Item 1. Financial Statements
RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except par value amounts)
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Assets
|
|
|
|
|
Investment properties:
|
|
|
|
|
Land
|
|
$
|
1,266,307
|
|
|
$
|
1,254,131
|
|
Building and other improvements
|
|
4,428,741
|
|
|
4,428,554
|
|
Developments in progress
|
|
3,000
|
|
|
5,157
|
|
|
|
5,698,048
|
|
|
5,687,842
|
|
Less accumulated depreciation
|
|
(1,458,841
|
)
|
|
(1,433,195
|
)
|
Net investment properties (includes $60,400 and $0 from consolidated
variable interest entities, respectively)
|
|
4,239,207
|
|
|
4,254,647
|
|
Cash and cash equivalents
|
|
100,588
|
|
|
51,424
|
|
Accounts and notes receivable (net of allowances of $7,085 and $7,910, respectively)
|
|
73,774
|
|
|
82,804
|
|
Acquired lease intangible assets, net
|
|
142,788
|
|
|
138,766
|
|
Assets associated with investment properties held for sale
|
|
2,843
|
|
|
—
|
|
Other assets, net
|
|
128,610
|
|
|
93,610
|
|
Total assets
|
|
$
|
4,687,810
|
|
|
$
|
4,621,251
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
Liabilities:
|
|
|
|
|
Mortgages payable, net
|
|
$
|
1,026,443
|
|
|
$
|
1,123,136
|
|
Unsecured notes payable, net
|
|
495,707
|
|
|
495,576
|
|
Unsecured term loans, net
|
|
446,710
|
|
|
447,526
|
|
Unsecured revolving line of credit
|
|
280,000
|
|
|
100,000
|
|
Accounts payable and accrued expenses
|
|
51,370
|
|
|
69,800
|
|
Distributions payable
|
|
39,311
|
|
|
39,297
|
|
Acquired lease intangible liabilities, net
|
|
113,900
|
|
|
114,834
|
|
Other liabilities
|
|
72,951
|
|
|
75,745
|
|
Total liabilities
|
|
2,526,392
|
|
|
2,465,914
|
|
|
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000 shares authorized, 7.00% Series A cumulative
redeemable preferred stock, 5,400 shares issued and outstanding as of March 31, 2016
and December 31, 2015; liquidation preference $135,000
|
|
5
|
|
|
5
|
|
Class A common stock, $0.001 par value, 475,000 shares authorized, 237,347 and 237,267
shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively
|
|
237
|
|
|
237
|
|
Additional paid-in capital
|
|
4,931,707
|
|
|
4,931,395
|
|
Accumulated distributions in excess of earnings
|
|
(2,770,479
|
)
|
|
(2,776,215
|
)
|
Accumulated other comprehensive loss
|
|
(52
|
)
|
|
(85
|
)
|
Total equity
|
|
2,161,418
|
|
|
2,155,337
|
|
Total liabilities and equity
|
|
$
|
4,687,810
|
|
|
$
|
4,621,251
|
|
See accompanying notes to condensed consolidated financial statements
RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Statements of Operations and Other Comprehensive Income
(Unaudited)
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
Revenues
|
|
|
|
|
Rental income
|
|
$
|
115,260
|
|
|
$
|
119,788
|
|
Tenant recovery income
|
|
30,356
|
|
|
31,300
|
|
Other property income
|
|
3,023
|
|
|
2,109
|
|
Total revenues
|
|
148,639
|
|
|
153,197
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Property operating expenses
|
|
23,061
|
|
|
25,695
|
|
Real estate taxes
|
|
19,939
|
|
|
20,510
|
|
Depreciation and amortization
|
|
53,396
|
|
|
54,676
|
|
Provision for impairment of investment properties
|
|
2,164
|
|
|
—
|
|
General and administrative expenses
|
|
11,406
|
|
|
10,992
|
|
Total expenses
|
|
109,966
|
|
|
111,873
|
|
|
|
|
|
|
Operating income
|
|
38,673
|
|
|
41,324
|
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
13,653
|
|
|
—
|
|
Interest expense
|
|
(26,764
|
)
|
|
(34,045
|
)
|
Other income, net
|
|
125
|
|
|
1,225
|
|
Income from continuing operations
|
|
25,687
|
|
|
8,504
|
|
Gain on sales of investment properties
|
|
21,739
|
|
|
4,572
|
|
Net income
|
|
47,426
|
|
|
13,076
|
|
Preferred stock dividends
|
|
(2,362
|
)
|
|
(2,362
|
)
|
Net income attributable to common shareholders
|
|
$
|
45,064
|
|
|
$
|
10,714
|
|
|
|
|
|
|
Earnings per common share – basic and diluted:
|
|
|
|
|
Net income per common share attributable to common shareholders
|
|
$
|
0.19
|
|
|
$
|
0.05
|
|
|
|
|
|
|
Net income
|
|
$
|
47,426
|
|
|
$
|
13,076
|
|
Other comprehensive income:
|
|
|
|
|
Net unrealized gain (loss) on derivative instruments (Note 9)
|
|
33
|
|
|
(95
|
)
|
Comprehensive income attributable to the Company
|
|
$
|
47,459
|
|
|
$
|
12,981
|
|
|
|
|
|
|
Weighted average number of common shares outstanding – basic
|
|
236,578
|
|
|
236,250
|
|
|
|
|
|
|
Weighted average number of common shares outstanding – diluted
|
|
236,680
|
|
|
236,253
|
|
See accompanying notes to condensed consolidated financial statements
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
|
|
Noncontrolling
Interest
|
|
Total
Equity
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Balance as of January 1, 2015
|
5,400
|
|
|
$
|
5
|
|
|
236,602
|
|
|
$
|
237
|
|
|
$
|
4,922,864
|
|
|
$
|
(2,734,688
|
)
|
|
$
|
(537
|
)
|
|
$
|
2,187,881
|
|
|
$
|
1,494
|
|
|
$
|
2,189,375
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,076
|
|
|
—
|
|
|
13,076
|
|
|
—
|
|
|
13,076
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(95
|
)
|
|
(95
|
)
|
|
—
|
|
|
(95
|
)
|
Distributions declared to preferred shareholders
($0.4375 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,362
|
)
|
|
—
|
|
|
(2,362
|
)
|
|
—
|
|
|
(2,362
|
)
|
Distributions declared to common shareholders
($0.165625 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(39,284
|
)
|
|
—
|
|
|
(39,284
|
)
|
|
—
|
|
|
(39,284
|
)
|
Issuance of common stock, net of offering costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(40
|
)
|
|
—
|
|
|
—
|
|
|
(40
|
)
|
|
—
|
|
|
(40
|
)
|
Issuance of restricted shares
|
—
|
|
|
—
|
|
|
637
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation expense, net of forfeitures
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,369
|
|
|
—
|
|
|
—
|
|
|
1,369
|
|
|
—
|
|
|
1,369
|
|
Shares withheld for employee taxes
|
—
|
|
|
—
|
|
|
(53
|
)
|
|
—
|
|
|
(851
|
)
|
|
—
|
|
|
—
|
|
|
(851
|
)
|
|
—
|
|
|
(851
|
)
|
Balance as of March 31, 2015
|
5,400
|
|
|
$
|
5
|
|
|
237,186
|
|
|
$
|
237
|
|
|
$
|
4,923,342
|
|
|
$
|
(2,763,258
|
)
|
|
$
|
(632
|
)
|
|
$
|
2,159,694
|
|
|
$
|
1,494
|
|
|
$
|
2,161,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2016
|
5,400
|
|
|
$
|
5
|
|
|
237,267
|
|
|
$
|
237
|
|
|
$
|
4,931,395
|
|
|
$
|
(2,776,215
|
)
|
|
$
|
(85
|
)
|
|
$
|
2,155,337
|
|
|
$
|
—
|
|
|
$
|
2,155,337
|
|
Cumulative effect of accounting change
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
(17
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47,426
|
|
|
—
|
|
|
47,426
|
|
|
—
|
|
|
47,426
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33
|
|
|
33
|
|
|
—
|
|
|
33
|
|
Distributions declared to preferred shareholders
($0.4375 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,362
|
)
|
|
—
|
|
|
(2,362
|
)
|
|
—
|
|
|
(2,362
|
)
|
Distributions declared to common shareholders
($0.165625 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(39,311
|
)
|
|
—
|
|
|
(39,311
|
)
|
|
—
|
|
|
(39,311
|
)
|
Issuance of common stock, net of offering costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
Issuance of restricted shares
|
—
|
|
|
—
|
|
|
207
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation expense, net of forfeitures
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
2,026
|
|
|
—
|
|
|
—
|
|
|
2,026
|
|
|
—
|
|
|
2,026
|
|
Shares withheld for employee taxes
|
—
|
|
|
—
|
|
|
(121
|
)
|
|
—
|
|
|
(1,736
|
)
|
|
—
|
|
|
—
|
|
|
(1,736
|
)
|
|
—
|
|
|
(1,736
|
)
|
Balance as of March 31, 2016
|
5,400
|
|
|
$
|
5
|
|
|
237,347
|
|
|
$
|
237
|
|
|
$
|
4,931,707
|
|
|
$
|
(2,770,479
|
)
|
|
$
|
(52
|
)
|
|
$
|
2,161,418
|
|
|
$
|
—
|
|
|
$
|
2,161,418
|
|
See accompanying notes to condensed consolidated financial statements
RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
47,426
|
|
|
$
|
13,076
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization
|
53,396
|
|
|
54,676
|
|
Provision for impairment of investment properties
|
2,164
|
|
|
—
|
|
Gain on sales of investment properties
|
(21,739
|
)
|
|
(4,572
|
)
|
Gain on extinguishment of debt
|
(13,653
|
)
|
|
—
|
|
Amortization of loan fees and debt premium and discount, net
|
1,997
|
|
|
992
|
|
Amortization of stock-based compensation
|
2,026
|
|
|
1,369
|
|
Premium paid in connection with defeasance of mortgages payable
|
—
|
|
|
2,604
|
|
Payment of leasing fees and inducements
|
(3,954
|
)
|
|
(1,539
|
)
|
Changes in accounts receivable, net
|
6,897
|
|
|
10,286
|
|
Changes in accounts payable and accrued expenses, net
|
(20,462
|
)
|
|
(12,714
|
)
|
Changes in other operating assets and liabilities, net
|
(1,568
|
)
|
|
6,356
|
|
Other, net
|
723
|
|
|
593
|
|
Net cash provided by operating activities
|
53,253
|
|
|
71,127
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Changes in restricted escrows, net
|
(2,616
|
)
|
|
17,673
|
|
Purchase of investment properties
|
(138,035
|
)
|
|
(316,200
|
)
|
Capital expenditures and tenant improvements
|
(7,622
|
)
|
|
(10,946
|
)
|
Proceeds from sales of investment properties
|
16,427
|
|
|
35,343
|
|
Investment in developments in progress
|
—
|
|
|
(380
|
)
|
Other, net
|
98
|
|
|
(25
|
)
|
Net cash used in investing activities
|
(131,748
|
)
|
|
(274,535
|
)
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Proceeds from mortgages payable
|
—
|
|
|
322
|
|
Principal payments on mortgages payable
|
(2,836
|
)
|
|
(71,505
|
)
|
Proceeds from unsecured notes payable
|
—
|
|
|
248,815
|
|
Proceeds from unsecured credit facility
|
240,000
|
|
|
335,000
|
|
Repayments of unsecured credit facility
|
(60,000
|
)
|
|
(300,000
|
)
|
Payment of loan fees and deposits, net
|
(6,020
|
)
|
|
(1,812
|
)
|
Purchase of U.S. Treasury securities in connection with defeasance of mortgages payable
|
—
|
|
|
(12,379
|
)
|
Distributions paid
|
(41,659
|
)
|
|
(41,549
|
)
|
Other, net
|
(1,826
|
)
|
|
(881
|
)
|
Net cash provided by financing activities
|
127,659
|
|
|
156,011
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
49,164
|
|
|
(47,397
|
)
|
Cash and cash equivalents, at beginning of period
|
51,424
|
|
|
112,292
|
|
Cash and cash equivalents, at end of period
|
$
|
100,588
|
|
|
$
|
64,895
|
|
(continued)
|
|
RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Supplemental cash flow disclosure, including non-cash activities:
|
|
|
|
Cash paid for interest
|
$
|
21,538
|
|
|
$
|
24,662
|
|
Distributions payable
|
$
|
39,311
|
|
|
$
|
39,284
|
|
Accrued capital expenditures and tenant improvements
|
$
|
9,084
|
|
|
$
|
4,474
|
|
Accrued leasing fees and inducements
|
$
|
654
|
|
|
$
|
533
|
|
Accrued development expenditures
|
$
|
—
|
|
|
$
|
133
|
|
U.S. Treasury securities transferred in connection with defeasance of mortgages payable
|
$
|
—
|
|
|
$
|
12,379
|
|
Defeasance of mortgages payable
|
$
|
—
|
|
|
$
|
9,775
|
|
|
|
|
|
Purchase of investment properties (after credits at closing):
|
|
|
|
Land, building and other improvements, net
|
$
|
(129,866
|
)
|
|
$
|
(308,728
|
)
|
Accounts receivable, acquired lease intangibles and other assets
|
(11,812
|
)
|
|
(34,929
|
)
|
Accounts payable, acquired lease intangibles and other liabilities
|
3,643
|
|
|
27,457
|
|
|
$
|
(138,035
|
)
|
|
$
|
(316,200
|
)
|
|
|
|
|
Proceeds from sales of investment properties:
|
|
|
|
Land, building and other improvements, net
|
$
|
104,706
|
|
|
$
|
30,582
|
|
Accounts receivable, acquired lease intangibles and other assets
|
8,970
|
|
|
207
|
|
Accounts payable, acquired lease intangibles and other liabilities
|
(3,315
|
)
|
|
(50
|
)
|
Deferred gain
|
—
|
|
|
32
|
|
Mortgage debt forgiven or assumed
|
(94,353
|
)
|
|
—
|
|
Gain on extinguishment of debt
|
13,653
|
|
|
—
|
|
Gain on sales of investment properties
|
21,739
|
|
|
4,572
|
|
Proceeds temporarily restricted related to tax-deferred exchanges
|
(34,973
|
)
|
|
—
|
|
|
$
|
16,427
|
|
|
$
|
35,343
|
|
See accompanying notes to condensed consolidated financial statements
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, 2015
, which are included in its
2015
Annual Report on Form 10-K, as certain footnote disclosures which would substantially duplicate those contained in the Annual Report have been omitted from this Quarterly Report. In the opinion of management, all adjustments necessary, all of which were of normal recurring nature, for a fair presentation have been included in this Quarterly Report.
(1) Organization and Basis of Presentation
Retail Properties of America, Inc. (the Company) was formed on March 5, 2003 to own and operate high quality, strategically located shopping centers in the United States.
The Company has elected to be taxed as a real estate investment trust (REIT) under the Internal Revenue Code of 1986, as amended (the Code). The Company believes it qualifies for taxation as a REIT and, as such, the Company generally will not be subject to U.S. federal income tax on taxable income that is distributed to its shareholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal income tax on its taxable income. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property or net worth and U.S. federal income and excise taxes on its undistributed income. The Company has
one
wholly-owned subsidiary that has jointly elected to be treated as a taxable REIT subsidiary (TRS) and is subject to U.S. federal, state and local income taxes at regular corporate tax rates. The income tax expense incurred by the TRS did not have a material impact on the Company’s accompanying condensed consolidated financial statements.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. For example, significant estimates and assumptions have been made with respect to useful lives of assets, capitalization of development costs, fair value measurements, provision for impairment, including estimates of holding periods, capitalization rates and discount rates (where applicable), provision for income taxes, recoverable amounts of receivables, deferred taxes and initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions. Actual results could differ from these estimates.
All share amounts and dollar amounts in the condensed consolidated financial statements and notes thereto are stated in thousands with the exception of per share amounts and per square foot amounts.
The accompanying condensed consolidated financial statements include the accounts of the Company, as well as all wholly-owned subsidiaries and any consolidated variable interest entities (VIEs). All intercompany balances and transactions have been eliminated in consolidation. Wholly-owned subsidiaries generally consist of limited liability companies (LLCs), limited partnerships and statutory trusts.
The Company’s property ownership as of
March 31, 2016
is summarized below:
|
|
|
|
|
|
|
|
Wholly-owned
|
|
Consolidated
VIEs
|
Retail operating properties (a)
|
191
|
|
|
1
|
|
Office properties
|
1
|
|
|
—
|
|
Total operating properties
|
192
|
|
|
1
|
|
|
|
|
|
Development properties
|
1
|
|
|
—
|
|
|
|
(a)
|
Excludes
one
wholly-owned operating property classified as held for sale as of
March 31, 2016
.
|
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(2) Summary of Significant Accounting Policies
Refer to the Company’s
2015
Annual Report on Form 10-K for a summary of the Company’s significant accounting policies. Except as disclosed below, there have been no changes to the Company’s significant accounting policies in the
three
months ended
March 31, 2016
.
Recent Accounting Pronouncements
Effective January 1, 2016, companies are required to evaluate whether they should consolidate certain legal entities under a revised consolidation model. All legal entities are subject to reevaluation under the revised consolidation model, which modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership, affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, and provides a scope exception from consolidation guidance for registered money market funds. This pronouncement allows either a full or a modified retrospective method of adoption. The adoption of this pronouncement under the modified retrospective method did not have any effect on the Company’s condensed consolidated financial statements as the Company did not have any VIEs as of January 1, 2016; however, as of March 31, 2016, the Company had acquired a property through a consolidated VIE and, accordingly, applied the revised consolidation guidance.
Effective January 1, 2016, the acquirer in a business combination is required to recognize any adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined and is no longer required to retrospectively account for those adjustments. A company must present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The adoption of this pronouncement did not have any effect on the Company’s condensed consolidated financial statements.
Effective for the annual period ending after December 15, 2016 and for interim periods thereafter, with early adoption permitted, a company’s management is required to assess the entity’s ability to continue as a going concern every reporting period for a period of one year after the date the financial statements are issued (or available to be issued) and provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The Company elected to early adopt this pronouncement effective January 1, 2016. The adoption of this pronouncement did not have any effect on the Company’s condensed consolidated financial statements.
Effective January 1, 2017, with early adoption permitted, companies may elect to either estimate the number of share-based payment awards that are expected to vest or account for forfeitures when they occur. The Company elected to early adopt this pronouncement effective January 1, 2016 and made an accounting policy election to account for forfeitures when they occur. This pronouncement requires a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted and resulted in an adjustment of
$17
to additional paid-in capital and accumulated distributions in excess of earnings as of January 1, 2016.
Effective January 1, 2017, registrants will be required to disclose the following in any annual report, proxy or information statement, or registration statement that requires executive compensation disclosure: 1) the median of the annual total compensation of all its employees (excluding the chief executive officer), 2) the annual total compensation of its chief executive officer, and 3) the ratio of the median of the annual total compensation of all its employees to the annual total compensation of its chief executive officer. The Company does not expect the adoption of this final rule will have a material effect on its condensed consolidated financial statements.
Effective January 1, 2018, with early adoption permitted beginning January 1, 2017, companies will be required to apply a five-step model in accounting for revenue arising from contracts with customers. The core principle of this revised revenue model is that a company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Lease contracts will be excluded from this revenue recognition criteria; however, the sale of real estate will be required to follow the new model. This pronouncement allows either a full or a modified retrospective method of adoption. Expanded quantitative and qualitative disclosures regarding revenue recognition will be required for contracts that are subject to this guidance. The Company does not expect the adoption of 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.
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Effective January 1, 2018, companies will be required 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 be required to disclose the methods and significant assumptions used, including any changes, to estimate fair value. In addition, companies will be required to disclose all financial assets and financial liabilities grouped by 1) measurement category and 2) form of financial instrument. The Company does not expect the adoption of this pronouncement will have a material effect on its condensed consolidated financial statements; however, it will continue to evaluate this assessment until the guidance becomes effective.
Effective January 1, 2019, with early adoption permitted, lessees will be required to recognize a liability to make lease payments and a right-of-use asset, initially measured at the present value of lease payments, for both operating and financing leases. For leases with a term of 12 months or less, lessees will be permitted to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease assets. Under this new pronouncement, lessor accounting will be largely unchanged from existing GAAP. The pronouncement requires a modified retrospective method of adoption, with some optional practical expedients. Upon adoption, the Company will recognize a lease liability and a right-of-use asset for operating leases where it is the lessee. The Company will continue to evaluate the impact of this guidance until it becomes effective.
(3) Acquisitions
The Company closed on the following acquisitions during the
three
months ended
March 31,
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property Name
|
|
Metropolitan
Statistical Area (MSA)
|
|
Property Type
|
|
Square
Footage
|
|
Acquisition
Price
|
January 15, 2016
|
|
Shoppes at Hagerstown (a)
|
|
Hagerstown
|
|
Multi-tenant retail
|
|
113,000
|
|
|
$
|
27,055
|
|
January 15, 2016
|
|
Merrifield Town Center II (a)
|
|
Washington, D.C.
|
|
Multi-tenant retail
|
|
76,000
|
|
|
45,676
|
|
March 29, 2016
|
|
Oak Brook Promenade (b)
|
|
Chicago
|
|
Multi-tenant retail
|
|
183,200
|
|
|
65,954
|
|
|
|
|
|
|
|
|
|
372,200
|
|
|
$
|
138,685
|
|
|
|
(a)
|
These properties were acquired as a
two
-property portfolio. Merrifield Town Center II also contains
62,000
square feet of storage space for a total of
138,000
square feet.
|
|
|
(b)
|
This property was acquired through a consolidated VIE and may be used to facilitate a potential Internal Revenue Code Section 1031 tax-deferred exchange (1031 Exchange).
|
The Company closed on the following acquisitions during the
three
months ended
March 31,
2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property Name
|
|
MSA
|
|
Property Type
|
|
Square
Footage
|
|
Acquisition
Price
|
January 8, 2015
|
|
Downtown Crown
|
|
Washington, D.C.
|
|
Multi-tenant retail
|
|
258,000
|
|
|
$
|
162,785
|
|
January 23, 2015
|
|
Merrifield Town Center
|
|
Washington, D.C.
|
|
Multi-tenant retail
|
|
84,900
|
|
|
56,500
|
|
January 23, 2015
|
|
Fort Evans Plaza II
|
|
Washington, D.C.
|
|
Multi-tenant retail
|
|
228,900
|
|
|
65,000
|
|
February 19, 2015
|
|
Cedar Park Town Center
|
|
Austin
|
|
Multi-tenant retail
|
|
179,300
|
|
|
39,057
|
|
March 24, 2015
|
|
Lake Worth Towne Crossing – Parcel (a)
|
|
Dallas
|
|
Land
|
|
—
|
|
|
400
|
|
|
|
|
|
|
|
|
|
751,100
|
|
|
$
|
323,742
|
|
|
|
(a)
|
The Company acquired a parcel located at its Lake Worth Towne Crossing multi-tenant retail operating property.
|
The following table summarizes the acquisition date fair values, before prorations, the Company recorded in conjunction with the acquisitions discussed above:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
Land
|
|
$
|
43,174
|
|
|
$
|
102,487
|
|
Building and other improvements
|
|
86,692
|
|
|
206,241
|
|
Acquired lease intangible assets (a)
|
|
11,787
|
|
|
33,631
|
|
Acquired lease intangible liabilities (b)
|
|
(2,968
|
)
|
|
(18,617
|
)
|
Net assets acquired
|
|
$
|
138,685
|
|
|
$
|
323,742
|
|
|
|
(a)
|
The weighted average amortization period for acquired lease intangible assets is
7 years
and
16 years
for acquisitions completed during the
three
months ended
March 31, 2016
and
2015
, respectively.
|
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
(b)
|
The weighted average amortization period for acquired lease intangible liabilities is
12 years
and
20 years
for acquisitions completed during the
three
months ended
March 31, 2016
and
2015
, 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. Transaction costs totaling
$339
and
$911
for the
three
months ended
March 31, 2016
and
2015
, respectively, were expensed as incurred and are included in “General and administrative expenses” in the accompanying condensed consolidated statements of operations and other comprehensive income.
Included in the Company’s condensed consolidated statements of operations and other comprehensive income from the properties acquired that were accounted for as business combinations are
$8,157
and
$4,675
in total revenues and
$1,987
and
$1,401
in net income attributable to common shareholders from the date of acquisition through
March 31, 2016
and
2015
, respectively. These amounts do not include the total revenue and net income attributable to common shareholders from the 2015 Lake Worth Towne Crossing acquisition as it has been accounted for as an asset acquisition.
Subsequent to
March 31, 2016
, the Company acquired the following:
|
|
•
|
The Shoppes at Union Hill, a multi-tenant retail property located in the New York MSA, for a gross purchase price of
$63,060
, which includes the assumption of mortgage debt with a principal balance of
$15,971
and an interest rate of
3.75%
that matures in 2031. The property was acquired on April 1, 2016 and contains approximately
91,700
square feet; and
|
|
|
•
|
the fee interest in Ashland & Roosevelt, its existing multi-tenant retail operating property located in the Chicago MSA, which was previously subject to a ground lease with a third party, for a gross purchase price of
$13,850
. In conjunction with this transaction, the Company anticipates recording a gain on extinguishment of other liabilities of approximately
$6,978
due to the reversal of the straight-line ground rent liability.
|
The Company has not completed the allocation of the acquisition date fair value for The Shoppes at Union Hill; however, it expects that the purchase price of this property will primarily be allocated to land, building, acquired lease intangibles and mortgages payable. The Company expects to record the purchase price of the fee interest in Ashland & Roosevelt to land.
Condensed Pro Forma Financial Information
The results of operations for the acquisitions accounted for as business combinations that were completed during the period, or after such period through the financial statement issuance date, for which financial information was available, are included in the following unaudited condensed pro forma financial information as if these acquisitions had been completed as of the beginning of the year prior to the acquisition date. The following unaudited condensed pro forma financial information is presented as if the 2016 acquisitions, including the acquisition of The Shoppes at Union Hill, were completed as of January 1, 2015 and as if the 2015 acquisitions completed through the date the March 31, 2015 financial statements were issued, including the acquisition of Tysons Corner on May 4, 2015, were completed as of January 1, 2014. The results of operations associated with the 2016 acquisition of the fee interest in Ashland & Roosevelt and the 2015 acquisition of a parcel at Lake Worth Towne Crossing have not been adjusted in the pro forma presentation as they have been accounted for as asset acquisitions. These pro forma results are for comparative purposes only and are not necessarily indicative of what the Company’s actual results of operations would have been had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.
The unaudited condensed pro forma financial information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
Total revenues
|
|
$
|
151,026
|
|
|
$
|
158,228
|
|
Net income
|
|
$
|
46,515
|
|
|
$
|
12,104
|
|
Net income attributable to common shareholders
|
|
$
|
44,153
|
|
|
$
|
9,742
|
|
Earnings per common share – basic and diluted:
|
|
|
|
|
Net income per common share attributable to common shareholders
|
|
$
|
0.19
|
|
|
$
|
0.04
|
|
Weighted average number of common shares outstanding – basic
|
|
236,578
|
|
|
236,250
|
|
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Variable Interest Entities
During the
three
months ended
March 31, 2016
, the Company entered into an agreement with a qualified intermediary related to a potential 1031 Exchange. The Company loaned
$65,419
to the VIE to acquire Oak Brook Promenade on March 29, 2016. The 1031 Exchange must be completed within
180
days after the acquisition date of the property in accordance with the applicable provisions of the Code. At the completion or expiration of the 1031 Exchange, the sole membership interest of the VIE will be assigned to the Company in satisfaction of the outstanding loan, resulting in the entity being wholly owned by the Company.
The Company was deemed to be the primary beneficiary of the VIE as it has the ability to direct the activities of the VIE that most significantly impact its economic performance and has all of the risk and rewards of ownership. Accordingly, the Company consolidated the VIE. No value or income has been attributed to the noncontrolling interest. The assets of the VIE consist of the investment property which is operated by the Company. As of
March 31, 2016
, the assets and liabilities of the VIE are as follows:
|
|
|
|
|
|
March 31,
2016
|
Assets
|
|
Land
|
$
|
10,343
|
|
Building and other improvements
|
50,057
|
|
Net investment properties
|
60,400
|
|
Acquired lease intangible assets
|
6,484
|
|
Total assets
|
$
|
66,884
|
|
|
|
Liabilities
|
|
Loan due to the Company (a)
|
$
|
65,419
|
|
Other liabilities
|
1,430
|
|
Total liabilities
|
$
|
66,849
|
|
|
|
(a)
|
Represents funds loaned by the Company to the VIE to acquire the property and has been eliminated in consolidation.
|
(4) Dispositions
The Company closed on the following dispositions during the
three
months ended
March 31,
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property Name
|
|
Property Type
|
|
Square
Footage
|
|
Consideration
|
|
Aggregate
Proceeds, Net (a)
|
|
Gain
|
February 1, 2016
|
|
The Gateway (b)
|
|
Multi-tenant retail
|
|
623,200
|
|
|
$
|
75,000
|
|
|
$
|
(795
|
)
|
|
$
|
3,868
|
|
February 10, 2016
|
|
Stateline Station
|
|
Multi-tenant retail
|
|
142,600
|
|
|
17,500
|
|
|
17,210
|
|
|
4,253
|
|
March 30, 2016
|
|
Six Property Portfolio (c)
|
|
Single-user retail
|
|
230,400
|
|
|
35,413
|
|
|
12
|
|
|
13,618
|
|
|
|
|
|
|
|
996,200
|
|
|
$
|
127,913
|
|
|
$
|
16,427
|
|
|
$
|
21,739
|
|
|
|
(a)
|
Aggregate proceeds are net of transaction costs and proceeds temporarily restricted related to potential 1031 Exchanges.
|
|
|
(b)
|
The property was disposed of through a lender-directed sale in full satisfaction of the Company’s
$94,353
mortgage obligation. Immediately prior to the disposition, the lender reduced the Company’s loan obligation to
$75,000
which was assumed by the buyer in connection with the disposition. Along with the loan reduction, the lender received the balance of the restricted escrows that they held and the rights to unpaid accounts receivable and forgave accrued interest, resulting in a net gain on extinguishment of debt of
$13,653
.
|
|
|
(c)
|
Portfolio consists of the following properties: (i) Academy Sports – Houma, (ii) Academy Sports – Port Arthur, (iii) Academy Sports – San Antonio, (iv) CVS Pharmacy – Moore, (v) CVS Pharmacy – Saginaw and (vi) Rite Aid Store (Eckerd) – Olean. Proceeds of
$34,973
from the dispositions are temporarily restricted related to potential 1031 Exchanges and are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.
|
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company closed on the following dispositions during the
three
months ended
March 31,
2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property Name
|
|
Property Type
|
|
Square
Footage
|
|
Consideration
|
|
Aggregate
Proceeds, Net (a)
|
|
Gain
|
January 20, 2015
|
|
Aon Hewitt East Campus
|
|
Single-user office
|
|
343,000
|
|
|
$
|
17,233
|
|
|
$
|
16,495
|
|
|
$
|
—
|
|
February 27, 2015
|
|
Promenade at Red Cliff
|
|
Multi-tenant retail
|
|
94,500
|
|
|
19,050
|
|
|
18,848
|
|
|
4,572
|
|
|
|
|
|
|
|
437,500
|
|
|
$
|
36,283
|
|
|
$
|
35,343
|
|
|
$
|
4,572
|
|
|
|
(a)
|
Aggregate proceeds are net of transaction costs.
|
None of the dispositions completed during the
three
months ended
March 31, 2016
and
2015
qualified for discontinued operations treatment.
As of
March 31, 2016
, the Company had entered into a contract to sell CVS Pharmacy – Oklahoma City, a
10,900
square foot single-user retail property located in Oklahoma City, Oklahoma. This property qualified for held for sale accounting treatment upon meeting all applicable GAAP criteria during the quarter ended
March 31, 2016
, at which time depreciation and amortization were ceased. As such, the assets associated with this property are separately classified as held for sale in the condensed consolidated balance sheets as of
March 31, 2016
. There were no liabilities associated with this property as of March 31, 2016. Subsequent to
March 31, 2016
, the Company sold CVS Pharmacy – Oklahoma City for consideration of
$4,676
. No properties qualified for held for sale accounting treatment as of December 31, 2015.
The following table presents the assets associated with the investment property classified as held for sale:
|
|
|
|
|
|
March 31,
2016
|
Assets
|
|
Land, building and other improvements
|
$
|
4,203
|
|
Accumulated depreciation
|
(1,412
|
)
|
Net investment properties
|
2,791
|
|
Other assets
|
52
|
|
Assets associated with investment properties held for sale
|
$
|
2,843
|
|
(5) Equity Compensation Plans
The Company’s 2014 Long-Term Equity Compensation Plan, subject to certain conditions, authorizes the issuance of incentive and non-qualified stock options, restricted stock and restricted stock units, stock appreciation rights and other similar awards as well as cash-based awards to the Company’s employees, non-employee directors, consultants and advisors in connection with compensation and incentive arrangements that may be established by the Company’s board of directors or executive management.
The following table summarizes the Company’s unvested restricted shares as of and for the
three
months ended
March 31, 2016
:
|
|
|
|
|
|
|
|
|
Unvested
Restricted
Shares
|
|
Weighted Average
Grant Date
Fair Value per
Restricted Share
|
Balance as of January 1, 2016
|
788
|
|
|
$
|
15.52
|
|
Shares granted (a)
|
207
|
|
|
$
|
14.26
|
|
Shares vested
|
(330
|
)
|
|
$
|
15.57
|
|
Shares forfeited (b)
|
(6
|
)
|
|
$
|
14.99
|
|
Balance as of March 31, 2016 (c)
|
659
|
|
|
$
|
15.10
|
|
|
|
(a)
|
Shares granted vest over periods ranging from
0.4 years
to
3.9 years
in accordance with the terms of applicable award documents.
|
|
|
(b)
|
Effective January 1, 2016, the Company made an accounting policy election to account for forfeitures when they occur.
|
|
|
(c)
|
As of
March 31, 2016
, total unrecognized compensation expense related to unvested restricted shares was
$5,610
, which is expected to be amortized over a weighted average term of
1.7 years
.
|
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In addition, during the
three
months ended
March 31, 2016
, performance restricted stock units (RSUs) were granted to the Company’s executives. In 2019, following the performance period which concludes on December 31, 2018, one-third of the RSUs will convert into shares of common stock and two-thirds will convert into restricted shares with a
one year
vesting term. As long as the minimum hurdle is achieved and the executive remains employed during the performance period, the RSUs will convert into shares of common stock and restricted shares at a conversion rate of between
50%
and
200%
based upon the Company’s Total Shareholder Return as compared to that of the peer companies within the National Association of Real Estate Investment Trusts (NAREIT) Shopping Center Index for 2016 through 2018. If an executive terminates employment during the performance period by reason of a qualified termination, as defined in the agreement, only a prorated portion of his outstanding RSUs will be eligible for conversion based upon the period in which the executive was employed during the performance period. If an executive terminates for any reason other than a qualified termination during the performance period, he would forfeit his outstanding RSUs. In 2019, additional shares of common stock will also be issued in an amount equal to the accumulated value of the dividends that would have been paid during the performance period on the shares of common stock and restricted shares issued at the end of the performance period divided by the then-current market price of the Company’s common stock. The Company calculated the grant date fair value per unit using a Monte Carlo simulation based on the probability of satisfying the market performance hurdles over the remainder of the performance period. Assumptions as of the grant date included a risk-free interest rate of
0.89%
, the Company’s historical common stock performance relative to the peer companies within the NAREIT Shopping Center Index and the Company’s common stock dividend yield of
4.66%
.
The following table summarizes the Company’s unvested RSUs as of and for the
three
months ended
March 31, 2016
:
|
|
|
|
|
|
|
|
|
Unvested
RSUs
|
|
Weighted Average
Grant Date
Fair Value
per RSU
|
RSUs eligible for future conversion as of January 1, 2016
|
174
|
|
|
$
|
14.20
|
|
RSUs granted
|
223
|
|
|
$
|
13.26
|
|
RSUs eligible for future conversion as of March 31, 2016 (a)
|
397
|
|
|
$
|
13.67
|
|
|
|
(a)
|
As of
March 31, 2016
, total unrecognized compensation expense related to unvested RSUs was
$4,221
, which is expected to be amortized over a weighted average term of
3.1 years
.
|
During the three months ended
March 31, 2016
and
2015
, the Company recorded compensation expense of
$2,026
and
$1,369
, respectively, related to unvested restricted shares and RSUs. The total fair value of restricted shares vested during the
three
months ended
March 31, 2016
was
$4,701
.
Prior to 2013, non-employee directors had been granted options to acquire shares under the Company’s Third Amended and Restated Independent Director Stock Option and Incentive Plan. As of
March 31, 2016
, options to purchase
53
shares of common stock remained outstanding and exercisable. The Company did not grant any options in
2016
or
2015
and did not record any compensation expense related to stock options during the
three
months ended
March 31, 2016
and
2015
.
(6) Mortgages Payable
The following table summarizes the Company’s mortgages payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Aggregate
Principal
Balance
|
|
Weighted
Average
Interest Rate
|
|
Weighted
Average Years
to Maturity
|
|
Aggregate
Principal
Balance
|
|
Weighted
Average
Interest Rate
|
|
Weighted
Average Years
to Maturity
|
Fixed rate mortgages payable (a)
|
$
|
1,031,316
|
|
|
6.03
|
%
|
|
3.9
|
|
$
|
1,128,505
|
|
|
6.08
|
%
|
|
3.9
|
Premium, net of accumulated amortization
|
1,758
|
|
|
|
|
|
|
1,865
|
|
|
|
|
|
Discount, net of accumulated amortization
|
(1
|
)
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Capitalized loan fees, net of accumulated amortization
|
(6,630
|
)
|
|
|
|
|
|
(7,233
|
)
|
|
|
|
|
Mortgages payable, net
|
$
|
1,026,443
|
|
|
|
|
|
|
$
|
1,123,136
|
|
|
|
|
|
|
|
(a)
|
Includes
$7,857
and
$7,910
of variable rate mortgage debt that has been swapped to a fixed rate as of
March 31, 2016
and
December 31, 2015
, respectively. The fixed rate mortgages had interest rates ranging from
3.35%
to
8.00%
as of
March 31, 2016
and
December 31, 2015
.
|
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
During the
three
months ended
March 31, 2016
, the Company disposed of The Gateway through a lender-directed sale in full satisfaction of its
$94,353
mortgage obligation, which had a fixed interest rate of
6.57%
. Immediately prior to the disposition, the lender reduced the Company’s loan obligation to
$75,000
which was assumed by the buyer in connection with the disposition. Along with the loan reduction, the lender received the balance of the restricted escrows that they held and the rights to unpaid accounts receivable and forgave accrued interest, resulting in a net gain on extinguishment of debt of
$13,653
. In addition, during the
three
months ended
March 31, 2016
, the Company made scheduled principal payments of
$2,836
related to amortizing loans.
The majority of the Company’s mortgages payable require monthly payments of principal and interest, as well as reserves for real estate taxes and certain other costs. The Company’s properties and the related tenant leases are pledged as collateral for its mortgages payable. Although the mortgage loans obtained by the Company are generally non-recourse, with the exception of customary non-recourse carve-outs, occasionally, the Company may guarantee all or a portion of the debt on a full-recourse basis. As of
March 31, 2016
, the Company had guaranteed
$1,964
of its outstanding mortgage loans related to
one
mortgage loan with a maturity date of
September 30, 2016
(see Note 14 to the condensed consolidated financial statements). At times, the Company has borrowed funds financed as part of a cross-collateralized package, with cross-default provisions. In those circumstances, one or more of the Company’s properties may secure the debt of another of the Company’s properties. As of
March 31, 2016
, the Company had a pool of mortgages with a principal balance of
$394,467
that was cross-collateralized by the
48
properties in its IW JV 2009, LLC portfolio.
Debt Maturities
The following table shows the scheduled maturities and principal amortization of the Company’s indebtedness as of
March 31, 2016
for the remainder of
2016
, each of the next four years and thereafter and the weighted average interest rates by year. The table does not reflect the impact of any debt activity that occurred after
March 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
Thereafter
|
|
Total
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages payable (a)
|
$
|
44,683
|
|
|
$
|
226,637
|
|
|
$
|
10,801
|
|
|
$
|
443,447
|
|
|
$
|
3,424
|
|
|
$
|
302,324
|
|
|
$
|
1,031,316
|
|
Unsecured credit facility – fixed rate portion of term loan (b)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100,000
|
|
|
100,000
|
|
Unsecured notes payable (c)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500,000
|
|
|
500,000
|
|
Total fixed rate debt
|
44,683
|
|
|
226,637
|
|
|
10,801
|
|
|
443,447
|
|
|
3,424
|
|
|
902,324
|
|
|
1,631,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured credit facility
|
—
|
|
|
—
|
|
|
200,000
|
|
|
—
|
|
|
280,000
|
|
|
150,000
|
|
|
630,000
|
|
Total variable rate debt
|
—
|
|
|
—
|
|
|
200,000
|
|
|
—
|
|
|
280,000
|
|
|
150,000
|
|
|
630,000
|
|
Total debt (d)
|
$
|
44,683
|
|
|
$
|
226,637
|
|
|
$
|
210,801
|
|
|
$
|
443,447
|
|
|
$
|
283,424
|
|
|
$
|
1,052,324
|
|
|
$
|
2,261,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate on debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt
|
4.73
|
%
|
|
5.09
|
%
|
|
6.74
|
%
|
|
7.50
|
%
|
|
4.80
|
%
|
|
4.14
|
%
|
|
5.22
|
%
|
Variable rate debt (e)
|
—
|
|
|
—
|
|
|
1.88
|
%
|
|
—
|
|
|
1.78
|
%
|
|
1.73
|
%
|
|
1.80
|
%
|
Total
|
4.73
|
%
|
|
5.09
|
%
|
|
2.13
|
%
|
|
7.50
|
%
|
|
1.82
|
%
|
|
3.80
|
%
|
|
4.27
|
%
|
|
|
(a)
|
Includes
$7,857
of variable rate mortgage debt that has been swapped to a fixed rate as of
March 31, 2016
. Excludes mortgage premium of
$1,758
and discount of
$(1)
, net of accumulated amortization, as of
March 31, 2016
.
|
|
|
(b)
|
$100,000
of London Interbank Offered Rate (LIBOR)-based variable rate debt has been swapped to a fixed rate through December 31, 2017. The swap effectively converts
one-month floating rate LIBOR
to a fixed rate of
0.6591%
over the term of the swap.
|
|
|
(c)
|
Excludes discount of
$(1,060)
, net of accumulated amortization, as of
March 31, 2016
.
|
|
|
(d)
|
Total debt excludes capitalized loan fees of
$(13,153)
, net of accumulated amortization, as of
March 31, 2016
which are included as a reduction to the respective debt balances. The weighted average years to maturity of consolidated indebtedness was
4.7 years
as of
March 31, 2016
.
|
|
|
(e)
|
Represents interest rates as of
March 31, 2016
.
|
The Company plans on addressing its debt maturities through a combination of proceeds from asset dispositions, capital markets transactions and its unsecured revolving line of credit.
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(7) Unsecured Notes Payable
The following table summarizes the Company’s unsecured notes payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
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% Series A due 2021
|
|
June 30, 2021
|
|
$
|
100,000
|
|
|
4.12
|
%
|
|
$
|
100,000
|
|
|
4.12
|
%
|
Senior notes – 4.58% Series B 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
|
%
|
|
|
|
|
500,000
|
|
|
4.20
|
%
|
|
500,000
|
|
|
4.20
|
%
|
Discount, net of accumulated amortization
|
|
|
|
(1,060
|
)
|
|
|
|
(1,090
|
)
|
|
|
Capitalized loan fees, net of accumulated amortization
|
|
|
|
(3,233
|
)
|
|
|
|
(3,334
|
)
|
|
|
|
|
Total
|
|
$
|
495,707
|
|
|
|
|
$
|
495,576
|
|
|
|
The indenture, as supplemented, governing the
4.00%
senior unsecured notes due 2025 (
4.00%
notes) (the Indenture) contains customary covenants and events of default. Pursuant to the terms of the Indenture, the Company is subject to various financial covenants, including the requirement to maintain the following: (i) maximum secured and total leverage ratios; (ii) a debt service coverage ratio; and (iii) maintenance of an unencumbered assets to unsecured debt ratio.
The note purchase agreement governing the
4.12%
Series A senior notes due 2021 and the
4.58%
Series B senior notes due 2024 (collectively, Series A and B notes) contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the note purchase agreement, the Company is subject to various financial covenants, some of which are based upon the financial covenants in effect in the Company’s primary credit facility, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) minimum interest coverage and unencumbered interest coverage ratios; and (iii) a minimum consolidated net worth.
As of
March 31, 2016
, management believes the Company was in compliance with the financial covenants under the Indenture and the note purchase agreement.
(8) Unsecured Credit Facility
On January 6, 2016, the Company entered into its fourth amended and restated unsecured credit agreement with a syndicate of financial institutions led by KeyBank National Association serving as administrative agent and Wells Fargo Bank, National Association serving as syndication agent to provide for an unsecured credit facility aggregating
$1,200,000
. The Company’s unsecured credit facility consists of a
$750,000
unsecured revolving line of credit, a
$250,000
unsecured term loan and a
$200,000
unsecured term loan (collectively, the Company’s Unsecured Credit Facility) and is priced on a leverage grid at a rate of
LIBOR
plus a credit spread. The following table summarizes the key terms of the Company’s Unsecured Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage-Based Pricing
|
|
Ratings-Based Pricing
|
Unsecured Credit Facility
|
|
Maturity Date
|
|
Extension Option
|
|
Extension Fee
|
|
Credit Spread
|
Unused Fee
|
|
Credit Spread
|
Facility Fee
|
$250,000 unsecured term loan
|
|
1/5/2021
|
|
N/A
|
|
N/A
|
|
1.30% - 2.20%
|
N/A
|
|
0.90% - 1.75%
|
N/A
|
$200,000 unsecured term loan
|
|
5/11/2018
|
|
2 one year
|
|
0.15%
|
|
1.45% - 2.20%
|
N/A
|
|
1.05% - 2.05%
|
N/A
|
$750,000 unsecured revolving line of credit
|
|
1/5/2020
|
|
2 six month
|
|
0.075%
|
|
1.35% - 2.25%
|
0.15% - 0.25%
|
|
0.85% - 1.55%
|
0.125% - 0.30%
|
The Company’s Unsecured Credit Facility has a
$400,000
accordion option that allows the Company, at its election, to increase the total credit facility up to
$1,600,000
, subject to (i) customary fees and conditions including, but not limited to, the absence of an event of default as defined in the agreement and (ii) the Company’s ability to obtain additional lender commitments.
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the Company’s Unsecured Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
Unsecured Credit Facility
|
|
Balance
|
|
Interest Rate/
Weighted Average
Interest Rate
|
|
Balance
|
|
Interest Rate/
Weighted Average
Interest Rate
|
$250,000 unsecured term loan – fixed rate portion (a)
|
|
$
|
100,000
|
|
|
1.96
|
%
|
|
$
|
—
|
|
|
—
|
%
|
$250,000 unsecured term loan – variable rate portion
|
|
150,000
|
|
|
1.73
|
%
|
|
—
|
|
|
—
|
%
|
$200,000 unsecured term loan – variable rate
|
|
200,000
|
|
|
1.88
|
%
|
|
—
|
|
|
—
|
%
|
$450,000 unsecured term loan – fixed rate portion (b)
|
|
—
|
|
|
—
|
%
|
|
300,000
|
|
|
1.99
|
%
|
$450,000 unsecured term loan – variable rate portion
|
|
—
|
|
|
—
|
%
|
|
150,000
|
|
|
1.88
|
%
|
Subtotal
|
|
450,000
|
|
|
|
|
450,000
|
|
|
|
Capitalized loan fees, net of accumulated amortization
|
|
(3,290
|
)
|
|
|
|
(2,474
|
)
|
|
|
Term loans, net
|
|
446,710
|
|
|
|
|
447,526
|
|
|
|
Revolving line of credit – variable rate (c)
|
|
280,000
|
|
|
1.78
|
%
|
|
100,000
|
|
|
1.93
|
%
|
Total unsecured credit facility, net
|
|
$
|
726,710
|
|
|
1.82
|
%
|
|
$
|
547,526
|
|
|
1.95
|
%
|
|
|
(a)
|
As of
March 31, 2016
,
$100,000
of LIBOR-based variable rate debt has been swapped to a fixed rate of
0.6591%
plus a credit spread based on a leverage grid ranging from
1.30%
to
2.20%
through December 31, 2017. The applicable credit spread was
1.30%
as of
March 31, 2016
.
|
|
|
(b)
|
As of December 31, 2015,
$300,000
of LIBOR-based variable rate debt had been swapped to a fixed rate of
0.53875%
plus a credit spread based on a leverage grid ranging from
1.45%
to
2.00%
through February 2016. The applicable credit spread was
1.45%
as of December 31, 2015.
|
|
|
(c)
|
Excludes capitalized loan fees, which are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.
|
The fourth amended and restated unsecured credit agreement contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the fourth amended and restated unsecured credit agreement, the Company is subject to various financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; and (ii) minimum fixed charge and unencumbered interest coverage ratios. As of
March 31, 2016
, management believes the Company was in compliance with the financial covenants and default provisions under the unsecured credit agreement.
The Company previously had a
$1,000,000
unsecured credit facility that consisted of a
$550,000
unsecured revolving line of credit and a
$450,000
unsecured term loan that bore interest at a rate of
LIBOR
plus a credit spread ranging from
1.45%
to
2.05%
and was scheduled to mature on May 12, 2017 for the unsecured revolving line of credit and May 11, 2018 for the unsecured term loan.
(9) Derivatives
The Company’s objective in using interest rate derivatives is to manage its exposure to interest rate movements and add stability to interest expense. To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed rate payments over the life of the agreement without exchange of the underlying notional amount.
The Company utilizes
two
interest rate swaps to hedge the variable cash flows associated with variable rate debt. The effective portion of changes in the fair value of derivatives that are designated and that qualify as cash flow hedges is recorded in “Accumulated other comprehensive loss” and is reclassified to interest expense as interest payments are made on the Company’s variable rate debt. Over the next 12 months, the Company estimates that an additional
$131
will be reclassified as an increase to interest expense. The ineffective portion of the change in fair value of derivatives is recognized directly in earnings.
In February 2016, the Company entered into an interest rate swap with a notional amount of
$100,000
that terminates on December 31, 2017. The swap was determined to be effective on March 1, 2016 and effectively converts
one-month floating rate LIBOR
to a fixed rate of
0.6591%
on
$100,000
of the Company’s LIBOR-based debt over the term of the swap. As of
March 31, 2016
, the fair value of the Company’s
$100,000
swap was a liability of
$12
, which is included in “Other liabilities” in the accompanying condensed consolidated balance sheets. The Company previously had a
$300,000
interest rate swap that matured on February 24,
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2016. In addition,
$7,857
and
$7,910
of variable rate mortgage debt has been swapped to a fixed rate as of
March 31, 2016
and
December 31, 2015
, respectively.
The following table summarizes the Company’s interest rate swaps that were designated as cash flow hedges of interest rate risk:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Instruments
|
|
Notional
|
Interest Rate Derivatives
|
|
March 31,
2016
|
|
December 31,
2015
|
|
March 31,
2016
|
|
December 31,
2015
|
Interest rate swaps
|
|
2
|
|
|
2
|
|
|
$
|
107,857
|
|
|
$
|
307,910
|
|
The table below presents the estimated fair value of the Company’s derivative financial instruments, which are included in “Other liabilities” in the accompanying condensed consolidated balance sheets. The valuation techniques utilized are described in Note 13 to the condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
March 31,
2016
|
|
December 31,
2015
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
Interest rate swaps
|
|
$
|
52
|
|
|
$
|
85
|
|
The following table presents the effect of the Company’s derivative financial instruments on the accompanying condensed consolidated statements of operations and other comprehensive income for the three months ended March 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in
Cash Flow
Hedging
Relationships
|
|
Amount of Loss
Recognized in Other
Comprehensive Income
on Derivative
(Effective Portion)
|
|
Location of Loss
Reclassified from
Accumulated Other
Comprehensive Income (AOCI)
into Income
(Effective Portion)
|
|
Amount of Loss
Reclassified from
AOCI into Income
(Effective Portion)
|
|
Location of Gain
Recognized in
Income on Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness Testing)
|
|
Amount of Gain
Recognized in Income
on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
|
|
|
2016
|
|
2015
|
|
|
|
2016
|
|
2015
|
|
|
|
2016
|
|
2015
|
Interest rate swaps
|
|
$
|
53
|
|
|
$
|
386
|
|
|
Interest expense
|
|
$
|
86
|
|
|
$
|
291
|
|
|
Other income, net
|
|
$
|
—
|
|
|
$
|
(25
|
)
|
(10) Equity
In December 2015, the Company entered into a new 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. The 2015 ATM equity program supersedes the Company’s previous
$200,000
ATM equity program which was in place from March 2013 through November 2015. Actual sales may depend on a variety of factors, including, among others, market conditions and the trading price of the Company’s Class A common stock. Any net proceeds are expected to be used for general corporate purposes, which may include the funding of acquisitions and redevelopment activities and the repayment of debt, including the Company's Unsecured Credit Facility. The Company did not sell any shares under its ATM equity program during the
three
months ended
March 31, 2016
and
2015
. As of
March 31, 2016
, the Company had Class A common shares having an aggregate offering price of up to
$250,000
remaining available for sale under its ATM equity program.
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. The timing and actual number of shares repurchased will depend on a variety of factors, including price in absolute terms and in relation to the value of the Company’s assets, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The common stock repurchase program may be suspended or terminated at any time without prior notice. As of
March 31, 2016
, the Company had not repurchased any shares under this program.
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(11) Earnings per Share
The following table summarizes the components used in the calculation of basic and diluted earnings per share (EPS):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
|
Numerator:
|
|
|
|
|
Income from continuing operations
|
$
|
25,687
|
|
|
$
|
8,504
|
|
|
Gain on sales of investment properties
|
21,739
|
|
|
4,572
|
|
|
Preferred stock dividends
|
(2,362
|
)
|
|
(2,362
|
)
|
|
Net income attributable to common shareholders
|
45,064
|
|
|
10,714
|
|
|
Distributions paid on unvested restricted shares
|
(130
|
)
|
|
(66
|
)
|
|
Net income attributable to common shareholders excluding amounts attributable
to unvested restricted shares
|
$
|
44,934
|
|
|
$
|
10,648
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
Denominator for earnings per common share – basic:
|
|
|
|
|
Weighted average number of common shares outstanding
|
236,578
|
|
(a)
|
236,250
|
|
(b)
|
Effect of dilutive securities:
|
|
|
|
|
Stock options
|
2
|
|
(c)
|
3
|
|
(c)
|
RSUs
|
100
|
|
(d)
|
—
|
|
|
Denominator for earnings per common share – diluted:
|
|
|
|
|
Weighted average number of common and common equivalent shares outstanding
|
236,680
|
|
|
236,253
|
|
|
|
|
(a)
|
Excludes
659
shares of unvested restricted common stock, which equate to
725
shares on a weighted average basis for the three months ended
March 31, 2016
. These shares will continue to be excluded from the computation of basic EPS until contingencies are resolved and the shares are released.
|
|
|
(b)
|
Excludes
871
shares of unvested restricted common stock, which equate to
611
shares on a weighted average basis for the three months ended
March 31, 2015
. These shares 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
53
and
64
shares of common stock as of
March 31, 2016
and
2015
, respectively, at a weighted average exercise price of
$19.39
and
$19.32
, respectively. Of these totals, outstanding options to purchase
45
and
54
shares of common stock as of
March 31, 2016
and
2015
, respectively, at a weighted average exercise price of
$20.74
and
$20.72
, respectively, have been excluded from the common shares used in calculating diluted earnings per share as including them would be anti-dilutive.
|
|
|
(d)
|
There were
397
RSUs eligible for future conversion following the performance periods as of
March 31, 2016
(see Note 5 to the condensed consolidated financial statements), which equate to
275
RSUs on a weighted average basis for the three months ended
March 31, 2016
. These contingently issuable shares are included in diluted EPS based on the weighted average number of shares that would be outstanding during the period, if any, assuming the end of the reporting period was the end of the contingency periods.
|
(12) Provision for Impairment of Investment Properties
As of
March 31, 2016
and
2015
, the Company identified indicators of impairment at certain of its properties. Such indicators included a low occupancy rate, difficulty in leasing space and related cost of re-leasing, financially troubled tenants or reduced anticipated holding periods. The following table summarizes the results of these analyses as of
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
March 31, 2015
|
|
Number of properties for which indicators of impairment were identified
|
|
5
|
|
|
6
|
|
(a)
|
Less: number of properties for which an impairment charge was recorded
|
|
1
|
|
|
—
|
|
|
Less: number of properties that were held for sale as of the date the analysis was performed
for which indicators of impairment were identified but no impairment charge was recorded
|
|
1
|
|
(b)
|
1
|
|
(c)
|
Remaining properties for which indicators of impairment were identified but no impairment
charge was considered necessary
|
|
3
|
|
|
5
|
|
|
|
|
|
|
|
|
Weighted average percentage by which the projected undiscounted cash flows exceeded
its respective carrying value for each of the remaining properties
|
|
9
|
%
|
|
66
|
%
|
|
|
|
(a)
|
Includes
five
properties which have subsequently been sold as of
March 31, 2016
.
|
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
(b)
|
CVS Pharmacy – Oklahoma City was classified as held for sale as of March 31, 2016. This property was not considered impaired based upon the executed sales contract and it was sold on April 20, 2016 with an anticipated gain on sale of approximately
$1,764
.
|
|
|
(c)
|
Hartford Insurance Building was classified as held for sale as of March 31, 2015. This property was not considered impaired based upon the executed sales contract and it was sold on April 7, 2015 with a gain on sale of
$860
.
|
The Company recorded the following investment property impairment charge during the
three
months ended
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Name
|
|
Property Type
|
|
Impairment Date
|
|
Square
Footage
|
|
Provision for
Impairment of
Investment
Properties
|
South Billings Center (a)
|
|
Development
|
|
March 31, 2016
|
|
—
|
|
|
$
|
2,164
|
|
|
|
Estimated fair value of impaired property as of impairment date
|
$
|
3,000
|
|
|
|
(a)
|
The Company recorded an impairment charge based upon the terms and conditions of an executed sales contract. The property was not under active development as of
March 31, 2016
.
|
The Company did not record any impairment charges on investment properties during the
three
months ended
March 31, 2015
.
The Company can provide no assurance that material impairment charges with respect to its investment properties will not occur in future periods.
(13) Fair Value Measurements
Fair Value of Financial Instruments
The following table presents the carrying value and estimated fair value of the Company’s financial instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Financial liabilities:
|
|
|
|
|
|
|
|
Mortgages payable, net
|
$
|
1,026,443
|
|
|
$
|
1,127,991
|
|
|
$
|
1,123,136
|
|
|
$
|
1,213,620
|
|
Unsecured notes payable, net
|
$
|
495,707
|
|
|
$
|
496,297
|
|
|
$
|
495,576
|
|
|
$
|
486,701
|
|
Unsecured credit facility
|
$
|
726,710
|
|
|
$
|
730,000
|
|
|
$
|
547,526
|
|
|
$
|
550,000
|
|
Derivative liability
|
$
|
52
|
|
|
$
|
52
|
|
|
$
|
85
|
|
|
$
|
85
|
|
The carrying values of mortgages payable, net and unsecured notes payable, net in the table are included in the accompanying condensed consolidated balance sheets under the indicated captions. The carrying value of the Unsecured Credit Facility is comprised of the “Unsecured term loans, net” and the “Unsecured revolving line of credit” and the carrying value of the derivative liability is included in “Other liabilities” in the accompanying condensed consolidated balance sheets.
Recurring Fair Value Measurements
The following table presents the Company’s financial instruments, which are measured at fair value on a recurring basis, by the level in the fair value hierarchy within which those measurements fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
March 31, 2016
|
|
|
|
|
|
|
|
Derivative liability
|
$
|
—
|
|
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
52
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
Derivative liability
|
$
|
—
|
|
|
$
|
85
|
|
|
$
|
—
|
|
|
$
|
85
|
|
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Derivative liability:
The fair value of the derivative liability is determined using a discounted cash flow analysis on the expected future cash flows of each derivative. This analysis utilizes observable market data including forward yield curves and implied volatilities to determine the market’s expectation of the future cash flows of the variable component. The fixed and variable components of the derivative are then discounted using calculated discount factors developed based on the LIBOR swap rate and are aggregated to arrive at a single valuation for the period. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of
March 31, 2016
and
December 31, 2015
, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation. As a result, the Company has determined that its derivative valuations in their entirety are classified within Level 2 of the fair value hierarchy. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements. The Company’s derivative instruments are further described in Note 9 to the condensed consolidated financial statements.
Nonrecurring Fair Value Measurements
The following table presents the Company’s assets measured at fair value on a nonrecurring basis as of March 31, 2016 aggregated by the level within the fair value hierarchy in which those measurements fall. The table includes information related to properties remeasured to fair value during the three months ended March 31, 2016, except for those properties sold prior to March 31, 2016. Methods and assumptions used to estimate the fair value of these assets are described after the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Provision for
Impairment
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Investment properties
|
$
|
—
|
|
|
$
|
3,000
|
|
|
$
|
—
|
|
|
$
|
3,000
|
|
|
$
|
2,164
|
|
(a)
|
|
|
(a)
|
Represents an impairment charge recorded during the
three
months ended
March 31, 2016
for the Company’s South Billings Center development property, which was not under active development as of
March 31, 2016
. Such charge, calculated as the expected sales price from the executed sales contract as compared to the Company’s carrying value of its investment, was based upon a Level 2 input.
|
The Company did not have any assets measured at fair value on a nonrecurring basis as of December 31, 2015.
Fair Value Disclosures
The following table presents the Company’s financial liabilities, which are measured at fair value for disclosure purposes, by the level in the fair value hierarchy within which those measurements fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
March 31, 2016
|
|
|
|
|
|
|
|
Mortgages payable, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,127,991
|
|
|
$
|
1,127,991
|
|
Unsecured notes payable, net
|
$
|
240,680
|
|
|
$
|
—
|
|
|
$
|
255,617
|
|
|
$
|
496,297
|
|
Unsecured credit facility
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
730,000
|
|
|
$
|
730,000
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
Mortgages payable, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,213,620
|
|
|
$
|
1,213,620
|
|
Unsecured notes payable, net
|
$
|
239,482
|
|
|
$
|
—
|
|
|
$
|
247,219
|
|
|
$
|
486,701
|
|
Unsecured credit facility
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
550,000
|
|
|
$
|
550,000
|
|
Mortgages payable, net:
The Company estimates the fair value of its mortgages payable by discounting the anticipated future cash flows of each instrument at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rate
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
for each of the Company’s individual mortgages payable based upon the specific terms of the agreement, including the term to maturity, the quality and nature of the underlying property and its leverage ratio. The rates used range from
2.2%
to
3.9%
and
2.2%
to
6.0%
as of
March 31, 2016
and
December 31, 2015
, respectively.
Unsecured notes payable, net:
The quoted market price as of
March 31, 2016
was used to value the Company’s
4.00%
notes. The Company estimates the fair value of its Series A and B notes by discounting the future cash flows at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rates. The weighted average rate used was
4.25%
and
4.64%
as of
March 31, 2016
and
December 31, 2015
, respectively.
Unsecured Credit Facility:
The Company estimates the fair value of its Unsecured Credit Facility by discounting the anticipated future cash flows related to the credit spreads at rates currently offered to the Company by its lenders for similar facilities of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rates. The rates, or weighted average rates, used to discount the credit spreads were
1.37%
and
1.30%
for the unsecured term loans as of
March 31, 2016
and
December 31, 2015
, respectively, and
1.35%
for the unsecured revolving line of credit as of
March 31, 2016
and
December 31, 2015
.
There were no transfers between the levels of the fair value hierarchy during the
three
months ended
March 31, 2016
.
(14) Commitments and Contingencies
Guarantees
Although the mortgage loans obtained by the Company are generally non-recourse, with the exception of customary non-recourse carve-outs, occasionally the Company may guarantee all or a portion of the debt on a full-recourse basis. As of
March 31, 2016
, the Company had guaranteed
$1,964
of its outstanding mortgage loans related to
one
mortgage loan with a maturity date of
September 30, 2016
.
(15) Litigation
The Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of such matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material effect on the Company’s condensed consolidated financial statements.
(16) Subsequent Events
Subsequent to
March 31, 2016
, the Company:
|
|
•
|
repaid a mortgage payable with a principal balance of
$6,594
and an interest rate of
7.30%
;
|
|
|
•
|
closed on the acquisition of The Shoppes at Union Hill, a
91,700
square foot multi-tenant retail property located in the New York MSA, for a gross purchase price of
$63,060
, which includes the assumption of mortgage debt with a principal balance of
$15,971
and an interest rate of
3.75%
that matures in 2031;
|
|
|
•
|
closed on the disposition of CVS Pharmacy – Oklahoma City, a
10,900
square foot single-user retail property located in Oklahoma City, Oklahoma, which was classified as held for sale as of March 31, 2016, for a sales price of
$4,676
with an anticipated gain on sale of approximately
$1,764
; and
|
|
|
•
|
closed on the acquisition of the fee interest in Ashland & Roosevelt, its existing multi-tenant retail operating property located in the Chicago MSA, which was previously subject to a ground lease with a third party, for a gross purchase price of
$13,850
. In conjunction with this transaction, the Company anticipates recording a gain on extinguishment of other liabilities of approximately
$6,978
due to the reversal of the straight-line ground rent liability.
|
On April 25, 2016, the Company appointed Paula C. Maggio to serve as its Executive Vice President, General Counsel and Secretary, effective May 2, 2016. Ms. Maggio succeeds Dennis K. Holland, who previously announced that he would be retiring on June 30, 2016. Mr. Holland will remain employed by the Company through his originally planned retirement date to assist in the transition.
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On April 26, 2016, the Board declared the cash dividend for the second quarter of
2016
for the Company’s
7.00%
Series A cumulative redeemable preferred stock. The dividend of
$0.4375
per preferred share will be paid on June 30, 2016 to preferred shareholders of record at the close of business on June 20, 2016.
On April 26, 2016, the Board declared the distribution for the second quarter of
2016
of
$0.165625
per share on the Company’s outstanding Class A common stock, which will be paid on July 8, 2016 to Class A common shareholders of record at the close of business on June 27, 2016.
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,” “continues” or “anticipates” and variations of such words or similar expressions or the negative of such words. You can also identify forward-looking statements by discussions of strategies, plans or intentions. Risks, uncertainties and changes in the following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
|
|
•
|
economic, business and financial conditions, and changes in our industry and changes in the real estate markets in particular;
|
|
|
•
|
economic and other developments in the state of Texas, where we have a high concentration of properties;
|
|
|
•
|
our 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, including The Sports Authority, Inc. (Sports Authority), which filed for bankruptcy during the three months ended March 31, 2016;
|
|
|
•
|
interest rates or operating costs;
|
|
|
•
|
real estate and zoning laws and changes in real property tax rates;
|
|
|
•
|
real estate valuations, potentially resulting in impairment charges;
|
|
|
•
|
our ability to generate sufficient cash flows to service our outstanding indebtedness;
|
|
|
•
|
our ability to obtain necessary outside financing;
|
|
|
•
|
the availability, terms and deployment of capital;
|
|
|
•
|
general volatility of the capital and credit markets and the market price of our Class A common stock;
|
|
|
•
|
risks generally associated with real estate acquisitions, dispositions and redevelopment, including the impact of construction delays and cost overruns;
|
|
|
•
|
our ability to effectively manage growth;
|
|
|
•
|
composition of members of our senior management team;
|
|
|
•
|
our ability to attract and retain qualified personnel;
|
|
|
•
|
our ability to make distributions to our shareholders;
|
|
|
•
|
our ability to continue to qualify as a 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;
|
|
|
•
|
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, 2015
. 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 and is one of the largest owners and operators of high quality, strategically located shopping centers in the United States. As of
March 31, 2016
, we owned
192
retail operating properties representing
28,296,000
square feet of gross leasable area (GLA). Our retail operating portfolio includes (i) power centers, (ii) neighborhood and community centers, and (iii) lifestyle centers and multi-tenant retail-focused mixed-use properties, as well as single-user retail properties.
The following table summarizes our operating portfolio as of
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type
|
|
Number of
Properties
|
|
GLA
(in thousands)
|
|
Occupancy
|
|
Percent Leased
Including Leases
Signed (a)
|
Operating portfolio:
|
|
|
|
|
|
|
|
|
Multi-tenant retail
|
|
|
|
|
|
|
|
|
Power centers
|
|
54
|
|
|
12,162
|
|
|
95.6
|
%
|
|
96.6
|
%
|
Neighborhood and community centers
|
|
84
|
|
|
10,385
|
|
|
92.5
|
%
|
|
93.4
|
%
|
Lifestyle centers and mixed-use properties
|
|
14
|
|
|
4,774
|
|
|
90.6
|
%
|
|
90.7
|
%
|
Total multi-tenant retail
|
|
152
|
|
|
27,321
|
|
|
93.5
|
%
|
|
94.4
|
%
|
Single-user retail
|
|
40
|
|
|
975
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Total retail operating portfolio
|
|
192
|
|
|
28,296
|
|
|
93.8
|
%
|
|
94.6
|
%
|
Office
|
|
1
|
|
|
895
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Total operating portfolio (b)
|
|
193
|
|
|
29,191
|
|
|
94.0
|
%
|
|
94.7
|
%
|
|
|
(a)
|
Includes leases signed but not commenced.
|
|
|
(b)
|
Excludes one single-user retail operating property classified as held for sale as of
March 31, 2016
.
|
In addition to our operating portfolio, we owned one development property, which was not under active development, as of
March 31, 2016
.
Company Highlights —
Three Months Ended
March 31, 2016
Acquisitions
During the
three
months ended
March 31, 2016
, we continued to execute our investment strategy by acquiring three multi-tenant retail operating properties for a total purchase price of
$138,685
.
The following table summarizes our acquisitions during the
three
months ended
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property Name
|
|
Metropolitan
Statistical Area (MSA)
|
|
Property Type
|
|
Square
Footage
|
|
Acquisition
Price
|
January 15, 2016
|
|
Shoppes at Hagerstown (a)
|
|
Hagerstown
|
|
Multi-tenant retail
|
|
113,000
|
|
|
$
|
27,055
|
|
January 15, 2016
|
|
Merrifield Town Center II (a)
|
|
Washington, D.C.
|
|
Multi-tenant retail
|
|
76,000
|
|
|
45,676
|
|
March 29, 2016
|
|
Oak Brook Promenade (b)
|
|
Chicago
|
|
Multi-tenant retail
|
|
183,200
|
|
|
65,954
|
|
|
|
|
|
|
|
|
|
372,200
|
|
|
$
|
138,685
|
|
|
|
(a)
|
These properties were acquired as a two-property portfolio. Merrifield Town Center II also contains 62,000 square feet of storage space for a total of 138,000 square feet.
|
|
|
(b)
|
This property was acquired through a consolidated VIE and may be used to facilitate a potential Internal Revenue Code Section 1031 tax-deferred exchange (1031 Exchange).
|
Subsequent to
March 31, 2016
, we acquired The Shoppes at Union Hill, a 91,700 square foot multi-tenant retail operating property, for a gross purchase price of $63,060, which includes the assumption of mortgage debt with a principal balance of $15,971 and an interest rate of 3.75% that matures in 2031. In addition, we paid $13,850 to acquire the fee interest in Ashland & Roosevelt, our existing multi-tenant retail operating property, which was previously subject to a ground lease with a third party. In total for
2016
, we continue to expect to acquire approximately $375,000 to $475,000 of strategic acquisitions in our target markets, some of which may be structured as 1031 Exchanges.
Dispositions
During the
three
months ended
March 31, 2016
, we continued to pursue targeted dispositions of select non-target and single-user properties. Consideration from dispositions totaled
$127,913
and included the sale of two multi-tenant retail operating properties aggregating 765,800 square feet for total consideration of $92,500 and six single-user retail properties aggregating 230,400 square feet for total consideration of $35,413.
The following table summarizes our dispositions during the
three
months ended
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property Name
|
|
Property Type
|
|
Square
Footage
|
|
Consideration
|
February 1, 2016
|
|
The Gateway (a)
|
|
Multi-tenant retail
|
|
623,200
|
|
|
$
|
75,000
|
|
February 10, 2016
|
|
Stateline Station
|
|
Multi-tenant retail
|
|
142,600
|
|
|
17,500
|
|
March 30, 2016
|
|
Six Property Portfolio (b)
|
|
Single-user retail
|
|
230,400
|
|
|
35,413
|
|
|
|
|
|
|
|
996,200
|
|
|
$
|
127,913
|
|
|
|
(a)
|
The property was disposed of through a lender-directed sale in full satisfaction of our $94,353 mortgage obligation. Immediately prior to the disposition, the lender reduced our loan obligation to $75,000 which was assumed by the buyer in connection with the disposition. Along with the loan reduction, the lender received the balance of the restricted escrows that they held and the rights to unpaid accounts receivable and forgave accrued interest, resulting in a net gain on extinguishment of debt of $13,653.
|
|
|
(b)
|
Portfolio consists of the following properties: (i) Academy Sports – Houma, (ii) Academy Sports – Port Arthur, (iii) Academy Sports – San Antonio, (iv) CVS Pharmacy – Moore, (v) CVS Pharmacy – Saginaw and (vi) Rite Aid Store (Eckerd) – Olean. Proceeds of $34,973 from the dispositions are temporarily restricted related to potential 1031 Exchanges and are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.
|
Subsequent to
March 31, 2016
, we sold CVS Pharmacy – Oklahoma City, a 10,900 square foot single-user retail operating property, for consideration of $4,676. In total for 2016, we expect targeted dispositions to be approximately $600,000 to $700,000, some of which may be structured as 1031 Exchanges.
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 62.8% of our total multi-tenant retail ABR. The following table summarizes our operating portfolio by market as of
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type/Market
|
|
Number of
Properties
|
|
ABR
|
|
% of Total
Multi-Tenant
Retail ABR
|
|
ABR per
Occupied
Sq. Ft.
|
|
GLA
(in thousands)
|
|
% of Total
Multi-Tenant
Retail GLA
|
|
Occupancy
|
|
% Leased
Including
Signed
|
Multi-Tenant Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas, Texas
|
|
19
|
|
|
$
|
79,331
|
|
|
18.9
|
%
|
|
$
|
21.18
|
|
|
4,006
|
|
|
14.7
|
%
|
|
93.5
|
%
|
|
94.4
|
%
|
Washington, D.C. /
Baltimore, Maryland
|
|
14
|
|
|
53,410
|
|
|
12.7
|
%
|
|
18.75
|
|
|
3,187
|
|
|
11.7
|
%
|
|
89.4
|
%
|
|
90.2
|
%
|
New York, New York
|
|
8
|
|
|
33,750
|
|
|
8.0
|
%
|
|
24.58
|
|
|
1,404
|
|
|
5.1
|
%
|
|
97.8
|
%
|
|
97.8
|
%
|
Chicago, Illinois
|
|
6
|
|
|
19,553
|
|
|
4.7
|
%
|
|
19.90
|
|
|
1,075
|
|
|
3.9
|
%
|
|
91.4
|
%
|
|
93.2
|
%
|
Atlanta, Georgia
|
|
9
|
|
|
18,948
|
|
|
4.5
|
%
|
|
12.92
|
|
|
1,513
|
|
|
5.5
|
%
|
|
96.9
|
%
|
|
97.1
|
%
|
Seattle, Washington
|
|
7
|
|
|
15,746
|
|
|
3.8
|
%
|
|
14.29
|
|
|
1,238
|
|
|
4.5
|
%
|
|
89.0
|
%
|
|
91.8
|
%
|
Houston, Texas
|
|
9
|
|
|
15,154
|
|
|
3.6
|
%
|
|
13.94
|
|
|
1,141
|
|
|
4.2
|
%
|
|
95.3
|
%
|
|
95.5
|
%
|
San Antonio, Texas
|
|
4
|
|
|
12,265
|
|
|
2.9
|
%
|
|
16.23
|
|
|
779
|
|
|
2.9
|
%
|
|
97.0
|
%
|
|
97.1
|
%
|
Phoenix, Arizona
|
|
3
|
|
|
10,253
|
|
|
2.4
|
%
|
|
16.67
|
|
|
632
|
|
|
2.3
|
%
|
|
97.3
|
%
|
|
97.7
|
%
|
Austin, Texas
|
|
4
|
|
|
5,320
|
|
|
1.3
|
%
|
|
15.97
|
|
|
350
|
|
|
1.3
|
%
|
|
95.2
|
%
|
|
95.6
|
%
|
Subtotal
|
|
83
|
|
|
263,730
|
|
|
62.8
|
%
|
|
18.43
|
|
|
15,325
|
|
|
56.1
|
%
|
|
93.4
|
%
|
|
94.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Target – Top 50 MSAs
|
|
30
|
|
|
61,708
|
|
|
14.7
|
%
|
|
15.15
|
|
|
4,526
|
|
|
16.6
|
%
|
|
90.0
|
%
|
|
91.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Target Markets
and Top 50 MSAs
|
|
113
|
|
|
325,438
|
|
|
77.5
|
%
|
|
17.70
|
|
|
19,851
|
|
|
72.7
|
%
|
|
92.6
|
%
|
|
93.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Target – Other
|
|
39
|
|
|
94,274
|
|
|
22.5
|
%
|
|
13.13
|
|
|
7,470
|
|
|
27.3
|
%
|
|
96.1
|
%
|
|
96.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Multi-Tenant Retail
|
|
152
|
|
|
419,712
|
|
|
100.0
|
%
|
|
16.43
|
|
|
27,321
|
|
|
100.0
|
%
|
|
93.5
|
%
|
|
94.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-User Retail
|
|
40
|
|
|
21,857
|
|
|
|
|
22.42
|
|
|
975
|
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail
|
|
192
|
|
|
441,569
|
|
|
|
|
16.64
|
|
|
28,296
|
|
|
|
|
93.8
|
%
|
|
94.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
1
|
|
|
10,476
|
|
|
|
|
11.71
|
|
|
895
|
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Portfolio (a)
|
|
193
|
|
|
$
|
452,045
|
|
|
|
|
$
|
16.47
|
|
|
29,191
|
|
|
|
|
94.0
|
%
|
|
94.7
|
%
|
|
|
(a)
|
Excludes one single-user retail operating property classified as held for sale as of
March 31, 2016
.
|
Leasing Activity
The following table summarizes the leasing activity in our retail operating portfolio during the
three
months ended
March 31, 2016
. Leases with terms of less than 12 months have been excluded from the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Leases
Signed
|
|
GLA Signed
(in thousands)
|
|
New
Contractual
Rent per Square
Foot (PSF) (a)
|
|
Prior
Contractual
Rent PSF (a)
|
|
% Change
over Prior
ABR (a) (b)
|
|
Weighted
Average
Lease Term
|
|
Tenant
Allowances
PSF
|
Comparable Renewal Leases
|
|
105
|
|
|
627
|
|
|
$
|
22.57
|
|
|
$
|
21.03
|
|
|
7.3
|
%
|
|
4.67
|
|
|
$
|
3.36
|
|
Comparable New Leases
|
|
17
|
|
|
102
|
|
|
$
|
16.73
|
|
|
$
|
16.44
|
|
|
1.8
|
%
|
|
8.68
|
|
|
$
|
28.55
|
|
Non-Comparable New and
Renewal Leases (c)
|
|
18
|
|
|
60
|
|
|
$
|
15.03
|
|
|
N/A
|
|
|
N/A
|
|
|
4.16
|
|
|
$
|
8.53
|
|
Total
|
|
140
|
|
|
789
|
|
|
$
|
21.75
|
|
|
$
|
20.39
|
|
|
6.7
|
%
|
|
5.05
|
|
|
$
|
7.02
|
|
|
|
(a)
|
Total excludes the impact of Non-Comparable New and Renewal Leases.
|
|
|
(b)
|
Excluding the impact from eight Rite Aid leases that were extended to effectuate the planned 2016 disposition of these single-user assets, rental rates for comparable renewal leases signed increased approximately 8.9% over previous rental rates for a combined comparable re-leasing spread of approximately 8.0% for the
three
months ended
March 31, 2016
.
|
|
|
(c)
|
Includes (i) leases signed on units that were vacant for over 12 months, (ii) leases signed without fixed rental payments and (iii) leases signed where the previous and the current lease do not have a consistent lease structure.
|
We continue to expect modest increases in occupancy in 2016, with the majority of expected leasing activity attributable to small shop tenants. In addition, as portfolio occupancy increases and available inventory of vacant space decreases, we expect our leasing volume to decline as we focus on the merchandising of our properties to ensure the right mix of operators and unique retailers. We continue to anticipate that a large proportion of our new leasing activity will be non-comparable in nature as the leased space is more likely to have been vacant for longer than 12 months.
Capital Markets
During the
three
months ended
March 31, 2016
, we:
|
|
•
|
entered into our fourth amended and restated unsecured credit agreement with a syndicate of financial institutions to provide for an unsecured credit facility aggregating $1,200,000, consisting of a $750,000 unsecured revolving line of credit and two unsecured term loans totaling $450,000 (collectively, the Unsecured Credit Facility);
|
|
|
•
|
disposed of The Gateway through a lender-directed sale in full satisfaction of our $94,353 mortgage obligation;
|
|
|
•
|
borrowed $180,000, net of repayments, on our unsecured revolving line of credit; and
|
|
|
•
|
entered into a $100,000 interest rate swap that effectively converts one-month floating rate London Interbank Offered Rate (LIBOR) to a fixed rate of 0.6591% and terminates on December 31, 2017. We previously had a $300,000 interest rate swap that matured on February 24, 2016.
|
Distributions
We declared a quarterly distribution of $0.4375 per share of preferred stock and a quarterly distribution of $0.165625 per share of common stock during the
three
months ended
March 31, 2016
.
Results of Operations
We believe that net operating income (NOI) is a useful measure of our operating performance. We define NOI as operating revenues (rental income, tenant recovery income and other property income, excluding straight-line rental income, amortization of lease inducements, amortization of acquired above and below market lease intangibles and lease termination fee income) less property operating expenses (real estate tax expense and property operating expense, excluding straight-line ground rent expense, amortization of acquired ground lease intangibles and straight-line bad debt expense). Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs.
This measure provides an operating perspective not immediately apparent from operating income or net income attributable to common shareholders as defined within accounting principles generally accepted in the United States (GAAP). We use NOI to evaluate our performance on a property-by-property basis because NOI allows us to evaluate the impact that factors such as lease structure, lease rates and tenant base have on our operating results. However, NOI should only be used as an alternative measure of our financial performance. For reference and as an aid in understanding our computation of NOI, a reconciliation of NOI to net income attributable to common shareholders as computed in accordance with GAAP has been presented. We include a reconciliation for each comparable period presented.
Comparison of the Three Months Ended
March 31, 2016
and
2015
Net income attributable to common shareholders increased $34,350 from $10,714 for the three months ended
March 31, 2015
to $45,064 for the three months ended
March 31, 2016
as a result of a $20,177 decrease in total other expense, a $17,167 increase in gain on sales of investment properties and a $2,682 increase in same store NOI, partially offset by a $5,676 decrease in NOI from “Other investment properties.” The discussion following the table provides further details regarding these fluctuations.
The table presents NOI for our same store portfolio and “Other investment properties” along with a reconciliation to net income attributable to common shareholders. For the three months ended
March 31, 2016
, our same store portfolio consisted of
178
retail operating properties acquired or placed in service and stabilized prior to January 1, 2015. The number of properties in our same store portfolio decreased to
178
as of
March 31, 2016
from 180 as of December 31, 2015 as a result of the following:
|
|
•
|
the removal of seven same store investment properties sold during the three months ended
March 31, 2016
;
|
|
|
•
|
the removal of one same store investment property classified as held for sale as of
March 31, 2016
;
|
|
|
•
|
the removal of one investment property where we have begun activities in anticipation of a redevelopment, which we expect to have a significant impact to property NOI during 2016; and
|
|
|
•
|
the removal of our one remaining office property;
|
partially offset by
|
|
•
|
the addition of eight investment properties acquired during 2014.
|
The sale of The Gateway on February 1, 2016 did not impact the number of same store properties as it was impaired below its debt balance during 2014 and removed from our same store portfolio during 2015.
The properties and financial results reported in “Other investment properties” primarily include the following:
|
|
•
|
properties acquired during 2015 and 2016;
|
|
|
•
|
our development property;
|
|
|
•
|
our one remaining office property;
|
|
|
•
|
three properties where we have begun activities in anticipation of future redevelopment;
|
|
|
•
|
properties that were sold or held for sale in 2015 and 2016; and
|
|
|
•
|
the net income from our wholly-owned captive insurance company, which was formed on December 1, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
Percentage
|
Operating revenues:
|
|
|
|
|
|
|
|
Same store investment properties (178 retail operating properties):
|
|
|
|
|
|
|
|
Rental income
|
$
|
98,278
|
|
|
$
|
96,384
|
|
|
$
|
1,894
|
|
|
2.0
|
|
Tenant recovery income
|
26,166
|
|
|
26,671
|
|
|
(505
|
)
|
|
(1.9
|
)
|
Other property income
|
898
|
|
|
1,002
|
|
|
(104
|
)
|
|
(10.4
|
)
|
Other investment properties:
|
|
|
|
|
|
|
|
Rental income
|
15,609
|
|
|
22,130
|
|
|
(6,521
|
)
|
|
|
Tenant recovery income
|
4,190
|
|
|
4,629
|
|
|
(439
|
)
|
|
|
Other property income
|
467
|
|
|
973
|
|
|
(506
|
)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Same store investment properties (178 retail operating properties):
|
|
|
|
|
|
|
|
Property operating expenses
|
(17,777
|
)
|
|
(19,116
|
)
|
|
1,339
|
|
|
7.0
|
|
Real estate taxes
|
(17,759
|
)
|
|
(17,817
|
)
|
|
58
|
|
|
0.3
|
|
Other investment properties:
|
|
|
|
|
|
|
|
Property operating expenses
|
(4,508
|
)
|
|
(5,785
|
)
|
|
1,277
|
|
|
|
Real estate taxes
|
(2,180
|
)
|
|
(2,693
|
)
|
|
513
|
|
|
|
NOI from continuing operations:
|
|
|
|
|
|
|
|
Same store investment properties
|
89,806
|
|
|
87,124
|
|
|
2,682
|
|
|
3.1
|
|
Other investment properties
|
13,578
|
|
|
19,254
|
|
|
(5,676
|
)
|
|
|
Total NOI from continuing operations
|
103,384
|
|
|
106,378
|
|
|
(2,994
|
)
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
Straight-line rental income, net
|
1,028
|
|
|
1,012
|
|
|
16
|
|
|
|
Amortization of acquired above and below market lease intangibles, net
|
576
|
|
|
451
|
|
|
125
|
|
|
|
Amortization of lease inducements
|
(231
|
)
|
|
(189
|
)
|
|
(42
|
)
|
|
|
Lease termination fees
|
1,658
|
|
|
134
|
|
|
1,524
|
|
|
|
Straight-line ground rent expense
|
(916
|
)
|
|
(934
|
)
|
|
18
|
|
|
|
Amortization of acquired ground lease intangibles
|
140
|
|
|
140
|
|
|
—
|
|
|
|
Depreciation and amortization
|
(53,396
|
)
|
|
(54,676
|
)
|
|
1,280
|
|
|
|
Provision for impairment of investment properties
|
(2,164
|
)
|
|
—
|
|
|
(2,164
|
)
|
|
|
General and administrative expenses
|
(11,406
|
)
|
|
(10,992
|
)
|
|
(414
|
)
|
|
|
Gain on extinguishment of debt
|
13,653
|
|
|
—
|
|
|
13,653
|
|
|
|
Interest expense
|
(26,764
|
)
|
|
(34,045
|
)
|
|
7,281
|
|
|
|
Other income, net
|
125
|
|
|
1,225
|
|
|
(1,100
|
)
|
|
|
Total other expense
|
(77,697
|
)
|
|
(97,874
|
)
|
|
20,177
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
25,687
|
|
|
8,504
|
|
|
17,183
|
|
|
|
Gain on sales of investment properties
|
21,739
|
|
|
4,572
|
|
|
17,167
|
|
|
|
Net income
|
47,426
|
|
|
13,076
|
|
|
34,350
|
|
|
|
Preferred stock dividends
|
(2,362
|
)
|
|
(2,362
|
)
|
|
—
|
|
|
|
Net income attributable to common shareholders
|
$
|
45,064
|
|
|
$
|
10,714
|
|
|
$
|
34,350
|
|
|
|
Same store NOI increased
$2,682
, or
3.1%
, primarily due to the following:
|
|
•
|
rental income increased
$1,894
primarily due to increases of $806 from contractual rent changes, $532 from percentage rent, $496 from re-leasing spreads and $438 from occupancy growth, partially offset by a decrease of $389 from rent abatements; and
|
|
|
•
|
total operating expenses, net of tenant recovery income, decreased $892 primarily as a result of decreases in bad debt expense and certain non-recoverable property operating expenses.
|
In 2016, we continue to expect same store NOI growth of 2.5% to 3.5%. Our expectations with respect to same store NOI growth assume that three of our remaining nine Sports Authority locations are closed as of June 30, 2016; however, the outcome of the Sports Authority bankruptcy proceedings remain uncertain and different outcomes could impact our same store NOI growth.
Total NOI decreased
$2,994
, or
2.8%
, due to a decrease in NOI of $9,042 related to the properties sold in 2015 and 2016, partially offset by an increase in NOI of $4,156 related to the properties acquired during 2015 and 2016 and the increase of
$2,682
from the same store portfolio described above.
Total other expense decreased
$20,177
, or
20.6%
, primarily due to:
|
|
•
|
a $13,653 gain on extinguishment of debt recognized during the three months ended March 31, 2016 associated with the disposition of The Gateway through a lender-directed sale in full satisfaction of our mortgage obligation. No such gain was recorded during the three months ended March 31, 2015; and
|
|
|
•
|
a $7,281 decrease in interest expense primarily consisting of:
|
|
|
•
|
a $7,666 decrease in interest on mortgages payable due to the repayment of mortgage debt; and
|
|
|
•
|
a $2,660 decrease in prepayment penalties and defeasance premiums;
|
partially offset by
|
|
•
|
a $1,944 increase in interest on our unsecured notes payable, which were issued in March 2015; and
|
|
|
•
|
a $651 increase in write-offs of capitalized loan fees.
|
Gain on sales of investment properties increased $17,167, or 375.5%, related to the sales of eight investment properties during the three months ended
March 31, 2016
compared to the sales of two investment properties during the three months ended
March 31, 2015
.
Funds From Operations Attributable to Common Shareholders
The National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a performance measure known as 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, including amounts from continuing and discontinued operations, as well as adjustments for unconsolidated joint ventures in which the reporting entity holds an interest. We have adopted the NAREIT definition in our computation of FFO attributable to common shareholders. Management believes that, subject to the following limitations, FFO attributable to common shareholders provides a basis for comparing our performance and operations to those of other REITs.
We define Operating FFO attributable to common shareholders as FFO attributable to common shareholders excluding the impact of discrete non-operating transactions and other events which we do not consider representative of the comparable operating results of our core business platform, our real estate operating portfolio. Specific examples of discrete non-operating transactions and other events include, but are not limited to, the financial statement impact of gains or losses associated with the early extinguishment of debt or other liabilities, impairment charges to write down the carrying value of assets other than depreciable real estate, actual or anticipated settlement of litigation involving the Company and executive and realignment separation charges, which are otherwise excluded from our calculation of FFO attributable to common shareholders.
We believe that FFO attributable to common shareholders and Operating FFO attributable to common shareholders, which are non-GAAP performance measures, provide additional and useful means to assess the operating performance of REITs. Neither FFO attributable to common shareholders nor Operating FFO attributable to common shareholders represent alternatives to “Net Income” or “Net income attributable to common shareholders” as an indicator of our performance or “Cash flows from operating activities” as determined by GAAP as a measure of our capacity to fund cash needs, including the payment of dividends. Other REITs may use different methodologies for calculating similarly titled measures, and accordingly, our calculation of Operating FFO attributable to common shareholders may not be comparable to similarly titled measures of other REITs.
FFO attributable to common shareholders and Operating FFO attributable to common shareholders are calculated as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Net income attributable to common shareholders
|
$
|
45,064
|
|
|
$
|
10,714
|
|
Depreciation and amortization
|
53,094
|
|
|
54,401
|
|
Gain on sales of investment properties
|
(21,739
|
)
|
|
(4,572
|
)
|
FFO attributable to common shareholders
|
$
|
76,419
|
|
|
$
|
60,543
|
|
|
|
|
|
Impact on earnings from the early extinguishment of debt, net
|
(12,846
|
)
|
|
2,786
|
|
Provision for hedge ineffectiveness
|
—
|
|
|
(25
|
)
|
Provision for impairment of non-depreciable investment property
|
2,164
|
|
|
—
|
|
Other (a)
|
—
|
|
|
(1,000
|
)
|
Operating FFO attributable to common shareholders
|
$
|
65,737
|
|
|
$
|
62,304
|
|
|
|
(a)
|
Consists of the impact on earnings from net settlements, which are included in “Other income, net” in the accompanying condensed consolidated statements of operations and other comprehensive income.
|
Liquidity and Capital Resources
We anticipate that cash flows from the below-listed sources will provide adequate capital for the next 12 months and beyond for all scheduled principal and interest payments on our outstanding indebtedness, including maturing debt, current and anticipated tenant allowances or other capital obligations, the shareholder distributions required to maintain our REIT status and compliance with the financial covenants of the Unsecured Credit Facility and our unsecured notes.
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 that 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
|
▪
|
Proceeds from asset dispositions
|
|
▪
|
Distribution payments
|
|
|
|
▪
|
Redevelopment, renovation or expansion activities
|
|
|
|
▪
|
New development
|
|
|
|
▪
|
Repurchases of our common stock
|
We have made substantial progress over the last several years in strengthening our balance sheet and addressing debt maturities funded primarily through asset dispositions and capital markets transactions, including public offerings of our common stock and preferred stock and private and public offerings of senior unsecured notes. As of
March 31, 2016
, we had
$44,683
of debt scheduled to mature through the end of
2016
, comprised of $35,451 related to mortgages payable maturing in 2016 and $9,232 of principal amortization related to longer-dated maturities, which we plan on satisfying through a combination of proceeds from asset dispositions, capital markets transactions and our unsecured revolving line of credit.
The table below summarizes our consolidated indebtedness as of
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
Aggregate
Principal
Amount
|
|
Weighted
Average
Interest Rate
|
|
Maturity Date
|
|
Weighted
Average Years
to Maturity
|
Fixed rate mortgages payable (a) (b)
|
|
$
|
1,031,316
|
|
|
6.03
|
%
|
|
Various
|
|
3.9 years
|
|
|
|
|
|
|
|
|
|
Unsecured notes payable:
|
|
|
|
|
|
|
|
|
Senior notes – 4.12% Series A due 2021
|
|
100,000
|
|
|
4.12
|
%
|
|
June 30, 2021
|
|
5.3 years
|
Senior notes – 4.58% Series B due 2024
|
|
150,000
|
|
|
4.58
|
%
|
|
June 30, 2024
|
|
8.3 years
|
Senior notes – 4.00% due 2025
|
|
250,000
|
|
|
4.00
|
%
|
|
March 15, 2025
|
|
9.0 years
|
Total unsecured notes payable (b)
|
|
500,000
|
|
|
4.20
|
%
|
|
|
|
8.0 years
|
|
|
|
|
|
|
|
|
|
Unsecured credit facility:
|
|
|
|
|
|
|
|
|
Term loan – fixed rate portion (c)
|
|
100,000
|
|
|
1.96
|
%
|
|
January 5, 2021
|
|
4.8 years
|
Term loan – variable rate portion
|
|
150,000
|
|
|
1.73
|
%
|
|
January 5, 2021
|
|
4.8 years
|
Term loan – variable rate portion (d)
|
|
200,000
|
|
|
1.88
|
%
|
|
May 11, 2018 (d)
|
|
2.1 years
|
Revolving line of credit – variable rate (d)
|
|
280,000
|
|
|
1.78
|
%
|
|
January 5, 2020 (d)
|
|
3.8 years
|
Total unsecured credit facility (b)
|
|
730,000
|
|
|
1.82
|
%
|
|
|
|
3.7 years
|
|
|
|
|
|
|
|
|
|
Total consolidated indebtedness
|
|
$
|
2,261,316
|
|
|
4.27
|
%
|
|
|
|
4.7 years
|
|
|
(a)
|
Includes
$7,857
of variable rate mortgage debt that was swapped to a fixed rate as of
March 31, 2016
.
|
|
|
(b)
|
Fixed rate mortgages payable excludes mortgage premium of $1,758, discount of $(1) and capitalized loan fees of $(6,630), net of accumulated amortization, as of
March 31, 2016
. Unsecured notes payable excludes discount of $(1,060) and capitalized loan fees of $(3,233), net of accumulated amortization, as of
March 31, 2016
. Term loans exclude capitalized loan fees of $(3,290), net of accumulated amortization, as of
March 31, 2016
. Capitalized loan fees related to the revolving line of credit are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.
|
|
|
(c)
|
Reflects $100,000 of LIBOR-based variable rate debt that has been swapped to a fixed rate of 0.6591% plus a credit spread based on a leverage grid ranging from 1.30% to 2.20% through December 2017. The applicable credit spread was 1.30% as of
March 31, 2016
.
|
|
|
(d)
|
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.
|
Mortgages Payable
During the
three
months ended
March 31, 2016
, we disposed of The Gateway through a lender-directed sale in full satisfaction of our $94,353 mortgage obligation, which had a fixed interest rate of 6.57%. Immediately prior to the disposition, the lender reduced our loan obligation to $75,000 which was assumed by the buyer in connection with the disposition. Along with the loan reduction, the lender received the balance of the restricted escrows that they held and the rights to unpaid accounts receivable and forgave accrued interest, resulting in a net gain on extinguishment of debt of $13,653. In addition, during the
three
months ended
March 31, 2016
, we made scheduled principal payments of $2,836 related to amortizing loans.
Unsecured Notes Payable
On March 12, 2015, we completed a public offering of $250,000 in aggregate principal amount of our 4.00% notes. The 4.00% notes were priced at 99.526% of the principal amount to yield 4.058% to maturity. In addition, on June 30, 2014, we completed a private placement of $250,000 of unsecured notes, consisting of $100,000 of 4.12% Series A senior notes due 2021 and $150,000 of 4.58% Series B senior notes due 2024 (collectively, Series A and B notes). The proceeds from the 4.00% notes and the Series A and B notes were used to repay a portion of our unsecured revolving line of credit.
The indenture, as supplemented, governing the 4.00% notes (the Indenture) contains customary covenants and events of default. Pursuant to the terms of the Indenture, we are subject to various financial covenants, including the requirement to maintain the following: (i) maximum secured and total leverage ratios; (ii) a debt service coverage ratio; and (iii) maintenance of an unencumbered assets to unsecured debt ratio.
The note purchase agreement governing the Series A and B notes contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the note purchase agreement, we are subject to various financial covenants, some of which are based upon the financial covenants in effect in our primary credit facility, including the requirement to maintain the
following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) minimum interest coverage and unencumbered interest coverage ratios; and (iii) a minimum consolidated net worth.
As of
March 31, 2016
, management believes we were in compliance with the financial covenants under the Indenture and the note purchase agreement.
Unsecured Credit Facility
On January 6, 2016, we entered into our fourth amended and restated unsecured credit agreement with a syndicate of financial institutions led by KeyBank National Association serving as administrative agent and Wells Fargo Bank, National Association serving as syndication agent to provide for an unsecured credit facility aggregating $1,200,000, or our Unsecured Credit Facility. Our Unsecured Credit Facility consists of a $750,000 unsecured revolving line of credit, a $250,000 unsecured term loan and a $200,000 unsecured term loan and is priced on a leverage grid at a rate of LIBOR plus a credit spread. The following table summarizes the key terms of our Unsecured Credit Facility:
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Leverage-Based Pricing
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Ratings-Based Pricing
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Unsecured Credit Facility
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Maturity Date
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Extension Option
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Extension Fee
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Credit Spread
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Unused Fee
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Credit Spread
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Facility Fee
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$250,000 unsecured term loan
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1/5/2021
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N/A
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N/A
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1.30% - 2.20%
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N/A
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0.90% - 1.75%
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N/A
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$200,000 unsecured term loan
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5/11/2018
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2 one year
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0.15%
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1.45% - 2.20%
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N/A
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1.05% - 2.05%
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N/A
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$750,000 unsecured revolving line of credit
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1/5/2020
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2 six month
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0.075%
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1.35% - 2.25%
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0.15% - 0.25%
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0.85% - 1.55%
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0.125% - 0.30%
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Our Unsecured Credit Facility has a $400,000 accordion option that allows us, at our election, to increase the total credit facility up to $1,600,000, subject to (i) customary fees and conditions including, but not limited to, the absence of an event of default as defined in the agreement and (ii) our ability to obtain additional lender commitments.
The fourth amended and restated unsecured credit agreement contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the fourth amended and restated unsecured credit agreement, we are subject to various financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; and (ii) minimum fixed charge and unencumbered interest coverage ratios. As of
March 31, 2016
, management believes we were in compliance with the financial covenants and default provisions under the unsecured credit agreement.
Debt Maturities
The following table shows the scheduled maturities and principal amortization of our indebtedness as of
March 31, 2016
for the remainder of
2016
, each of the next four years and thereafter and the weighted average interest rates by year, as well as the fair value of our indebtedness as of
March 31, 2016
. The table does not reflect the impact of any debt activity that occurred after
March 31, 2016
.
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2016
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2017
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2018
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2019
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2020
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Thereafter
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Total
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Fair Value
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Debt:
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Fixed rate debt:
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Mortgages payable (a)
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$
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44,683
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$
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226,637
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$
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10,801
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$
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443,447
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$
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3,424
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$
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302,324
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$
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1,031,316
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$
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1,127,991
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Unsecured credit facility – fixed rate portion of term loan (b)
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—
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—
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—
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—
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—
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100,000
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100,000
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100,000
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Unsecured notes payable (c)
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—
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—
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—
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—
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—
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500,000
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500,000
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496,297
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Total fixed rate debt
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44,683
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226,637
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10,801
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443,447
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3,424
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902,324
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1,631,316
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1,724,288
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Variable rate debt:
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Unsecured credit facility
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—
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—
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200,000
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—
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280,000
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150,000
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630,000
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630,000
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Total variable rate debt
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—
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—
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200,000
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—
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280,000
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150,000
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630,000
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630,000
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Total debt (d)
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$
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44,683
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$
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226,637
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$
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210,801
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$
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443,447
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$
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283,424
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$
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1,052,324
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$
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2,261,316
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$
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2,354,288
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Weighted average interest rate on debt:
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Fixed rate debt
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4.73
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%
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5.09
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%
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6.74
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%
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7.50
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%
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4.80
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%
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4.14
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%
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5.22
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%
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Variable rate debt (e)
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—
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—
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1.88
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%
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—
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1.78
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%
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1.73
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%
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1.80
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%
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Total
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4.73
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%
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5.09
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%
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2.13
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%
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7.50
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%
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1.82
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%
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3.80
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%
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4.27
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%
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(a)
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Includes
$7,857
of variable rate mortgage debt that was swapped to a fixed rate as of
March 31, 2016
. Excludes mortgage premium of
$1,758
and discount of
$(1)
, net of accumulated amortization, which was outstanding as of
March 31, 2016
.
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(b)
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$100,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through December 31, 2017. The swap effectively converts one-month floating rate LIBOR to a fixed rate of 0.6591% over the term of the swap.
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(c)
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Excludes discount of
$(1,060)
, net of accumulated amortization, as of
March 31, 2016
.
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(d)
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Total debt excludes capitalized loan fees of $(13,153), net of accumulated amortization, as of
March 31, 2016
which are included as a reduction to the respective debt balances. The weighted average years to maturity of consolidated indebtedness was
4.7 years
as of
March 31, 2016
. The $92,972 difference between total debt outstanding and its fair value is primarily attributable to a $60,301 difference related to our IW JV pool of mortgages. This pool matures in 2019, has an interest rate of 7.50% and an outstanding principal balance of $394,467 as of
March 31, 2016
.
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(e)
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Represents interest rates as of
March 31, 2016
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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 sole discretion of our board of directors. When determining the amount of future distributions, we expect that our board of directors will consider, among other factors, (i) the amount of cash generated from our operating activities, (ii) our expectations of future cash flow, (iii) our determination of near-term cash needs for debt repayments, acquisitions of new properties, redevelopment opportunities and existing or future share repurchases, (iv) the timing of significant re-leasing activities and the establishment of additional cash reserves for anticipated tenant allowances and general property capital improvements, (v) our ability to continue to access additional sources of capital, (vi) the amount required to be distributed to maintain our status as a REIT and to reduce any income and excise taxes that we otherwise would be required to pay, (vii) the amount required to declare and pay in cash, or set aside for the payment of, the dividends on our Series A preferred stock for all past dividend periods and (viii) the requirement contained in our Unsecured Credit Facility to distribute at least an amount necessary to maintain our qualification. 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 a new 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. The 2015 ATM equity program supersedes our previous
$200,000
ATM equity program which was in place from March 2013 through November 2015. Actual sales may depend on a variety of factors, including, among others, market conditions and the trading price of our Class A common stock. Any net proceeds are expected to be used for general corporate purposes, which may include the funding of acquisitions and redevelopment activities and the repayment of debt, including our Unsecured Credit Facility. We did not sell any shares under our ATM equity program during the
three
months ended
March 31, 2016
. As of
March 31, 2016
, we had Class A common shares having an aggregate offering price of up to $250,000 remaining available for sale under our ATM equity program.
In December 2015, our board of directors authorized a common stock repurchase program under which we may repurchase, from time to time, up to a maximum of $250,000 of shares of our Class A common stock. The shares may be repurchased in the open market or in privately negotiated transactions. The timing and actual number of shares repurchased will depend on a variety of factors including price in absolute terms and in relation to the value of our assets, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The common stock repurchase program may be suspended or terminated at any time without prior notice. As of
March 31, 2016
, we had not repurchased any shares under this program.
Capital Expenditures and Development Activity
We anticipate that obligations related to capital improvements to our properties can be met with cash flows from operations and working capital.
As of
March 31, 2016
, we owned one development property, South Billings Center located in Billings, Montana, with a carrying value of $3,000 which was not under active development.
Dispositions
We continue to execute our long-term portfolio repositioning strategy of disposing of select non-target and single-user properties in order to facilitate our external growth initiatives. The following table highlights our property dispositions during
2015
and the
three
months ended
March 31, 2016
:
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Number of
Properties Sold
|
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Square
Footage
|
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Consideration
|
|
Aggregate
Proceeds, Net (a)
|
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Debt
Extinguished
|
|
2016 Dispositions (through March 31, 2016)
|
|
8
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|
|
996,200
|
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|
$
|
127,913
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|
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$
|
16,427
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|
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$
|
94,353
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(b)
|
2015 Dispositions
|
|
26
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|
3,917,200
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$
|
516,444
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$
|
505,524
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|
|
$
|
25,724
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(c)
|
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|
(a)
|
Represents total consideration net of transaction costs and proceeds temporarily restricted related to potential 1031 Exchanges. 2016 dispositions exclude proceeds of $34,973 which are temporarily restricted related to potential 1031 Exchanges. 2015 dispositions include the disposition of two development properties, one of which had been held in a consolidated joint venture.
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(b)
|
Represents The Gateway’s outstanding mortgage payable prior to the lender-directed sale of the property. Immediately prior to the disposition, the lender reduced our loan obligation to $75,000 which was assumed by the buyer in connection with the disposition. Along with the loan reduction, the lender received the balance of the restricted escrows that they held and the rights to unpaid accounts receivable and forgave accrued interest, resulting in a net gain on extinguishment of debt of $13,653.
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(c)
|
Excludes $95,881 of mortgages payable repayments or defeasances completed prior to disposition of the respective property for the year ended December 31, 2015.
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In addition to the transactions presented in the preceding table, we received net proceeds of $300 from condemnation awards during the year ended
December 31, 2015
.
Acquisitions
We continue to execute our investment strategy of acquiring high quality, multi-tenant retail assets within our target markets. The following table highlights our asset acquisitions during
2015
and the
three
months ended
March 31, 2016
:
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|
|
|
|
|
Number of
Assets Acquired
|
|
Square
Footage
|
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Acquisition
Price
|
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Mortgage
Debt
|
2016 Acquisitions (through March 31, 2016)
|
|
3
|
|
|
372,200
|
|
|
$
|
138,685
|
|
|
$
|
—
|
|
2015 Acquisitions (a)
|
|
11
|
|
|
1,179,800
|
|
|
$
|
463,136
|
|
|
$
|
—
|
|
|
|
(a)
|
2015 acquisitions include the purchase of the following: 1) a land parcel at our Lake Worth Towne Crossing multi-tenant retail operating property, 2) a single-user outparcel located at our Southlake Town Square multi-tenant retail operating property that was subject to a ground lease with us prior to the transaction, and 3) a single-user outparcel located at our Royal Oaks Village II multi-tenant retail operating property. The total number of properties in our portfolio was not affected by these transactions.
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