may exercise as long as it is in compliance with the terms of the unsecured credit agreement and it pays an extension fee equal to 0.15% of the commitment amount being extended.
The unsecured credit agreement contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the unsecured credit agreement, the Company is subject to various financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) minimum fixed charge and unencumbered interest coverage ratios; and (iii) a minimum consolidated net worth.
As of March 31, 2015, management believes the Company was in compliance with the financial covenants and default provisions under the unsecured credit 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.
The Company utilizes two interest rate swaps to hedge the variable cash flows associated with variable rate debt. The effective portion of changes in the fair value of derivatives that are designated and that qualify as cash flow hedges is recorded in “Accumulated other comprehensive loss” and is reclassified to interest expense as interest payments are made on the Company’s variable rate debt. Over the next 12 months, the Company estimates that an additional $607 will be reclassified as an increase to interest expense. The ineffective portion of the change in fair value of derivatives is recognized directly in earnings.
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,
2015
 
December 31,
2014
 
March 31,
2015
 
December 31,
2014
Interest rate swaps
 
2

 
2

 
$
308,070

 
$
308,124

The table below presents the estimated fair value of the Company’s derivative financial instruments, which are presented within “Other liabilities” in the condensed consolidated balance sheets. The valuation techniques utilized are described in Note 13 to the condensed consolidated financial statements.
 
 
Fair Value
 
 
March 31,
2015
 
December 31,
2014
Derivatives designated as cash flow hedges:
 
 
 
 
Interest rate swaps
 
$
632

 
$
562

The following table presents the effect of the Company’s derivative financial instruments on the condensed consolidated statements of operations and other comprehensive income for the three months ended March 31, 2015 and 2014:
Derivatives in
Cash Flow
Hedging
Relationships
 
Amount of 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 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)
 
 
2015
 
2014
 
 
 
2015
 
2014
 
 
 
2015
 
2014
Interest rate swaps
 
$
386

 
$
309

 
Interest expense
 
$
291

 
$
291

 
Other income, net
 
$
(25
)
 
$
(13
)

14

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

(10)  Equity
In March 2013, the Company established an at-the-market (ATM) equity program under which it may sell shares of its Class A common stock, having an aggregate offering price of up to $200,000, from time to time. Actual sales may depend on a variety of factors, including, among others, market conditions and the trading price of the Company’s Class A common stock. The net proceeds are expected to be used for general corporate purposes, which may include repaying debt, including the Company's unsecured revolving line of credit, and funding acquisitions or other growth initiatives.
The Company did not sell any shares under its ATM equity program during the three months ended March 31, 2015 and 2014.
As of March 31, 2015, the Company had Class A common shares having an aggregate offering price of up to $115,165 remaining available for sale under its ATM equity program.
(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,
 
 
2015
 
2014
 
Numerator:
 
 
 
 
Income from continuing operations
$
8,504

 
$
13,621

 
Gain on sales of investment properties
4,572

 

 
Preferred stock dividends
(2,362
)
 
(2,362
)
 
Income from continuing operations attributable to common shareholders
10,714

 
11,259

 
Income from discontinued operations

 
507

 
Net income attributable to common shareholders
10,714

 
11,766

 
Distributions paid on unvested restricted shares
(66
)
 
(25
)
 
Net income attributable to common shareholders excluding
amounts attributable to unvested restricted shares
$
10,648

 
$
11,741

 

 
 
 
 
Denominator:
 
 
 
 
Denominator for earnings per common share — basic:
 
 
 
 
Weighted average number of common shares outstanding
236,250

(a)
236,151

(b)
Effect of dilutive securities — stock options
3

(c)
2

(c)
Denominator for earnings per common share — diluted:
 
 
 
 
Weighted average number of common and common equivalent shares outstanding
236,253

 
236,153

 
(a)
Excludes 871 shares of unvested restricted common stock, which equate to 611 shares on a weighted average basis for the three months ended March 31, 2015. These shares will continue to be excluded from the computation of basic EPS until contingencies are resolved and the shares are released.
(b)
Excludes 414 shares of unvested restricted common stock, which equate to 264 shares on a weighted average basis for the three months ended March 31, 2014. These shares will continue to be excluded from the computation of basic EPS until contingencies are resolved and the shares are released.
(c)
There were outstanding options to purchase 64 and 78 shares of common stock as of March 31, 2015 and 2014, respectively, at a weighted average exercise price of $19.32 and $19.10, respectively. Of these totals, outstanding options to purchase 54 and 64 shares of common stock as of March 31, 2015 and 2014, respectively, at a weighted average exercise price of $20.72 and $20.71, respectively, have been excluded from the common shares used in calculating diluted earnings per share as including them would be anti-dilutive.

15

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

(12) Provision for Impairment of Investment Properties
As of March 31, 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 March 31, 2015 and 2014:
 
 
March 31, 2015
 
March 31, 2014
 
Number of properties for which indicators of impairment were identified
 
6

 
12

(a)
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
 
1

(b)

 
Remaining properties for which indicators of impairment were identified
 
5

 
11

 
 
 
 
 
 
 
Weighted average percentage by which the projected undiscounted cash flows exceeded
its respective carrying value for each of the remaining properties (c)
 
66
%
 
19
%
 
(a)
Includes seven properties which were subsequently sold or classified as held for sale as of March 31, 2015.
(b)
Hartford Insurance Building was classified as held for sale as of March 31, 2015. This property was not considered impaired based upon the executed sales contract and it was sold on April 7, 2015 with an anticipated gain on sale of approximately $860.
(c)
Based upon the estimated holding period for each asset where an undiscounted cash flow analysis was performed.
The investment property impairment charge recorded by the Company during the three months ended March 31, 2014 is summarized below:
Property Name
 
Property Type
 
Impairment Date
 
Square
Footage
 
Provision for
Impairment of
Investment
Properties
Midtown Center (a)
 
Multi-tenant retail
 
March 31, 2014
 
408,500

 
$
394

 
 
Estimated fair value of impaired property as of impairment date
$
47,150

(a)
The Company recorded an impairment charge based upon the terms and conditions of an executed sales contract for this property, which was sold on April 1, 2014.
The Company can provide 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, 2015
 
December 31, 2014
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Financial liabilities:
 
 
 
 
 
 
 
Mortgages payable, net
$
1,560,956

 
$
1,679,271

 
$
1,634,465

 
$
1,749,671

Unsecured notes payable, net
$
498,822

 
$
519,560

 
$
250,000

 
$
258,360

Unsecured credit facility
$
485,000

 
$
487,205

 
$
450,000

 
$
451,502

Derivative liability
$
632

 
$
632

 
$
562

 
$
562

The carrying values of mortgages payable, net and unsecured notes payable, net in the table are included in the condensed consolidated balance sheets under the indicated captions. The carrying value of the Unsecured Credit Facility is comprised of the “Unsecured term loan” and the “Unsecured revolving line of credit” and the carrying value of the derivative liability is included in “Other liabilities” in the condensed consolidated balance sheets.

16

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

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, 2015
 
 
 
 
 
 
 
Derivative liability
$

 
$
632

 
$

 
$
632

 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
Derivative liability
$

 
$
562

 
$

 
$
562

Derivative liability:  The fair value of the derivative liability is determined using a discounted cash flow analysis on the expected future cash flows of each derivative. This analysis utilizes observable market data including forward yield curves and implied volatilities to determine the market’s expectation of the future cash flows of the variable component. The fixed and variable components of the derivative are then discounted using calculated discount factors developed based on the LIBOR swap rate and 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 March 31, 2015 and December 31, 2014, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation. As a result, the Company has determined that its derivative valuations in their entirety are 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 9.
Nonrecurring Fair Value Measurements
The Company did not have any assets measured at fair value on a nonrecurring basis as of March 31, 2015.
The following table presents the Company’s assets measured at fair value on a nonrecurring basis as of December 31, 2014 aggregated by the level within the fair value hierarchy in which those measurements fall. The table includes information related to properties remeasured to fair value during the year ended December 31, 2014, except for those properties sold prior to December 31, 2014. Methods and assumptions used to estimate the fair value of these assets are described after the table.
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Provision for
Impairment (a)
December 31, 2014
 
 
 
 
 
 
 
 
 
Investment properties
$

 
$

 
$
86,500

(b)
$
86,500

 
$
59,352

Investment properties - held for sale (c)
$

 
$
17,233

 
$

 
$
17,233

 
$
563

(a)
Excludes impairment charges recorded on investment properties sold prior to December 31, 2014.
(b)
Represents the fair values of the Company’s Shaw’s Supermarket, The Gateway, Hartford Insurance Building and Citizen’s Property Insurance Building investment properties. The estimated fair values of Shaw’s Supermarket and The Gateway of $3,100 and $75,400, respectively, were determined using the income approach. The income approach involves discounting the estimated income stream and reversion (presumed sale) value of a property over an estimated holding period to a present value at a risk-adjusted rate. Discount rates, growth assumptions and terminal capitalization rates utilized in this approach are derived from property-specific information, market transactions and other industry data. The terminal capitalization rate and discount rate are significant inputs to this valuation. The following were the key Level 3 inputs used in estimating the fair value of Shaw’s Supermarket and The Gateway as of September 30, 2014.

17

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

 
 
2014
 
 
Low
 
High
Rental growth rates
 
Varies (i)
 
Varies (i)
Operating expense growth rates
 
1.39%
 
3.70%
Discount rates
 
8.25%
 
9.50%
Terminal capitalization rates
 
7.50%
 
8.50%
(i) Since cash flow models are established at the tenant level, projected rental revenue growth rates fluctuate over the course of the estimated holding period based upon the timing of lease rollover, amount of available space and other property and space-specific factors.
The estimated fair values of Hartford Insurance Building and Citizen’s Property Insurance Building of $5,000 and $3,000, respectively, were based upon third party comparable sales prices, which contain unobservable inputs used by these third parties to determine the estimated fair values.
(c)
Represents an impairment charge recorded during the three months ended December 31, 2014 for Aon Hewitt East Campus, which was classified as held for sale as of December 31, 2014. Such charge, calculated as the expected sales price from the executed sales contract less estimated transaction costs as compared to the Company’s carrying value of its investment, was determined to be a Level 2 input. The estimated transaction costs totaling $738 are not reflected as a reduction to the fair value disclosed in the table above but were included in the calculation of the impairment charge.
Fair Value Disclosures
The following table presents the Company’s financial liabilities, which are measured at fair value for disclosure purposes, by the level in the fair value hierarchy within which those measurements fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table.
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
March 31, 2015
 
 
 
 
 
 
 
Mortgages payable, net
$

 
$

 
$
1,679,271

 
$
1,679,271

Unsecured notes payable, net
$
252,285

 
$

 
$
267,275

 
$
519,560

Unsecured credit facility
$

 
$

 
$
487,205

 
$
487,205

 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
Mortgages payable, net
$

 
$

 
$
1,749,671

 
$
1,749,671

Unsecured notes payable
$

 
$

 
$
258,360

 
$
258,360

Unsecured credit facility
$

 
$

 
$
451,502

 
$
451,502

Mortgages payable, net:  The Company estimates the fair value of its mortgages payable by discounting the future cash flows of each instrument at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rate for each of the Company’s individual mortgages payable based upon the specific terms of the agreement, including the term to maturity, the quality and nature of the underlying property and its leverage ratio. The rates used range from 2.2% to 5.5% and 2.2% to 4.0% as of March 31, 2015 and December 31, 2014, respectively.
Unsecured notes payable, net: The quoted market price as of March 31, 2015 was used to value the Company’s 4.00% notes. The Company estimates the fair value of its Series A and B notes by discounting the future cash flows at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rates. The weighted average rate used was 3.59% and 3.97% as of March 31, 2015 and December 31, 2014, respectively.
Unsecured Credit Facility:  The Company estimates the fair value of its Unsecured Credit Facility by discounting the future cash flows related to the credit spreads at rates currently offered to the Company by its lenders for similar facilities of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rates. The rates used to discount the credit spreads were 1.30% and 1.35% for the unsecured term loan as of March 31, 2015 and December 31, 2014, respectively, and 1.35% for the unsecured revolving line of credit as of March 31, 2015. There were no amounts drawn on the unsecured revolving line of credit as of December 31, 2014.

18

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

There were no transfers between the levels of the fair value hierarchy during the three months ended March 31, 2015.
(14) Commitments and Contingencies
Insurance Captive
On December 1, 2014, the Company formed a wholly-owned captive insurance company, Birch Property and Casualty LLC (Birch), which insures the Company’s first layer of property and general liability insurance claims subject to certain limitations. The Company capitalized Birch in accordance with the applicable regulatory requirements and Birch established annual premiums based on projections derived from the past loss experience of the Company’s properties.
Guarantees
Although the mortgage loans obtained by the Company are generally non-recourse, occasionally the Company may guarantee all or a portion of the debt on a full-recourse basis. As of March 31, 2015, the Company has guaranteed $8,106 of its outstanding mortgage and construction loans, with maturity dates ranging from November 2, 2015 through September 30, 2016.
(15) 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 condensed consolidated financial statements of the Company.
(16) Subsequent Events
Subsequent to March 31, 2015, the Company:
drew $60,000 on its unsecured revolving line of credit and used the proceeds to:
acquire Tysons Corner, a 38,000 square foot multi-tenant retail property located in Vienna, Virginia, for a gross purchase price of $31,556; and
repay a mortgage payable with a principal balance of $21,684 and an interest rate of 8.00%;
closed on the disposition of Hartford Insurance Building, a 97,400 square foot single-user office property located in Maple Grove, Minnesota, for a sales price of $6,015 with an anticipated gain on sale of approximately $860; and
closed on the disposition of Rasmussen College, a 26,700 square foot single-user office property located in Brooklyn Park, Minnesota, for a sales price of $4,800 with an anticipated gain on sale of approximately $1,334.
On April 27, 2015, the Company’s board of directors declared the cash dividend for the second quarter of 2015 for the Company’s 7.00% Series A cumulative redeemable preferred stock. The dividend of $0.4375 per preferred share will be paid on June 30, 2015 to preferred shareholders of record at the close of business on June 19, 2015.
On April 27, 2015, the Company’s board of directors declared the distribution for the second quarter of 2015 of $0.165625 per share on the Company’s outstanding Class A common stock, which will be paid on July 10, 2015 to Class A common shareholders of record at the close of business on June 26, 2015.

19


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act). Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates,” “focus,” “contemplates,” “aims,” “continues,” “would” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategies, plans or intentions. Risks, uncertainties and changes in the following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
economic, business and financial conditions, and changes in our industry and changes in the real estate markets in particular;
economic and other developments in the state of Texas, where we have a high concentration of properties;
our business strategy;
our projected operating results;
rental rates and/or vacancy rates;
frequency and magnitude of defaults on, early terminations of or non-renewal of leases by tenants;
interest rates or operating costs;
real estate and zoning laws and changes in real property tax rates;
real estate valuations, potentially resulting in impairment charges;
our leverage;
our ability to generate sufficient cash flows to service our outstanding indebtedness;
our ability to obtain necessary outside financing;
the availability, terms and deployment of capital;
general volatility of the capital and credit markets and the market price of our Class A common stock;
risks generally associated with real estate acquisitions, dispositions and redevelopment, including the impact of construction delays and cost overruns;
our ability to identify properties to acquire and complete acquisitions;
our ability to successfully operate acquired properties;
our ability to effectively manage growth;
composition of members of our senior management team;
our ability to attract and retain qualified personnel;
our ability to make distributions to our shareholders;
our ability to continue to qualify as a real estate investment trust (REIT);
governmental regulations, tax laws and rates and similar matters;
our compliance with laws, rules and regulations;

20


environmental uncertainties and exposure to natural disasters;
insurance coverage; and
the likelihood or ac