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EX-32.1 - EXHIBIT 32.1 - RETAIL PROPERTIES OF AMERICA, INC.rpai-2017x930xex321.htm
EX-31.1 - EXHIBIT 31.1 - RETAIL PROPERTIES OF AMERICA, INC.rpai-2017x930xex311.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 September 30, 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 October 27, 2017:
Class A common stock:    227,100,049 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)

 
 
September 30,
2017
 
December 31,
2016
Assets
 
 
 
 
Investment properties:
 
 
 
 
Land
 
$
1,090,790

 
$
1,191,403

Building and other improvements
 
3,773,266

 
4,284,664

Developments in progress
 
31,083

 
23,439

 
 
4,895,139

 
5,499,506

Less accumulated depreciation
 
(1,250,619
)
 
(1,443,333
)
Net investment properties
 
3,644,520

 
4,056,173

Cash and cash equivalents
 
29,652

 
53,119

Accounts and notes receivable (net of allowances of $6,421 and $6,886, respectively)
 
72,496

 
78,941

Acquired lease intangible assets, net
 
126,487

 
142,015

Assets associated with investment properties held for sale
 
64,673

 
30,827

Other assets, net
 
131,265

 
91,898

Total assets
 
$
4,069,093

 
$
4,452,973

 
 
 
 
 
Liabilities and Equity
 
 
 
 
Liabilities:
 
 
 
 
Mortgages payable, net
 
$
288,100

 
$
769,184

Unsecured notes payable, net
 
695,595

 
695,143

Unsecured term loans, net
 
546,914

 
447,598

Unsecured revolving line of credit
 
187,000

 
86,000

Accounts payable and accrued expenses
 
74,105

 
83,085

Distributions payable
 
40,145

 
39,222

Acquired lease intangible liabilities, net
 
101,045

 
105,290

Liabilities associated with investment properties held for sale, net
 
9,056

 
864

Other liabilities
 
78,195

 
74,501

Total liabilities
 
2,020,155

 
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 September 30, 2017
and December 31, 2016; liquidation preference $135,000
 
5

 
5

Class A common stock, $0.001 par value, 475,000 shares authorized, 227,496 and 236,770
shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively
 
227

 
237

Additional paid-in capital
 
4,804,679

 
4,927,155

Accumulated distributions in excess of earnings
 
(2,756,859
)
 
(2,776,033
)
Accumulated other comprehensive income
 
886

 
722

Total equity
 
2,048,938

 
2,152,086

Total liabilities and equity
 
$
4,069,093

 
$
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 September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
 
Rental income
 
$
100,977

 
$
113,627

 
$
316,968

 
$
344,081

Tenant recovery income
 
28,024

 
29,130

 
88,334

 
89,140

Other property income
 
1,518

 
1,769

 
6,249

 
7,170

Total revenues
 
130,519

 
144,526

 
411,551

 
440,391

 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
Operating expenses
 
19,572

 
20,285

 
62,440

 
63,438

Real estate taxes
 
21,863

 
19,937

 
65,229

 
60,966

Depreciation and amortization
 
51,469

 
56,763

 
157,268

 
163,602

Provision for impairment of investment properties
 
45,822

 
4,742

 
58,856

 
11,048

General and administrative expenses
 
7,785

 
11,110

 
29,368

 
33,289

Total expenses
 
146,511

 
112,837

 
373,161

 
332,343

 
 
 
 
 
 
 
 
 
Operating (loss) income
 
(15,992
)
 
31,689

 
38,390

 
108,048

 
 
 
 
 
 
 
 
 
Gain on extinguishment of debt
 

 

 

 
13,653

Gain on extinguishment of other liabilities
 

 

 

 
6,978

Interest expense
 
(21,110
)
 
(25,602
)
 
(128,077
)
 
(78,343
)
Other (expense) income, net
 
(76
)
 
22

 
380

 
449

(Loss) income from continuing operations
 
(37,178
)
 
6,109

 
(89,307
)
 
50,785

Gain on sales of investment properties
 
73,082

 
66,385

 
230,874

 
97,737

Net income
 
35,904

 
72,494

 
141,567

 
148,522

Preferred stock dividends
 
(2,362
)
 
(2,362
)
 
(7,087
)
 
(7,087
)
Net income attributable to common shareholders
 
$
33,542

 
$
70,132

 
$
134,480

 
$
141,435

 
 
 
 
 
 
 
 
 
Earnings per common share – basic
 
 
 
 
 
 
 
 
Net income per common share attributable to common shareholders
 
$
0.15

 
$
0.30

 
$
0.58

 
$
0.60

Earnings per common share – diluted
 
 
 
 
 
 
 
 
Net income per common share attributable to common shareholders
 
$
0.15

 
$
0.30

 
$
0.57

 
$
0.60

 
 
 
 
 
 
 
 
 
Net income
 
$
35,904

 
$
72,494

 
$
141,567

 
$
148,522

Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
Net unrealized (loss) gain on derivative instruments (Note 9)
 
(323
)
 
666

 
164

 
189

Comprehensive income attributable to the Company
 
$
35,581

 
$
73,160

 
$
141,731

 
$
148,711

 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding – basic
 
229,508

 
236,783

 
233,348

 
236,692

 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding – diluted
 
230,104

 
237,108

 
233,949

 
236,983


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

 

 

 

 

 
148,522

 

 
148,522

Other comprehensive income

 

 

 

 

 

 
189

 
189

Distributions declared to preferred shareholders
($1.3125 per share)

 

 

 

 

 
(7,087
)
 

 
(7,087
)
Distributions declared to common shareholders
($0.496875 per share)

 

 

 

 

 
(117,946
)
 

 
(117,946
)
Issuance of common stock, net of offering costs

 

 

 

 
(100
)
 

 

 
(100
)
Issuance of restricted shares

 

 
269

 

 

 

 

 

Exercise of stock options

 

 
2

 

 
23

 

 

 
23

Stock-based compensation expense, net of forfeitures

 

 
(10
)
 

 
5,296

 

 

 
5,296

Shares withheld for employee taxes

 

 
(152
)
 

 
(2,250
)
 

 

 
(2,250
)
Balance as of September 30, 2016
5,400

 
$
5

 
237,376

 
$
237

 
$
4,934,381

 
$
(2,752,743
)
 
$
104

 
$
2,181,984

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of January 1, 2017
5,400

 
$
5

 
236,770

 
$
237

 
$
4,927,155

 
$
(2,776,033
)
 
$
722

 
$
2,152,086

Net income

 

 

 

 

 
141,567

 

 
141,567

Other comprehensive income

 

 

 

 

 

 
164

 
164

Distributions declared to preferred shareholders
($1.3125 per share)

 

 

 

 

 
(7,087
)
 

 
(7,087
)
Distributions declared to common shareholders
($0.496875 per share)

 

 

 

 

 
(115,306
)
 

 
(115,306
)
Shares repurchased through share repurchase program

 

 
(9,433
)
 
(10
)
 
(125,579
)
 

 

 
(125,589
)
Issuance of restricted shares

 

 
285

 

 

 

 

 

Stock-based compensation expense, net of forfeitures

 

 
(34
)
 

 
4,483

 

 

 
4,483

Shares withheld for employee taxes

 

 
(92
)
 

 
(1,380
)
 

 

 
(1,380
)
Balance as of September 30, 2017
5,400

 
$
5

 
227,496

 
$
227

 
$
4,804,679

 
$
(2,756,859
)
 
$
886

 
$
2,048,938


See accompanying notes to condensed consolidated financial statements

3



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

 
Nine Months Ended
September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
141,567

 
$
148,522

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
157,268

 
163,602

Provision for impairment of investment properties
58,856

 
11,048

Gain on sales of investment properties
(230,874
)
 
(97,737
)
Gain on extinguishment of debt

 
(13,653
)
Gain on extinguishment of other liabilities

 
(6,978
)
Amortization of loan fees and debt premium and discount, net
6,748

 
4,372

Amortization of stock-based compensation
4,483

 
5,296

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

 

Payment of leasing fees and inducements
(13,540
)
 
(7,730
)
Changes in accounts receivable, net
851

 
(1,109
)
Changes in accounts payable and accrued expenses, net
(5,433
)
 
803

Changes in other operating assets and liabilities, net
3,236

 
(637
)
Other, net
(1,452
)
 
(791
)
Net cash provided by operating activities
181,678

 
205,008

 
 
 
 
Cash flows from investing activities:
 
 
 
Changes in restricted escrows, net
20,914

 
(5,904
)
Purchase of investment properties
(146,710
)
 
(266,377
)
Capital expenditures and tenant improvements
(52,565
)
 
(43,207
)
Proceeds from sales of investment properties
564,069

 
307,355

Investment in developments in progress
(11,160
)
 
(315
)
Other, net

 
194

Net cash provided by (used in) investing activities
374,548

 
(8,254
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Principal payments on mortgages payable
(98,028
)
 
(45,244
)
Proceeds from unsecured notes payable

 
100,000

Proceeds from unsecured term loans
200,000

 

Repayments of unsecured term loans
(100,000
)
 

Proceeds from unsecured revolving line of credit
664,000

 
390,000

Repayments of unsecured revolving line of credit
(563,000
)
 
(490,000
)
Payment of loan fees and deposits
(10
)
 
(6,386
)
Purchase of U.S. Treasury securities in connection with defeasance of mortgages payable
(439,403
)
 

Distributions paid
(121,470
)
 
(125,015
)
Shares repurchased through share repurchase program
(120,402
)
 

Other, net
(1,380
)
 
(2,462
)
Net cash used in financing activities
(579,693
)
 
(179,107
)
 
 
 
 
Net (decrease) increase in cash and cash equivalents
(23,467
)
 
17,647

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

 
51,424

Cash and cash equivalents, at end of period
$
29,652

 
$
69,071

(continued)
 

4



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

 
Nine Months Ended
September 30,
 
2017
 
2016
Supplemental cash flow disclosure, including non-cash activities:
 
 
 
Cash paid for interest, net of interest capitalized
$
61,360

 
$
73,603

Distributions payable
$
40,145

 
$
39,315

Accrued share repurchase through share repurchase program
$
5,187

 
$

Accrued capital expenditures and tenant improvements
$
5,601

 
$
7,740

Accrued leasing fees and inducements
$
493

 
$
913

Accrued redevelopment costs
$
1,300

 
$

Amounts reclassified to developments in progress
$

 
$
2,467

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
$
(147,234
)
 
$
(261,657
)
Accounts receivable, acquired lease intangibles and other assets
(11,366
)
 
(25,049
)
Accounts payable, acquired lease intangibles and other liabilities
9,366

 
5,013

Deferred gain
2,524

 

Mortgages payable assumed, net

 
15,316

 
$
(146,710
)
 
$
(266,377
)
 
 
 
 
Proceeds from sales of investment properties:
 
 
 
Net investment properties
$
395,282

 
$
282,661

Accounts receivable, acquired lease intangibles and other assets
13,801

 
15,306

Accounts payable, acquired lease intangibles and other liabilities
(9,316
)
 
(9,149
)
Deferred gain
(1,486
)
 
1,500

Mortgage debt forgiven or assumed

 
(94,353
)
Gain on extinguishment of debt

 
13,653

Gain on sales of investment properties
230,874

 
97,737

Proceeds temporarily restricted related to potential Internal Revenue Code
Section 1031 tax-deferred exchanges
(65,086
)
 

 
$
564,069

 
$
307,355


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 this Quarterly Report on Form 10-Q, including 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 September 30, 2017 is summarized below:
 
Wholly-owned
Retail operating properties (a)
120

Office properties
1

Total operating properties
121

 
 
Redevelopment properties
2

(a)
Excludes six wholly-owned operating properties classified as held for sale as of September 30, 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 nine months ended September 30, 2017.
Recently Adopted Accounting Pronouncements
The Company elected to early adopt Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2017-09, Compensation – Stock Compensation, on a prospective basis as of June 30, 2017. This new pronouncement amends/clarifies guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Under the new guidance, an entity should account for the effects of a modification unless all of the following are the same in the modified award as the original award immediately before the original award is modified: 1) the fair value; 2) the vesting conditions; and 3) the classification of the modified award as an equity instrument or a liability instrument. The existing disclosure requirements apply regardless of whether an entity is required to apply modification accounting. The adoption of this pronouncement did not have any effect on the Company’s condensed consolidated financial statements.
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 requires 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 are required to submit all such filings in HyperText Markup Language (HTML) format. The Company has added hyperlinks to its exhibit index starting with this Form 10-Q for the quarter ended September 30, 2017.
Recently Issued Accounting Pronouncements
In May 2014 with subsequent updates issued in August 2015 and March, April, May and December 2016, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This new guidance is effective January 1, 2018, with early adoption permitted, 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, including common area maintenance reimbursements, 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 on January 1, 2018 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 expects to adopt this guidance on a modified retrospective basis applying the guidance to the sales of investment properties upon adoption and applying it to any non-lease components contained within new and modified lease agreements beginning January 1, 2019 with the adoption of the new Leases guidance.
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, which 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, applies to the derecognition of all nonfinancial assets (including real estate) for which the counterparty is not a customer. 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. The Company expects to adopt this guidance on a modified retrospective basis.
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

7

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

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 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 November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows. This new guidance is effective January 1, 2018, with early adoption permitted, and requires amounts that are generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The pronouncement requires a retrospective transition method of adoption. Upon adoption, the Company will include amounts generally described as restricted cash within the beginning-of-period, change and end-of-period total amounts on the statement of cash flows rather than within an activity on the statement of cash flows.
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 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 for lease components will be largely unchanged from existing GAAP; however, upon adoption of the Leases guidance, non-lease components of new or modified leases, including common area maintenance reimbursements, will be accounted for under the Revenue from Contracts with Customers guidance described above. The Company anticipates that it will be required to bifurcate certain lease revenues between lease and non-lease components. Additionally, only incremental direct leasing costs may be capitalized under this new guidance, which is consistent with the Company’s existing policies. The pronouncement requires a modified retrospective method of adoption and allows some optional practical expedients. The Company expects to adopt this new guidance on January 1, 2019 and will continue to evaluate the impact of this guidance until it becomes effective.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging. This new guidance is effective January 1, 2019, with early adoption permitted, and amends the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in an entity’s financial statements. The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness and entities will be required to present the earnings effect of the hedging instrument in the same income statement line item in which they report the earnings effect of the hedged item. In addition, entities may perform the initial quantitative assessment of hedge effectiveness at any time after hedge designation, but no later than the first quarterly effectiveness testing date, and subsequent assessments of hedge effectiveness may be performed qualitatively unless facts and circumstances change. Disclosure requirements will be modified to include a tabular disclosure related to the effect of hedging instruments on the income statement and eliminate the requirement to disclose the ineffective portion of the change in fair value of such instruments. As of September 30, 2017, the Company had interest rate swaps that were designated as cash flow hedges of interest rate risk that expire prior to the effective date. Based upon its current hedges, the Company does not expect that 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 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

8

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

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 nine months ended September 30, 2017:
Date
 
Property Name
 
Metropolitan
Statistical Area (MSA)
 
Property Type
 
Square
Footage
 
Acquisition
Price
 
January 13, 2017
 
Main Street Promenade (a)
 
Chicago
 
Multi-tenant retail
 
181,600

 
$
88,000

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

 
2,000

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

 
4,128

 
April 5, 2017
 
One Loudoun Downtown –
Phase III
 
Washington, D.C.
 
Additional phase of multi-tenant retail (c)
 
9,800

 
2,193

 
May 16, 2017
 
One Loudoun Downtown –
Phase IV
 
Washington, D.C.
 
Development rights (c)
 

 
3,500

 
July 6, 2017
 
New Hyde Park Shopping Center
 
New York
 
Multi-tenant retail
 
32,300

 
22,075

 
August 8, 2017
 
One Loudoun Downtown –
Phase V
 
Washington, D.C.
 
Additional phase of multi-tenant retail (c)
 
17,700

 
5,167

 
August 8, 2017
 
One Loudoun Downtown –
Phase VI
 
Washington, D.C.
 
Additional phase of multi-tenant retail (c)
 
74,100

 
20,523

 
 
 
 
 
 
 
 
 
331,400

 
$
147,586

(d)
(a)
This property was acquired through a consolidated VIE and was used to facilitate an Internal Revenue Code Section 1031 tax-deferred exchange (1031 Exchange).
(b)
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.
(c)
The Company acquired the remaining five phases under contract, including the development rights for an additional 123 multi-family units for a total of 408 units, at its One Loudoun Downtown multi-tenant retail operating property, which were accounted for as asset acquisitions. The total number of properties in the Company’s portfolio was not affected by these transactions.
(d)
Acquisition price does not include capitalized closing costs and adjustments totaling $2,190.
The Company closed on the following acquisitions during the nine months ended September 30, 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
 
Chicago
 
Multi-tenant retail
 
183,200

 
65,954

April 1, 2016
 
The Shoppes at Union Hill (b)
 
New York
 
Multi-tenant retail
 
91,700

 
63,060

April 29, 2016
 
Ashland & Roosevelt – Fee Interest
 
Chicago
 
Ground lease interest (c)
 

 
13,850

May 5, 2016
 
Tacoma South
 
Seattle
 
Multi-tenant retail
 
230,700

 
39,400

June 15, 2016
 
Eastside
 
Dallas
 
Multi-tenant retail
 
67,100

 
23,842

August 30, 2016
 
Woodinville Plaza – Anchor Space Improvements
 
Seattle
 
Anchor space improvements (d)
 

 
4,500

 
 
 
 
 
 
 
 
761,700

 
$
283,337

(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.

9

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

(b)
In conjunction with the acquisition, the Company assumed mortgage debt with a principal balance of $15,971 and an interest rate of 3.75% that matures in 2031.
(c)
The Company acquired the fee interest in an existing wholly-owned multi-tenant retail operating property located in Chicago, Illinois, which was previously subject to a ground lease with a third party. In conjunction with this transaction, the Company reversed the straight-line ground rent liability of $6,978, which is reflected as “Gain on extinguishment of other liabilities” in the accompanying condensed consolidated statements of operations and other comprehensive (loss) income.
(d)
The Company acquired the anchor space improvements, which were previously subject to a ground lease with the Company, in an existing wholly-owned multi-tenant retail operating property located in Woodinville, Washington.
The following table summarizes the acquisition date values, before prorations, the Company recorded in conjunction with the acquisitions discussed above:
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
Land
 
$
38,833

 
$
84,720

Building and other improvements, net
 
108,401

 
176,937

Acquired lease intangible assets (a)
 
11,139

 
25,016

Acquired lease intangible liabilities (b)
 
(7,521
)
 
(3,991
)
Other liabilities
 
(1,076
)
 

Mortgages payable, net
 

 
(15,316
)
Net assets acquired
 
$
149,776

 
$
267,366

(a)
The weighted average amortization period for acquired lease intangible assets is seven years and six years for acquisitions completed during the nine months ended September 30, 2017 and 2016, respectively.
(b)
The weighted average amortization period for acquired lease intangible liabilities is 13 years and 11 years for acquisitions completed during the nine months ended September 30, 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 $913 for the nine months ended September 30, 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 $36,210 and net income attributable to common shareholders of $7,760 are included in the Company’s condensed consolidated statements of operations and other comprehensive (loss) income for the nine months ended September 30, 2016 from the properties acquired during the nine months ended September 30, 2016 that were accounted for as business combinations.
Condensed Pro Forma Financial Information
Disclosure of pro forma financial information is required 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.
The following unaudited condensed pro forma financial information is presented as if the acquisitions completed during the nine months ended September 30, 2016 were completed as of January 1, 2015. The following 2016 acquisitions have not been adjusted in the pro forma presentation as they were accounted for as asset acquisitions: (i) the acquisition of the anchor space improvements in the Company’s Woodinville Plaza multi-tenant retail operating property located in the Seattle MSA, which was acquired on August 30, 2016 for $4,500 and (ii) 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. Pro forma financial information is not presented for 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.

10

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

The unaudited condensed pro forma financial information is as follows:
 
 
Three Months Ended
September 30, 2016
 
Nine Months Ended
September 30, 2016
Total revenues
 
$
144,526

 
$
444,622

Net income
 
$
72,494

 
$
147,421

Net income attributable to common shareholders
 
$
70,132

 
$
140,334

Earnings per common share – basic and diluted
 
 
 
 
Net income per common share attributable to common shareholders
 
$
0.30

 
$
0.59

Weighted average number of common shares outstanding – basic
 
236,783

 
236,692

Variable Interest Entities
During the nine months ended September 30, 2017, the Company entered into an agreement with a qualified intermediary related to a potential 1031 Exchange. The Company loaned $87,452 to the VIEs to acquire Main Street Promenade on January 13, 2017. The 1031 Exchange was completed during the nine months ended September 30, 2017 and, in accordance with applicable provisions of the Code, within 180 days after the acquisition date of the property. At the completion of the 1031 Exchange, the sole membership interests of the VIEs were assigned to the Company in satisfaction of the outstanding loan, resulting in the entities being wholly owned by the Company and no longer considered VIEs.
During the nine months ended September 30, 2016, the Company entered into agreements with a qualified intermediary related to three 1031 Exchanges. The Company loaned $65,419, $39,215 and $23,522 to the VIEs to acquire Oak Brook Promenade, Tacoma South and Eastside, respectively. Each 1031 Exchange was completed during the year ended December 31, 2016 and, in accordance with applicable provisions of the Code, within 180 days after the acquisition date of the property. At the completion of the 1031 Exchanges, the sole membership interests of the VIEs were assigned to the Company and the respective outstanding loans were extinguished, resulting in the entities being wholly owned by the Company and no longer considered VIEs.
Prior to the completion of the 1031 Exchanges, the Company was deemed to be the primary beneficiary of each VIE as it had the ability to direct the activities of each VIE that most significantly impact its economic performance and had all of the risks and rewards of ownership. Accordingly, the Company consolidated the VIEs. No value or income was attributed to the noncontrolling interest. The assets of the VIEs consisted of the respective investment property, Main Street Promenade, Oak Brook Promenade, Tacoma South and Eastside, which were operated by the Company.

11

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

(4) DISPOSITIONS
The Company closed on the following dispositions during the nine months ended September 30, 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
 
Multi-tenant retail
 
63,900

 
15,383

 
15,261

 
7,569

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

 
3,700

 
3,348

 
1,651

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

 
4,297

 
4,134

 
1,857

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

 
17,519

 
17,344

 
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
 
Multi-tenant retail
 
160,000

 
22,850

 
22,723

 
10,007

April 4, 2017
 
University Town Center
 
Multi-tenant retail
 
57,500

 
14,700

 
14,590

 
9,128

April 4, 2017
 
Edgemont Town Center
 
Multi-tenant retail
 
77,700

 
19,025

 
18,857

 
8,995

April 4, 2017
 
Phenix Crossing (c)
 
Multi-tenant retail
 
56,600

 
12,400

 
(28
)
 
5,699

April 27, 2017
 
Brown’s Lane
 
Multi-tenant retail
 
74,700

 
10,575

 
10,318

 
3,408

May 9, 2017
 
Rite Aid Store (Eckerd) – Greer, SC
 
Single-user retail
 
13,800

 
3,050

 
2,961

 
830

May 9, 2017
 
Evans Towne Centre
 
Multi-tenant retail
 
75,700

 
11,825

 
11,419

 
5,226

May 25, 2017
 
Red Bug Village
 
Multi-tenant retail
 
26,200

 
8,100

 
7,767

 
2,184

May 26, 2017
 
Wilton Square
 
Multi-tenant retail
 
438,100

 
49,300

 
48,503

 
19,630

May 30, 2017
 
Town Square Plaza
 
Multi-tenant retail
 
215,600

 
28,600

 
26,459

 
3,412

May 31, 2017
 
Cuyahoga Falls Market Center
 
Multi-tenant retail
 
76,400

 
11,500

 
11,101

 
1,300

June 5, 2017
 
Plaza Santa Fe II
 
Multi-tenant retail
 
224,200

 
35,220

 
33,506

 
16,946

June 6, 2017
 
Rite Aid Store (Eckerd)–Columbia, SC
 
Single-user retail
 
13,400

 
3,250

 
3,163

 
1,046

June 16, 2017
 
Fox Creek Village
 
Multi-tenant retail
 
107,500

 
24,825

 
24,415

 
12,470

June 29, 2017
 
Cottage Plaza
 
Multi-tenant retail
 
85,500

 
23,050

 
22,685

 
8,039

June 29, 2017
 
Magnolia Square
 
Multi-tenant retail
 
116,000

 
16,000

 
15,692

 
4,866

June 29, 2017
 
Cinemark Seven Bridges
 
Single-user retail
 
70,200

 
15,271

 
14,948

 
3,973

June 29, 2017
 
Low Country Village I & II
 
Multi-tenant retail
 
139,900

 
22,075

 
21,639

 
10,286

July 20, 2017
 
Boulevard Plaza
 
Multi-tenant retail
 
111,100

 
14,300

 
13,913

 
846

July 26, 2017
 
Irmo Station (c)
 
Multi-tenant retail
 
99,400

 
16,027

 
(47
)
 
7,236

July 27, 2017
 
Hickory Ridge
 
Multi-tenant retail
 
380,600

 
44,020

 
43,701

 
18,535

August 4, 2017
 
Lakepointe Towne Center
 
Multi-tenant retail
 
196,600

 
10,500

 
10,179

 

August 14, 2017
 
The Columns
 
Multi-tenant retail
 
173,400

 
21,750

 
21,313

 
5,073

August 25, 2017
 
Holliday Towne Center
 
Multi-tenant retail
 
83,100

 
11,750

 
11,413

 
2,633

August 25, 2017
 
Northwoods Center (c)
 
Multi-tenant retail
 
96,000

 
24,250

 
(9
)
 
10,889

September 14, 2017
 
The Orchard
 
Multi-tenant retail
 
165,800

 
20,000

 
19,663

 
5,022

September 21, 2017
 
Lake Mary Pointe
 
Multi-tenant retail
 
51,100

 
5,100

 
4,838

 
534

September 22, 2017
 
West Town Market (c)
 
Multi-tenant retail
 
67,900

 
14,250

 
(59
)
 
8,074

September 29, 2017
 
Dorman Centre I & II
 
Multi-tenant retail
 
388,300

 
46,000

 
45,011

 
13,430

 
 
 
 
 
 
4,302,400

 
$
642,712

 
$
562,433

 
$
229,388

(a)
Aggregate proceeds are net of transaction costs and proceeds temporarily restricted related to potential 1031 Exchanges and exclude $150 of condemnation proceeds, which did not result in any additional gain recognition.
(b)
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 September 30, 2017.

12

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

(c)
The following disposition proceeds are temporarily restricted related to potential 1031 Exchanges and are included in “Other assets, net” in the accompanying condensed consolidated balance sheets:
Property Name
 
Proceeds
Temporarily
Restricted
Phenix Crossing
 
$
12,324

Irmo Station
 
15,643

Northwoods Center
 
23,255

West Town Market
 
13,864

 
 
$
65,086

During the nine months ended September 30, 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 and proceeds temporarily restricted related to potential 1031 Exchanges, from property dispositions and other transactions during the nine months ended September 30, 2017 totaled $564,069, with aggregate gains of $230,874.
The Company closed on the following dispositions during the nine months ended September 30, 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

 
34,986

 
13,618

April 20, 2016
 
CVS Pharmacy – Oklahoma City, OK
 
Single-user retail
 
10,900

 
4,676

 
4,608

 
1,764

June 2, 2016
 
Rite Aid Store (Eckerd) – Canandaigua, NY & Tim Horton Donut Shop (d)
 
Single-user retail
 
16,600

 
5,400

 
5,333

 
1,444

June 15, 2016
 
Academy Sports – Midland, TX (e)
 
Single-user retail
 
61,200

 
5,541

 
5,399

 
2,220

June 23, 2016
 
Four Rite Aid Portfolio (f)
 
Single-user retail
 
45,400

 
15,934

 
14,646

 
2,287

July 8, 2016
 
Broadway Shopping Center
 
Multi-tenant retail
 
190,300

 
20,500

 
20,103

 
7,958

July 21, 2016
 
Mid-Hudson Center
 
Multi-tenant retail
 
235,600

 
27,500

 
25,615

 

July 27, 2016
 
Rite Aid Store (Eckerd), Main St. – Buffalo, NY
 
Single-user retail
 
10,900

 
3,388

 
3,296

 
344

July 29, 2016
 
Rite Aid Store (Eckerd)–Lancaster, NY
 
Single-user retail
 
10,900

 
3,425

 
3,349

 
625

August 4, 2016
 
Alison's Corner
 
Multi-tenant retail
 
55,100

 
7,850

 
7,559

 
3,334

August 5, 2016
 
Rite Aid Store (Eckerd), Lake Ave. – Rochester, NY
 
Single-user retail
 
13,200

 
5,400

 
5,334

 
907

August 12, 2016
 
Maple Tree Place
 
Multi-tenant retail
 
489,000

 
90,000

 
87,047

 
15,566

August 12, 2016
 
CVS Pharmacy – Burleson, TX
 
Single-user retail
 
10,900

 
4,190

 
4,102

 
1,425

August 18, 2016
 
Mitchell Ranch Plaza
 
Multi-tenant retail
 
199,600

 
55,625

 
54,305

 
33,612

August 22, 2016
 
Rite Aid Store (Eckerd), E. Main St. – Batavia, NY
 
Single-user retail
 
13,800

 
5,050

 
4,924

 
1,249

September 9, 2016
 
Rite Aid Store (Eckerd)–Lockport, NY
 
Single-user retail
 
13,800

 
4,690

 
4,415

 
753

September 9, 2016
 
Rite Aid Store (Eckerd), Ferry St. – Buffalo, NY
 
Single-user retail
 
10,900

 
3,600

 
3,370

 
612

 
 
 
 
 
 
2,384,300

 
$
390,682

 
$
304,806

 
$
95,839

(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. At the closing of the disposition, proceeds of $34,973 were temporarily restricted related to 1031 Exchanges. During the three months ended September 30, 2016, the related 1031 Exchanges closed and the proceeds were released to the Company.
(d)
The terms of the disposition of Rite Aid Store (Eckerd) – Canandaigua, NY and Tim Horton Donut Shop – Canandaigua, NY were negotiated as a single transaction.

13

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

(e)
At the closing of the disposition, proceeds of $5,383 were temporarily restricted related to a 1031 Exchange. During the three months ended September 30, 2016, the related 1031 Exchange closed and the proceeds were released to the Company.
(f)
Portfolio consists of the following properties: (i) Rite Aid Store (Eckerd) – Cheektowaga, NY, (ii) Rite Aid Store (Eckerd), W. Main St. – Batavia, NY, (iii) Rite Aid Store (Eckerd), Union Rd. – West Seneca, NY and (iv) Rite Aid Store (Eckerd) – Greece, NY.
During the nine months ended September 30, 2016, the Company also disposed of an outparcel for consideration of $2,639 and recorded a gain of $1,898 from the transaction. At the closing of the disposition, proceeds of $2,549 were temporarily restricted related to a 1031 Exchange. During the three months ended September 30, 2016, the related 1031 Exchange closed and the proceeds were released to the Company. The aggregate proceeds, net of closing costs, from the property dispositions and this additional transaction totaled $307,355 with aggregate gains of $97,737.
None of the dispositions completed during the nine months ended September 30, 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 September 30, 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 September 30, 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

Forks Town Center
 
Easton, Pennsylvania
 
Multi-tenant retail
 
100,300

Placentia Town Center
 
Placentia, California
 
Multi-tenant retail
 
111,000

Quakertown
 
Quakertown, Pennsylvania
 
Multi-tenant retail
 
61,800

Saucon Valley Square
 
Bethlehem, Pennsylvania
 
Multi-tenant retail
 
80,700

Five Forks
 
Simpsonville, South Carolina
 
Multi-tenant retail
 
70,200

 
 
 
 
 
 
576,200

Subsequent to September 30, 2017, the Company sold Forks Town Center, Placentia Town Center, Five Forks and Saucon Valley Square for total consideration of $76,545. Century III Plaza, including the Home Depot parcel, 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 nine months ended September 30, 2017.
The following table presents the assets and liabilities associated with the investment properties classified as held for sale:
 
September 30, 2017
 
December 31, 2016
Assets
 
 
 
Land, building and other improvements
$
81,718

 
$
45,395

Less accumulated depreciation
(21,189
)
 
(15,769
)
Net investment properties
60,529

 
29,626

Other assets
4,144

 
1,201

Assets associated with investment properties held for sale
$
64,673

 
$
30,827

 
 
 
 
Liabilities
 
 
 
Mortgage payable, net
$
7,655

 
$

Other liabilities
$
1,401

 
$
864

Liabilities associated with investment properties held for sale, net
$
9,056

 
$
864

(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.

14

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

The following table summarizes the Company’s unvested restricted shares as of and for the nine months ended September 30, 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)
285


$
14.60

Shares vested
(282
)

$
15.45

Shares forfeited
(34
)
 
$
15.12

Balance as of September 30, 2017 (b)
511


$
14.82

(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 September 30, 2017, total unrecognized compensation expense related to unvested restricted shares was $3,263, which is expected to be amortized over a weighted average term of 1.3 years.
The following table summarizes the Company’s unvested performance restricted stock units (RSUs) as of and for the nine months ended September 30, 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 ineligible for conversion
(89
)
 
$
14.68

RSUs eligible for future conversion as of September 30, 2017 (b)
555

 
$
14.60

(a)
Assumptions and inputs 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 that are earned will convert into shares of common stock and two-thirds will convert into restricted shares with a one year vesting term.
(b)
As of September 30, 2017, total unrecognized compensation expense related to unvested RSUs was $4,663, which is expected to be amortized over a weighted average term of 2.5 years.
During the three months ended September 30, 2017 and 2016, the Company recorded compensation expense of $934 and $1,594, respectively, related to the amortization of unvested restricted shares and RSUs. During the nine months ended September 30, 2017 and 2016, the Company recorded compensation expense of $4,483 and $5,296, respectively, related to the amortization of unvested restricted shares and RSUs. Included within the amortization of stock-based compensation expense recorded during the three and nine months ended September 30, 2017 is the reversal of $830 of previously recognized compensation expense related to the forfeiture of 34 restricted shares and 89 RSUs resulting from the resignation of the Company’s former Chief Financial Officer and Treasurer. In addition, $30 of dividends previously paid on the forfeited restricted shares were reclassified from distributions paid to compensation expense. The total fair value of restricted shares vested during the nine months ended September 30, 2017 was $4,129.
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 September 30, 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 nine months ended September 30, 2017 and 2016.

15

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

(6) MORTGAGES PAYABLE
The following table summarizes the Company’s mortgages payable:
 
September 30, 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)
$
288,252


4.99
%
 
5.5
 
$
773,395

 
6.31
%
 
4.2
Premium, net of accumulated amortization
1,087

 
 
 
 
 
1,437

 
 
 
 
Discount, net of accumulated amortization
(590
)

 
 
 
 
(622
)
 
 
 
 
Capitalized loan fees, net of accumulated
amortization
(649
)
 
 
 
 
 
(5,026
)
 
 
 
 
Mortgages payable, net
$
288,100


 
 
 
 
$
769,184

 
 
 
 
(a)
The fixed rate mortgages had interest rates ranging from 3.75% to 8.00% as of September 30, 2017 and December 31, 2016 and exclude a $7,680 mortgage payable and capitalized loan fees of $(25) associated with one investment property classified as held for sale as of September 30, 2017.
During the nine months ended September 30, 2017, the Company repaid or defeased mortgages payable in the total amount of $473,844, of which $174,702 related to properties that were disposed of during the period, which had a weighted average fixed interest rate of 7.09%, and made scheduled principal payments of $3,619 related to amortizing loans. Included within the total repayments and defeasances for the nine months ended September 30, 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 September 30, 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 September 30, 2017.
 
2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
 
Total
Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgages payable (a)
$
1,003

 
$
4,177

 
$
25,257

 
$
3,923

 
$
22,820

 
$
231,072

 
$
288,252

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
1,003

 
4,177

 
25,257

 
3,923

 
372,820

 
1,031,072

 
1,438,252

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

 
100,000

 

 
187,000

 

 

 
287,000

Total debt (d)
$
1,003

 
$
104,177

 
$
25,257

 
$
190,923

 
$
372,820

 
$
1,031,072

 
$
1,725,252

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average interest rate on debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate debt
5.10
%
 
5.05
%
 
7.29
%
 
4.62
%
 
2.73
%
 
4.08
%
 
3.79
%
Variable rate debt (e)

 
2.68
%
 

 
2.59
%
 

 

 
2.62
%
Total
5.10
%
 
2.78
%
 
7.29
%
 
2.63
%
 
2.73
%
 
4.08
%
 
3.60
%
(a)
Excludes mortgage premium of $1,087 and discount of $(590), net of accumulated amortization, as of September 30, 2017 and a $7,680 mortgage payable associated with one investment property classified as held for sale as of September 30, 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,

16

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

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.
(c)
Excludes discount of $(882), net of accumulated amortization, as of September 30, 2017.
(d)
The weighted average years to maturity of consolidated indebtedness was 5.4 years as of September 30, 2017. Total debt excludes capitalized loan fees of $(7,283), net of accumulated amortization, as of September 30, 2017, which are included as a reduction to the respective debt balances.
(e)
Represents interest rates as of September 30, 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:
 
 
 
 
September 30, 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
 
 
 
(882
)
 
 
 
(971
)
 
 
Capitalized loan fees, net of accumulated amortization
 
 
 
(3,523
)
 
 
 
(3,886
)
 
 
 
 
Total
 
$
695,595

 
 
 
$
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 unsecured 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 September 30, 2017, management believes the Company was in compliance with the financial covenants under the Indenture and the note purchase agreements.

17

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:
 
 
 
 
September 30, 2017
 
December 31, 2016
 
 
Maturity Date
 
Balance
 
Interest
Rate
 
Balance
 
Interest
Rate
Unsecured credit facility term loan due 2021 – fixed rate (a)
 
January 5, 2021
 
$
250,000

 
1.97
%
 
$
250,000

 
1.97
%
Unsecured credit facility term loan due 2018 – variable rate
 
May 11, 2018
 
100,000

 
2.68
%
 
200,000

 
2.22
%
Unsecured term loan due 2023 – fixed rate (b)
 
November 22, 2023
 
200,000

 
2.96
%
 

 
%
Subtotal
 
 
 
550,000

 
 
 
450,000

 
 
Capitalized loan fees, net of accumulated amortization
 
 
 
(3,086
)
 
 
 
(2,402
)
 
 
Term loans, net
 
 
 
$
546,914

 
 
 
$
447,598

 
 
 
 
 
 
 
 
 
 
 
 
 
Revolving line of credit – variable rate (c)
 
January 5, 2020
 
$
187,000

 
2.59
%
 
$
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 September 30, 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 September 30, 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 second unsecured term loan which had an outstanding balance of $200,000 at inception, of which the Company repaid $100,000 during the nine months ended September 30, 2017, 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 September 30, 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
$100,000 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 September 30, 2017, management believes the Company was in compliance with the financial covenants and default provisions under the Unsecured Credit Agreement.

18

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 September 30, 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 September 30, 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 September 30, 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 $760 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.
The following table summarizes the Company’s interest rate swaps as of September 30, 2017, which effectively convert one-month floating rate LIBOR to a fixed rate:
Effective Date
 
Notional
 
Fixed
Interest Rate
 
Termination Date
March 1, 2016
 
$
100,000

 
0.66
%
 
December 31, 2017
May 16, 2016
 
$
150,000

 
0.67
%
 
December 31, 2017
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
 
September 30, 2017
 
December 31, 2016
 
September 30, 2017
 
December 31, 2016
Interest rate swaps
 
4

 
2

 
$
450,000

 
$
250,000


19

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
 
 
September 30, 2017
 
December 31, 2016
Derivatives designated as cash flow hedges:
 
 
 
 
Interest rate swaps
 
$
891

 
$
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:
Derivatives in
Cash Flow
Hedging
Relationships
 
Amount of (Gain) Loss
Recognized in Other
Comprehensive Income
on Derivative
(Effective Portion)
 
Location of
(Gain) Loss
Reclassified from
Accumulated Other
Comprehensive Income (AOCI)
into Income
(Effective Portion)
 
Amount of (Gain) Loss
Reclassified from
AOCI into Income
(Effective Portion)
 
Location of
Loss (Gain)
Recognized in
Income on Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing)
 
Amount of Loss (Gain)
Recognized in Income
on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
 
 
Three Months
Ended
September 30,
 
Nine Months
Ended
September 30,
 
 
 
Three Months
Ended
September 30,
 
Nine Months
Ended
September 30,
 
 
 
Three Months
Ended
September 30,
 
Nine Months
Ended
September 30,
2017
 
$
(9
)
 
$
(422
)
 
Interest expense
 
$
(332
)
 
$
(258
)
 
Other (expense) income, net
 
$
5

 
$
16

2016
 
$
(534
)
 
$
153

 
Interest expense
 
$
132

 
$
342

 
Other (expense) income, net
 
$
(38
)
 
$
(35
)
(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 nine months ended September 30, 2017 and 2016. As of September 30, 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 nine months ended September 30, 2016.
The following table presents activity under the Company’s common stock repurchase program during the nine months ended September 30, 2017:
 
 
Number of
Common Shares
Repurchased
 
Average Price
per Share
 
Total
Repurchases
First quarter 2017
 

 
$

 
$

Second quarter 2017
 
6,024

 
$
12.55

 
$
75,697

Third quarter 2017 (a)
 
3,805

 
$
13.09

 
$
49,892

Year to date September 30, 2017
 
9,829

 
$
12.76

 
$
125,589

(a)
Includes 396 shares repurchased in September 2017 at an average price per share of $13.08 for a total of $5,187, which settled on October 2, 2017. This repurchase has been reflected in the Company’s share count as of such date.

20

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

As of September 30, 2017, $115,570 remained available under the repurchase 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
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
 
Numerator:
 
 
 
 
 

 

(Loss) income from continuing operations
$
(37,178
)
 
$
6,109

 
$
(89,307
)

$
50,785


Gain on sales of investment properties
73,082

 
66,385

 
230,874


97,737


Preferred stock dividends
(2,362
)
 
(2,362
)
 
(7,087
)
 
(7,087
)
 
Net income attributable to common shareholders
33,542

 
70,132

 
134,480


141,435


Distributions paid on unvested restricted shares
(62
)
 
(108
)
 
(240
)
 
(348
)

Net income attributable to common shareholders excluding
amounts attributable to unvested restricted shares
$
33,480

 
$
70,024

 
$
134,240


$
141,087



 
 
 
 




Denominator:
 
 
 
 
 

 
 
Denominator for earnings per common share – basic:
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding
229,508

(a)
236,783

(b)
233,348

(a)
236,692

(b)
Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options
1

(c)
2

(c)
1

(c)
2

(c)
RSUs
595

(d)
323

(e)
600

(d)
289

(e)
Denominator for earnings per common share – diluted:
 
 
 
 






Weighted average number of common and common equivalent
shares outstanding
230,104

 
237,108

 
233,949

 
236,983

 
(a)
Excludes 511 shares of unvested restricted common stock as of September 30, 2017, which equate to 546 and 549 shares, respectively, on a weighted average basis for the three and nine months ended September 30, 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 587 shares of unvested restricted common stock as of September 30, 2016, which equate to 596 and 657 shares, respectively, on a weighted average basis for the three and nine months ended September 30, 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 shares of common stock as of September 30, 2017 and 2016, at a weighted average exercise price of $19.25 and $19.33, respectively. Of these totals, outstanding options to purchase 35 shares of common stock as of September 30, 2017 and 2016, at a weighted average exercise price of $20.55 and $20.63, respectively, have been excluded from the common shares used in calculating diluted EPS as including them would be anti-dilutive.
(d)
As of September 30, 2017, there were 555 RSUs eligible for future conversion upon completion of the performance periods (see Note 5 to the condensed consolidated financial statements), which equate to 633 and 638 RSUs on a weighted average basis for the three and nine months ended September 30, 2017, respectively. These contingently issuable shares are included in diluted EPS based on the weighted average number of shares that would be outstanding during the period, if any, assuming September 30, 2017 was the end of the contingency periods.
(e)
As of September 30, 2016, there were 391 RSUs eligible for future conversion upon completion of the performance periods, which equate to 391 and 360 RSUs on a weighted average basis for the three and nine months ended September 30, 2016, respectively. 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 September 30, 2016 was the end of the contingency periods.

21

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

(12) PROVISION FOR IMPAIRMENT OF INVESTMENT PROPERTIES
As of September 30, 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 September 30, 2017 and 2016:
 
 
September 30, 2017
 
September 30, 2016
 
Number of properties for which indicators of impairment were identified
 
11

(a)
5

(b)
Less: number of properties for which an impairment charge was recorded
 
2

 
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
 
5

 
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)
 
32
%
 
14
%
 
(a)
Includes four properties which were sold subsequent to September 30, 2017.
(b)
Includes three properties which have subsequently been sold as of September 30, 2017.
(c)
Based upon the estimated holding period for each asset where an undiscounted cash flow analysis was performed.
The Company recorded the following investment property impairment charges during the nine months ended September 30, 2017:
Property Name
 
Property Type
 
Impairment Date
 
Square
Footage
 
Provision for
Impairment of
Investment
Properties
Century III Plaza, excluding the Home Depot parcel (a)
 
Multi-tenant retail
 
June 30, 2017
 
152,200

 
$
3,076

Lakepointe Towne Center (b)
 
Multi-tenant retail
 
June 30, 2017
 
196,600

 
9,958

Saucon Valley Square (c)
 
Multi-tenant retail
 
September 30, 2017
 
80,700

 
184

Schaumburg Towers (d)
 
Office
 
September 30, 2017
 
895,400

 
45,638

 
 
 
 
 
 
 
 
$
58,856

 
 
Estimated fair value of impaired properties as of impairment date
$
86,800

(a)
The Company recorded an impairment charge based upon the terms and conditions of a bona fide purchase offer. This property was classified as held for sale as of September 30, 2017. The Home Depot parcel of Century III Plaza was sold on March 15, 2017.
(b)
The Company recorded an impairment charge based upon the terms and conditions of an executed sales contract. This property was classified as held for sale as of June 30, 2017 and was sold on August 4, 2017.
(c)
The Company recorded an impairment charged based upon the terms and conditions of an executed sales contract. This property was classified as held for sale as of September 30, 2017 and was sold on October 27, 2017.
(d)
The Company recorded an impairment charge based upon the terms and conditions of a bona fide purchase offer.
The Company recorded the following investment property impairment charges during the nine months ended September 30, 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

Mid-Hudson Center (b)
 
Multi-tenant retail
 
June 30, 2016
 
235,600

 
4,142

Saucon Valley Square (c)
 
Multi-tenant retail
 
September 30, 2016
 
80,700

 
4,742

 
 
 
 
 
 
 
 
$
11,048

 
 
Estimated fair value of impaired properties as of impairment date
$
37,100


22

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

(a)
An impairment charge was recorded on March 31, 2016 based upon the terms and conditions of an executed sales contract, which was subsequently terminated. The property, which was not under active development, was sold on December 16, 2016 and additional impairment was recognized pursuant to the terms and conditions of an executed sales contract.
(b)
The Company recorded an impairment charge based upon the terms and conditions of an executed sales contract. This property was classified as held for sale as of June 30, 2016 and was sold on July 21, 2016.
(c)
The Company recorded an impairment charge driven by a change in the estimated holding period for the property.
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:
 
September 30, 2017
 
December 31, 2016
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Financial assets:
 
 
 
 
 
 
 
Derivative asset
$
891

 
$
891

 
$
743

 
$
743

Financial liabilities:
 
 
 
 
 
 
 
Mortgages payable, net
$
288,100

 
$
302,451

 
$
769,184

 
$
833,210

Unsecured notes payable, net
$
695,595

 
$
699,725

 
$
695,143

 
$
679,212

Unsecured term loans, net
$
546,914

 
$
551,274

 
$
447,598

 
$
450,421

Unsecured revolving line of credit
$
187,000

 
$
187,215

 
$
86,000

 
$
86,130

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
September 30, 2017
 
 
 
 
 
 
 
Derivative asset
$

 
$
891

 
$

 
$
891

 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
Derivative asset
$

 
$
743

 
$

 
$
743

Derivative asset:  The fair value of the derivative asset 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 September 30, 2017 and December 31, 2016, 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.

23

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

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 to the condensed consolidated financial statements.
Nonrecurring Fair Value Measurements
The following table presents the Company’s assets remeasured at fair value on a nonrecurring basis as of September 30, 2017 and December 31, 2016, aggregated by the level within the fair value hierarchy in which those measurements fall. The table includes information related to properties remeasured to fair value as a result of impairment charges recorded during the nine months ended September 30, 2017 and the year ended December 31, 2016, except for those properties sold prior to September 30, 2017 and December 31, 2016, respectively. 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)
September 30, 2017
 
 
 
 
 
 
 
 
 
Investment property
$

 
$
58,000

(b)
$

 
$
58,000

 
$
45,638

Investment properties – held for sale
$

 
$
18,300

(c)
$

 
$
18,300

 
$
3,260

 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
Investment properties
$

 
$
500

(d)
$
10,600

(e)
$
11,100

 
$
13,227

(a)
Excludes impairment charges recorded on investment properties sold prior to September 30, 2017 and December 31, 2016, respectively.
(b)
Represents the fair value of the Company’s Schaumburg Towers investment property based on an expected sales price of $87,600 from a bona fide purchase offer, determined to be a Level 2 input, which contemplates historically deferred maintenance and capital requirements. The estimated fair value of $58,000 as of September 30, 2017, the date the asset was measured at fair value, reflects (i) capital expenditures expected to be incurred by the Company prior to sale and (ii) tenant-related costs expected to be credited to the buyer at close.
(c)
Represents the fair values of the Company’s Century III Plaza, excluding the Home Depot parcel and Saucon Valley Square investment properties. The estimated fair value of Century III Plaza, excluding the Home Depot parcel, of $12,000 as of June 30, 2017, the date the asset was measured at fair value, was based upon the expected sales price from a bona fide purchase offer and determined to be a Level 2 input. The estimated fair value of Saucon Valley Square of $6,300 as of September 30, 2017, the date the asset was measured at fair value, was based upon the expected sales price from an executed sales contract and determined to be a Level 2 input.
(d)
Represents the fair value of the Company’s Rite Aid Store (Eckerd), Culver Rd. investment property as of December 31, 2016, the date the asset was measured at fair value. The estimated fair value of Rite Aid Store (Eckerd), Culver Rd. was based upon the expected sales price from a bona fide purchase offer and determined to be a Level 2 input.
(e)
Represents the fair values of the Company’s Crown Theater and Saucon Valley Square investment properties. The estimated fair values of Crown Theater and Saucon Valley Square of $4,000 and $6,600, respectively, were determined using the income approach. The income approach involves discounting the estimated income stream and reversion (presumed sale) value of a property over an estimated holding period to a present value at a risk-adjusted rate. Discount rates, growth assumptions and terminal capitalization rates utilized in this approach are derived from property-specific information, market transactions and other financial and industry data. The terminal capitalization rate and discount rate are significant inputs to this valuation. The following were the key Level 3 inputs used in estimating the fair values of Crown Theater as of December 31, 2016 and Saucon Valley Square as of September 30, 2016, the date the assets were measured at fair value:
 
 
2016
 
 
Low
 
High
Rental revenue growth rates
 
Varies (i)
 
Varies (i)
Operating expense growth rates
 
3.10%
 
18.02%
Discount rates
 
9.35%
 
10.00%
Terminal capitalization rates
 
8.35%
 
9.50%
(i)
Since cash flow models are established at the tenant level, projected rental revenue growth rates fluctuate over the course of the estimated holding period based upon the timing of lease rollover, amount of available space and other property and space-specific factors.

24

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

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
September 30, 2017
 
 
 
 
 
 
 
Mortgages payable, net
$

 
$

 
$
302,451

 
$
302,451

Unsecured notes payable, net
$
245,250

 
$

 
$
454,475

 
$
699,725

Unsecured term loans, net
$

 
$

 
$
551,274

 
$
551,274

Unsecured revolving line of credit
$

 
$

 
$
187,215

 
$
187,215

 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
Mortgages payable, net
$

 
$

 
$
833,210

 
$
833,210

Unsecured notes payable, net
$
234,700

 
$

 
$
444,512

 
$
679,212

Unsecured term loans, net
$

 
$

 
$
450,421

 
$
450,421

Unsecured revolving line of credit
$

 
$

 
$
86,130

 
$
86,130

Mortgages payable, net:  The Company estimates the fair value of its mortgages payable by discounting the anticipated future cash flows of each instrument at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rate for each of the Company’s individual mortgages payable based upon the specific terms of the agreement, including the term to maturity, the quality and nature of the underlying property and its leverage ratio. The rates used range from 3.2% to 4.2% and 2.9% to 4.6% as of September 30, 2017 and December 31, 2016, respectively.
Unsecured notes payable, net: The quoted market price as of September 30, 2017 was used to value the Notes Due 2025. The Company estimates the fair value of its Notes Due 2021 and 2024 and Notes Due 2026 and 2028 by discounting the future cash flows at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rates. The weighted average rates used were 4.22% and 4.48% as of September 30, 2017 and December 31, 2016, respectively.
Unsecured term loans, net:  The Company estimates the fair value of its unsecured term loans, net by discounting the anticipated future cash flows related to the credit spreads at rates currently offered to the Company by its lenders for similar instruments of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rates. The weighted average rates used to discount the credit spreads were 1.41% and 1.30% as of September 30, 2017 and December 31, 2016, respectively.
Unsecured revolving line of credit:  The Company estimates the fair value of its unsecured revolving line of credit by discounting the anticipated future cash flows related to the credit spreads at rates currently offered to the Company by its lenders for similar facilities of comparable maturity. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rates. The rate used to discount the credit spreads was 1.30% as of September 30, 2017 and December 31, 2016.
There were no transfers between the levels of the fair value hierarchy during the nine months ended September 30, 2017.
(14) COMMITMENTS AND CONTINGENCIES
As of September 30, 2017, the Company had letter(s) of credit outstanding totaling $9,645 which serve as collateral for certain capital improvements and performance obligations on certain redevelopment projects, which will be satisfied upon completion of the projects, and reduced the available borrowings on its unsecured revolving line of credit.
As of September 30, 2017, the Company had begun redevelopment activities at Reisterstown Road Plaza located in Baltimore, Maryland and Towson Circle located in Towson, Maryland. The Company estimates that it will incur net costs of approximately $9,500 to $10,500 related to the Reisterstown Road Plaza redevelopment and approximately $33,000 to $35,000 related to the Towson Circle redevelopment, of which $6,539 and $12,102, respectively, has been incurred as of September 30, 2017.

25

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

(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 Company’s condensed consolidated financial statements.
(16) SUBSEQUENT EVENTS
Subsequent to September 30, 2017, the Company:
closed on the disposition of Forks Town Center, a 100,300 square foot multi-tenant retail operating property located in Easton, Pennsylvania, which was classified as held for sale as of September 30, 2017, for a sales price of $23,800 with an anticipated gain on sale. The mortgage payable, with a principal balance of $7,680 as of September 30, 2017 and an interest rate of 7.70%, was repaid in conjunction with the disposition;
closed on the disposition of Placentia Town Center, a 111,000 square foot multi-tenant retail operating property located in Placentia, California, which was classified as held for sale as of September 30, 2017, for a sales price of $35,725 with an anticipated gain on sale;
closed on the disposition of Five Forks, a 70,200 square foot multi-tenant retail operating property located in Simpsonville, South Carolina, which was classified as held for sale as of September 30, 2017, for a sales price of $10,720 with an anticipated gain on sale;
closed on the disposition of Saucon Valley Square, a 80,700 square foot multi-tenant retail operating property located in Bethlehem, Pennsylvania, which was classified as held for sale as of September 30, 2017, for a sales price of $6,300 with no anticipated gain on sale or additional impairment due to previously recognized impairment charges;
announced that it will redeem all 5,400 outstanding shares of its 7.00% Series A cumulative redeemable preferred stock on December 20, 2017 for cash at a redemption price of $25.00 per preferred share, plus $0.3840 per preferred share representing all accrued and unpaid dividends up to, but excluding, December 20, 2017; and
declared the cash dividend for the fourth quarter of 2017 of $0.165625 per share on its outstanding Class A common stock, which will be paid on January 10, 2018 to Class A common shareholders of record at the close of business on December 27, 2017.

26


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,” “intends,” “plans,” “estimates,” “continue” or “anticipates” and variations of such words or similar expressions or the negative of such words. You can also identify forward-looking statements by discussions of strategies, plans or intentions. Risks, uncertainties and changes in the following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
economic, business and financial conditions, and changes in our industry and changes in the real estate markets in particular;
economic and other developments in our target markets where we have a high concentration of properties;
our business strategy;
our projected operating results;
rental rates and/or vacancy rates;
frequency and magnitude of defaults on, early terminations of or non-renewal of leases by tenants;
bankruptcy or insolvency of a major tenant or a significant number of smaller tenants;
interest rates or operating costs;
real estate and zoning laws and changes in real property tax rates;
real estate valuations;
our leverage;
our ability to generate sufficient cash flows to service our outstanding indebtedness and make distributions to our shareholders;
our ability to obtain necessary outside financing;
the availability, terms and deployment of capital;
general volatility of the capital and credit markets and the market price of our Class A common stock;
risks generally associated with real estate acquisitions and dispositions, including our ability to identify and pursue acquisition and disposition opportunities;
risks generally associated with redevelopment, including the impact of construction delays and cost overruns, our ability to lease redeveloped space and our ability to identify and pursue redevelopment opportunities;
composition of members of our senior management team;
our ability to attract and retain qualified personnel;
our ability to continue to qualify as a real estate investment trust (REIT);
governmental regulations, tax laws and rates and similar matters;
our compliance with laws, rules and regulations;
environmental uncertainties and exposure to natural disasters;

27


insurance coverage; and
the likelihood or actual occurrence of terrorist attacks in the U.S.
For a further discussion of these and other factors that could impact our future results, performance or transactions, see Item 1A. “Risk Factors” in this document and in our Annual Report on Form 10-K for the year ended December 31, 2016 and in our Quarterly Report on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017. Readers should not place undue reliance on any forward-looking statements, which are based only on information currently available to us (or to third parties making the forward-looking statements). We undertake no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q, except as required by applicable law.
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes included in this report.
Executive Summary
Retail Properties of America, Inc. is a REIT that owns and operates high quality, strategically located shopping centers in the United States. As of September 30, 2017, we owned 120 retail operating properties representing 21,647,000 square feet of gross leasable area (GLA). Our retail operating portfolio includes (i) neighborhood and community centers, (ii) power centers, and (iii) lifestyle centers and multi-tenant retail-focused mixed-use properties, as well as single-user retail properties.
The following table summarizes our operating portfolio as of September 30, 2017:
Property Type
 
Number of 
Properties
 
GLA
(in thousands)
 
Occupancy
 
Percent Leased 
Including Leases 
Signed (a)
Operating portfolio:
 
 
 
 
 
 
 
 
Multi-tenant retail
 
 
 
 
 
 
 
 
Neighborhood and community centers
 
59

 
7,878

 
91.8
%
 
92.6
%
Power centers
 
40

 
9,142

 
93.8
%
 
95.0
%
Lifestyle centers and mixed-use properties
 
15

 
4,172

 
85.6
%
 
86.9
%
Total multi-tenant retail
 
114

 
21,192

 
91.5
%
 
92.5
%
Single-user retail
 
6

 
455

 
100.0
%
 
100.0
%
Total retail operating portfolio
 
120

 
21,647

 
91.7
%
 
92.7
%
Office
 
1

 
895

 
13.8
%
 
46.1
%
Total operating portfolio (b)
 
121

 
22,542

 
88.6
%
 
90.8
%
(a)
Includes leases signed but not commenced.
(b)
Excludes six multi-tenant retail operating properties classified as held for sale as of September 30, 2017.
In addition to our operating portfolio, as of September 30, 2017, we owned two properties where we have begun redevelopment activities.
We have undertaken a portfolio repositioning effort, the core objective of which is to become a dominant owner of multi-tenant retail properties in 10 to 15 target markets, owning 3,000,000 to 5,000,000 square feet in each market. To date, we have identified 10 target markets: Dallas, Washington, D.C./Baltimore, New York, Chicago, Seattle, Atlanta, Houston, San Antonio, Phoenix and Austin. Depending on whether favorable market conditions exist, among other factors, we expect to substantially complete our portfolio disposition efforts by the end of 2018.

28


Company Highlights — Nine Months Ended September 30, 2017
Acquisitions
During the nine months ended September 30, 2017, we continued to execute our investment strategy by acquiring two multi-tenant retail operating properties, five additional phases, including the development rights for additional multi-family units, at an existing wholly-owned multi-tenant retail operating property and the fee interest in an existing wholly-owned multi-tenant retail operating property for a total purchase price of $147,586.
The following table summarizes our acquisitions during the nine months ended September 30, 2017:
Date
 
Property Name
 
Metropolitan
Statistical Area (MSA)
 
Property Type
 
Square
Footage
 
Acquisition
Price
January 13, 2017
 
Main Street Promenade
 
Chicago
 
Multi-tenant retail
 
181,600

 
$
88,000

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

 
2,000

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

 
4,128

April 5, 2017
 
One Loudoun Downtown –
Phase III
 
Washington, D.C.
 
Additional phase of multi-tenant retail (b)
 
9,800

 
2,193

May 16, 2017
 
One Loudoun Downtown –
Phase IV
 
Washington, D.C.
 
Development rights (b)
 

 
3,500

July 6, 2017
 
New Hyde Park Shopping Center
 
New York
 
Multi-tenant retail
 
32,300

 
22,075

August 8, 2017
 
One Loudoun Downtown –
Phase V
 
Washington, D.C.
 
Additional phase of multi-tenant retail (b)
 
17,700

 
5,167

August 8, 2017
 
One Loudoun Downtown –
Phase VI
 
Washington, D.C.
 
Additional phase of multi-tenant retail (b)
 
74,100

 
20,523

 
 
 
 
 
 
 
 
331,400

 
$
147,586

(a)
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. We completed a transaction whereby we received the fee interest in approximately 50 acres of the underlying land in exchange for which (i) we paid $1,939 and (ii) the term of the ground lease with respect to the remaining approximately 20 acres was shortened to nine months. We 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 our portfolio was not affected by this transaction.
(b)
We acquired the remaining five phases under contract, including the development rights for an additional 123 multi-family units for a total of 408 units, at our One Loudoun Downtown multi-tenant retail operating property. The total number of properties in our portfolio was not affected by these transactions.
In total for 2017, we expect to invest approximately $375,000 to $475,000 on strategic acquisitions in our target markets and repurchases of our common stock. Some of these acquisitions may be structured as Internal Revenue Code Section 1031 tax-deferred exchanges (1031 Exchanges).
Dispositions
During the nine months ended September 30, 2017, we continued to pursue dispositions of select non-target and single-user properties. Consideration from dispositions totaled $642,712 and included the sales of 28 multi-tenant retail operating properties aggregating 4,038,300 square feet for total consideration of $595,125, a 131,900 square foot single-user parcel located at an existing multi-tenant retail operating property for consideration of $17,519 and six single-user retail properties aggregating 132,200 square feet for total consideration of $30,068.

29


The following table summarizes our dispositions during the nine months ended September 30, 2017:
Date
 
Property Name
 
Property Type
 
Square
Footage
 
Consideration
January 27, 2017
 
Rite Aid Store (Eckerd), Culver Rd. – Rochester, NY
 
Single-user retail
 
10,900

 
$
500

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

 
15,383

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

 
3,700

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

 
4,297

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

 
17,519

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

 
41,750

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

 
22,850

April 4, 2017
 
University Town Center
 
Multi-tenant retail
 
57,500

 
14,700

April 4, 2017
 
Edgemont Town Center
 
Multi-tenant retail
 
77,700

 
19,025

April 4, 2017
 
Phenix Crossing
 
Multi-tenant retail
 
56,600

 
12,400

April 27, 2017
 
Brown’s Lane
 
Multi-tenant retail
 
74,700

 
10,575

May 9, 2017
 
Rite Aid Store (Eckerd) – Greer, SC
 
Single-user retail
 
13,800

 
3,050

May 9, 2017
 
Evans Town Centre
 
Multi-tenant retail
 
75,700

 
11,825

May 25, 2017
 
Red Bug Village
 
Multi-tenant retail
 
26,200

 
8,100

May 26, 2017
 
Wilton Square
 
Multi-tenant retail
 
438,100

 
49,300

May 30, 2017
 
Town Square Plaza
 
Multi-tenant retail
 
215,600

 
28,600

May 31, 2017
 
Cuyahoga Falls Market Center
 
Multi-tenant retail
 
76,400

 
11,500

June 5, 2017
 
Plaza Santa Fe II
 
Multi-tenant retail
 
224,200

 
35,220

June 6, 2017
 
Rite Aid Store (Eckerd) – Columbia, SC
 
Single-user retail
 
13,400

 
3,250

June 16, 2017
 
Fox Creek Village
 
Multi-tenant retail
 
107,500

 
24,825

June 29, 2017
 
Cottage Plaza
 
Multi-tenant retail
 
85,500

 
23,050

June 29, 2017
 
Magnolia Square
 
Multi-tenant retail
 
116,000

 
16,000

June 29, 2017
 
Cinemark Seven Bridges
 
Single-user retail
 
70,200

 
15,271

June 29, 2017
 
Low Country Village I & II
 
Multi-tenant retail
 
139,900

 
22,075

July 20, 2017
 
Boulevard Plaza
 
Multi-tenant retail
 
111,100

 
14,300

July 26, 2017
 
Irmo Station (b)
 
Multi-tenant retail
 
99,400

 
16,027

July 27, 2017
 
Hickory Ridge
 
Multi-tenant retail
 
380,600

 
44,020

August 4, 2017
 
Lakepointe Towne Center
 
Multi-tenant retail
 
196,600

 
10,500

August 14, 2017
 
The Columns
 
Multi-tenant retail
 
173,400

 
21,750

August 25, 2017
 
Holliday Towne Center
 
Multi-tenant retail
 
83,100

 
11,750

August 25, 2017
 
Northwoods Center (b)
 
Multi-tenant retail
 
96,000

 
24,250

September 14, 2017
 
The Orchard
 
Multi-tenant retail
 
165,800

 
20,000

September 21, 2017
 
Lake Mary Pointe
 
Multi-tenant retail
 
51,100

 
5,100

September 22, 2017
 
West Town Market (b)
 
Multi-tenant retail
 
67,900

 
14,250

September 29, 2017
 
Dorman Centre I & II
 
Multi-tenant retail
 
388,300

 
46,000

 
 
 
 
 
 
4,302,400

 
$
642,712

(a)
We 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 September 30, 2017.
(b)
Disposition proceeds related to this property are temporarily restricted related to a potential 1031 Exchange. As of September 30, 2017, disposition proceeds totaling $65,086 are temporarily restricted and are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.
During the nine months ended September 30, 2017, we also received net proceeds of $1,636 from other transactions, including condemnation awards and receipt of the escrow related to the disposition of Maple Tree Place on August 12, 2016. The aggregate proceeds, net of closing costs and proceeds temporarily restricted related to potential 1031 Exchanges, from property dispositions and other transactions during the nine months ended September 30, 2017 totaled $564,069.
Subsequent to September 30, 2017, we sold four multi-tenant retail operating properties aggregating 362,200 square feet for total consideration of $76,545. In total for 2017, we expect targeted dispositions to total approximately $850,000 to $1,000,000, some of which may be structured as 1031 Exchanges.

30


Market Summary
As a result of our capital recycling efforts over the past several years, we increased the amount of annualized base rent (ABR) in our target markets to 76.4% of our total multi-tenant retail ABR, or 76.9% including amounts attributable to our active redevelopments. The following table summarizes our operating portfolio by market as of September 30, 2017:
Property Type/Market
 
Number of
Properties
 
ABR (a)
 
% of Total
Multi-Tenant
Retail ABR (a)
 
ABR per
Occupied
Sq. Ft.
 
GLA
(in thousands) (a)
 
% of Total
Multi-Tenant
Retail GLA (a)
 
Occupancy
 
% Leased
Including
Signed
Multi-Tenant Retail:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Target Markets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dallas, Texas
 
19

 
$
80,592

 
22.6
%
 
$
21.98

 
3,926

 
18.5
%
 
93.4
%
 
94.7
%
Washington, D.C. /
Baltimore, Maryland
 
13

 
50,209

 
14.1
%
 
22.39

 
2,735

 
12.9
%
 
82.0
%
 
82.8
%
New York, New York
 
9

 
34,661

 
9.7
%
 
28.06

 
1,292

 
6.1
%
 
95.6
%
 
96.7
%
Chicago, Illinois
 
7

 
25,688

 
7.2
%
 
23.02

 
1,258

 
5.9
%
 
88.7
%
 
91.7
%
Seattle, Washington
 
8

 
20,424

 
5.7
%
 
15.18

 
1,477

 
7.0
%
 
91.1
%
 
91.7
%
Atlanta, Georgia
 
9

 
18,401

 
5.2
%
 
13.28

 
1,513

 
7.1
%
 
91.6
%
 
91.7
%
Houston, Texas
 
9

 
15,173

 
4.3
%
 
14.13

 
1,141

 
5.4
%
 
94.1
%
 
94.5
%
San Antonio, Texas
 
3

 
12,138

 
3.4
%
 
17.17

 
723

 
3.4
%
 
97.8
%
 
98.9
%
Phoenix, Arizona
 
3

 
9,886

 
2.8
%
 
17.36

 
632

 
3.0
%
 
90.1
%
 
91.4
%
Austin, Texas
 
4

 
5,170

 
1.4
%
 
15.99

 
350

 
1.7
%
 
92.4
%
 
93.7
%
Subtotal
 
84

 
272,342

 
76.4
%
 
19.93

 
15,047

 
71.0
%
 
90.8
%
 
91.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Target – Top 50 MSAs
 
14

 
37,903

 
10.6
%
 
15.50

 
2,641

 
12.5
%
 
92.6
%
 
94.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subtotal Target Markets
and Top 50 MSAs
 
98

 
310,245

 
87.0
%
 
19.25

 
17,688

 
83.5
%
 
91.1
%
 
92.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Target – Other
 
16

 
46,199

 
13.0
%
 
14.09

 
3,504

 
16.5
%
 
93.6
%
 
93.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Multi-Tenant Retail
 
114

 
356,444

 
100.0
%
 
18.38

 
21,192

 
100.0
%
 
91.5
%
 
92.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Single-User Retail
 
6

 
10,669

 
 
 
23.45

 
455

 
 
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Retail
 
120

 
367,113

 
 
 
18.50

 
21,647

 
 
 
91.7
%
 
92.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
 
1

 
1,921

 
 
 
15.55

 
895

 
 
 
13.8
%
 
46.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Operating Portfolio (b)
 
121

 
$
369,034

 
 
 
$
18.48

 
22,542

 
 
 
88.6
%
 
90.8
%
(a)
Excludes $7,548 of multi-tenant retail ABR and 816 square feet of multi-tenant retail GLA attributable to our two active redevelopments, which are located in the Washington, D.C./Baltimore MSA. Including these amounts, 76.9% of our multi-tenant retail ABR and 72.1% of our multi-tenant retail GLA is located in our target markets.
(b)
Excludes six multi-tenant retail operating properties classified as held for sale as of September 30, 2017.
Leasing Activity
The following table summarizes the leasing activity in our retail operating portfolio during the nine months ended September 30, 2017. Leases with terms of less than 12 months have been excluded from the table.
 
 
Number of
Leases
Signed
 
GLA Signed
(in thousands)
 
New
Contractual
Rent per Square
Foot (PSF) (a)
 
Prior
Contractual
Rent PSF (a)
 
% Change
over Prior
ABR (a)
 
Weighted
Average
Lease Term
 
Tenant
Allowances
PSF
Comparable Renewal Leases
 
279

 
1,568

 
$
19.10

 
$
17.90

 
6.7
%
 
4.9

 
$
1.56

Comparable New Leases
 
32

 
177

 
$
23.16

 
$
19.37

 
19.6
%
 
8.4

 
$
45.73

Non-Comparable New and
Renewal Leases (b)
 
73

 
305

 
$
18.90

 
N/A

 
N/A

 
6.9

 
$
27.84

Total
 
384

 
2,050

 
$
19.51

 
$
18.05

 
8.1
%
 
5.5

 
$
9.29

(a)
Total excludes the impact of Non-Comparable New and Renewal Leases.
(b)
Includes (i) leases signed on units that were vacant for over 12 months, (ii) leases signed without fixed rental payments and (iii) leases signed where the previous and the current lease do not have a consistent lease structure.

31


Our leasing efforts continue to be focused on (i) natural lease expirations, (ii) spaces previously occupied by bankrupt tenants, (iii) vacant anchor and small shop space and (iv) space within our redevelopment projects. As we lease vacant space, we look to capitalize on the opportunity to mark rents to market, upgrade our tenancy and optimize the mix of operators and unique retailers at our properties.
We continue to focus on leasing the vacant space at our one remaining office property and have leased 413,000 square feet of the available 895,000 square feet as of September 30, 2017.
Capital Markets
During the nine months ended September 30, 2017, we:
defeased the IW JV portfolio of mortgages payable, which had an outstanding principal balance of $379,435 and an interest rate of 7.50%, and incurred a defeasance premium and associated fees totaling $60,198;
repaid $100,000 of our unsecured term loan due 2018;
received funding in the amount of $200,000 on a seven-year unsecured term loan;
entered into two agreements to swap a total of $200,000 of London Interbank Offered Rate (LIBOR)-based variable rate debt to a fixed interest rate of 1.26% through November 22, 2018;
borrowed $101,000, net of repayments, on our unsecured revolving line of credit;
repaid $94,409 of mortgages payable and made scheduled principal payments of $3,619 related to amortizing loans; and
repurchased 9,829 shares of our common stock at an average price per share of $12.76 for a total of $125,589, which includes 396 shares repurchased in September 2017 at an average price per share of $13.08 for a total of $5,187, which settled on October 2, 2017, resulting in $115,570 remaining available under our $250,000 common stock repurchase program.
Distributions
We declared quarterly distributions totaling $1.3125 per share of preferred stock and quarterly distributions totaling $0.496875 per share of common stock during the nine months ended September 30, 2017.

32


Results of Operations
Comparison of Results for the Three Months Ended September 30, 2017 and 2016
 
Three Months Ended September 30,
 
 
 
2017
 
2016
 
Change
Revenues
 
 
 
 
 
Rental income
$
100,977

 
$
113,627

 
$
(12,650
)
Tenant recovery income
28,024

 
29,130

 
(1,106
)
Other property income
1,518

 
1,769

 
(251
)
Total revenues
130,519

 
144,526

 
(14,007
)
 
 
 
 
 
 
Expenses
 
 
 
 
 
Operating expenses
19,572

 
20,285

 
(713
)
Real estate taxes
21,863

 
19,937

 
1,926

Depreciation and amortization
51,469

 
56,763

 
(5,294
)
Provision for impairment of investment properties
45,822

 
4,742

 
41,080

General and administrative expenses
7,785

 
11,110

 
(3,325
)
Total expenses
146,511

 
112,837

 
33,674

 
 
 
 
 
 
Operating (loss) income
(15,992
)
 
31,689

 
(47,681
)
 
 
 
 
 
 
Interest expense
(21,110
)
 
(25,602
)
 
4,492

Other (expense) income, net
(76
)
 
22

 
(98
)
(Loss) income from continuing operations
(37,178
)
 
6,109

 
(43,287
)
Gain on sales of investment properties
73,082

 
66,385

 
6,697

Net income
35,904

 
72,494

 
(36,590
)
Preferred stock dividends
(2,362
)
 
(2,362
)
 

Net income attributable to common shareholders
$
33,542

 
$
70,132

 
$
(36,590
)
Net income attributable to common shareholders decreased $36,590 from $70,132 for the three months ended September 30, 2016 to $33,542 for the three months ended September 30, 2017 primarily as a result of the following:
a $41,080 increase in provision for impairment of investment properties. Based on the results of our evaluations for impairment (see Notes 12 and 13 to the accompanying condensed consolidated financial statements), we recognized impairment charges of $45,822 and $4,742 for the three months ended September 30, 2017 and 2016, respectively; and
a $12,650 decrease in rental income primarily consisting of a $12,601 decrease in base rent, which resulted from the operating properties sold during 2016 and 2017 or classified as held for sale as of September 30, 2017, along with our one remaining office property and our redevelopment properties, partially offset by an increase from the operating properties acquired during 2016 and 2017 and growth from our same store portfolio;
partially offset by
a $6,697 increase in gain on sales of investment properties related to the sales of 11 investment properties, representing approximately 1,813,300 square feet of GLA, during the three months ended September 30, 2017 compared to the sales of 12 investment properties, representing approximately 1,254,000 square feet of GLA, during the three months ended September 30, 2016;
a $5,294 decrease in depreciation and amortization primarily due to the write-off of assets taken out of service at a redevelopment property during the three months ended September 30, 2016, along with a decrease from the investment properties sold or classified as held for sale as of September 30, 2017, partially offset by an increase from the acquisition of investment properties during the three months ended September 30, 2017; and
a $4,492 decrease in interest expense primarily consisting of:
an $11,032 decrease in interest on mortgages payable due to a reduction in mortgage debt;
partially offset by

33


a $2,998 increase in prepayment penalties;
a $2,080 increase in interest from our 4.08% senior unsecured notes due 2026 and our 4.24% senior unsecured notes due 2028 (Notes Due 2026 and 2028), which were issued in September and December 2016, respectively; and
a $1,514 increase in interest on our Term Loan Due 2023, which funded in January 2017.
Net operating income (NOI)
We define NOI as all revenues other than (i) straight-line rental income, (ii) amortization of lease inducements, (iii) amortization of acquired above and below market lease intangibles and (iv) lease termination fee income, less real estate taxes and all operating expenses other than straight-line ground rent expense (non-cash) and amortization of acquired ground lease intangibles (non-cash). NOI consists of same store NOI (Same Store NOI) and NOI from other investment properties (NOI from Other Investment Properties). We believe that NOI, Same Store NOI and NOI from Other Investment Properties, which are supplemental non-GAAP financial measures, provide an additional and useful operating perspective not immediately apparent from “Operating income” or “Net income attributable to common shareholders” in accordance with accounting principles generally accepted in the United States (GAAP). We use these measures to evaluate our performance on a property-by-property basis because they allow management to evaluate the impact that factors such as lease structure, lease rates and tenant base have on our operating results. NOI, Same Store NOI and NOI from Other Investment Properties do not represent alternatives to “Net income” or “Net income attributable to common shareholders” in accordance with GAAP as indicators of our financial performance. Comparison of our presentation of NOI, Same Store NOI and NOI from Other Investment Properties to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in definition and application by such REITs. For reference and as an aid in understanding our computation of NOI, a reconciliation of net (loss) income attributable to common shareholders as computed in accordance with GAAP to Same Store NOI has been presented for each comparable period presented.
Same store portfolio
For the three and nine months ended September 30, 2017, our same store portfolio consisted of 110 retail operating properties acquired or placed in service and stabilized prior to January 1, 2016. The number of properties in our same store portfolio decreased to 110 as of September 30, 2017 from 123 as of June 30, 2017 as a result of the following:
the removal of eight same store investment properties sold during the three months ended September 30, 2017; and
the removal of five same store investment properties classified as held for sale as of September 30, 2017. Century III Plaza, which is also classified as held for sale as of September 30, 2017, did not impact the number of same store properties as it was classified as held for sale as of June 30, 2017.
The sales of Boulevard Plaza on July 20, 2017, Irmo Station on July 26, 2017 and Lakepointe Towne Center on August 4, 2017 did not impact the number of same store properties as they were classified as held for sale as of June 30, 2017.
The properties and financial results reported in “Other investment properties” primarily include the following:
properties acquired after December 31, 2015;
our one remaining office property;
three properties where we have begun redevelopment and/or activities in anticipation of future redevelopment;
properties that were sold or held for sale in 2016 and 2017;
the net income from our wholly-owned captive insurance company; and
the historical ground rent expense related to an existing same store investment property that was subject to a ground lease with a third party prior to our acquisition of the fee interest on April 29, 2016.

34


The following tables present a reconciliation of net income attributable to common shareholders to Same Store NOI and details of the components of Same Store NOI for the three months ended September 30, 2017 and 2016:
 
Three Months Ended September 30,
 
 
 
2017
 
2016
 
Change
Net income attributable to common shareholders
$
33,542

 
$
70,132

 
$
(36,590
)
Adjustments to reconcile to Same Store NOI:
 
 
 
 
 
Preferred stock dividends
2,362

 
2,362

 

Gain on sales of investment properties
(73,082
)
 
(66,385
)
 
(6,697
)
Depreciation and amortization
51,469

 
56,763

 
(5,294
)
Provision for impairment of investment properties
45,822

 
4,742

 
41,080

General and administrative expenses
7,785

 
11,110

 
(3,325
)
Interest expense
21,110

 
25,602

 
(4,492
)
Straight-line rental income, net
(1,849
)
 
(1,226
)
 
(623
)
Amortization of acquired above and below market lease intangibles, net
(482
)
 
(1,441
)
 
959

Amortization of lease inducements
242

 
265

 
(23
)
Lease termination fees
(188
)
 
(385
)
 
197

Straight-line ground rent expense
674

 
692

 
(18
)
Amortization of acquired ground lease intangibles
(140
)
 
(140
)
 

Other expense (income), net
76

 
(22
)
 
98

NOI
87,341

 
102,069

 
(14,728
)
NOI from Other Investment Properties
(12,054
)
 
(27,548
)
 
15,494

Same Store NOI
$
75,287

 
$
74,521

 
$
766

 
Three Months Ended September 30,
 
 
 
2017
 
2016
 
Change
Same Store NOI:
 
 
 
 
 
Base rent
$
82,163

 
$
80,918

 
$
1,245

Percentage and specialty rent
603

 
531

 
72

Tenant recovery income
24,499

 
22,838

 
1,661

Other property operating income
832

 
881

 
(49
)
 
108,097

 
105,168

 
2,929

 
 
 
 
 
 
Property operating expenses
14,814

 
15,084

 
(270
)
Bad debt expense
148

 
(74
)
 
222

Real estate taxes
17,848

 
15,637

 
2,211

 
32,810

 
30,647

 
2,163

 
 
 
 
 
 
Same Store NOI
$
75,287

 
$
74,521

 
$
766

Same Store NOI increased $766, or 1.0%, primarily due to the following:
base rent increased $1,245 primarily due to an increase of $622 from contractual rent changes, $511 from re-leasing spreads and $193 from rent abatements, partially offset by a decrease of $106 from occupancy changes;
partially offset by
property operating expenses and real estate taxes, net of tenant recovery income, increased $280 primarily due to higher net real estate tax refunds during the three months ended September 30, 2016; and
bad debt expense increased $222.

35


Comparison of Results for the Nine Months Ended September 30, 2017 and 2016
 
Nine Months Ended September 30,
 
 
 
2017
 
2016
 
Change
Revenues
 
 
 
 
 
Rental income
$
316,968

 
$
344,081

 
$
(27,113
)
Tenant recovery income
88,334

 
89,140

 
(806
)
Other property income
6,249

 
7,170

 
(921
)
Total revenues
411,551

 
440,391

 
(28,840
)
 
 
 
 
 
 
Expenses
 
 
 
 
 
Operating expenses
62,440

 
63,438

 
(998
)
Real estate taxes
65,229

 
60,966

 
4,263

Depreciation and amortization
157,268

 
163,602

 
(6,334
)
Provision for impairment of investment properties
58,856

 
11,048

 
47,808

General and administrative expenses
29,368

 
33,289

 
(3,921
)
Total expenses
373,161

 
332,343

 
40,818

 
 
 
 
 
 
Operating income
38,390

 
108,048

 
(69,658
)
 
 
 
 
 
 
Gain on extinguishment of debt

 
13,653

 
(13,653
)
Gain on extinguishment of other liabilities

 
6,978

 
(6,978
)
Interest expense
(128,077
)
 
(78,343
)
 
(49,734
)
Other income, net
380

 
449

 
(69
)
(Loss) income from continuing operations
(89,307
)
 
50,785

 
(140,092
)
Gain on sales of investment properties
230,874

 
97,737

 
133,137

Net income
141,567

 
148,522

 
(6,955
)
Preferred stock dividends
(7,087
)
 
(7,087
)
 

Net income attributable to common shareholders
$
134,480

 
$
141,435

 
$
(6,955
)
Net income attributable to common shareholders decreased $6,955 from $141,435 for the nine months ended September 30, 2016 to $134,480 for the nine months ended September 30, 2017 primarily as a result of the following:
a $49,734 increase in interest expense primarily consisting of:
a $67,513 increase in prepayment penalties and defeasance premiums and a $3,395 increase in capitalized loan fee write-offs primarily related to the defeasance of the IW JV portfolio of mortgages payable during the nine months ended September 30, 2017, which resulted in a defeasance premium and associated fees totaling $60,198 and the write-off of $4,003 of capitalized loan fees;
a $6,240 increase in interest from our 4.08% senior unsecured notes due 2026 and our 4.24% senior unsecured notes due 2028 (Notes Due 2026 and 2028), which were issued in September and December 2016, respectively; and
a $4,460 increase in interest on our Term Loan Due 2023, which funded in January 2017;
partially offset by
a $33,065 decrease in interest on mortgages payable due to a reduction in mortgage debt;
a $47,808 increase in provision for impairment of investment properties. Based on the results of our evaluations for impairment (see Notes 12 and 13 to the accompanying condensed consolidated financial statements), we recognized impairment charges of $58,856 and $11,048 for the nine months ended September 30, 2017 and 2016, respectively;
a $27,113 decrease in rental income primarily consisting of a $26,936 decrease in base rent, which resulted from the operating properties sold during 2016 and 2017 or classified as held for sale as of September 30, 2017, along with our one remaining office property and our redevelopment properties, partially offset by an increase from the operating properties acquired during 2016 and 2017 and growth from our same store portfolio;

36


a $13,653 gain on extinguishment of debt recognized during the nine months ended September 30, 2016 associated with the disposition of The Gateway through a lender-directed sale in full satisfaction of our mortgage obligation. No such gain was recorded during the nine months ended September 30, 2017; and
a $6,978 gain on extinguishment of other liabilities recognized during the nine months ended September 30, 2016 related to the acquisition of the fee interest in Ashland & Roosevelt, one of our existing investment properties that was previously subject to a ground lease with a third party. The amount recognized represents the reversal of the straight-line ground rent liability associated with the ground lease. No such gain was recorded during the nine months ended September 30, 2017;
partially offset by
a $133,137 increase in gain on sales of investment properties related to the sales of 34 investment properties and a single-user parcel located at an existing multi-tenant retail operating property, representing approximately 4,302,400 square feet of GLA, during the nine months ended September 30, 2017 compared to the sales of 28 investment properties and one outparcel, representing approximately 2,387,700 square feet of GLA, during the nine months ended September 30, 2016; and
a $6,334 decrease in depreciation and amortization primarily due to the write-off of assets taken out of service at a redevelopment property during the nine months ended September 30, 2016, along with a decrease from the investment properties sold or classified as held for sale as of September 30, 2017, partially offset by an increase from the acquisition of investment properties during the nine months ended September 30, 2017.
The following tables present a reconciliation of net income attributable to common shareholders to Same Store NOI and details of the components of Same Store NOI for the nine months ended September 30, 2017 and 2016:
 
Nine Months Ended September 30,
 
 
 
2017
 
2016
 
Change
Net income attributable to common shareholders
$
134,480

 
$
141,435

 
$
(6,955
)
Adjustments to reconcile to Same Store NOI:
 
 
 
 
 
Preferred stock dividends
7,087

 
7,087

 

Gain on sales of investment properties
(230,874
)
 
(97,737
)
 
(133,137
)
Depreciation and amortization
157,268

 
163,602

 
(6,334
)
Provision for impairment of investment properties
58,856

 
11,048

 
47,808

General and administrative expenses
29,368

 
33,289

 
(3,921
)
Gain on extinguishment of debt

 
(13,653
)
 
13,653

Gain on extinguishment of other liabilities

 
(6,978
)
 
6,978

Interest expense
128,077

 
78,343

 
49,734

Straight-line rental income, net
(3,109
)
 
(3,054
)
 
(55
)
Amortization of acquired above and below market lease intangibles, net
(1,762
)
 
(2,412
)
 
650

Amortization of lease inducements
824

 
817

 
7

Lease termination fees
(2,310
)
 
(3,070
)
 
760

Straight-line ground rent expense
2,037

 
2,372

 
(335
)
Amortization of acquired ground lease intangibles
(420
)
 
(420
)
 

Other income, net
(380
)
 
(449
)
 
69

NOI
279,142

 
310,220

 
(31,078
)
NOI from Other Investment Properties
(52,111
)
 
(87,028
)
 
34,917

Same Store NOI
$
227,031

 
$
223,192

 
$
3,839


37


 
Nine Months Ended September 30,
 
 
 
2017
 
2016
 
Change
Same Store NOI:
 
 
 
 
 
Base rent
$
246,496

 
$
242,589

 
$
3,907

Percentage and specialty rent
2,433

 
2,621

 
(188
)
Tenant recovery income
71,777

 
68,961

 
2,816

Other property operating income
2,474

 
2,386

 
88

 
323,180

 
316,557

 
6,623

 
 
 
 
 
 
Property operating expenses
44,224

 
45,435

 
(1,211
)
Bad debt expense
668

 
355

 
313

Real estate taxes
51,257

 
47,575

 
3,682

 
96,149

 
93,365

 
2,784

 
 
 
 
 
 
Same Store NOI
$
227,031

 
$
223,192

 
$
3,839

Same Store NOI increased $3,839, or 1.7%, primarily due to an increase of $3,907 in base rent primarily as a result of increases in the following: $1,905 from contractual rent changes, $1,647 from re-leasing spreads and $300 from rent abatements.
Funds From Operations Attributable to Common Shareholders
The National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a financial measure known as funds from operations (FFO). As defined by NAREIT, FFO means net income (loss) computed in accordance with GAAP, excluding gains (or losses) from sales of depreciable real estate, plus depreciation and amortization and impairment charges on depreciable real estate. We have adopted the NAREIT definition in our computation of FFO attributable to common shareholders. Management believes that, subject to the following limitations, FFO attributable to common shareholders provides a basis for comparing our performance and operations to those of other REITs.
We define Operating FFO attributable to common shareholders as FFO attributable to common shareholders excluding the impact of discrete non-operating transactions and other events which we do not consider representative of the comparable operating results of our real estate operating portfolio, which is our core business platform. Specific examples of discrete non-operating transactions and other events include, but are not limited to, the impact on earnings from gains or losses associated with the early extinguishment of debt or other liabilities, impairment charges to write down the carrying value of assets other than depreciable real estate, litigation involving the Company, including actual or anticipated settlement and associated legal costs, and the impact on earnings from executive separation, which are not otherwise adjusted in our calculation of FFO attributable to common shareholders.
We believe that FFO attributable to common shareholders and Operating FFO attributable to common shareholders, which are supplemental non-GAAP financial measures, provide an additional and useful means to assess the operating performance of REITs. FFO attributable to common shareholders and Operating FFO attributable to common shareholders do not represent alternatives to (i) “Net Income” or “Net income attributable to common shareholders” as indicators of our financial performance, or (ii) “Cash flows from operating activities” in accordance with GAAP as measures of our capacity to fund cash needs, including the payment of dividends. Comparison of our presentation of Operating FFO attributable to common shareholders to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in definition and application by such REITs.

38


The following table presents a reconciliation of net income attributable to common shareholders to FFO attributable to common shareholders and Operating FFO attributable to common shareholders:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
Net income attributable to common shareholders
$
33,542

 
$
70,132

 
$
134,480

 
$
141,435

Depreciation and amortization of depreciable real estate
50,867

 
56,384

 
155,857

 
162,577

Provision for impairment of investment properties
45,822

 
4,742

 
58,856

 
8,884

Gain on sales of depreciable investment properties
(73,082
)
 
(66,385
)
 
(230,874
)
 
(97,737
)
FFO attributable to common shareholders
$
57,149

 
$
64,873

 
$
118,319

 
$
215,159

 
 
 
 
 
 
 
 
FFO attributable to common shareholders per common share outstanding
$
0.25

 
$
0.27

 
$
0.51

 
$
0.91

 
 
 
 
 
 
 
 
FFO attributable to common shareholders
$
57,149

 
$
64,873

 
$
118,319

 
$
215,159

Impact on earnings from the early extinguishment of debt, net
3,006

 

 
71,675

 
(12,842
)
Provision for hedge ineffectiveness
5

 
(38
)
 
16

 
(35
)
Provision for impairment of non-depreciable investment property

 

 

 
2,164

Gain on extinguishment of other liabilities

 

 

 
(6,978
)
Impact on earnings from executive separation, net (a)
(1,086
)
 

 
(1,086
)
 

Other (b)
207

 
(5
)
 
188

 
(189
)
Operating FFO attributable to common shareholders
$
59,281

 
$
64,830

 
$
189,112

 
$
197,279

 
 
 
 
 
 
 
 
Operating FFO attributable to common shareholders
per common share outstanding
$
0.26

 
$
0.27

 
$
0.81

 
$
0.83

(a)
Reflected as a reduction to “General and administrative expenses” in the accompanying condensed consolidated statements of operations and other comprehensive (loss) income.
(b)
Primarily consists of the impact on earnings from litigation involving the Company, including actual or anticipated settlement and associated legal costs, which are included in “Other (expense) income, net” in the accompanying condensed consolidated statements of operations and other comprehensive (loss) income.
Liquidity and Capital Resources
We anticipate that cash flows from the below-listed sources will provide adequate capital for the next 12 months and beyond for all scheduled principal and interest payments on our outstanding indebtedness, including maturing debt, current and anticipated tenant allowances or other capital obligations, the shareholder distributions required to maintain our REIT status and compliance with the financial covenants of our unsecured debt agreements.
Our primary expected sources and uses of liquidity are as follows:
 
SOURCES
 
USES
Operating cash flow
Tenant allowances and leasing costs
Cash and cash equivalents
Improvements made to individual properties, certain of which are not
Available borrowings under our unsecured revolving
 
recoverable through common area maintenance charges to tenants
 
line of credit
Acquisitions
Proceeds from capital markets transactions
Debt repayments and defeasances
Proceeds from asset dispositions
Distribution payments
 
 
Redevelopment, renovation or expansion activities
 
 
New development
 
 
Repurchases of our common stock
 
 
Redemption of our preferred stock
We have made substantial progress over the last several years in strengthening our balance sheet, as demonstrated by our reduced leverage, increased liquidity and higher unencumbered asset ratio. We funded debt maturities primarily through asset dispositions and capital markets transactions, including the public offering of our common stock and private and public offerings of senior unsecured notes. As of September 30, 2017, we had $1,003 of principal amortization due through the end of 2017, which we plan

39


on satisfying through a combination of proceeds from asset dispositions, capital markets transactions and our unsecured revolving line of credit.
The table below summarizes our consolidated indebtedness as of September 30, 2017:
Debt
 
Aggregate
Principal
Amount
 
Weighted
Average
Interest Rate
 
Maturity Date
 
Weighted
Average Years
to Maturity
Fixed rate mortgages payable (a)
 
$
288,252

 
4.99
%
 
Various
 
5.5 years
 
 
 
 
 
 
 
 
 
Unsecured notes payable:
 
 
 
 
 
 
 
 
Senior notes – 4.12% due 2021
 
100,000

 
4.12
%
 
June 30, 2021
 
3.8 years
Senior notes – 4.58% due 2024
 
150,000

 
4.58
%
 
June 30, 2024
 
6.8 years
Senior notes – 4.00% due 2025
 
250,000

 
4.00
%
 
March 15, 2025
 
7.5 years
Senior notes – 4.08% due 2026
 
100,000

 
4.08
%
 
September 30, 2026
 
9.0 years
Senior notes – 4.24% due 2028
 
100,000

 
4.24
%
 
December 28, 2028
 
11.3 years
Total unsecured notes payable (a)
 
700,000

 
4.19
%
 
 
 
7.5 years
 
 
 
 
 
 
 
 
 
Unsecured credit facility:
 
 
 
 
 
 
 
 
Term loan due 2021 – fixed rate (b)
 
250,000

 
1.97
%
 
January 5, 2021
 
3.3 years
Term loan due 2018 – variable rate (c)
 
100,000

 
2.68
%
 
May 11, 2018 (c)
 
0.6 years
Revolving line of credit – variable rate (c)
 
187,000

 
2.59
%
 
January 5, 2020 (c)
 
2.3 years
Total unsecured credit facility (a)
 
537,000

 
2.32
%
 
 
 
2.4 years
 
 
 
 
 
 
 
 
 
Term Loan Due 2023 – fixed rate (a) (d)
 
200,000

 
2.96
%
 
November 22, 2023
 
6.1 years
 
 
 
 
 
 
 
 
 
Total consolidated indebtedness
 
$
1,725,252

 
3.60
%
 
 
 
5.4 years
(a)
Fixed rate mortgages payable excludes mortgage premium of $1,087, discount of $(590) and capitalized loan fees of $(649), net of accumulated amortization, as of September 30, 2017 and a $7,680 mortgage payable and capitalized loan fees of $(25), net of accumulated amortization, associated with one investment property classified as held for sale as of September 30, 2017. Unsecured notes payable excludes discount of $(882) and capitalized loan fees of $(3,523), net of accumulated amortization, as of September 30, 2017. Term loans exclude capitalized loan fees of $(3,086), net of accumulated amortization, as of September 30, 2017. Capitalized loan fees related to the revolving line of credit are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.
(b)
Reflects $250,000 of LIBOR-based variable rate debt that has been swapped to a weighted average fixed rate of 0.67% 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 September 30, 2017.
(c)
We have two one year extension options on the term loan due 2018 and two six-month extension options on the revolving line of credit, which we may exercise as long as we are in compliance with the terms of the unsecured credit agreement and we pay an extension fee equal to 0.15% for the term loan and 0.075% of the commitment amount being extended for the revolving line of credit.
(d)
Reflects $200,000 of LIBOR-based variable rate debt that 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 September 30, 2017.
Mortgages Payable
During the nine months ended September 30, 2017, we repaid or defeased mortgages payable in the total amount of $473,844, which had a weighted average fixed interest rate of 7.09%, and made scheduled principal payments of $3,619 related to amortizing loans. Included within the total repayments and defeasances for the nine months ended September 30, 2017 is the defeasance of a portfolio of mortgages payable with a principal balance of $379,435 as of December 31, 2016 and an interest rate of 7.50% that was cross-collateralized by 45 properties and scheduled to mature in 2019 (known as the IW JV portfolio of mortgages payable). We 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.

40


Unsecured Notes Payable
Notes Due 2026 and 2028
On September 30, 2016, we issued $100,000 of 4.08% senior unsecured notes due 2026 in a private placement transaction pursuant to a note purchase agreement we entered into with certain institutional investors on September 30, 2016. Pursuant to the same note purchase agreement, on December 28, 2016, we also issued $100,000 of 4.24% senior unsecured notes due 2028 (Notes Due 2026 and 2028). The proceeds were used to pay down our unsecured revolving line of credit, early repay certain longer-dated mortgages payable and for general corporate purposes.
The note purchase agreement governing the Notes Due 2026 and 2028 contains customary covenants and events of default. Pursuant to the terms of the note purchase agreement, we are subject to various financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) a minimum interest coverage ratio; (iii) an unencumbered interest coverage ratio (as set forth in our unsecured credit facility and the note purchase agreement governing the Notes Due 2021 and 2024); and (iv) a fixed charge coverage ratio (as set forth in our unsecured credit facility).
Notes Due 2025
On March 12, 2015, we completed a public offering of $250,000 in aggregate principal amount of 4.00% senior unsecured notes due 2025 (Notes Due 2025). The Notes Due 2025 were priced at 99.526% of the principal amount to yield 4.058% to maturity. The proceeds were used to repay a portion of our unsecured revolving line of credit.
The indenture, as supplemented, governing the Notes Due 2025 (the Indenture) contains customary covenants and events of default. Pursuant to the terms of the Indenture, we are subject to various financial covenants, including the requirement to maintain the following: (i) maximum secured and total leverage ratios; (ii) a debt service coverage ratio; and (iii) maintenance of an unencumbered assets to unsecured debt ratio.
Notes Due 2021 and 2024
On June 30, 2014, we completed a private placement of $250,000 of unsecured notes, consisting of $100,000 of 4.12% senior unsecured notes due 2021 and $150,000 of 4.58% senior unsecured notes due 2024 (Notes Due 2021 and 2024). The proceeds were used to repay a portion of our unsecured revolving line of credit.
The note purchase agreement governing the Notes Due 2021 and 2024 contains customary covenants and events of default. Pursuant to the terms of the note purchase agreement, we are subject to various financial covenants, some of which are based upon the financial covenants in effect in our unsecured 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 September 30, 2017, management believes we were in compliance with the financial covenants under the Indenture and the note purchase agreements.
Unsecured Term Loans and Revolving Line of Credit
Unsecured Credit Facility
On January 6, 2016, we entered into our fourth amended and restated unsecured credit agreement (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 second unsecured term loan which had an outstanding balance of $200,000 at inception, of which we repaid $100,000 during the nine months ended September 30, 2017, and is priced on a leverage grid at a rate of LIBOR plus a credit spread. We received investment grade credit ratings from Moody’s and Standard & Poor’s in 2014. In accordance with the unsecured credit agreement, we may elect to convert to an investment grade pricing grid. As of September 30, 2017, making such an election would have resulted in a higher interest rate and, as such, we have not made the election to convert to an investment grade pricing grid.

41


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
$100,000 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 us, at our election, to increase the total credit facility up to $1,600,000, subject to (i) customary fees and conditions including, but not limited to, the absence of an event of default as defined in the agreement and (ii) our ability to obtain additional lender commitments.
The Unsecured Credit Agreement contains customary covenants and events of default. Pursuant to the terms of the Unsecured Credit Agreement, we are subject to various financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; and (ii) minimum fixed charge and unencumbered interest coverage ratios. As of September 30, 2017, management believes we were in compliance with the financial covenants and default provisions under the Unsecured Credit Agreement.
As of September 30, 2017, we had letter(s) of credit outstanding totaling $9,645 which serve as collateral for certain capital improvements and performance obligations on certain redevelopment projects, which will be satisfied upon completion of the projects, and reduced the available borrowings on our unsecured revolving line of credit.
Term Loan Due 2023
On January 3, 2017, we 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), we may elect to convert to an investment grade pricing grid. As of September 30, 2017, making such an election would have resulted in a higher interest rate and, as such, we have not made the election to convert to an investment grade pricing grid.
The following table summarizes 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 us, at our election, to increase the total unsecured term loan up to $300,000, subject to customary fees and conditions, including the absence of an event of default as defined in the Term Loan Agreement.
The Term Loan Agreement contains customary covenants and events of default, including financial covenants that require us to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; and (ii) minimum fixed charge and unencumbered interest coverage ratios. As of September 30, 2017, management believes we were in compliance with the financial covenants and default provisions under the Term Loan Agreement.

42


Debt Maturities
The following table shows the scheduled maturities and principal amortization of our indebtedness as of September 30, 2017 for the remainder of 2017, each of the next four years and thereafter and the weighted average interest rates by year, as well as the fair value of our indebtedness as of September 30, 2017. The table does not reflect the impact of any debt activity that occurred after September 30, 2017.
 
2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
 
Total
 
Fair Value
Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgages payable (a)
$
1,003

 
$
4,177

 
$
25,257

 
$
3,923

 
$
22,820

 
$
231,072

 
$
288,252

 
$
302,451

Fixed rate term loans (b)

 

 

 

 
250,000

 
200,000

 
450,000

 
451,174

Unsecured notes payable (c)

 

 

 

 
100,000

 
600,000

 
700,000

 
699,725

Total fixed rate debt
1,003

 
4,177

 
25,257

 
3,923

 
372,820

 
1,031,072

 
1,438,252

 
1,453,350

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

 
100,000

 

 
187,000

 

 

 
287,000

 
287,315

Total debt (d)
$
1,003

 
$
104,177

 
$
25,257

 
$
190,923

 
$
372,820

 
$
1,031,072

 
$
1,725,252

 
$
1,740,665

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average interest rate on debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate debt
5.10
%
 
5.05
%
 
7.29
%
 
4.62
%
 
2.73
%
 
4.08
%
 
3.79
%
 
 
Variable rate debt (e)

 
2.68
%
 

 
2.59
%
 

 

 
2.62
%
 
 
Total
5.10
%
 
2.78
%
 
7.29
%
 
2.63
%
 
2.73
%
 
4.08
%
 
3.60
%
 
 
(a)
Excludes mortgage premium of $1,087 and discount of $(590), net of accumulated amortization, as of September 30, 2017 and a $7,680 mortgage payable associated with one investment property classified as held for sale as of September 30, 2017.
(b)
$250,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through two interest rate swaps. The swaps effectively convert one-month floating rate LIBOR to a weighted average fixed rate of 0.67% 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.
(c)
Excludes discount of $(882), net of accumulated amortization, as of September 30, 2017.
(d)
The weighted average years to maturity of consolidated indebtedness was 5.4 years as of September 30, 2017. Total debt excludes capitalized loan fees of $(7,283), net of accumulated amortization, as of September 30, 2017, which are included as a reduction to the respective debt balances.
(e)
Represents interest rates as of September 30, 2017.
We plan on addressing our debt maturities through a combination of proceeds from asset dispositions, capital markets transactions and our unsecured revolving line of credit.
Distributions and Equity Transactions
Our distributions of current and accumulated earnings and profits for U.S. federal income tax purposes are taxable to shareholders, generally, as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the shareholders’ basis in the shares to the extent thereof (non-dividend distributions) and thereafter as taxable gain. We intend to continue to qualify as a REIT for U.S. federal income tax purposes. The Internal Revenue Code of 1986, as amended (the Code) generally requires that a REIT annually distributes to its shareholders at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains. The Code imposes tax on any undistributed REIT taxable income.
To satisfy the requirements for qualification as a REIT and generally not be subject to U.S. federal income and excise tax, we intend to make regular quarterly distributions of all, or substantially all, of our taxable income to shareholders. Our future distributions will be at the discretion of our board of directors. When determining the amount of future distributions, we expect to consider, among other factors, (i) the amount of cash generated from our operating activities, (ii) our expectations of future cash flow, (iii) our determination of near-term cash needs for debt repayments and potential future share repurchases, (iv) the market of available acquisitions of new properties and redevelopment, expansions and pad development opportunities, (v) the timing of significant re-leasing activities and the establishment of additional cash reserves for anticipated tenant allowances and general property capital improvements, (vi) our ability to continue to access additional sources of capital, (vii) the amount required to be

43


distributed to maintain our status as a REIT, which is a requirement of our Unsecured Credit Agreement, and to avoid or minimize any income and excise taxes that we otherwise would be required to pay, and (viii) the amount required to declare and pay in cash, or set aside for the payment of, the dividends on our Series A preferred stock for all past dividend periods. Under certain circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet the REIT distribution requirements.
In December 2015, we entered into an at-the-market (ATM) equity program under which we may issue and sell shares of our Class A common stock, having an aggregate offering price of up to $250,000, from time to time. Actual sales may depend on a variety of factors, including, among others, market conditions and the trading price of our Class A common stock. Any net proceeds are expected to be used for general corporate purposes, which may include the funding of acquisitions and redevelopment activities and the repayment of debt, including our unsecured revolving line of credit. We did not sell any shares under our ATM equity program during the nine months ended September 30, 2017. As of September 30, 2017, we had Class A common shares having an aggregate offering price of up to $250,000 remaining available for sale under our ATM equity program.
In December 2015, our board of directors authorized a common stock repurchase program under which we may repurchase, from time to time, up to a maximum of $250,000 of shares of our Class A common stock. The shares may be repurchased in the open market or in privately negotiated transactions and are canceled upon repurchase. The timing and actual number of shares repurchased will depend on a variety of factors, including price in absolute terms and in relation to the value of our assets, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The common stock repurchase program may be suspended or terminated at any time without prior notice.
The following table presents activity under our common stock repurchase program during the nine months ended September 30, 2017:
 
 
Number of
Common Shares
Repurchased
 
Average Price
per Share
 
Total
Repurchases
First quarter 2017
 

 
$

 
$

Second quarter 2017
 
6,024

 
$
12.55

 
$
75,697

Third quarter 2017 (a)
 
3,805

 
$
13.09

 
$
49,892

Year to date September 30, 2017
 
9,829

 
$
12.76

 
$
125,589

(a)
Includes 396 shares repurchased in September 2017 at an average price per share of $13.08 for a total of $5,187, which settled on October 2, 2017.
As of September 30, 2017, $115,570 remained available under our common stock repurchase program.
Capital Expenditures and Redevelopment Activity
We anticipate that obligations related to capital improvements, including expansions and pad developments, at our operating properties and our one remaining office property in 2017 can be met with cash flows from operations, asset dispositions and working capital.
We began redevelopment activities at Reisterstown Road Plaza and Towson Circle in 2016. We have invested a total of approximately $18,600 in these projects, which are at various stages of completion, and based on our current plans and estimates, we anticipate that to complete these projects, it will require an additional $23,900 to $26,900, net of proceeds from land sales, reimbursement from third parties and contributions from a project partner, as applicable. We anticipate funding the redevelopments with cash flows from operations, asset dispositions, working capital and proceeds from our unsecured revolving line of credit.
Dispositions
We continue to execute our portfolio repositioning strategy of disposing of select non-target and single-user properties. The following table highlights our property dispositions during 2016 and the nine months ended September 30, 2017:
 
 
Number of
Properties Sold (a)
 
Square
Footage
 
Consideration
 
Aggregate
Proceeds, Net (b)
 
Debt
Extinguished
 
2017 Dispositions (through September 30, 2017)
 
35

 
4,302,400

 
$
642,712

 
$
562,433

 
$
19,691

(c)
2016 Dispositions
 
46

 
3,013,900

 
$
540,362

 
$
448,216

 
$
94,353

(c) (d)

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(a)
2017 dispositions include the disposition of CVS Pharmacy – Sylacauga and the Home Depot parcel at Century III Plaza, both of which were classified as held for sale as of December 31, 2016. 2016 dispositions include the disposition of one development property, which was not under active development.
(b)
Represents total consideration net of transaction costs and proceeds temporarily restricted related to potential 1031 Exchanges. 2017 dispositions exclude proceeds of $65,086 which are temporarily restricted related to potential 1031 Exchanges.
(c)
Excludes $155,011 and $10,695 of mortgages payable repayments or defeasances completed prior to disposition of the respective property for the nine months ended September 30, 2017 and year ended December 31, 2016, respectively.
(d)
Represents The Gateway’s outstanding mortgage payable prior to the lender-directed sale of the property. Immediately prior to the disposition, the lender reduced our loan obligation to $75,000 which was assumed by the buyer in connection with the disposition. Along with the loan reduction, the lender received the balance of the restricted escrows that they held and the rights to unpaid accounts receivable and forgave accrued interest, resulting in a net gain on extinguishment of debt of $13,653.
In addition to the transactions presented in the preceding table, during the nine months ended September 30, 2017, we received escrow funds related to a 2016 property disposition and a condemnation award, which resulted in net proceeds totaling $1,636. During the year ended December 31, 2016, we also received proceeds of $2,549 from the sale of a single-user outparcel.
Acquisitions
We continue to execute our investment strategy of acquiring high quality, multi-tenant retail assets within our target markets. The following table highlights our asset acquisitions during 2016 and the nine months ended September 30, 2017:
 
 
Number of
Assets Acquired
 
Square
Footage
 
Acquisition
Price
 
Mortgage
Debt
2017 Acquisitions (through September 30, 2017) (a)
 
8

 
331,400

 
$
147,586

 
$

2016 Acquisitions (b)
 
9

 
1,102,300

 
$
408,308

 
$
15,971

(a)
2017 acquisitions include the purchase of the following: 1) the fee interest in our Boulevard at the Capital Centre multi-tenant retail operating property that was previously subject to a ground lease with a third party and 2) the remaining five phases under contract, including the development rights for additional multi-family units, at our One Loudoun Downtown multi-tenant retail operating property that was acquired in phases as the seller completed construction on stand-alone buildings at the property. The total number of properties in our portfolio was not affected by these transactions.
(b)
2016 acquisitions include the purchase of the following: 1) the fee interest in our Ashland & Roosevelt multi-tenant retail operating property that was previously subject to a ground lease with a third party and 2) the anchor space improvements at our Woodinville Plaza multi-tenant retail operating property that was previously subject to a ground lease with us. The total number of properties in our portfolio was not affected by these transactions.
Summary of Cash Flows
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
Change
Net cash provided by operating activities
 
$
181,678

 
$
205,008

 
$
(23,330
)
Net cash provided by (used in) investing activities
 
374,548

 
(8,254
)
 
382,802

Net cash used in financing activities
 
(579,693
)
 
(179,107
)
 
(400,586
)
(Decrease) increase in cash and cash equivalents
 
(23,467
)
 
17,647

 
(41,114
)
Cash and cash equivalents, at beginning of period
 
53,119

 
51,424

 
 
Cash and cash equivalents, at end of period
 
$
29,652

 
$
69,071

 
 
Cash Flows from Operating Activities
Cash flows from operating activities consist primarily of net income from property operations, adjusted for the following, among others: (i) depreciation and amortization, (ii) provision for impairment of investment properties, (iii) gain on sales of investment properties, and (iv) gains on extinguishment of debt and other liabilities. Net cash provided by operating activities during the nine months ended September 30, 2017 decreased $23,330 primarily due to the following:
a $31,078 decrease in NOI, consisting of a decrease in NOI from properties that were sold or held for sale in 2016 and 2017 and other properties not included in our same store portfolio of $34,917, partially offset by an increase in Same Store NOI of $3,839; and
a $5,810 increase in cash paid for leasing fees and inducements;

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partially offset by
a $12,243 decrease in cash paid for interest;
a $758 decrease in cash bonuses paid; and
ordinary course fluctuations in working capital accounts.
Cash Flows from Investing Activities
Cash flows from investing activities consist primarily of proceeds from the sales of investment properties, net of cash paid to purchase investment properties and fund capital expenditures, tenant improvements and developments in progress, in addition to changes in restricted escrows. Net cash flows from investing activities during the nine months ended September 30, 2017 increased $382,802 primarily due to the following:
a $256,714 increase in proceeds from the sales of investment properties;
a $119,667 decrease in cash paid to purchase investment properties; and
a $26,818 net change in restricted escrow activity;
partially offset by
a $10,845 increase in investment in developments in progress; and
a $9,358 increase in capital expenditures and tenant improvements.
We will continue to execute our investment strategy by pursuing targeted dispositions. The majority of the proceeds from disposition activity for the remainder of 2017 is expected to be used to acquire high quality, multi-tenant retail assets within our target markets, fund redevelopment, expansion and pad development activities, repay debt, repurchase our common stock and redeem our preferred stock. In addition, tenant improvement costs associated with re-leasing vacant space may continue to be significant.
Cash Flows from Financing Activities
Cash flows from financing activities primarily consist of proceeds from our unsecured revolving line of credit and the issuance of debt instruments, partially offset by distribution payments, repayments of our unsecured revolving line of credit and other debt instruments, principal payments on mortgages payable, the purchase of U.S. Treasury securities in connection with defeasance of mortgages payable and repurchases of our common stock. Net cash flows from financing activities during the nine months ended September 30, 2017 decreased $400,586 primarily due to the following:
the $439,403 purchase of U.S. Treasury securities in connection with defeasance of the IW JV portfolio of mortgages payable during the nine months ended September 30, 2017;
$120,402 paid in 2017 to repurchase common shares through our share repurchase program;
the repayment of $100,000 on our unsecured term loan due 2018 during the nine months ended September 30, 2017;
a $100,000 decrease in proceeds from the issuance of unsecured notes related to a $100,000 private placement transaction during the nine months ended September 30, 2016; and
a $52,784 increase in principal payments on mortgages payable;
partially offset by
a $201,000 increase in net proceeds from our unsecured revolving line of credit;
$200,000 of proceeds from the Term Loan Due 2023, which funded in January 2017;
a $6,376 decrease in the payment of loan fees and deposits; and

46


a $3,545 decrease in distributions paid as a result of the timing of the third quarter preferred distribution payment and a decrease in common shares outstanding due to the repurchase of common shares through our share repurchase program.
We plan to continue to address our debt maturities through a combination of proceeds from asset dispositions, capital markets transactions and our unsecured revolving line of credit.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual Obligations
During the nine months ended September 30, 2017, except as otherwise disclosed herein, there were no material changes outside the normal course of business to the contractual obligations identified in our Annual Report on Form 10-K for the year ended December 31, 2016.
Critical Accounting Policies and Estimates
Our 2016 Annual Report on Form 10-K contains a description of our critical accounting policies, including those relating to the acquisition of investment properties, impairment of long-lived assets and unconsolidated joint ventures, cost capitalization, depreciation and amortization, development and redevelopment, investment properties held for sale, partially-owned entities, revenue recognition, accounts and notes receivable and allowance for doubtful accounts and income taxes. For the nine months ended September 30, 2017, there were no significant changes to these policies.
Impact of Recently Issued Accounting Pronouncements
See Note 2 – Summary of Significant Accounting Policies to our condensed consolidated financial statements contained herein regarding recently issued accounting pronouncements.
Subsequent Events
Subsequent to September 30, 2017, we:
closed on the disposition of Forks Town Center, a 100,300 square foot multi-tenant retail operating property located in Easton, Pennsylvania, which was classified as held for sale as of September 30, 2017, for a sales price of $23,800 with an anticipated gain on sale. The mortgage payable, with a principal balance of $7,680 as of September 30, 2017 and an interest rate of 7.70%, was repaid in conjunction with the disposition;
closed on the disposition of Placentia Town Center, a 111,000 square foot multi-tenant retail operating property located in Placentia, California, which was classified as held for sale as of September 30, 2017, for a sales price of $35,725 with an anticipated gain on sale;
closed on the disposition of Five Forks, a 70,200 square foot multi-tenant retail operating property located in Simpsonville, South Carolina, which was classified as held for sale as of September 30, 2017, for a sales price of $10,720 with an anticipated gain on sale;
closed on the disposition of Saucon Valley Square, a 80,700 square foot multi-tenant retail operating property located in Bethlehem, Pennsylvania, which was classified as held for sale as of September 30, 2017, for a sales price of $6,300 with no anticipated gain on sale or additional impairment due to previously recognized impairment charges;
announced that we will redeem all 5,400 outstanding shares of our 7.00% Series A cumulative redeemable preferred stock on December 20, 2017 for cash at a redemption price of $25.00 per preferred share, plus $0.3840 per preferred share representing all accrued and unpaid dividends up to, but excluding, December 20, 2017; and
declared the cash dividend for the fourth quarter of 2017 of $0.165625 per share on our outstanding Class A common stock, which will be paid on January 10, 2018 to Class A common shareholders of record at the close of business on December 27, 2017.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We may be exposed to interest rate changes primarily as a result of our long-term debt that is used to maintain liquidity and fund our operations. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve our objectives, we borrow primarily at fixed rates, and in some cases variable rates with the ability to convert to fixed rates.
With regard to variable rate financing, we assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We maintain risk management control systems to monitor interest rate cash flow risk attributable to both our outstanding or forecasted debt obligations as well as our potential offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on our future cash flows.
As of September 30, 2017, we had $450,000 of variable rate debt based on LIBOR that has been swapped to fixed rate debt through interest rate swaps. Our interest rate swaps as of September 30, 2017 are summarized in the following table:
 
 
Notional
Amount
 
Termination Date
 
Fair Value of
Derivative Asset
Fixed rate portion of Unsecured Credit Facility
 
$
250,000

 
December 31, 2017
 
$
367

Term Loan Due 2023
 
200,000

 
November 22, 2018
 
524

 
 
$
450,000

 
 
 
$
891

For a discussion concerning the scheduled debt maturities and principal amortization of our indebtedness as of September 30, 2017 for the remainder of 2017, each of the next four years and thereafter and the weighted average interest rates by year to evaluate the expected cash flows and sensitivity to interest rate changes, refer to Note 6 to the condensed consolidated financial statements and “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Debt Maturities.”
A decrease of 1% in market interest rates would result in a hypothetical decrease in our derivative asset of approximately $2,559.
The combined carrying amount of our mortgages payable, unsecured notes payable, Term Loan Due 2023 and Unsecured Credit Facility is approximately $23,056 lower than the fair value as of September 30, 2017.
We had $287,000 of variable rate debt, excluding $450,000 of variable rate debt that has been swapped to fixed rate debt, with interest rates varying based upon LIBOR, with a weighted average interest rate of 2.62% as of September 30, 2017. An increase in the variable interest rate on this debt constitutes a market risk. If interest rates increase by 1% based on debt outstanding as of September 30, 2017, interest expense would increase by approximately $2,870 on an annualized basis.
We may use additional derivative financial instruments to hedge exposures to changes in interest rates. To the extent we do, we are exposed to market and credit risk. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, we generally are not exposed to the credit risk of the counterparty. We minimize credit risk in derivative instruments by entering into transactions with highly rated counterparties or with the same party providing the financing, with the right of offset.

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ITEM 4. CONTROLS AND PROCEDURES
We have established disclosure controls and procedures to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to the members of senior management and the board of directors.
Based on management’s evaluation as of September 30, 2017, our President, Chief Executive Officer and Treasurer and Interim Principal Financial Officer has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our President, Chief Executive Officer and Treasurer and Interim Principal Financial Officer, to allow timely decisions regarding required disclosure.
There were no changes to our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the fiscal quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of such matters cannot be predicted with certainty, we believe, based on currently available information, that the final outcome of such matters will not have a material effect on our condensed consolidated financial statements.
ITEM 1A. RISK FACTORS
Except to the extent updated below or to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such factors (including, without limitation, the matters discussed in Part I, “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there have been no material changes to our risk factors during the three months ended September 30, 2017 compared to those risk factors presented in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)
Not applicable.
(b)
Not applicable.
(c)
Issuer Purchases of Equity Securities
The following table summarizes our common stock repurchases during the quarter ended September 30, 2017, including, where applicable, shares of common stock surrendered to the Company by employees to satisfy their tax withholding obligations in connection with the vesting of restricted shares, and amounts outstanding under our common stock repurchase program.
Period
 
Total number
of shares of
Class A common
stock purchased
 
Average price
paid per share
of Class A
common stock
 
Total number of
shares purchased
as part of publicly
announced plans
or programs
 
Maximum number
(or approximate dollar
value) of shares that
may yet be purchased
under the plans
or programs (a)
July 1, 2017 to July 31, 2017
 

 
$

 

 
$
165,462

August 1, 2017 to August 31, 2017
 
1,466

 
$
13.15

 
1,462

 
$
146,207

September 1, 2017 to September 30, 2017 (b)
 
2,343

 
$
13.06

 
2,343

 
$
115,570

Total
 
3,809

 
$
13.09

 
3,805

 
$
115,570

(a)
As disclosed on the Form 8-K dated December 15, 2015, represents the amount outstanding under our $250,000 common stock repurchase program, which has no scheduled expiration date.
(b)
Includes 396 shares repurchased in September 2017 at an average price per share of $13.08 for a total of $5,187, which settled on October 2, 2017.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.

50


ITEM 6. EXHIBITS
Exhibit No.
 
Description
 
 
 
31.1
 
32.1
 
101
 
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, (ii) Condensed Consolidated Statements of Operations and Other Comprehensive (Loss) Income for the Three-Month Periods and Nine-Month Periods Ended September 30, 2017 and 2016, (iii) Condensed Consolidated Statements of Equity for the Nine-Month Periods Ended September 30, 2017 and 2016, (iv) Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2017 and 2016, and (v) Notes to Condensed Consolidated Financial Statements.

51


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
RETAIL PROPERTIES OF AMERICA, INC.
By:
/s/ STEVEN P. GRIMES
 
 
 
 
 
Steven P. Grimes
 
 
President, Chief Executive Officer and Treasurer
 
(Principal Executive Officer and Interim Principal Financial Officer)
Date:
November 1, 2017
 
 
 
 
By:
/s/ JULIE M. SWINEHART
 
 
 
 
 
Julie M. Swinehart
 
 
Senior Vice President and Chief Accounting Officer
 
(Principal Accounting Officer)
 
Date:
November 1, 2017
 



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