ITEM 1. FINANCIAL STATEMENTS
RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except par value amounts)
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
December 31,
2015
|
Assets
|
|
|
|
|
Investment properties:
|
|
|
|
|
Land
|
|
$
|
1,235,929
|
|
|
$
|
1,254,131
|
|
Building and other improvements
|
|
4,333,989
|
|
|
4,428,554
|
|
Developments in progress
|
|
5,860
|
|
|
5,157
|
|
|
|
5,575,778
|
|
|
5,687,842
|
|
Less accumulated depreciation
|
|
(1,460,799
|
)
|
|
(1,433,195
|
)
|
Net investment properties
|
|
4,114,979
|
|
|
4,254,647
|
|
Cash and cash equivalents
|
|
69,071
|
|
|
51,424
|
|
Accounts and notes receivable (net of allowances of $6,277 and $7,910, respectively)
|
|
79,943
|
|
|
82,804
|
|
Acquired lease intangible assets, net
|
|
137,310
|
|
|
138,766
|
|
Assets associated with investment properties held for sale
|
|
3,581
|
|
|
—
|
|
Other assets, net
|
|
108,117
|
|
|
93,610
|
|
Total assets
|
|
$
|
4,513,001
|
|
|
$
|
4,621,251
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
Liabilities:
|
|
|
|
|
Mortgages payable, net
|
|
$
|
1,000,089
|
|
|
$
|
1,123,136
|
|
Unsecured notes payable, net
|
|
595,479
|
|
|
495,576
|
|
Unsecured term loans, net
|
|
447,302
|
|
|
447,526
|
|
Unsecured revolving line of credit
|
|
—
|
|
|
100,000
|
|
Accounts payable and accrued expenses
|
|
67,141
|
|
|
69,800
|
|
Distributions payable
|
|
39,315
|
|
|
39,297
|
|
Acquired lease intangible liabilities, net
|
|
105,211
|
|
|
114,834
|
|
Liabilities associated with investment properties held for sale
|
|
36
|
|
|
—
|
|
Other liabilities
|
|
76,444
|
|
|
75,745
|
|
Total liabilities
|
|
2,331,017
|
|
|
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 September 30, 2016
and December 31, 2015; liquidation preference $135,000
|
|
5
|
|
|
5
|
|
Class A common stock, $0.001 par value, 475,000 shares authorized, 237,376 and 237,267
shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
|
|
237
|
|
|
237
|
|
Additional paid-in capital
|
|
4,934,381
|
|
|
4,931,395
|
|
Accumulated distributions in excess of earnings
|
|
(2,752,743
|
)
|
|
(2,776,215
|
)
|
Accumulated other comprehensive income (loss)
|
|
104
|
|
|
(85
|
)
|
Total equity
|
|
2,181,984
|
|
|
2,155,337
|
|
Total liabilities and equity
|
|
$
|
4,513,001
|
|
|
$
|
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 September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
113,627
|
|
|
$
|
116,715
|
|
|
$
|
344,081
|
|
|
$
|
355,525
|
|
Tenant recovery income
|
|
29,130
|
|
|
28,901
|
|
|
89,140
|
|
|
89,617
|
|
Other property income
|
|
1,769
|
|
|
5,339
|
|
|
7,170
|
|
|
9,898
|
|
Total revenues
|
|
144,526
|
|
|
150,955
|
|
|
440,391
|
|
|
455,040
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
20,285
|
|
|
22,741
|
|
|
63,438
|
|
|
71,589
|
|
Real estate taxes
|
|
19,937
|
|
|
20,961
|
|
|
60,966
|
|
|
61,957
|
|
Depreciation and amortization
|
|
56,763
|
|
|
52,871
|
|
|
163,602
|
|
|
163,345
|
|
Provision for impairment of investment properties
|
|
4,742
|
|
|
169
|
|
|
11,048
|
|
|
4,113
|
|
General and administrative expenses
|
|
11,110
|
|
|
10,939
|
|
|
33,289
|
|
|
35,949
|
|
Total expenses
|
|
112,837
|
|
|
107,681
|
|
|
332,343
|
|
|
336,953
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
31,689
|
|
|
43,274
|
|
|
108,048
|
|
|
118,087
|
|
|
|
|
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
—
|
|
|
—
|
|
|
13,653
|
|
|
—
|
|
Gain on extinguishment of other liabilities
|
|
—
|
|
|
—
|
|
|
6,978
|
|
|
—
|
|
Interest expense
|
|
(25,602
|
)
|
|
(40,425
|
)
|
|
(78,343
|
)
|
|
(110,610
|
)
|
Other income, net
|
|
22
|
|
|
479
|
|
|
449
|
|
|
1,398
|
|
Income from continuing operations
|
|
6,109
|
|
|
3,328
|
|
|
50,785
|
|
|
8,875
|
|
Gain on sales of investment properties
|
|
66,385
|
|
|
75,001
|
|
|
97,737
|
|
|
113,214
|
|
Net income
|
|
72,494
|
|
|
78,329
|
|
|
148,522
|
|
|
122,089
|
|
Preferred stock dividends
|
|
(2,362
|
)
|
|
(2,362
|
)
|
|
(7,087
|
)
|
|
(7,087
|
)
|
Net income attributable to common shareholders
|
|
$
|
70,132
|
|
|
$
|
75,967
|
|
|
$
|
141,435
|
|
|
$
|
115,002
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share – basic and diluted
|
|
|
|
|
|
|
|
|
Net income per common share attributable to common shareholders
|
|
$
|
0.30
|
|
|
$
|
0.32
|
|
|
$
|
0.60
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
72,494
|
|
|
$
|
78,329
|
|
|
$
|
148,522
|
|
|
$
|
122,089
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Net unrealized gain on derivative instruments (Note 9)
|
|
666
|
|
|
155
|
|
|
189
|
|
|
157
|
|
Comprehensive income attributable to the Company
|
|
$
|
73,160
|
|
|
$
|
78,484
|
|
|
$
|
148,711
|
|
|
$
|
122,246
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding – basic
|
|
236,783
|
|
|
236,439
|
|
|
236,692
|
|
|
236,348
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding – diluted
|
|
237,108
|
|
|
236,553
|
|
|
236,983
|
|
|
236,400
|
|
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
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
122,089
|
|
|
—
|
|
|
122,089
|
|
|
—
|
|
|
122,089
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
157
|
|
|
157
|
|
|
—
|
|
|
157
|
|
Distributions declared to preferred shareholders
($1.3125 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,087
|
)
|
|
—
|
|
|
(7,087
|
)
|
|
—
|
|
|
(7,087
|
)
|
Distributions declared to common shareholders
($0.496875 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(117,876
|
)
|
|
—
|
|
|
(117,876
|
)
|
|
—
|
|
|
(117,876
|
)
|
Issuance of common stock, net of offering costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(111
|
)
|
|
—
|
|
|
—
|
|
|
(111
|
)
|
|
—
|
|
|
(111
|
)
|
Issuance of restricted shares
|
—
|
|
|
—
|
|
|
801
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation expense, net of forfeitures
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
8,225
|
|
|
—
|
|
|
—
|
|
|
8,225
|
|
|
—
|
|
|
8,225
|
|
Shares withheld for employee taxes
|
—
|
|
|
—
|
|
|
(112
|
)
|
|
—
|
|
|
(1,723
|
)
|
|
—
|
|
|
—
|
|
|
(1,723
|
)
|
|
—
|
|
|
(1,723
|
)
|
Balance as of September 30, 2015
|
5,400
|
|
|
$
|
5
|
|
|
237,287
|
|
|
$
|
237
|
|
|
$
|
4,929,255
|
|
|
$
|
(2,737,562
|
)
|
|
$
|
(380
|
)
|
|
$
|
2,191,555
|
|
|
$
|
1,494
|
|
|
$
|
2,193,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
148,522
|
|
|
—
|
|
|
148,522
|
|
|
—
|
|
|
148,522
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
189
|
|
|
189
|
|
|
—
|
|
|
189
|
|
Distributions declared to preferred shareholders
($1.3125 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,087
|
)
|
|
—
|
|
|
(7,087
|
)
|
|
—
|
|
|
(7,087
|
)
|
Distributions declared to common shareholders
($0.496875 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(117,946
|
)
|
|
—
|
|
|
(117,946
|
)
|
|
—
|
|
|
(117,946
|
)
|
Issuance of common stock, net of offering costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(100
|
)
|
|
—
|
|
|
—
|
|
|
(100
|
)
|
|
—
|
|
|
(100
|
)
|
Issuance of restricted shares
|
—
|
|
|
—
|
|
|
269
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercise of stock options
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
23
|
|
Stock-based compensation expense, net of forfeitures
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
5,296
|
|
|
—
|
|
|
—
|
|
|
5,296
|
|
|
—
|
|
|
5,296
|
|
Shares withheld for employee taxes
|
—
|
|
|
—
|
|
|
(152
|
)
|
|
—
|
|
|
(2,250
|
)
|
|
—
|
|
|
—
|
|
|
(2,250
|
)
|
|
—
|
|
|
(2,250
|
)
|
Balance as of September 30, 2016
|
5,400
|
|
|
$
|
5
|
|
|
237,376
|
|
|
$
|
237
|
|
|
$
|
4,934,381
|
|
|
$
|
(2,752,743
|
)
|
|
$
|
104
|
|
|
$
|
2,181,984
|
|
|
$
|
—
|
|
|
$
|
2,181,984
|
|
See accompanying notes to condensed consolidated financial statements
RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
148,522
|
|
|
$
|
122,089
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization
|
163,602
|
|
|
163,345
|
|
Provision for impairment of investment properties
|
11,048
|
|
|
4,113
|
|
Gain on sales of investment properties
|
(97,737
|
)
|
|
(113,214
|
)
|
Gain on extinguishment of debt
|
(13,653
|
)
|
|
—
|
|
Gain on extinguishment of other liabilities
|
(6,978
|
)
|
|
—
|
|
Amortization of loan fees and debt premium and discount, net
|
4,372
|
|
|
3,881
|
|
Amortization of stock-based compensation
|
5,296
|
|
|
8,225
|
|
Premium paid in connection with defeasance of mortgages payable
|
—
|
|
|
16,285
|
|
Payment of leasing fees and inducements
|
(7,730
|
)
|
|
(6,151
|
)
|
Changes in accounts receivable, net
|
(1,109
|
)
|
|
6,820
|
|
Changes in accounts payable and accrued expenses, net
|
803
|
|
|
2,325
|
|
Changes in other operating assets and liabilities, net
|
(637
|
)
|
|
2,930
|
|
Other, net
|
(791
|
)
|
|
(1,572
|
)
|
Net cash provided by operating activities
|
205,008
|
|
|
209,076
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Changes in restricted escrows, net
|
(5,904
|
)
|
|
21,268
|
|
Purchase of investment properties
|
(266,377
|
)
|
|
(407,857
|
)
|
Capital expenditures and tenant improvements
|
(43,207
|
)
|
|
(35,565
|
)
|
Proceeds from sales of investment properties
|
307,355
|
|
|
395,207
|
|
Investment in developments in progress
|
(315
|
)
|
|
(1,019
|
)
|
Other, net
|
194
|
|
|
(26
|
)
|
Net cash used in investing activities
|
(8,254
|
)
|
|
(27,992
|
)
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Proceeds from mortgages payable
|
—
|
|
|
967
|
|
Principal payments on mortgages payable
|
(45,244
|
)
|
|
(346,164
|
)
|
Proceeds from unsecured notes payable
|
100,000
|
|
|
248,815
|
|
Proceeds from unsecured credit facility
|
390,000
|
|
|
550,000
|
|
Repayments of unsecured credit facility
|
(490,000
|
)
|
|
(420,000
|
)
|
Payment of loan fees and deposits, net
|
(6,386
|
)
|
|
(2,237
|
)
|
Purchase of U.S. Treasury securities in connection with defeasance of mortgages payable
|
—
|
|
|
(81,547
|
)
|
Distributions paid
|
(125,015
|
)
|
|
(124,849
|
)
|
Other, net
|
(2,462
|
)
|
|
(1,823
|
)
|
Net cash used in financing activities
|
(179,107
|
)
|
|
(176,838
|
)
|
|
|
|
|
Net increase in cash and cash equivalents
|
17,647
|
|
|
4,246
|
|
Cash and cash equivalents, at beginning of period
|
51,424
|
|
|
112,292
|
|
Cash and cash equivalents, at end of period
|
$
|
69,071
|
|
|
$
|
116,538
|
|
(continued)
|
|
RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
Supplemental cash flow disclosure, including non-cash activities:
|
|
|
|
Cash paid for interest, net of interest capitalized
|
$
|
73,603
|
|
|
$
|
86,054
|
|
Distributions payable
|
$
|
39,315
|
|
|
$
|
39,301
|
|
Accrued capital expenditures and tenant improvements
|
$
|
7,740
|
|
|
$
|
5,875
|
|
Accrued leasing fees and inducements
|
$
|
913
|
|
|
$
|
532
|
|
Amounts reclassified to developments in progress
|
$
|
2,467
|
|
|
$
|
—
|
|
Developments in progress placed in service
|
$
|
—
|
|
|
$
|
2,288
|
|
U.S. Treasury securities transferred in connection with defeasance of mortgages payable
|
$
|
—
|
|
|
$
|
81,547
|
|
Defeasance of mortgages payable
|
$
|
—
|
|
|
$
|
65,262
|
|
|
|
|
|
Purchase of investment properties (after credits at closing):
|
|
|
|
Land, building and other improvements, net
|
$
|
(261,657
|
)
|
|
$
|
(400,484
|
)
|
Accounts receivable, acquired lease intangibles and other assets
|
(25,049
|
)
|
|
(41,450
|
)
|
Accounts payable, acquired lease intangibles and other liabilities
|
5,013
|
|
|
34,077
|
|
Mortgages payable assumed, net
|
15,316
|
|
|
—
|
|
|
$
|
(266,377
|
)
|
|
$
|
(407,857
|
)
|
|
|
|
|
Proceeds from sales of investment properties:
|
|
|
|
Land, building and other improvements, net
|
$
|
282,661
|
|
|
$
|
279,559
|
|
Accounts receivable, acquired lease intangibles and other assets
|
15,306
|
|
|
6,583
|
|
Accounts payable, acquired lease intangibles and other liabilities
|
(9,149
|
)
|
|
(4,181
|
)
|
Deferred gain
|
1,500
|
|
|
32
|
|
Mortgage debt forgiven or assumed
|
(94,353
|
)
|
|
—
|
|
Gain on extinguishment of debt
|
13,653
|
|
|
—
|
|
Gain on sales of investment properties
|
97,737
|
|
|
113,214
|
|
|
$
|
307,355
|
|
|
$
|
395,207
|
|
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 and its primary purpose is to own and operate high quality, strategically located shopping centers in the United States.
The Company has elected to be taxed as a real estate investment trust (REIT) under the Internal Revenue Code of 1986, as amended (the Code). The Company believes it qualifies for taxation as a REIT and, as such, the Company generally will not be subject to U.S. federal income tax on taxable income that is distributed to its shareholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal income tax on its taxable income. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property or net worth and U.S. federal income and excise taxes on its undistributed income. The Company has
one
wholly-owned subsidiary that has jointly elected to be treated as a taxable REIT subsidiary (TRS) and is subject to U.S. federal, state and local income taxes at regular corporate tax rates. The income tax expense incurred by the TRS did not have a material impact on the Company’s accompanying condensed consolidated financial statements.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. For example, significant estimates and assumptions have been made with respect to useful lives of assets, capitalization of development costs, fair value measurements, provision for impairment, including estimates of holding periods, capitalization rates and discount rates (where applicable), provision for income taxes, recoverable amounts of receivables, deferred taxes and initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions. Actual results could differ from these estimates.
All share amounts and dollar amounts in the condensed consolidated financial statements and notes thereto are stated in thousands with the exception of per share amounts and per square foot amounts.
The accompanying condensed consolidated financial statements include the accounts of the Company, as well as all wholly-owned subsidiaries and any consolidated variable interest entities (VIEs). All intercompany balances and transactions have been eliminated in consolidation. Wholly-owned subsidiaries generally consist of limited liability companies (LLCs), limited partnerships and statutory trusts.
The Company’s property ownership as of
September 30, 2016
is summarized below:
|
|
|
|
|
Wholly-owned
|
Retail operating properties (a)
|
174
|
|
Office properties
|
1
|
|
Total operating properties
|
175
|
|
|
|
Development and redevelopment properties
|
2
|
|
|
|
(a)
|
Excludes
one
wholly-owned operating property classified as held for sale as of
September 30, 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 its significant accounting policies. Except as disclosed below, there have been no changes to the Company’s significant accounting policies in the
nine
months ended
September 30, 2016
.
Recently Adopted Accounting Pronouncements
Effective January 1, 2016, the Company adopted Accounting Standards Update (ASU) 2015-02,
Consolidation
, which revised the consolidation guidance for all entities. The new standard modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs. The adoption of this pronouncement under the modified retrospective method did not have any effect on the Company’s condensed consolidated financial statements as the Company did not have any VIEs as of January 1, 2016; however, during the
nine
months ended
September 30, 2016
, the Company had acquired
three
properties through consolidated VIEs and, accordingly, applied the revised consolidation guidance. See Note 3 to the condensed consolidated financial statements for further details.
Effective January 1, 2016, the Company adopted ASU 2015-16,
Business Combinations
, which requires the acquirer in a business combination to recognize in the period any adjustments to provisional amounts that are identified during the measurement period rather than retrospectively accounting for those adjustments. The adoption of this pronouncement did not have any effect on the Company’s condensed consolidated financial statements.
The Company elected to early adopt ASU 2014-15,
Presentation of Financial Statements – Going Concern
, on January 1, 2016. The new standard requires a company’s management to assess the entity’s ability to continue as a going concern for a period of one year after the date the financial statements are issued (or available to be issued) and provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The adoption of this pronouncement did not have any effect on the Company’s condensed consolidated financial statements.
The Company elected to early adopt ASU 2016-09,
Compensation – Stock Compensation
, on January 1, 2016. The new standard allowed the Company to make an accounting policy election to account for share-based payment award forfeitures when they occur, which required a modified retrospective transition by means of a cumulative-effect adjustment to equity as of the beginning of the period of adoption and resulted in an adjustment of
$17
to additional paid-in capital and accumulated distributions in excess of earnings as of January 1, 2016.
Other Recently Issued Accounting Pronouncements
In May 2014 with subsequent updates issued in August 2015 and March, April and May 2016, the Financial Accounting Standards Board (FASB) issued ASU 2014-09,
Revenue from Contracts with Customers
. This new standard is effective January 1, 2018, with early adoption permitted beginning January 1, 2017, and will replace existing revenue recognition standards. The sale of investment property and any non-lease components contained within lease agreements will be required to follow the new standard; however, lease components of lease contracts will be excluded from this standard. 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.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments – Overall
. This new standard is effective January 1, 2018 and will require companies to disclose the fair value of financial assets and financial liabilities measured at amortized cost in accordance with the exit price notion and will no longer require disclosure of the methods and significant assumptions used, including any changes, to estimate fair value. In addition, companies will be required to disclose all financial assets and financial liabilities grouped by 1) measurement category and 2) form of financial instrument. The Company does not expect the adoption of this pronouncement will have a material effect on its condensed consolidated financial statements; however, it will continue to evaluate this assessment until the guidance becomes effective.
In February 2016, the FASB issued ASU 2016-02,
Leases
. This new standard is effective January 1, 2019, with early adoption permitted, and will require lessees to recognize a liability to make lease payments and a right-of-use asset, initially measured at the present value of lease payments, for both operating and financing leases. For leases with a term of 12 months or less, lessees
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
will be permitted to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease assets. Under this new pronouncement, lessor accounting will be largely unchanged from existing GAAP. The pronouncement requires a modified retrospective method of adoption, with some optional practical expedients. Upon adoption, the Company will recognize a lease liability and a right-of-use asset for operating leases where it is the lessee, such as ground leases and office and equipment leases. The Company will continue to evaluate the impact of this guidance until it becomes effective.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments – Credit Losses
. This new standard is effective January 1, 2020, with early adoption permitted beginning January 1, 2019, and replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. Financial assets that are measured at amortized cost will be required to be presented at the net amount expected to be collected with an allowance for credit losses deducted from the amortized cost basis. In addition, an entity must consider broader information in developing its expected credit loss estimate, including the use of forecasted information. Generally, the pronouncement requires a modified retrospective method of adoption. The Company will continue to evaluate the impact of this guidance until it becomes effective.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows
. This new standard is effective January 1, 2018, with early adoption permitted, and adds or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. Of the eight types of cash flows discussed in the new standard, the classification of debt prepayment and debt extinguishment costs as financing outflows will impact the Company as these items are currently reflected as operating outflows. The pronouncement requires a retrospective transition method of adoption. The Company will continue to evaluate the impact of this guidance until it becomes effective.
(3) ACQUISITIONS
The Company closed on the following acquisitions during the
nine
months ended
September 30,
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
|
|
Chicago
|
|
Multi-tenant retail
|
|
183,200
|
|
|
65,954
|
|
April 1, 2016
|
|
The Shoppes at Union Hill (b)
|
|
New York
|
|
Multi-tenant retail
|
|
91,700
|
|
|
63,060
|
|
April 29, 2016
|
|
Ashland & Roosevelt – Fee Interest (c)
|
|
Chicago
|
|
Ground lease interest
|
|
—
|
|
|
13,850
|
|
May 5, 2016
|
|
Tacoma South
|
|
Seattle
|
|
Multi-tenant retail
|
|
230,700
|
|
|
39,400
|
|
June 15, 2016
|
|
Eastside
|
|
Dallas
|
|
Multi-tenant retail
|
|
67,100
|
|
|
23,842
|
|
August 30, 2016
|
|
Woodinville Plaza – Anchor Space
Improvements (d)
|
|
Seattle
|
|
Anchor space improvements (d)
|
|
—
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
761,700
|
|
|
$
|
283,337
|
|
|
|
(a)
|
These properties were acquired as a
two
-property portfolio. Merrifield Town Center II also contains
62,000
square feet of storage space for a total of
138,000
square feet.
|
|
|
(b)
|
In conjunction with the acquisition, the Company assumed mortgage debt with a principal balance of
$15,971
and an interest rate of
3.75%
that matures in 2031.
|
|
|
(c)
|
The Company acquired the fee interest in an existing wholly-owned multi-tenant retail operating property located in Chicago, Illinois, which was previously subject to a ground lease with a third party. In conjunction with this transaction, the Company reversed the straight-line ground rent liability of
$6,978
, which is reflected as “Gain on extinguishment of other liabilities” in the accompanying condensed consolidated statements of operations and other comprehensive income.
|
|
|
(d)
|
The Company acquired the anchor space improvements, which were previously subject to a ground lease with the Company, in an existing wholly-owned multi-tenant retail operating property located in Woodinville, Washington.
|
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company closed on the following acquisitions during the
nine
months ended
September 30,
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
|
|
May 4, 2015
|
|
Tysons Corner
|
|
Washington, D.C.
|
|
Multi-tenant retail
|
|
37,700
|
|
|
31,556
|
|
June 10, 2015
|
|
Woodinville Plaza
|
|
Seattle
|
|
Multi-tenant retail
|
|
170,800
|
|
|
35,250
|
|
July 31, 2015
|
|
Southlake Town Square – Outparcel (b)
|
|
Dallas
|
|
Single-user outparcel
|
|
13,800
|
|
|
8,440
|
|
August 27, 2015
|
|
Coal Creek Marketplace
|
|
Seattle
|
|
Multi-tenant retail
|
|
55,900
|
|
|
17,600
|
|
|
|
|
|
|
|
|
|
1,029,300
|
|
|
$
|
416,588
|
|
|
|
(a)
|
The Company acquired a parcel located at its Lake Worth Towne Crossing multi-tenant retail operating property.
|
|
|
(b)
|
The Company acquired a single-user outparcel located at its Southlake Town Square multi-tenant retail operating property that was subject to a ground lease with the Company prior to the transaction.
|
The following table summarizes the acquisition date fair values, before prorations, the Company recorded in conjunction with the acquisitions discussed above:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
Land
|
|
$
|
84,720
|
|
|
$
|
146,107
|
|
Building and other improvements
|
|
176,937
|
|
|
254,377
|
|
Acquired lease intangible assets (a)
|
|
25,016
|
|
|
39,986
|
|
Acquired lease intangible liabilities (b)
|
|
(3,991
|
)
|
|
(23,882
|
)
|
Mortgages payable, net
|
|
(15,316
|
)
|
|
—
|
|
Net assets acquired
|
|
$
|
267,366
|
|
|
$
|
416,588
|
|
|
|
(a)
|
The weighted average amortization period for acquired lease intangible assets is
6 years
and
15 years
for acquisitions completed during the
nine
months ended
September 30, 2016
and
2015
, respectively.
|
|
|
(b)
|
The weighted average amortization period for acquired lease intangible liabilities is
11 years
and
21 years
for acquisitions completed during the
nine
months ended
September 30, 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
$913
and
$1,297
for the
nine
months ended
September 30, 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
$36,210
and
$41,169
in total revenues and
$7,760
and
$7,575
in net income attributable to common shareholders from the date of acquisition through
September 30, 2016
and
2015
, respectively. These amounts do not include the total revenue and net income attributable to common shareholders from the 2016 acquisitions of the anchor space improvements in Woodinville Plaza and the fee interest in Ashland & Roosevelt and the 2015 acquisition of a parcel at Lake Worth Towne Crossing as they have been accounted for as asset acquisitions.
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 were completed as of January 1, 2015 and as if the 2015 acquisitions completed through the date the
September 30,
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2015
financial statements were issued, were completed as of January 1, 2014. The results of operations associated with the 2016 acquisitions of the anchor space improvements in Woodinville Plaza and 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. The results of operations associated with the 2015 acquisitions of the outparcels at Southlake Town Square on July 31, 2015 and Royal Oaks Village II on October 27, 2015 have not been adjusted in the pro forma presentation due to a lack of historical financial information. These pro forma results are for comparative purposes only and are not necessarily indicative of what the Company’s actual results of operations would have been had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.
The unaudited condensed pro forma financial information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Total revenues
|
|
$
|
144,526
|
|
|
$
|
156,158
|
|
|
$
|
444,622
|
|
|
$
|
473,387
|
|
Net income
|
|
$
|
72,494
|
|
|
$
|
77,232
|
|
|
$
|
147,421
|
|
|
$
|
118,753
|
|
Net income attributable to common shareholders
|
|
$
|
70,132
|
|
|
$
|
74,870
|
|
|
$
|
140,334
|
|
|
$
|
111,666
|
|
Earnings per common share – basic and diluted
|
|
|
|
|
|
|
|
|
Net income per common share attributable to common shareholders
|
|
$
|
0.30
|
|
|
$
|
0.32
|
|
|
$
|
0.59
|
|
|
$
|
0.47
|
|
Weighted average number of common shares outstanding – basic
|
|
236,783
|
|
|
236,439
|
|
|
236,692
|
|
|
236,348
|
|
Variable Interest Entities
During the
nine
months ended
September 30, 2016
, the Company entered into agreements with a qualified intermediary related to Internal Revenue Code Section 1031 tax-deferred exchanges (1031 Exchanges). The Company loaned
$65,419
,
$39,215
and
$23,522
to the VIEs to acquire Oak Brook Promenade, Tacoma South and Eastside, respectively. Each 1031 Exchange was completed during the three months ended
September 30, 2016
and, in accordance with applicable provisions of the Code, within
180
days after the acquisition date of the property that is the subject of such 1031 Exchange. At the completion of the 1031 Exchanges, the sole membership interests of the VIEs were assigned to the Company and the respective outstanding loans were extinguished, resulting in the entities being wholly owned by the Company and no longer considered VIEs.
Prior to the completion of the 1031 Exchanges, the Company was deemed to be the primary beneficiary of the VIEs as it had the ability to direct the activities of the VIEs that most significantly impacted their economic performance and had all of the risks and rewards of ownership. Accordingly, the Company consolidated the VIEs. No value or income was attributed to the noncontrolling interests. The assets of the VIEs consisted of the investment properties which were operated by the Company.
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(4) DISPOSITIONS
The Company closed on the following dispositions during the
nine
months ended
September 30,
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property Name
|
|
Property Type
|
|
Square
Footage
|
|
Consideration
|
|
Aggregate
Proceeds, Net (a)
|
|
Gain
|
February 1, 2016
|
|
The Gateway (b)
|
|
Multi-tenant retail
|
|
623,200
|
|
|
$
|
75,000
|
|
|
$
|
(795
|
)
|
|
$
|
3,868
|
|
February 10, 2016
|
|
Stateline Station
|
|
Multi-tenant retail
|
|
142,600
|
|
|
17,500
|
|
|
17,210
|
|
|
4,253
|
|
March 30, 2016
|
|
Six Property Portfolio (c)
|
|
Single-user retail
|
|
230,400
|
|
|
35,413
|
|
|
34,986
|
|
|
13,618
|
|
April 20, 2016
|
|
CVS Pharmacy – Oklahoma City
|
|
Single-user retail
|
|
10,900
|
|
|
4,676
|
|
|
4,608
|
|
|
1,764
|
|
June 2, 2016
|
|
Rite Aid Store (Eckerd) – Canandaigua
& Tim Horton Donut Shop (d)
|
|
Single-user retail
|
|
16,600
|
|
|
5,400
|
|
|
5,333
|
|
|
1,444
|
|
June 15, 2016
|
|
Academy Sports – Midland (e)
|
|
Single-user retail
|
|
61,200
|
|
|
5,541
|
|
|
5,399
|
|
|
2,220
|
|
June 23, 2016
|
|
Four Rite Aid Portfolio (f)
|
|
Single-user retail
|
|
45,400
|
|
|
15,934
|
|
|
14,646
|
|
|
2,287
|
|
July 8, 2016
|
|
Broadway Shopping Center
|
|
Multi-tenant retail
|
|
190,300
|
|
|
20,500
|
|
|
20,103
|
|
|
7,958
|
|
July 21, 2016
|
|
Mid-Hudson Center
|
|
Multi-tenant retail
|
|
235,600
|
|
|
27,500
|
|
|
25,615
|
|
|
—
|
|
July 27, 2016
|
|
Rite Aid Store (Eckerd), Main St. –
Buffalo
|
|
Single-user retail
|
|
10,900
|
|
|
3,388
|
|
|
3,296
|
|
|
344
|
|
July 29, 2016
|
|
Rite Aid Store (Eckerd) – Lancaster
|
|
Single-user retail
|
|
10,900
|
|
|
3,425
|
|
|
3,349
|
|
|
625
|
|
August 4, 2016
|
|
Alison’s Corner
|
|
Multi-tenant retail
|
|
55,100
|
|
|
7,850
|
|
|
7,559
|
|
|
3,334
|
|
August 5, 2016
|
|
Rite Aid Store (Eckerd) – Lake Ave.
|
|
Single-user retail
|
|
13,200
|
|
|
5,400
|
|
|
5,334
|
|
|
907
|
|
August 12, 2016
|
|
Maple Tree Place
|
|
Multi-tenant retail
|
|
489,000
|
|
|
90,000
|
|
|
87,047
|
|
|
15,566
|
|
August 12, 2016
|
|
CVS Pharmacy – Burleson
|
|
Single-user retail
|
|
10,900
|
|
|
4,190
|
|
|
4,102
|
|
|
1,425
|
|
August 18, 2016
|
|
Mitchell Ranch Plaza
|
|
Multi-tenant retail
|
|
199,600
|
|
|
55,625
|
|
|
54,305
|
|
|
33,612
|
|
August 22, 2016
|
|
Rite Aid Store (Eckerd), E. Main St. –
Batavia
|
|
Single-user retail
|
|
13,800
|
|
|
5,050
|
|
|
4,924
|
|
|
1,249
|
|
September 9, 2016
|
|
Rite Aid Store (Eckerd) – Lockport
|
|
Single-user retail
|
|
13,800
|
|
|
4,690
|
|
|
4,415
|
|
|
753
|
|
September 9, 2016
|
|
Rite Aid Store (Eckerd), Ferry St. –
Buffalo
|
|
Single-user retail
|
|
10,900
|
|
|
3,600
|
|
|
3,370
|
|
|
612
|
|
|
|
|
|
|
|
2,384,300
|
|
|
$
|
390,682
|
|
|
$
|
304,806
|
|
|
$
|
95,839
|
|
|
|
(a)
|
Aggregate proceeds are net of transaction costs.
|
|
|
(b)
|
The property was disposed of through a lender-directed sale in full satisfaction of the Company’s
$94,353
mortgage obligation. Immediately prior to the disposition, the lender reduced the Company’s loan obligation to
$75,000
which was assumed by the buyer in connection with the disposition. Along with the loan reduction, the lender received the balance of the restricted escrows that they held and the rights to unpaid accounts receivable and forgave accrued interest, resulting in a net gain on extinguishment of debt of
$13,653
.
|
|
|
(c)
|
Portfolio consists of the following properties: (i) Academy Sports – Houma, (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. At the closing of the disposition, proceeds of
$34,973
were temporarily restricted related to potential 1031 Exchanges. During the three months ended
September 30, 2016
, the related 1031 Exchanges closed and the proceeds were released to the Company.
|
|
|
(d)
|
The terms of the disposition of Rite Aid Store (Eckerd) – Canandaigua and Tim Horton Donut Shop were negotiated as a single transaction.
|
|
|
(e)
|
At the closing of the disposition, proceeds of
$5,383
were temporarily restricted related to a potential 1031 Exchange. During the three months ended
September 30, 2016
, the related 1031 Exchange closed and the proceeds were released to the Company.
|
|
|
(f)
|
Portfolio consists of the following properties: (i) Rite Aid Store (Eckerd) – Cheektowaga, (ii) Rite Aid Store (Eckerd), W. Main St. – Batavia, (iii) Rite Aid Store (Eckerd), Union Rd. and (iv) Rite Aid Store (Eckerd) – Greece.
|
During the
nine
months ended
September 30, 2016
, the Company also disposed of an outparcel for consideration of
$2,639
and recorded a gain of
$1,898
from the transaction. At the closing of the disposition, proceeds of
$2,549
were temporarily restricted related to a potential 1031 Exchange. During the three months ended
September 30, 2016
, the related 1031 Exchange closed and the proceeds were released to the Company. The aggregate proceeds, net of closing costs, from the property dispositions and this additional transaction totaled
$307,355
with aggregate gains of
$97,737
.
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company closed on the following dispositions during the
nine
months ended
September 30,
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
|
|
April 7, 2015
|
|
Hartford Insurance Building
|
|
Single-user office
|
|
97,400
|
|
|
6,015
|
|
|
5,663
|
|
|
860
|
|
April 30, 2015
|
|
Rasmussen College
|
|
Single-user office
|
|
26,700
|
|
|
4,800
|
|
|
4,449
|
|
|
1,334
|
|
May 15, 2015
|
|
Mountain View Plaza
|
|
Multi-tenant retail
|
|
162,000
|
|
|
28,500
|
|
|
27,949
|
|
|
10,184
|
|
June 4, 2015
|
|
Massillon Commons
|
|
Multi-tenant retail
|
|
245,900
|
|
|
12,520
|
|
|
12,145
|
|
|
—
|
|
June 5, 2015
|
|
Citizen's Property Insurance Building
|
|
Single-user office
|
|
59,800
|
|
|
3,650
|
|
|
3,368
|
|
|
440
|
|
June 17, 2015
|
|
Pine Ridge Plaza
|
|
Multi-tenant retail
|
|
236,500
|
|
|
33,200
|
|
|
31,858
|
|
|
12,938
|
|
June 17, 2015
|
|
Bison Hollow
|
|
Multi-tenant retail
|
|
134,800
|
|
|
18,800
|
|
|
18,657
|
|
|
4,061
|
|
June 17, 2015
|
|
The Village at Quail Springs
|
|
Multi-tenant retail
|
|
100,400
|
|
|
11,350
|
|
|
11,267
|
|
|
3,824
|
|
July 17, 2015
|
|
Greensburg Commons
|
|
Multi-tenant retail
|
|
272,500
|
|
|
18,400
|
|
|
18,283
|
|
|
2,810
|
|
July 28, 2015
|
|
Arvada Connection and
Arvada Marketplace
|
|
Multi-tenant retail
|
|
367,500
|
|
|
54,900
|
|
|
53,159
|
|
|
20,208
|
|
July 30, 2015
|
|
Traveler's Office Building
|
|
Single-user office
|
|
50,800
|
|
|
4,841
|
|
|
4,643
|
|
|
—
|
|
August 6, 2015
|
|
Shaw's Supermarket
|
|
Single-user retail
|
|
65,700
|
|
|
3,000
|
|
|
2,769
|
|
|
—
|
|
August 24, 2015
|
|
Harvest Towne Center
|
|
Multi-tenant retail
|
|
39,700
|
|
|
7,800
|
|
|
7,381
|
|
|
1,217
|
|
August 31, 2015
|
|
Trenton Crossing &
McAllen Shopping Center (b)
|
|
Multi-tenant retail
|
|
265,900
|
|
|
39,295
|
|
|
38,410
|
|
|
13,760
|
|
September 15, 2015
|
|
The Shops at Boardwalk
|
|
Multi-tenant retail
|
|
122,400
|
|
|
27,400
|
|
|
26,634
|
|
|
3,146
|
|
September 29, 2015
|
|
Best on the Boulevard
|
|
Multi-tenant retail
|
|
204,400
|
|
|
42,500
|
|
|
41,542
|
|
|
15,932
|
|
September 29, 2015
|
|
Montecito Crossing
|
|
Multi-tenant retail
|
|
179,700
|
|
|
52,200
|
|
|
51,415
|
|
|
17,928
|
|
|
|
|
|
|
|
3,069,600
|
|
|
$
|
405,454
|
|
|
$
|
394,935
|
|
|
$
|
113,214
|
|
|
|
(a)
|
Aggregate proceeds are net of transaction costs and exclude
$272
of condemnation proceeds, which did not result in any additional gain recognition.
|
|
|
(b)
|
The terms of the disposition of Trenton Crossing and McAllen Shopping Center were negotiated as a single transaction.
|
None of the dispositions completed during the
nine
months ended
September 30, 2016
and
2015
qualified for discontinued operations treatment.
As of
September 30, 2016
, the Company had entered into a contract to sell Walgreens – Northwoods, a
16,300
square foot single-user retail property located in Northwoods, Missouri. This property qualified for held for sale accounting treatment upon meeting all applicable GAAP criteria during the quarter ended
September 30, 2016
, at which time depreciation and amortization were ceased. As such, the assets and liabilities associated with this property are separately classified as held for sale in the condensed consolidated balance sheet as of
September 30, 2016
. No properties qualified for held for sale accounting treatment as of December 31, 2015.
The following table presents the assets and liabilities associated with the investment property classified as held for sale:
|
|
|
|
|
|
September 30,
2016
|
Assets
|
|
Land, building and other improvements
|
$
|
5,524
|
|
Accumulated depreciation
|
(2,042
|
)
|
Net investment properties
|
3,482
|
|
Other assets
|
99
|
|
Assets associated with investment properties held for sale
|
$
|
3,581
|
|
|
|
Liabilities
|
|
Other liabilities
|
$
|
36
|
|
Liabilities associated with investment properties held for sale
|
$
|
36
|
|
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(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
nine
months ended
September 30, 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)
|
269
|
|
|
$
|
14.74
|
|
Shares vested
|
(460
|
)
|
|
$
|
15.48
|
|
Shares forfeited (b)
|
(10
|
)
|
|
$
|
14.70
|
|
Balance as of September 30, 2016 (c)
|
587
|
|
|
$
|
15.21
|
|
|
|
(a)
|
Shares granted vest over periods ranging from
0.4 years
to
3.9 years
in accordance with the terms of applicable award agreements.
|
|
|
(b)
|
Effective January 1, 2016, the Company made an accounting policy election to account for forfeitures when they occur.
|
|
|
(c)
|
As of
September 30, 2016
, total unrecognized compensation expense related to unvested restricted shares was
$4,120
, which is expected to be amortized over a weighted average term of
1.4 years
.
|
In addition, during the
nine
months ended
September 30, 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 or her outstanding RSUs will be eligible for conversion based upon the period in which the executive was employed during the performance period. If an executive terminates for any reason other than a qualified termination during the performance period, he or she would forfeit his or her outstanding RSUs. 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 dates included a weighted average risk-free interest rate of
0.89%
, the Company’s historical common stock performance relative to the peer companies within the NAREIT Shopping Center Index and the Company’s weighted average common stock dividend yield of
4.59%
.
The following table summarizes the Company’s unvested RSUs as of and for the
nine
months ended
September 30, 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
|
246
|
|
|
$
|
13.85
|
|
RSUs ineligible for conversion
|
(29
|
)
|
|
$
|
13.56
|
|
RSUs eligible for future conversion as of September 30, 2016 (a)
|
391
|
|
|
$
|
14.02
|
|
|
|
(a)
|
As of
September 30, 2016
, total unrecognized compensation expense related to unvested RSUs was
$3,861
, which is expected to be amortized over a weighted average term of
2.7 years
.
|
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
During the three months ended
September 30, 2016
and
2015
, the Company recorded compensation expense of
$1,594
and
$2,099
, respectively, related to unvested restricted shares and RSUs. During the
nine
months ended
September 30, 2016
and
2015
, the Company recorded compensation expense of
$5,296
and
$8,225
, respectively, related to unvested restricted shares and RSUs. Included within the compensation expense recorded during the nine months ended September 30, 2015 is compensation expense of
$1,680
related to the accelerated vesting of
134
restricted shares in conjunction with the departure of the Company’s former Chief Financial Officer and Treasurer. The total fair value of restricted shares vested during the
nine
months ended
September 30, 2016
was
$6,830
.
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. During the three months ended
September 30, 2016
, options to purchase two shares were exercised and options to purchase
10
shares were forfeited. As of
September 30, 2016
, options to purchase
41
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
nine
months ended
September 30, 2016
and
2015
.
(6) MORTGAGES PAYABLE
The following table summarizes the Company’s mortgages payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 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)
|
$
|
1,004,879
|
|
|
6.06
|
%
|
|
3.7
|
|
$
|
1,128,505
|
|
(b)
|
6.08
|
%
|
|
3.9
|
Premium, net of accumulated amortization
|
1,544
|
|
|
|
|
|
|
1,865
|
|
|
|
|
|
Discount, net of accumulated amortization
|
(633
|
)
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Capitalized loan fees, net of accumulated
amortization
|
(5,701
|
)
|
|
|
|
|
|
(7,233
|
)
|
|
|
|
|
Mortgages payable, net
|
$
|
1,000,089
|
|
|
|
|
|
|
$
|
1,123,136
|
|
|
|
|
|
|
|
(a)
|
The fixed rate mortgages had interest rates ranging from
3.50%
to
8.00%
and
3.35%
to
8.00%
as of
September 30, 2016
and
December 31, 2015
, respectively.
|
|
|
(b)
|
Includes
$7,910
of variable rate mortgage debt that was swapped to a fixed rate as of
December 31, 2015
.
|
During the
nine
months ended
September 30, 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
nine
months ended
September 30, 2016
, the Company repaid mortgages payable in the total amount of
$35,344
which had a weighted average fixed interest rate of
4.34%
and made scheduled principal payments of
$9,900
related to amortizing loans.
One
of the mortgages repaid, with a principal balance of
$7,750
at maturity, had been swapped to a fixed rate and the Company had guaranteed a portion of the outstanding balance. Upon repayment of the mortgage on its scheduled maturity date, the interest rate swap expired and the Company’s guarantee was extinguished. The Company also assumed a mortgage payable with a principal balance of
$15,971
and an interest rate of
3.75%
that matures in 2031 in conjunction with the acquisition of The Shoppes at Union Hill.
The majority of the Company’s mortgages payable require monthly payments of principal and interest, 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. 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
September 30, 2016
, the Company had a pool of mortgages with a principal balance of
$391,436
that was cross-collateralized by the
48
properties in its IW JV 2009, LLC portfolio.
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Debt Maturities
The following table shows the scheduled maturities and principal amortization of the Company’s indebtedness as of
September 30, 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
September 30, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
Thereafter
|
|
Total
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages payable (a)
|
$
|
2,865
|
|
|
$
|
227,451
|
|
|
$
|
11,647
|
|
|
$
|
444,324
|
|
|
$
|
4,334
|
|
|
$
|
314,258
|
|
|
$
|
1,004,879
|
|
Unsecured credit facility – fixed rate term loan (b)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250,000
|
|
|
250,000
|
|
Unsecured notes payable (c)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
600,000
|
|
|
600,000
|
|
Total fixed rate debt
|
2,865
|
|
|
227,451
|
|
|
11,647
|
|
|
444,324
|
|
|
4,334
|
|
|
1,164,258
|
|
|
1,854,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured credit facility – variable rate term loan
|
—
|
|
|
—
|
|
|
200,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
200,000
|
|
Total variable rate debt
|
—
|
|
|
—
|
|
|
200,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
200,000
|
|
Total debt (d)
|
$
|
2,865
|
|
|
$
|
227,451
|
|
|
$
|
211,647
|
|
|
$
|
444,324
|
|
|
$
|
4,334
|
|
|
$
|
1,164,258
|
|
|
$
|
2,054,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate on debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt
|
7.18
|
%
|
|
5.08
|
%
|
|
6.52
|
%
|
|
7.49
|
%
|
|
4.58
|
%
|
|
3.85
|
%
|
|
4.90
|
%
|
Variable rate debt (e)
|
—
|
|
|
—
|
|
|
1.97
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.97
|
%
|
Total
|
7.18
|
%
|
|
5.08
|
%
|
|
2.22
|
%
|
|
7.49
|
%
|
|
4.58
|
%
|
|
3.85
|
%
|
|
4.61
|
%
|
|
|
(a)
|
Excludes mortgage premium of
$1,544
and discount of
$(633)
, net of accumulated amortization, as of
September 30, 2016
.
|
|
|
(b)
|
$250,000
of London Interbank Offered Rate (LIBOR)-based variable rate debt has been swapped to a fixed rate through
two
interest rate swaps. The swaps effectively convert
one-month floating rate LIBOR
to a weighted average fixed rate of
0.6677%
through December 31, 2017.
|
|
|
(c)
|
Excludes discount of
$(1,001)
, net of accumulated amortization, as of
September 30, 2016
and
$100,000
of 12-year
4.24%
senior unsecured notes which the Company expects to issue on December 28, 2016 pursuant to a note purchase agreement it entered into with certain institutional investors on September 30, 2016.
|
|
|
(d)
|
Total debt excludes capitalized loan fees of
$(11,919)
, net of accumulated amortization, as of
September 30, 2016
which are included as a reduction to the respective debt balances. The weighted average years to maturity of consolidated indebtedness was
4.8 years
as of
September 30, 2016
.
|
|
|
(e)
|
Represents interest rates as of
September 30, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 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% due 2021
|
|
June 30, 2021
|
|
$
|
100,000
|
|
|
4.12
|
%
|
|
$
|
100,000
|
|
|
4.12
|
%
|
Senior notes – 4.58% due 2024
|
|
June 30, 2024
|
|
150,000
|
|
|
4.58
|
%
|
|
150,000
|
|
|
4.58
|
%
|
Senior notes – 4.00% due 2025
|
|
March 15, 2025
|
|
250,000
|
|
|
4.00
|
%
|
|
250,000
|
|
|
4.00
|
%
|
Senior notes – 4.08% due 2026 (a)
|
|
September 30, 2026
|
|
100,000
|
|
(a)
|
4.08
|
%
|
|
—
|
|
|
—
|
%
|
|
|
|
|
600,000
|
|
|
4.18
|
%
|
|
500,000
|
|
|
4.20
|
%
|
Discount, net of accumulated amortization
|
|
|
|
(1,001
|
)
|
|
|
|
(1,090
|
)
|
|
|
Capitalized loan fees, net of accumulated amortization
|
|
|
(3,520
|
)
|
|
|
|
(3,334
|
)
|
|
|
|
|
Total
|
|
$
|
595,479
|
|
|
|
|
$
|
495,576
|
|
|
|
|
|
(a)
|
On September 30, 2016, the Company issued
$100,000
of 10-year
4.08%
senior unsecured notes (Notes Due 2026) in a private placement transaction pursuant to a note purchase agreement it entered into with certain institutional investors on September 30, 2016. The proceeds were used to pay down the Company’s unsecured revolving line of credit and for general corporate purposes. Pursuant to the same note purchase agreement, the Company also expects to issue
$100,000
of 12-year
4.24%
senior unsecured notes on December 28, 2016.
|
The indenture, as supplemented, governing the
4.00%
senior unsecured notes due 2025 (
4.00%
Notes Due 2025) (the Indenture) contains customary covenants and events of default. Pursuant to the terms of the Indenture, the Company is subject to various financial covenants, including the requirement to maintain the following: (i) maximum secured and total leverage ratios; (ii) a debt service coverage ratio; and (iii) maintenance of an unencumbered assets to unsecured debt ratio.
The note purchase agreement governing the
4.12%
senior unsecured notes due 2021 and the
4.58%
senior unsecured notes due 2024 (collectively, Notes Due 2021 and 2024) contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the note purchase agreement, the Company is subject to various financial covenants, some of which are based upon the financial covenants in effect in the Company’s primary credit facility, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) minimum interest coverage and unencumbered interest coverage ratios; and (iii) a minimum consolidated net worth.
The note purchase agreement governing the
4.08%
senior unsecured notes due 2026 and that will govern the
4.24%
senior unsecured notes due 2028 (collectively, Notes Due 2026 and 2028) contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the note purchase agreement, the Company is subject to various financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) a minimum interest coverage ratio; (iii) a fixed charge coverage ratio (as set forth in the Company’s unsecured credit facility); and (iv) an unencumbered interest coverage ratio (as set forth in the Company’s unsecured credit facility and the note purchase agreement governing the Notes Due 2021 and 2024).
As of
September 30, 2016
, management believes the Company was in compliance with the financial covenants under the Indenture and the note purchase agreements.
(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 Company received investment grade credit ratings from
two
rating agencies in 2014. In accordance with the unsecured credit agreement, the Company may elect to convert to an investment grade pricing grid. As of
September 30, 2016
, making such an election would have resulted in a higher interest rate and, as such, the Company has not made the election to convert to an investment grade pricing grid.
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
The following table summarizes the Company’s Unsecured Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 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 (a)
|
|
$
|
250,000
|
|
|
1.97
|
%
|
|
$
|
—
|
|
|
—
|
%
|
$200,000 unsecured term loan – variable rate
|
|
200,000
|
|
|
1.97
|
%
|
|
—
|
|
|
—
|
%
|
$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
|
|
(2,698
|
)
|
|
|
|
(2,474
|
)
|
|
|
Term loans, net
|
|
447,302
|
|
|
|
|
447,526
|
|
|
|
Revolving line of credit – variable rate (c)
|
|
—
|
|
|
1.87
|
%
|
|
100,000
|
|
|
1.93
|
%
|
Total unsecured credit facility, net
|
|
$
|
447,302
|
|
|
1.97
|
%
|
|
$
|
547,526
|
|
|
1.95
|
%
|
|
|
(a)
|
As of
September 30, 2016
,
$250,000
of LIBOR-based variable rate debt has been swapped to a weighted average fixed rate of
0.6677%
plus a credit spread based on a leverage grid ranging from
1.30%
to
2.20%
through December 31, 2017. The applicable credit spread was
1.30%
as of
September 30, 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
September 30, 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.
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company utilizes
two
interest rate swaps to hedge the variable cash flows associated with variable rate debt. The effective portion of changes in the fair value of derivatives that are designated and that qualify as cash flow hedges is recorded in “Accumulated other comprehensive income (loss)” and is reclassified to interest expense as interest payments are made on the Company’s variable rate debt. Over the next 12 months, the Company estimates that an additional
$34
will be reclassified as a decrease to interest expense. The ineffective portion of the change in fair value of derivatives is recognized directly in earnings.
During the
nine
months ended
September 30, 2016
, the Company entered into the following
two
interest rate swaps which effectively convert
one-month floating rate LIBOR
to a fixed rate:
|
|
|
|
|
|
|
|
|
|
|
Effective Date
|
|
Notional
|
|
Fixed
Interest Rate
|
|
Termination Date
|
March 1, 2016
|
|
$
|
100,000
|
|
|
0.6591
|
%
|
|
December 31, 2017
|
May 16, 2016
|
|
$
|
150,000
|
|
|
0.6735
|
%
|
|
December 31, 2017
|
The Company previously had a
$300,000
interest rate swap that matured on February 24, 2016. In addition, during the
nine
months ended
September 30, 2016
, the Company repaid a
$7,750
variable rate mortgage payable that had been swapped to a fixed rate. Upon repayment of the mortgage on its scheduled maturity date, the interest rate swap expired. As of December 31, 2015, the outstanding principal balance of this variable rate mortgage was
$7,910
.
The following table summarizes the Company’s interest rate swaps that were designated as cash flow hedges of interest rate risk:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Instruments
|
|
Notional
|
Interest Rate Derivatives
|
|
September 30,
2016
|
|
December 31,
2015
|
|
September 30,
2016
|
|
December 31,
2015
|
Interest rate swaps
|
|
2
|
|
|
2
|
|
|
$
|
250,000
|
|
|
$
|
307,910
|
|
The table below presents the estimated fair value of the Company’s derivative financial instruments as well as their classification in the condensed consolidated balance sheets. The valuation techniques utilized are described in Note 13 to the condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other assets, net
|
|
$
|
138
|
|
|
N/A
|
|
$
|
—
|
|
Interest rate swaps
|
|
N/A
|
|
$
|
—
|
|
|
Other liabilities
|
|
$
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in
Cash Flow
Hedging
Relationships
|
|
Amount of (Gain) Loss
Recognized in Other
Comprehensive Income
on Derivative
(Effective Portion)
|
|
Location of Loss
Reclassified from
Accumulated Other
Comprehensive Income (AOCI)
into Income
(Effective Portion)
|
|
Amount of Loss
Reclassified from
AOCI into Income
(Effective Portion)
|
|
Location of 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)
|
Interest rate swaps
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
2016
|
|
$
|
(534
|
)
|
|
$
|
153
|
|
|
Interest expense
|
|
$
|
132
|
|
|
$
|
342
|
|
|
Other income, net
|
|
$
|
(38
|
)
|
|
$
|
(35
|
)
|
2015
|
|
$
|
109
|
|
|
$
|
691
|
|
|
Interest expense
|
|
$
|
264
|
|
|
$
|
848
|
|
|
Other income, net
|
|
$
|
(4
|
)
|
|
$
|
(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
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 programs during the
nine
months ended
September 30, 2016
and
2015
. As of
September 30, 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
September 30, 2016
, the Company had not repurchased any shares under this program.
(11) EARNINGS PER SHARE
The following table summarizes the components used in the calculation of basic and diluted earnings per share (EPS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
6,109
|
|
|
$
|
3,328
|
|
|
$
|
50,785
|
|
|
$
|
8,875
|
|
|
Gain on sales of investment properties
|
66,385
|
|
|
75,001
|
|
|
97,737
|
|
|
113,214
|
|
|
Preferred stock dividends
|
(2,362
|
)
|
|
(2,362
|
)
|
|
(7,087
|
)
|
|
(7,087
|
)
|
|
Net income attributable to common shareholders
|
70,132
|
|
|
75,967
|
|
|
141,435
|
|
|
115,002
|
|
|
Distributions paid on unvested restricted shares
|
(108
|
)
|
|
(130
|
)
|
|
(348
|
)
|
|
(340
|
)
|
|
Net income attributable to common shareholders excluding
amounts attributable to unvested restricted shares
|
$
|
70,024
|
|
|
$
|
75,837
|
|
|
$
|
141,087
|
|
|
$
|
114,662
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for earnings per common share – basic:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
236,783
|
|
(a)
|
236,439
|
|
(b)
|
236,692
|
|
(a)
|
236,348
|
|
(b)
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options
|
2
|
|
(c)
|
2
|
|
(c)
|
2
|
|
(c)
|
2
|
|
(c)
|
RSUs
|
323
|
|
(d)
|
112
|
|
(e)
|
289
|
|
(d)
|
50
|
|
(e)
|
Denominator for earnings per common share – diluted:
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and common equivalent
shares outstanding
|
237,108
|
|
|
236,553
|
|
|
236,983
|
|
|
236,400
|
|
|
|
|
(a)
|
Excludes
587
shares of unvested restricted common stock as of
September 30, 2016
, which equate to
596
and
657
shares, respectively, on a weighted average basis for the three and
nine
months ended
September 30, 2016
. These shares will continue to be excluded from the computation of basic EPS until contingencies are resolved and the shares are released.
|
|
|
(b)
|
Excludes
848
shares of unvested restricted common stock as of
September 30, 2015
, which equate to
818
and
760
shares, respectively, on a weighted average basis for the three and
nine
months ended
September 30, 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
41
and
53
shares of common stock as of
September 30, 2016
and
2015
, respectively, at a weighted average exercise price of
$19.33
and
$19.39
, respectively. Of these totals, outstanding options to purchase
35
and
45
shares of common stock as of
September 30, 2016
and
2015
, respectively, at a weighted average exercise price of
$20.63
and
$20.74
, 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
391
RSUs eligible for future conversion following the performance periods as of
September 30, 2016
(see Note 5 to the condensed consolidated financial statements), which equate to
391
and
360
RSUs on a weighted average basis for the three and
nine
months ended
September 30, 2016
, respectively. These contingently issuable shares are included in diluted EPS based on the weighted average number of shares that would be outstanding during the period, if any, assuming the end of the reporting period was the end of the contingency periods.
|
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
(e)
|
There were
180
RSUs eligible for future conversion following the performance period as of
September 30, 2015
, which equate to
168
and
76
RSUs on a weighted average basis for the three and
nine
months ended
September 30, 2015
, respectively. These contingently issuable shares are included in diluted EPS based on the weighted average number of shares that would have been outstanding during the period, if any, assuming
September 30, 2015
was the end of the contingency period.
|
(12) PROVISION FOR IMPAIRMENT OF INVESTMENT PROPERTIES
As of
September 30, 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
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
Number of properties for which indicators of impairment were identified
|
|
5
|
|
|
3
|
|
(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
|
|
|
—
|
|
|
Remaining properties for which indicators of impairment were identified but no impairment
charge was considered necessary
|
|
3
|
|
|
3
|
|
|
|
|
|
|
|
|
Weighted average percentage by which the projected undiscounted cash flows exceeded
its respective carrying value for each of the remaining properties
|
|
14
|
%
|
|
39
|
%
|
|
|
|
(a)
|
Includes
two
properties which have subsequently been sold as of
September 30, 2016
.
|
The Company recorded the following investment property impairment charges during the
nine
months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Name
|
|
Property Type
|
|
Impairment Date
|
|
Square
Footage
|
|
Provision for
Impairment of
Investment
Properties
|
South Billings Center (a)
|
|
Development
|
|
March 31, 2016
|
|
—
|
|
|
$
|
2,164
|
|
Mid-Hudson Center (b)
|
|
Multi-tenant retail
|
|
June 30, 2016
|
|
235,600
|
|
|
4,142
|
|
Saucon Valley Square (c)
|
|
Multi-tenant retail
|
|
September 30, 2016
|
|
80,700
|
|
|
4,742
|
|
|
|
|
|
|
|
|
|
$
|
11,048
|
|
|
|
Estimated fair value of impaired properties as of impairment date
|
$
|
37,100
|
|
|
|
(a)
|
The Company recorded an impairment charge based upon the terms and conditions of an executed sales contract, which was subsequently terminated. The property was not under active development as of
September 30, 2016
.
|
|
|
(b)
|
The Company recorded an impairment charge based upon the terms and conditions of an executed sales contract. This property was classified as held for sale as of June 30, 2016 and was sold on July 21, 2016.
|
|
|
(c)
|
The Company recorded an impairment charge driven by a change in the estimated holding period for the property.
|
The Company recorded the following investment property impairment charges during the
nine
months ended
September 30, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Name
|
|
Property Type
|
|
Impairment Date
|
|
Square
Footage
|
|
Provision for
Impairment of
Investment
Properties
|
Massillon Commons (a)
|
|
Multi-tenant retail
|
|
June 4, 2015
|
|
245,900
|
|
|
$
|
2,289
|
|
Traveler’s Office Building (b)
|
|
Single-user office
|
|
June 30, 2015
|
|
50,800
|
|
|
1,655
|
|
Shaw’s Supermarket (a)
|
|
Single-user retail
|
|
August 6, 2015
|
|
65,700
|
|
|
169
|
|
|
|
|
|
|
|
|
|
$
|
4,113
|
|
|
|
Estimated fair value of impaired properties as of impairment date
|
$
|
20,970
|
|
|
|
(a)
|
The Company recorded impairment charges based upon the terms and conditions of an executed sales contract for the respective properties, which were sold during 2015.
|
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
(b)
|
The Company recorded an impairment charge based upon the terms and conditions of an executed sales contract. This property was classified as held for sale as of June 30, 2015 and was sold on July 30, 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
The following table presents the carrying value and estimated fair value of the Company’s financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Financial assets:
|
|
|
|
|
|
|
|
Derivative asset
|
$
|
138
|
|
|
$
|
138
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
Mortgages payable, net
|
$
|
1,000,089
|
|
|
$
|
1,094,472
|
|
|
$
|
1,123,136
|
|
|
$
|
1,213,620
|
|
Unsecured notes payable, net
|
$
|
595,479
|
|
|
$
|
617,473
|
|
|
$
|
495,576
|
|
|
$
|
486,701
|
|
Unsecured term loans, net
|
$
|
447,302
|
|
|
$
|
450,000
|
|
|
$
|
447,526
|
|
|
$
|
450,000
|
|
Unsecured revolving line of credit
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Derivative liability
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
85
|
|
|
$
|
85
|
|
The carrying value of the derivative asset is included in “Other assets, net” and the carrying value of the derivative liability is included in “Other liabilities” in the accompanying condensed consolidated balance sheets.
Recurring Fair Value Measurements
The following table presents the Company’s financial instruments, which are measured at fair value on a recurring basis, by the level in the fair value hierarchy within which those measurements fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
September 30, 2016
|
|
|
|
|
|
|
|
Derivative asset
|
$
|
—
|
|
|
$
|
138
|
|
|
$
|
—
|
|
|
$
|
138
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
Derivative liability
|
$
|
—
|
|
|
$
|
85
|
|
|
$
|
—
|
|
|
$
|
85
|
|
Derivatives:
The fair value of the derivative asset and derivative liability are determined using a discounted cash flow analysis on the expected future cash flows of each derivative. This analysis utilizes observable market data including forward yield curves and implied volatilities to determine the market’s expectation of the future cash flows of the variable component. The fixed and variable components of the derivative are then discounted using calculated discount factors developed based on the LIBOR swap rate and are aggregated to arrive at a single valuation for the period. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of
September 30, 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.
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Nonrecurring Fair Value Measurements
The following table presents the Company’s assets measured at fair value on a nonrecurring basis as of
September 30, 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
nine
months ended
September 30, 2016
, except for those properties sold prior to
September 30, 2016
. Methods and assumptions used to estimate the fair value of these assets are described after the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Provision for
Impairment (a)
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
Investment properties
|
$
|
—
|
|
|
$
|
3,000
|
|
(b)
|
$
|
6,600
|
|
(c)
|
$
|
9,600
|
|
|
$
|
6,906
|
|
|
|
(a)
|
Excludes impairment charges recorded on investment properties sold prior to September 30, 2016.
|
|
|
(b)
|
Represents the fair value of the Company’s South Billings Center development property, which was not under active development during the
nine
months ended
September 30, 2016
. The estimated fair value of South Billings Center was based upon the expected sales price from the executed sales contract, which was subsequently terminated, and determined to be a Level 2 input.
|
|
|
(c)
|
Represents the fair value of the Company’s Saucon Valley Square investment property. The estimated fair value of Saucon Valley Square was determined using the income approach. The income approach involves discounting the estimated income stream and reversion (presumed sale) value of a property over an estimated holding period to a present value at a risk-adjusted rate. Discount rates, growth assumptions and terminal capitalization rates utilized in this approach are derived from property-specific information, market transactions and other financial and industry data. The terminal capitalization rate and discount rate are significant inputs to this valuation. The following are the key Level 3 inputs used in estimating the fair value of Saucon Valley Square as of
September 30, 2016
, the date the asset was measured at fair value:
|
|
|
|
|
|
|
Saucon Valley Square
|
Rental growth rates
|
|
Varies (i)
|
Operating expense growth rate
|
|
3.10%
|
Discount rate
|
|
9.35%
|
Terminal capitalization rate
|
|
8.35%
|
|
|
(i)
|
Since cash flow models are established at the tenant level, projected rental revenue growth rates fluctuate over the course of the estimated holding period based upon the timing of lease rollover, amount of available space and other property and space-specific factors.
|
The Company did not have any assets measured at fair value on a nonrecurring basis as of December 31, 2015.
Fair Value Disclosures
The following table presents the Company’s financial liabilities, which are measured at fair value for disclosure purposes, by the level in the fair value hierarchy within which those measurements fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
September 30, 2016
|
|
|
|
|
|
|
|
Mortgages payable, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,094,472
|
|
|
$
|
1,094,472
|
|
Unsecured notes payable, net
|
$
|
249,908
|
|
|
$
|
—
|
|
|
$
|
367,565
|
|
|
$
|
617,473
|
|
Unsecured term loans, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
450,000
|
|
|
$
|
450,000
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
Mortgages payable, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,213,620
|
|
|
$
|
1,213,620
|
|
Unsecured notes payable, net
|
$
|
239,482
|
|
|
$
|
—
|
|
|
$
|
247,219
|
|
|
$
|
486,701
|
|
Unsecured term loans, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
450,000
|
|
|
$
|
450,000
|
|
Unsecured revolving line of credit
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Mortgages payable, net:
The Company estimates the fair value of its mortgages payable by discounting the anticipated future cash flows of each instrument at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rate for each of the Company’s individual mortgages payable based upon the specific terms of the agreement, including the term to maturity, the quality and nature of the underlying property and its leverage ratio. The rates used range from
2.5%
to
3.8%
and
2.2%
to
6.0%
as of
September 30, 2016
and
December 31, 2015
, respectively.
Unsecured notes payable, net:
The quoted market price as of
September 30, 2016
was used to value the Company’s
4.00%
Notes Due 2025. The Company estimates the fair value of its Notes Due 2021 and 2024 and Notes Due 2026 by discounting the future cash flows at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rates. The weighted average rates used were
3.61%
and
4.64%
as of
September 30, 2016
and
December 31, 2015
, respectively.
Unsecured term loans, net:
The Company estimates the fair value of its unsecured term loans, net by discounting the anticipated future cash flows related to the credit spreads at rates currently offered to the Company by its lenders for similar instruments of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rates. The weighted average rates used to discount the credit spreads were
1.37%
and
1.30%
as of
September 30, 2016
and
December 31, 2015
, respectively.
Unsecured revolving line of credit:
The Company estimates the fair value of its unsecured revolving line of credit by discounting the anticipated future cash flows related to the credit spreads at rates currently offered to the Company by its lenders for similar facilities of comparable maturity. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rates. The rate used to discount the credit spread was
1.35%
as of
December 31, 2015
. There were no amounts drawn on the unsecured revolving line of credit as of
September 30, 2016
.
There were no transfers between the levels of the fair value hierarchy during the
nine
months ended
September 30, 2016
.
(14) COMMITMENTS AND CONTINGENCIES
As of
September 30, 2016
, the Company had letter(s) of credit outstanding totaling
$143
which serve as collateral for certain capital improvements at
one
of its properties and reduce the available borrowings on its unsecured revolving line of credit.
As of
September 30, 2016
, the Company had
one
active redevelopment at Reisterstown Road Plaza located in Baltimore, Maryland. The Company estimates that it will incur net costs of approximately
$11,000
to
$12,000
related to the redevelopment, of which
$610
has been incurred as 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
On October 24, 2016, the Company’s board of directors (Board) increased the number of directors comprising the Board from
eight
to
nine
and appointed Robert G. Gifford as a Director of the Company, effective immediately, to serve until the Company’s 2017 annual meeting of stockholders.
On October 25, 2016, the Company declared the cash dividend for the fourth quarter of
2016
for its
7.00%
Series A cumulative redeemable preferred stock. The dividend of
$0.4375
per preferred share will be paid on December 30, 2016 to preferred shareholders of record at the close of business on December 20, 2016.
On October 25, 2016, the Company declared the distribution for the fourth quarter of
2016
of
$0.165625
per share on its outstanding Class A common stock, which will be paid on January 10, 2017 to Class A common shareholders of record at the close of business on December 22, 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,” “continue” or “anticipates” and variations of such words or similar expressions or the negative of such words. You can also identify forward-looking statements by discussions of strategies, plans or intentions. Risks, uncertainties and changes in the following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
|
|
•
|
economic, business and financial conditions, and changes in our industry and changes in the real estate markets in particular;
|
|
|
•
|
economic and other developments in the state of Texas and in other markets 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;
|
|
|
•
|
interest rates or operating costs;
|
|
|
•
|
real estate and zoning laws and changes in real property tax rates;
|
|
|
•
|
real estate valuations;
|
|
|
•
|
our ability to generate sufficient cash flows to service our outstanding indebtedness and make distributions to our shareholders;
|
|
|
•
|
our ability to obtain necessary outside financing;
|
|
|
•
|
the availability, terms and deployment of capital;
|
|
|
•
|
general volatility of the capital and credit markets and the market price of our Class A common stock;
|
|
|
•
|
risks generally associated with real estate acquisitions and dispositions, including our ability to identify and pursue acquisition and disposition opportunities;
|
|
|
•
|
risks generally associated with redevelopment, including the impact of construction delays and cost overruns, our ability to lease redeveloped space and our ability to identify and pursue redevelopment opportunities;
|
|
|
•
|
composition of members of our senior management team;
|
|
|
•
|
our ability to attract and retain qualified personnel;
|
|
|
•
|
our ability to continue to qualify as a real estate investment trust (REIT);
|
|
|
•
|
governmental regulations, tax laws and rates and similar matters;
|
|
|
•
|
our compliance with laws, rules and regulations;
|
|
|
•
|
environmental uncertainties and exposure to natural disasters;
|
|
|
•
|
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
and in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016 and June 30, 2016. 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
September 30, 2016
, we owned
174
retail operating properties representing
26,515,000
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
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type
|
|
Number of
Properties
|
|
GLA
(in thousands)
|
|
Occupancy
|
|
Percent Leased
Including Leases
Signed (a)
|
Operating portfolio:
|
|
|
|
|
|
|
|
|
Multi-tenant retail
|
|
|
|
|
|
|
|
|
Power centers
|
|
52
|
|
|
11,872
|
|
|
94.5
|
%
|
|
96.5
|
%
|
Neighborhood and community centers
|
|
83
|
|
|
10,251
|
|
|
91.5
|
%
|
|
94.0
|
%
|
Lifestyle centers and mixed-use properties
|
|
14
|
|
|
3,645
|
|
|
88.1
|
%
|
|
88.7
|
%
|
Total multi-tenant retail
|
|
149
|
|
|
25,768
|
|
|
92.4
|
%
|
|
94.4
|
%
|
Single-user retail
|
|
25
|
|
|
747
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Total retail operating portfolio
|
|
174
|
|
|
26,515
|
|
|
92.6
|
%
|
|
94.5
|
%
|
Office
|
|
1
|
|
|
895
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Total operating portfolio (b)
|
|
175
|
|
|
27,410
|
|
|
92.9
|
%
|
|
94.7
|
%
|
|
|
(a)
|
Includes leases signed but not commenced.
|
|
|
(b)
|
Excludes one single-user retail operating property classified as held for sale as of
September 30, 2016
.
|
In addition to our operating portfolio, we owned one development property, which was not under active development, and one property where we have begun redevelopment as of
September 30, 2016
.
Company Highlights —
Nine Months Ended
September 30, 2016
Acquisitions
During the
nine
months ended
September 30, 2016
, we continued to execute our investment strategy by acquiring six multi-tenant retail operating properties, the fee interest in an existing wholly-owned multi-tenant retail operating property and the anchor space improvements in an existing wholly-owned multi-tenant retail operating property for a total purchase price of
$283,337
.
The following table summarizes our acquisitions during the
nine
months ended
September 30, 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
|
|
Chicago
|
|
Multi-tenant retail
|
|
183,200
|
|
|
65,954
|
|
April 1, 2016
|
|
The Shoppes at Union Hill (b)
|
|
New York
|
|
Multi-tenant retail
|
|
91,700
|
|
|
63,060
|
|
April 29, 2016
|
|
Ashland & Roosevelt – Fee Interest (c)
|
|
Chicago
|
|
Ground lease interest
|
|
—
|
|
|
13,850
|
|
May 5, 2016
|
|
Tacoma South
|
|
Seattle
|
|
Multi-tenant retail
|
|
230,700
|
|
|
39,400
|
|
June 15, 2016
|
|
Eastside
|
|
Dallas
|
|
Multi-tenant retail
|
|
67,100
|
|
|
23,842
|
|
August 30, 2016
|
|
Woodinville Plaza – Anchor Space
Improvements (d)
|
|
Seattle
|
|
Anchor space improvements (d)
|
|
—
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
761,700
|
|
|
$
|
283,337
|
|
|
|
(a)
|
These properties were acquired as a two-property portfolio. Merrifield Town Center II also contains 62,000 square feet of storage space for a total of 138,000 square feet.
|
|
|
(b)
|
In conjunction with the acquisition, we assumed mortgage debt with a principal balance of $15,971 and an interest rate of 3.75% that matures in 2031.
|
|
|
(c)
|
We acquired the fee interest in an existing wholly-owned multi-tenant retail operating property located in Chicago, Illinois, which was previously subject to a ground lease with a third party. In conjunction with this transaction, we reversed the straight-line ground rent liability of $6,978, which is reflected as “Gain on extinguishment of other liabilities” in the accompanying condensed consolidated statements of operations and other comprehensive income.
|
|
|
(d)
|
We acquired the anchor space improvements, which were previously subject to a ground lease with us, in an existing wholly-owned multi-tenant retail operating property located in Woodinville, Washington.
|
In total for
2016
, we expect to acquire approximately $400,000 to $450,000 of strategic acquisitions in our target markets, some of which have been, and some of which may be, structured as Internal Revenue Code Section 1031 tax-deferred exchanges (1031 Exchanges).
Dispositions
During the
nine
months ended
September 30, 2016
, we continued to pursue targeted dispositions of select non-target and single-user properties. Consideration from dispositions totaled
$390,682
and included the sales of seven multi-tenant retail operating properties aggregating 1,935,400 square feet for total consideration of $293,975 and 21 single-user retail properties aggregating 448,900 square feet for total consideration of $96,707.
The following table summarizes our dispositions during the
nine
months ended
September 30, 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
|
|
April 20, 2016
|
|
CVS Pharmacy – Oklahoma City
|
|
Single-user retail
|
|
10,900
|
|
|
4,676
|
|
June 2, 2016
|
|
Rite Aid Store (Eckerd) – Canandaigua
& Tim Horton Donut Shop (c)
|
|
Single-user retail
|
|
16,600
|
|
|
5,400
|
|
June 15, 2016
|
|
Academy Sports – Midland (d)
|
|
Single-user retail
|
|
61,200
|
|
|
5,541
|
|
June 23, 2016
|
|
Four Rite Aid Portfolio (e)
|
|
Single-user retail
|
|
45,400
|
|
|
15,934
|
|
July 8, 2016
|
|
Broadway Shopping Center
|
|
Multi-tenant retail
|
|
190,300
|
|
|
20,500
|
|
July 21, 2016
|
|
Mid-Hudson Center
|
|
Multi-tenant retail
|
|
235,600
|
|
|
27,500
|
|
July 27, 2016
|
|
Rite Aid Store (Eckerd), Main St. – Buffalo
|
|
Single-user retail
|
|
10,900
|
|
|
3,388
|
|
July 29, 2016
|
|
Rite Aid Store (Eckerd) – Lancaster
|
|
Single-user retail
|
|
10,900
|
|
|
3,425
|
|
August 4, 2016
|
|
Alison’s Corner
|
|
Multi-tenant retail
|
|
55,100
|
|
|
7,850
|
|
August 5, 2016
|
|
Rite Aid Store (Eckerd) – Lake Ave.
|
|
Single-user retail
|
|
13,200
|
|
|
5,400
|
|
August 12, 2016
|
|
Maple Tree Place
|
|
Multi-tenant retail
|
|
489,000
|
|
|
90,000
|
|
August 12, 2016
|
|
CVS Pharmacy – Burleson
|
|
Single-user retail
|
|
10,900
|
|
|
4,190
|
|
August 18, 2016
|
|
Mitchell Ranch Plaza
|
|
Multi-tenant retail
|
|
199,600
|
|
|
55,625
|
|
August 22, 2016
|
|
Rite Aid Store (Eckerd), E. Main St. – Batavia
|
|
Single-user retail
|
|
13,800
|
|
|
5,050
|
|
September 9, 2016
|
|
Rite Aid Store (Eckerd) – Lockport
|
|
Single-user retail
|
|
13,800
|
|
|
4,690
|
|
September 9, 2016
|
|
Rite Aid Store (Eckerd), Ferry St. – Buffalo
|
|
Single-user retail
|
|
10,900
|
|
|
3,600
|
|
|
|
|
|
|
|
2,384,300
|
|
|
$
|
390,682
|
|
|
|
(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. At the closing of the disposition, proceeds of $34,973 were temporarily restricted related to potential 1031 Exchanges. During the three months ended
September 30, 2016
, the related 1031 Exchanges closed and the proceeds were released to us.
|
|
|
(c)
|
The terms of the disposition of Rite Aid Store (Eckerd) – Canandaigua and Tim Horton Donut Shop were negotiated as a single transaction.
|
|
|
(d)
|
At the closing of the disposition, proceeds of $5,383 were temporarily restricted related to a potential 1031 Exchange. During the three months ended
September 30, 2016
, the related 1031 Exchange closed and the proceeds were released to us.
|
|
|
(e)
|
Portfolio consists of the following properties: (i) Rite Aid Store (Eckerd) – Cheektowaga, (ii) Rite Aid Store (Eckerd) – W. Main St., Batavia, (iii) Rite Aid Store (Eckerd) – Union Rd., West Seneca and (iv) Rite Aid Store (Eckerd) – Greece.
|
During the
nine
months ended
September 30, 2016
, we also disposed of an outparcel for consideration of $2,639. At the closing of the disposition, proceeds of $2,549 were temporarily restricted related to a potential 1031 Exchange. During the three months ended
September 30, 2016
, the related 1031 Exchange closed and the proceeds were released to us.
In total for
2016
, we continue to expect targeted dispositions to be approximately $600,000 to $700,000, some of which have been, and 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
64.6%
of our total multi-tenant retail ABR. The following table summarizes our operating portfolio by market as of
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type/Market
|
|
Number of
Properties
|
|
ABR (a)
|
|
% of Total
Multi-Tenant
Retail ABR (a)
|
|
ABR per
Occupied
Sq. Ft.
|
|
GLA
(in thousands) (a)
|
|
% of Total
Multi-Tenant
Retail GLA (a)
|
|
Occupancy
|
|
% Leased
Including
Signed
|
Multi-Tenant Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas, Texas
|
|
20
|
|
|
$
|
81,261
|
|
|
20.3
|
%
|
|
$
|
21.55
|
|
|
4,094
|
|
|
15.9
|
%
|
|
92.1
|
%
|
|
93.5
|
%
|
Washington, D.C. /
Baltimore, Maryland
|
|
13
|
|
|
43,404
|
|
|
10.8
|
%
|
|
21.04
|
|
|
2,388
|
|
|
9.3
|
%
|
|
86.4
|
%
|
|
86.7
|
%
|
New York, New York
|
|
8
|
|
|
33,864
|
|
|
8.4
|
%
|
|
27.74
|
|
|
1,260
|
|
|
4.9
|
%
|
|
96.9
|
%
|
|
98.0
|
%
|
Chicago, Illinois
|
|
6
|
|
|
19,988
|
|
|
5.0
|
%
|
|
19.87
|
|
|
1,076
|
|
|
4.2
|
%
|
|
93.5
|
%
|
|
94.5
|
%
|
Seattle, Washington
|
|
8
|
|
|
19,352
|
|
|
4.8
|
%
|
|
14.23
|
|
|
1,473
|
|
|
5.7
|
%
|
|
92.3
|
%
|
|
94.5
|
%
|
Atlanta, Georgia
|
|
9
|
|
|
18,988
|
|
|
4.7
|
%
|
|
12.86
|
|
|
1,513
|
|
|
5.9
|
%
|
|
97.6
|
%
|
|
98.2
|
%
|
Houston, Texas
|
|
9
|
|
|
15,231
|
|
|
3.8
|
%
|
|
14.01
|
|
|
1,141
|
|
|
4.4
|
%
|
|
95.3
|
%
|
|
95.9
|
%
|
San Antonio, Texas
|
|
3
|
|
|
11,770
|
|
|
2.9
|
%
|
|
16.54
|
|
|
724
|
|
|
2.8
|
%
|
|
98.3
|
%
|
|
98.6
|
%
|
Phoenix, Arizona
|
|
3
|
|
|
10,000
|
|
|
2.5
|
%
|
|
17.14
|
|
|
632
|
|
|
2.4
|
%
|
|
92.3
|
%
|
|
92.5
|
%
|
Austin, Texas
|
|
4
|
|
|
5,227
|
|
|
1.4
|
%
|
|
15.96
|
|
|
350
|
|
|
1.4
|
%
|
|
93.6
|
%
|
|
93.6
|
%
|
Subtotal
|
|
83
|
|
|
259,085
|
|
|
64.6
|
%
|
|
19.04
|
|
|
14,651
|
|
|
56.9
|
%
|
|
92.9
|
%
|
|
93.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Target – Top 50 MSAs
|
|
29
|
|
|
57,811
|
|
|
14.4
|
%
|
|
15.41
|
|
|
4,326
|
|
|
16.7
|
%
|
|
86.7
|
%
|
|
94.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Target Markets
and Top 50 MSAs
|
|
112
|
|
|
316,896
|
|
|
79.0
|
%
|
|
18.25
|
|
|
18,977
|
|
|
73.6
|
%
|
|
91.5
|
%
|
|
93.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Target – Other
|
|
37
|
|
|
84,020
|
|
|
21.0
|
%
|
|
13.01
|
|
|
6,791
|
|
|
26.4
|
%
|
|
95.1
|
%
|
|
95.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Multi-Tenant Retail
|
|
149
|
|
|
400,916
|
|
|
100.0
|
%
|
|
16.84
|
|
|
25,768
|
|
|
100.0
|
%
|
|
92.4
|
%
|
|
94.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-User Retail
|
|
25
|
|
|
17,251
|
|
|
|
|
23.09
|
|
|
747
|
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail
|
|
174
|
|
|
418,167
|
|
|
|
|
17.03
|
|
|
26,515
|
|
|
|
|
92.6
|
%
|
|
94.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
1
|
|
|
10,476
|
|
|
|
|
11.71
|
|
|
895
|
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Portfolio (b)
|
|
175
|
|
|
$
|
428,643
|
|
|
|
|
$
|
16.83
|
|
|
27,410
|
|
|
|
|
92.9
|
%
|
|
94.7
|
%
|
|
|
(a)
|
Excludes $8,257 of multi-tenant retail ABR and 740 square feet of multi-tenant retail GLA attributable to our active redevelopment, which is located in the Washington, D.C./Baltimore MSA. Including these amounts, 65.3% of our multi-tenant retail ABR and 58.1% of our multi-tenant retail GLA is located in Target Markets.
|
|
|
(b)
|
Excludes one single-user retail operating property classified as held for sale as of
September 30, 2016
.
|
Leasing Activity
The following table summarizes the leasing activity in our retail operating portfolio during the
nine
months ended
September 30, 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
|
|
283
|
|
|
1,964
|
|
|
$
|
18.92
|
|
|
$
|
17.65
|
|
|
7.2
|
%
|
|
4.72
|
|
|
$
|
1.41
|
|
Comparable New Leases
|
|
44
|
|
|
278
|
|
|
$
|
17.84
|
|
|
$
|
16.07
|
|
|
11.0
|
%
|
|
9.59
|
|
|
$
|
28.22
|
|
Non-Comparable New and
Renewal Leases (c)
|
|
77
|
|
|
588
|
|
|
$
|
12.63
|
|
|
N/A
|
|
|
N/A
|
|
|
7.47
|
|
|
$
|
16.38
|
|
Total
|
|
404
|
|
|
2,830
|
|
|
$
|
18.78
|
|
|
$
|
17.46
|
|
|
7.6
|
%
|
|
5.62
|
|
|
$
|
7.16
|
|
|
|
(a)
|
Total excludes the impact of Non-Comparable New and Renewal Leases.
|
|
|
(b)
|
Excluding the impact from eight Rite Aid leases executed in the first quarter that were extended to effectuate the planned 2016 disposition of these single-user assets, all of which were sold during the second and third quarters, combined comparable re-leasing spreads were
|
approximately 8.1% and comparable renewal re-leasing spreads were approximately 7.7% over previous rental rates for the
nine
months ended
September 30, 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.
|
Regarding an update on The Sports Authority, Inc. (Sports Authority) bankruptcy proceedings, nine of the 10 leases we had at the beginning of the year have been rejected and one has been assumed by Dick’s Sporting Goods, Inc. During the third quarter of 2016, we signed leases to backfill two of the nine locations. Despite the disruption from these vacancies, our retail portfolio anchor percent leased, including leases signed was 96.9% as of September 30, 2016. Given the continued strength of our portfolio, we plan to remain strategic as we pursue opportunities to upgrade our tenancy and ensure the right mix of operators and unique retailers at our properties. We anticipate that the majority of new leasing activity, based on ABR, for the remainder of 2016 will be attributable to the remaining vacant Sports Authority locations and small shop tenants. The small shop leases are generally expected to be non-comparable in nature as the leased space is more likely to have been vacant for longer than 12 months.
The lease at our one remaining office asset is scheduled to expire on November 30, 2016. We continue to focus on leasing the pending vacant space and have signed one lease to backfill 309,000 square feet of the 895,000 square foot property.
Capital Markets
During the
nine
months ended
September 30, 2016
, we:
|
|
•
|
issued $100,000 of 10-year 4.08% senior unsecured notes in a private placement transaction pursuant to a note purchase agreement we entered into with certain institutional investors on September 30, 2016. Pursuant to the same note purchase agreement, we also expect to issue $100,000 of 12-year 4.24% senior unsecured notes on December 28, 2016;
|
|
|
•
|
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, our Unsecured Credit Facility);
|
|
|
•
|
disposed of The Gateway through a lender-directed sale in full satisfaction of our $94,353 mortgage obligation;
|
|
|
•
|
repaid $100,000, net of borrowings, on our unsecured revolving line of credit;
|
|
|
•
|
entered into the following interest rate swaps that terminate on December 31, 2017: (i) $100,000 interest rate swap that effectively converts one-month floating rate London Interbank Offered Rate (LIBOR) to a fixed rate of 0.6591% and (ii) $150,000 interest rate swap that effectively converts one-month floating rate LIBOR to a fixed rate of 0.6735%. We previously had a $300,000 interest rate swap that matured on February 24, 2016;
|
|
|
•
|
as discussed above, assumed a mortgage payable with a principal balance of $15,971 and an interest rate of 3.75% that matures in 2031 in conjunction with the acquisition of The Shoppes at Union Hill; and
|
|
|
•
|
repaid mortgages payable totaling $35,344 and made scheduled principal payments of $9,900 related to amortizing loans. One of the mortgages repaid, with a principal balance of $7,750 at maturity, had been swapped to a fixed rate and we had guaranteed a portion of the outstanding balance. Upon repayment of the mortgage on its scheduled maturity date, the interest rate swap expired and our guarantee was extinguished.
|
Distributions
We declared quarterly distributions totaling $1.3125 per share of preferred stock and quarterly distributions totaling $0.496875 per share of common stock during the
nine
months ended
September 30, 2016
.
Results of Operations
Comparison of Results for the Three Months Ended
September 30, 2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2016
|
|
2015
|
|
Change
|
Revenues
|
|
|
|
|
|
Rental income
|
$
|
113,627
|
|
|
$
|
116,715
|
|
|
$
|
(3,088
|
)
|
Tenant recovery income
|
29,130
|
|
|
28,901
|
|
|
229
|
|
Other property income
|
1,769
|
|
|
5,339
|
|
|
(3,570
|
)
|
Total revenues
|
144,526
|
|
|
150,955
|
|
|
(6,429
|
)
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
Operating expenses
|
20,285
|
|
|
22,741
|
|
|
(2,456
|
)
|
Real estate taxes
|
19,937
|
|
|
20,961
|
|
|
(1,024
|
)
|
Depreciation and amortization
|
56,763
|
|
|
52,871
|
|
|
3,892
|
|
Provision for impairment of investment properties
|
4,742
|
|
|
169
|
|
|
4,573
|
|
General and administrative expenses
|
11,110
|
|
|
10,939
|
|
|
171
|
|
Total expenses
|
112,837
|
|
|
107,681
|
|
|
5,156
|
|
|
|
|
|
|
|
Operating income
|
31,689
|
|
|
43,274
|
|
|
(11,585
|
)
|
|
|
|
|
|
|
Interest expense
|
(25,602
|
)
|
|
(40,425
|
)
|
|
14,823
|
|
Other income, net
|
22
|
|
|
479
|
|
|
(457
|
)
|
Income from continuing operations
|
6,109
|
|
|
3,328
|
|
|
2,781
|
|
Gain on sales of investment properties
|
66,385
|
|
|
75,001
|
|
|
(8,616
|
)
|
Net income
|
72,494
|
|
|
78,329
|
|
|
(5,835
|
)
|
Preferred stock dividends
|
(2,362
|
)
|
|
(2,362
|
)
|
|
—
|
|
Net income attributable to common shareholders
|
$
|
70,132
|
|
|
$
|
75,967
|
|
|
$
|
(5,835
|
)
|
Net income attributable to common shareholders decreased
$5,835
from
$75,967
for the three months ended
September 30, 2015
to
$70,132
for the three months ended
September 30, 2016
primarily as a result of the following:
|
|
•
|
a
$8,616
decrease in gain on sales of investment properties related to the sales of 12 investment properties, representing approximately 1,254,000 square feet of GLA, during the three months ended
September 30, 2016
compared to the sales of 10 investment properties, representing approximately 1,568,600 square feet of GLA, during the three months ended
September 30, 2015
;
|
|
|
•
|
a $4,573 increase in provision for impairment of investment properties. Based on the results of our evaluations for impairment (see Notes 12 and 13 to the accompanying condensed consolidated financial statements), we recognized impairment charges of $4,742 and $169 for the three months ended September 30, 2016 and 2015, respectively;
|
|
|
•
|
a $3,892 increase in depreciation and amortization primarily due to the write-off of assets taken out of service at a redevelopment property during the three months ended September 30, 2016;
|
|
|
•
|
a $3,570 decrease in other property income primarily as a result of a decrease in lease termination fee income from our same store portfolio; and
|
|
|
•
|
a
$3,088
decrease in rental income primarily consisting of:
|
|
|
•
|
a $4,033 decrease in base rent primarily from the operating properties sold or held for sale as of
September 30, 2016
and our redevelopment properties, partially offset by an increase from the properties acquired after June 30, 2015 and our same store portfolio;
|
partially offset by
|
|
•
|
a $936 increase in amortization of acquired above and below market lease intangibles primarily from the properties acquired after June 30, 2015;
|
partially offset by
|
|
•
|
a
$14,823
decrease in interest expense primarily consisting of:
|
|
|
•
|
a $10,136 decrease in prepayment penalties and defeasance premiums; and
|
|
|
•
|
a $4,438 decrease in interest on mortgages payable due to a reduction in mortgage debt; and
|
|
|
•
|
a $3,709 decrease in operating expenses and real estate taxes, net of tenant recovery income, primarily as a result of our same store portfolio and the operating properties sold or held for sale as of
September 30, 2016
.
|
Net operating income (NOI)
We define NOI as all revenues other than straight-line rental income, amortization of lease inducements, amortization of acquired above and below market lease intangibles and lease termination fee income, less real estate taxes and all operating expenses other than straight-line ground rent expense and amortization of acquired ground lease intangibles, which are non-cash items. NOI consists of same store NOI (Same Store NOI) and NOI from other investment properties (NOI from Other Investment Properties). We believe that NOI, Same Store NOI and NOI from Other Investment Properties, which are supplemental non-GAAP financial measures, provide an additional and useful operating perspective not immediately apparent from “Operating income” or “Net income attributable to common shareholders” in accordance with accounting principles generally accepted in the United States (GAAP). We use these measures to evaluate our performance on a property-by-property basis because they allow management to evaluate the impact that factors such as lease structure, lease rates and tenant base have on our operating results. NOI, Same Store NOI and NOI from Other Investment Properties do not represent alternatives to “Net income” or “Net income attributable to common shareholders” in accordance with GAAP as indicators of our financial performance. Comparison of our presentation of NOI, Same Store NOI and NOI from Other Investment Properties to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in definition and application by such REITs. For reference and as an aid in understanding our computation of NOI, a reconciliation of net income attributable to common shareholders as computed in accordance with GAAP to Same Store NOI has been presented for each comparable period presented.
Same store portfolio – quarter
For the three months ended
September 30, 2016
, our same store portfolio consisted of
164
retail operating properties acquired or placed in service and stabilized prior to July 1, 2015. The number of properties in our same store portfolio decreased to
164
as of
September 30, 2016
from 172 as of June 30, 2016 as a result of the following:
|
|
•
|
the removal of nine same store investment properties sold during the three months ended
September 30, 2016
; and
|
|
|
•
|
the removal of one same store investment property classified as held for sale as of
September 30, 2016
;
|
partially offset by
|
|
•
|
the addition of two investment properties acquired during the second quarter of 2015.
|
The sales of Broadway Shopping Center on July 8, 2016, Mid-Hudson Center on July 21, 2016 and Alison’s Corner on August 4, 2016 did not impact the number of same store properties as they were classified as held for sale as of June 30, 2016.
The properties and financial results reported in “Other investment properties” primarily include the following:
|
|
•
|
properties acquired after June 30, 2015;
|
|
|
•
|
our development property;
|
|
|
•
|
our one remaining office property;
|
|
|
•
|
three properties where we have begun redevelopment and/or activities in anticipation of future redevelopment;
|
|
|
•
|
properties that were sold or held for sale in 2015 and 2016;
|
|
|
•
|
the net income from our wholly-owned captive insurance company; and
|
|
|
•
|
the historical ground rent expense related to an existing same store investment property that was subject to a ground lease with a third party prior to our acquisition of the fee interest on April 29, 2016.
|
The following tables present a reconciliation of net income attributable to common shareholders to Same Store NOI and details of the components of Same Store NOI for the three months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2016
|
|
2015
|
|
Change
|
Net income attributable to common shareholders
|
$
|
70,132
|
|
|
$
|
75,967
|
|
|
$
|
(5,835
|
)
|
Adjustments to reconcile to Same Store NOI:
|
|
|
|
|
|
Preferred stock dividends
|
2,362
|
|
|
2,362
|
|
|
—
|
|
Gain on sales of investment properties
|
(66,385
|
)
|
|
(75,001
|
)
|
|
8,616
|
|
Depreciation and amortization
|
56,763
|
|
|
52,871
|
|
|
3,892
|
|
Provision for impairment of investment properties
|
4,742
|
|
|
169
|
|
|
4,573
|
|
General and administrative expenses
|
11,110
|
|
|
10,939
|
|
|
171
|
|
Interest expense
|
25,602
|
|
|
40,425
|
|
|
(14,823
|
)
|
Straight-line rental income, net
|
(1,226
|
)
|
|
(655
|
)
|
|
(571
|
)
|
Amortization of acquired above and below market lease intangibles, net
|
(1,441
|
)
|
|
(505
|
)
|
|
(936
|
)
|
Amortization of lease inducements
|
265
|
|
|
256
|
|
|
9
|
|
Lease termination fees
|
(385
|
)
|
|
(3,245
|
)
|
|
2,860
|
|
Straight-line ground rent expense
|
692
|
|
|
931
|
|
|
(239
|
)
|
Amortization of acquired ground lease intangibles
|
(140
|
)
|
|
(140
|
)
|
|
—
|
|
Other income, net
|
(22
|
)
|
|
(479
|
)
|
|
457
|
|
NOI
|
102,069
|
|
|
103,895
|
|
|
(1,826
|
)
|
NOI from Other Investment Properties
|
(11,763
|
)
|
|
(17,581
|
)
|
|
5,818
|
|
Same Store NOI
|
$
|
90,306
|
|
|
$
|
86,314
|
|
|
$
|
3,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2016
|
|
2015
|
|
Change
|
Same Store NOI:
|
|
|
|
|
|
Base rent
|
$
|
97,262
|
|
|
$
|
95,092
|
|
|
$
|
2,170
|
|
Percentage and specialty rent
|
565
|
|
|
708
|
|
|
(143
|
)
|
Tenant recovery income
|
26,125
|
|
|
25,029
|
|
|
1,096
|
|
Other property operating income
|
954
|
|
|
1,032
|
|
|
(78
|
)
|
|
124,906
|
|
|
121,861
|
|
|
3,045
|
|
|
|
|
|
|
|
Property operating expenses
|
16,903
|
|
|
17,393
|
|
|
(490
|
)
|
Bad debt expense
|
(250
|
)
|
|
38
|
|
|
(288
|
)
|
Real estate taxes
|
17,947
|
|
|
18,116
|
|
|
(169
|
)
|
|
34,600
|
|
|
35,547
|
|
|
(947
|
)
|
|
|
|
|
|
|
Same Store NOI
|
$
|
90,306
|
|
|
$
|
86,314
|
|
|
$
|
3,992
|
|
Same Store NOI increased
$3,992
, or
4.6%
, primarily due to the following:
|
|
•
|
base rent increased
$2,170
primarily due to an increase of $1,037 from occupancy growth, $830 from contractual rent changes and $647 from re-leasing spreads, partially offset by a decrease of $143 primarily from percentage and specialty rent; and
|
|
|
•
|
property operating expenses, bad debt expense and real estate taxes, net of tenant recovery income, decreased $2,043 primarily as a result of decreases in net recoverable property operating expenses, net real estate taxes resulting from lower than anticipated real estate tax assessments and the receipt of real estate tax refunds, non-recoverable property operating expenses and bad debt expense.
|
Comparison of Results for the
Nine Months Ended
September 30, 2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
2015
|
|
Change
|
Revenues
|
|
|
|
|
|
Rental income
|
$
|
344,081
|
|
|
$
|
355,525
|
|
|
$
|
(11,444
|
)
|
Tenant recovery income
|
89,140
|
|
|
89,617
|
|
|
(477
|
)
|
Other property income
|
7,170
|
|
|
9,898
|
|
|
(2,728
|
)
|
Total revenues
|
440,391
|
|
|
455,040
|
|
|
(14,649
|
)
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
Operating expenses
|
63,438
|
|
|
71,589
|
|
|
(8,151
|
)
|
Real estate taxes
|
60,966
|
|
|
61,957
|
|
|
(991
|
)
|
Depreciation and amortization
|
163,602
|
|
|
163,345
|
|
|
257
|
|
Provision for impairment of investment properties
|
11,048
|
|
|
4,113
|
|
|
6,935
|
|
General and administrative expenses
|
33,289
|
|
|
35,949
|
|
|
(2,660
|
)
|
Total expenses
|
332,343
|
|
|
336,953
|
|
|
(4,610
|
)
|
|
|
|
|
|
|
Operating income
|
108,048
|
|
|
118,087
|
|
|
(10,039
|
)
|
|
|
|
|
|
|
Gain on extinguishment of debt
|
13,653
|
|
|
—
|
|
|
13,653
|
|
Gain on extinguishment of other liabilities
|
6,978
|
|
|
—
|
|
|
6,978
|
|
Interest expense
|
(78,343
|
)
|
|
(110,610
|
)
|
|
32,267
|
|
Other income, net
|
449
|
|
|
1,398
|
|
|
(949
|
)
|
Income from continuing operations
|
50,785
|
|
|
8,875
|
|
|
41,910
|
|
Gain on sales of investment properties
|
97,737
|
|
|
113,214
|
|
|
(15,477
|
)
|
Net income
|
148,522
|
|
|
122,089
|
|
|
26,433
|
|
Preferred stock dividends
|
(7,087
|
)
|
|
(7,087
|
)
|
|
—
|
|
Net income attributable to common shareholders
|
$
|
141,435
|
|
|
$
|
115,002
|
|
|
$
|
26,433
|
|
Net income attributable to common shareholders increased
$26,433
from
$115,002
for the
nine
months ended
September 30, 2015
to
$141,435
for the
nine
months ended
September 30, 2016
primarily as a result of the following:
|
|
•
|
a
$32,267
decrease in interest expense primarily consisting of:
|
|
|
•
|
a $19,097 decrease in interest on mortgages payable due to a reduction in mortgage debt; and
|
|
|
•
|
a $17,027 decrease in prepayment penalties and defeasance premiums;
|
partially offset by
|
|
•
|
a $2,217 increase in interest on our Unsecured Credit Facility primarily due to higher average balances on our unsecured revolving line of credit; and
|
|
|
•
|
a $1,944 increase in interest on our unsecured notes payable related to our 4.00% senior unsecured notes due 2025 (4.00% Notes Due 2025), which were issued in March 2015;
|
|
|
•
|
a $13,653 gain on extinguishment of debt recognized during the
nine
months ended
September 30, 2016
associated with the disposition of The Gateway through a lender-directed sale in full satisfaction of our mortgage obligation. No such gain was recorded during the
nine
months ended
September 30, 2015
;
|
|
|
•
|
an $8,665 decrease in operating expenses and real estate taxes, net of tenant recovery income, primarily as a result of the operating properties sold or held for sale as of
September 30, 2016
and our same store portfolio; and
|
|
|
•
|
a $6,978 gain on extinguishment of other liabilities recognized during the
nine
months ended
September 30, 2016
related to the acquisition of the fee interest in one of our existing investment properties that was previously subject to a ground lease with a third party. The amount recognized represents the reversal of the straight-line ground rent liability associated with the ground lease;
|
partially offset by
|
|
•
|
a
$15,477
decrease in gain on sales of investment properties related to the sales of 28 investment properties and one outparcel, representing approximately 2,387,700 square feet of GLA, during the
nine
months ended
September 30, 2016
compared to the sales of 20 investment properties, representing approximately 3,069,600 square feet of GLA, during the
nine
months ended
September 30, 2015
;
|
|
|
•
|
an
$11,444
decrease in rental income primarily consisting of:
|
|
|
•
|
a $12,365 decrease in base rent from the operating properties sold or held for sale as of
September 30, 2016
and our redevelopment properties, partially offset by an increase from the properties acquired during 2015 and 2016 and our same store portfolio;
|
partially offset by
|
|
•
|
a $1,066 increase in amortization of acquired above and below market lease intangibles primarily from the properties acquired during 2015 and 2016; and
|
|
|
•
|
a $6,935 increase in provision for impairment of investment properties. Based on the results of our evaluations for impairment (see Notes 12 and 13 to the accompanying consolidated financial statements), we recognized impairment charges of $11,048 and $4,113 for the nine months ended September 30, 2016 and 2015, respectively.
|
Same store portfolio – year to date
For the
nine
months ended
September 30, 2016
, our same store portfolio consisted of
158
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
158
as of
September 30, 2016
from 168 as of June 30, 2016. Refer to the lead-in paragraph to the comparison of the three months ended
September 30, 2016
and
2015
table for an explanation of the change in the number of properties in our same store portfolio; however, the same store portfolio for the three months ended
September 30, 2016
, consisting of
164
retail operating properties, includes two investment properties acquired during the second quarter of 2015 and four investment properties acquired during the first quarter of 2015, none of which are included in the same store portfolio for the
nine
months ended
September 30, 2016
.
The following tables present a reconciliation of net income attributable to common shareholders to Same Store NOI and details of the components of Same Store NOI for the
nine
months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
2015
|
|
Change
|
Net income attributable to common shareholders
|
$
|
141,435
|
|
|
$
|
115,002
|
|
|
$
|
26,433
|
|
Adjustments to reconcile to Same Store NOI:
|
|
|
|
|
|
Preferred stock dividends
|
7,087
|
|
|
7,087
|
|
|
—
|
|
Gain on sales of investment properties
|
(97,737
|
)
|
|
(113,214
|
)
|
|
15,477
|
|
Depreciation and amortization
|
163,602
|
|
|
163,345
|
|
|
257
|
|
Provision for impairment of investment properties
|
11,048
|
|
|
4,113
|
|
|
6,935
|
|
General and administrative expenses
|
33,289
|
|
|
35,949
|
|
|
(2,660
|
)
|
Gain on extinguishment of debt
|
(13,653
|
)
|
|
—
|
|
|
(13,653
|
)
|
Gain on extinguishment of other liabilities
|
(6,978
|
)
|
|
—
|
|
|
(6,978
|
)
|
Interest expense
|
78,343
|
|
|
110,610
|
|
|
(32,267
|
)
|
Straight-line rental income, net
|
(3,054
|
)
|
|
(2,297
|
)
|
|
(757
|
)
|
Amortization of acquired above and below market lease intangibles, net
|
(2,412
|
)
|
|
(1,346
|
)
|
|
(1,066
|
)
|
Amortization of lease inducements
|
817
|
|
|
636
|
|
|
181
|
|
Lease termination fees
|
(3,070
|
)
|
|
(3,712
|
)
|
|
642
|
|
Straight-line ground rent expense
|
2,372
|
|
|
2,797
|
|
|
(425
|
)
|
Amortization of acquired ground lease intangibles
|
(420
|
)
|
|
(420
|
)
|
|
—
|
|
Other income, net
|
(449
|
)
|
|
(1,398
|
)
|
|
949
|
|
NOI
|
310,220
|
|
|
317,152
|
|
|
(6,932
|
)
|
NOI from Other Investment Properties
|
(55,162
|
)
|
|
(71,058
|
)
|
|
15,896
|
|
Same Store NOI
|
$
|
255,058
|
|
|
$
|
246,094
|
|
|
$
|
8,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
2015
|
|
Change
|
Same Store NOI:
|
|
|
|
|
|
Base rent
|
$
|
275,664
|
|
|
$
|
270,173
|
|
|
$
|
5,491
|
|
Percentage and specialty rent
|
2,676
|
|
|
2,559
|
|
|
117
|
|
Tenant recovery income
|
73,383
|
|
|
72,316
|
|
|
1,067
|
|
Other property operating income
|
2,468
|
|
|
2,703
|
|
|
(235
|
)
|
|
354,191
|
|
|
347,751
|
|
|
6,440
|
|
|
|
|
|
|
|
Property operating expenses
|
48,149
|
|
|
50,196
|
|
|
(2,047
|
)
|
Bad debt expense
|
(450
|
)
|
|
709
|
|
|
(1,159
|
)
|
Real estate taxes
|
51,434
|
|
|
50,752
|
|
|
682
|
|
|
99,133
|
|
|
101,657
|
|
|
(2,524
|
)
|
|
|
|
|
|
|
Same Store NOI
|
$
|
255,058
|
|
|
$
|
246,094
|
|
|
$
|
8,964
|
|
Same Store NOI increased
$8,964
, or
3.6%
, primarily due to the following:
|
|
•
|
base rent increased
$5,491
primarily due to an increase of $2,370 from contractual rent changes, $2,089 from occupancy growth and $1,698 from re-leasing spreads, partially offset by a decrease of $661 from rent abatements; and
|
|
|
•
|
property operating expenses, bad debt expense and real estate taxes, net of tenant recovery income, decreased $3,591 primarily as a result of decreases in non-recoverable property operating expenses, bad debt expense, net recoverable property operating expenses, and net real estate taxes resulting from lower than anticipated real estate tax assessments and the receipt of real estate tax refunds.
|
Funds From Operations Attributable to Common Shareholders
The National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a financial measure known as funds from operations (FFO). As defined by NAREIT, FFO means net income (loss) computed in accordance with GAAP, excluding gains (or losses) from sales of depreciable real estate, plus depreciation and amortization and impairment charges on depreciable real estate. We have adopted the NAREIT definition in our computation of FFO attributable to common shareholders. Management believes that, subject to the following limitations, FFO attributable to common shareholders provides a basis for comparing our performance and operations to those of other REITs.
We define Operating FFO attributable to common shareholders as FFO attributable to common shareholders excluding the impact of discrete non-operating transactions and other events which we do not consider representative of the comparable operating results of our real estate operating portfolio, which is our core business platform. Specific examples of discrete non-operating transactions and other events include, but are not limited to, the financial statement impact of gains or losses associated with the early extinguishment of debt or other liabilities, impairment charges to write down the carrying value of assets other than depreciable real estate, actual or anticipated settlement of litigation involving the Company and executive and realignment separation charges, which are otherwise excluded from our calculation of FFO attributable to common shareholders.
We believe that FFO attributable to common shareholders and Operating FFO attributable to common shareholders, which are supplemental non-GAAP financial measures, provide an additional and useful means to assess the operating performance of REITs. FFO attributable to common shareholders and Operating FFO attributable to common shareholders do not represent alternatives to (i) “Net Income” or “Net income attributable to common shareholders” as indicators of our financial performance, or (ii) “Cash flows from operating activities” in accordance with GAAP as measures of our capacity to fund cash needs, including the payment of dividends. Comparison of our presentation of Operating FFO attributable to common shareholders to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in definition and application by such REITs.
The following table presents a reconciliation of net income attributable to common shareholders to FFO attributable to common shareholders and Operating FFO attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income attributable to common shareholders
|
$
|
70,132
|
|
|
$
|
75,967
|
|
|
$
|
141,435
|
|
|
$
|
115,002
|
|
Depreciation and amortization of depreciable real estate
|
56,384
|
|
|
52,596
|
|
|
162,577
|
|
|
162,520
|
|
Provision for impairment of investment properties
|
4,742
|
|
|
169
|
|
|
8,884
|
|
|
4,113
|
|
Gain on sales of depreciable investment properties
|
(66,385
|
)
|
|
(75,001
|
)
|
|
(97,737
|
)
|
|
(113,214
|
)
|
FFO attributable to common shareholders
|
$
|
64,873
|
|
|
$
|
53,731
|
|
|
$
|
215,159
|
|
|
$
|
168,421
|
|
|
|
|
|
|
|
|
|
FFO attributable to common shareholders per common share outstanding
|
$
|
0.27
|
|
|
$
|
0.23
|
|
|
$
|
0.91
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
FFO attributable to common shareholders
|
$
|
64,873
|
|
|
$
|
53,731
|
|
|
$
|
215,159
|
|
|
$
|
168,421
|
|
Impact on earnings from the early extinguishment of debt, net
|
—
|
|
|
10,618
|
|
|
(12,842
|
)
|
|
17,635
|
|
Provision for hedge ineffectiveness
|
(38
|
)
|
|
(4
|
)
|
|
(35
|
)
|
|
(25
|
)
|
Provision for impairment of non-depreciable investment property
|
—
|
|
|
—
|
|
|
2,164
|
|
|
—
|
|
Gain on extinguishment of other liabilities
|
—
|
|
|
—
|
|
|
(6,978
|
)
|
|
—
|
|
Executive separation charges (a)
|
—
|
|
|
—
|
|
|
—
|
|
|
3,537
|
|
Other (b)
|
(5
|
)
|
|
91
|
|
|
(189
|
)
|
|
(909
|
)
|
Operating FFO attributable to common shareholders
|
$
|
64,830
|
|
|
$
|
64,436
|
|
|
$
|
197,279
|
|
|
$
|
188,659
|
|
|
|
|
|
|
|
|
|
Operating FFO attributable to common shareholders
per common share outstanding
|
$
|
0.27
|
|
|
$
|
0.27
|
|
|
$
|
0.83
|
|
|
$
|
0.80
|
|
|
|
(a)
|
Included in “General and administrative expenses” in the condensed consolidated statements of operations and other comprehensive income.
|
|
|
(b)
|
Consists of the impact on earnings from net settlements and easement proceeds, 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 our 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
September 30, 2016
, we had
$2,865
of scheduled principal amortization related to longer-dated maturities through the end of
2016
, 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
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
Aggregate
Principal
Amount
|
|
Weighted
Average
Interest Rate
|
|
Maturity Date
|
|
Weighted
Average Years
to Maturity
|
Fixed rate mortgages payable (a)
|
|
$
|
1,004,879
|
|
|
6.06
|
%
|
|
Various
|
|
3.7 years
|
|
|
|
|
|
|
|
|
|
Unsecured notes payable:
|
|
|
|
|
|
|
|
|
Senior notes – 4.12% due 2021
|
|
100,000
|
|
|
4.12
|
%
|
|
June 30, 2021
|
|
4.8 years
|
Senior notes – 4.58% due 2024
|
|
150,000
|
|
|
4.58
|
%
|
|
June 30, 2024
|
|
7.8 years
|
Senior notes – 4.00% due 2025
|
|
250,000
|
|
|
4.00
|
%
|
|
March 15, 2025
|
|
8.5 years
|
Senior notes – 4.08% due 2026 (b)
|
|
100,000
|
|
|
4.08
|
%
|
|
September 30, 2026
|
|
10.0 years
|
Total unsecured notes payable (a)
|
|
600,000
|
|
|
4.18
|
%
|
|
|
|
7.9 years
|
|
|
|
|
|
|
|
|
|
Unsecured credit facility:
|
|
|
|
|
|
|
|
|
Term loan – fixed rate (c)
|
|
250,000
|
|
|
1.97
|
%
|
|
January 5, 2021
|
|
4.3 years
|
Term loan – variable rate (d)
|
|
200,000
|
|
|
1.97
|
%
|
|
May 11, 2018 (c)
|
|
1.6 years
|
Revolving line of credit – variable rate (d)
|
|
—
|
|
|
1.87
|
%
|
|
January 5, 2020 (c)
|
|
3.3 years
|
Total unsecured credit facility (a)
|
|
450,000
|
|
|
1.97
|
%
|
|
|
|
3.1 years
|
|
|
|
|
|
|
|
|
|
Total consolidated indebtedness
|
|
$
|
2,054,879
|
|
|
4.61
|
%
|
|
|
|
4.8 years
|
|
|
(a)
|
Fixed rate mortgages payable excludes mortgage premium of
$1,544
, discount of
$(633)
and capitalized loan fees of
$(5,701)
, net of accumulated amortization, as of
September 30, 2016
. Unsecured notes payable excludes discount of
$(1,001)
and capitalized loan fees of
$(3,520)
, net of accumulated amortization, as of
September 30, 2016
. Term loans exclude capitalized loan fees of
$(2,698)
, net of accumulated amortization, as of
September 30, 2016
. Capitalized loan fees related to the revolving line of credit are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.
|
|
|
(b)
|
On September 30, 2016, we issued $100,000 of 10-year 4.08% senior unsecured notes in a private placement transaction pursuant to a note purchase agreement we entered into with certain institutional investors on September 30, 2016. Pursuant to the same note purchase agreement, we also expect to issue $100,000 of 12-year 4.24% senior unsecured notes on December 28, 2016.
|
|
|
(c)
|
Reflects $250,000 of LIBOR-based variable rate debt that has been swapped to a weighted average fixed rate of 0.6677% plus a credit spread based on a leverage grid ranging from 1.30% to 2.20% through December 31, 2017. The applicable credit spread was 1.30% as of
September 30, 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
nine
months ended
September 30, 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
nine
months ended
September 30, 2016
, we repaid mortgages payable in the total amount of
$35,344
which had a weighted average fixed interest rate of
4.34%
and made scheduled principal payments of
$9,900
related to amortizing loans. One of the mortgages repaid, with a principal balance of $7,750 at maturity, had been swapped to a fixed rate and we had guaranteed a portion of the outstanding balance. Upon repayment of the mortgage on its scheduled maturity date, the interest rate swap expired and our guarantee was extinguished. We also assumed a mortgage payable with a principal balance of $15,971 and an interest rate of 3.75% that matures in 2031 in conjunction with the acquisition of The Shoppes at Union Hill.
Unsecured Notes Payable
On September 30, 2016, we issued $100,000 of 10-year 4.08% senior unsecured notes due 2026 (Notes Due 2026) in a private placement transaction pursuant to a note purchase agreement we entered into with certain institutional investors on September 30, 2016. The proceeds were used to pay down our unsecured revolving line of credit and for general corporate purposes. Pursuant to the same note purchase agreement, we also expect to issue $100,000 of 12-year 4.24% senior unsecured notes on December 28, 2016 (Notes Due 2028 and, collectively, Notes Due 2026 and 2028). On March 12, 2015, we completed a public offering of $250,000 in aggregate principal amount of our 4.00% Notes Due 2025. The 4.00% Notes Due 2025 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% senior unsecured notes due 2021 and $150,000 of 4.58% senior unsecured notes due 2024 (collectively, Notes Due 2021 and 2024). The proceeds from the 4.00% Notes Due 2025 and the Notes Due 2021 and 2024 were used to repay a portion of our unsecured revolving line of credit.
The note purchase agreement governing the Notes Due 2026 and 2028 contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the note purchase agreement, we are subject to various financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) a minimum interest coverage ratio; (iii) a fixed charge coverage ratio (as set forth in our unsecured credit facility); and (iv) an unencumbered interest coverage ratio (as set forth in our unsecured credit facility and the note purchase agreement governing the Notes Due 2021 and 2024).
The indenture, as supplemented, governing the 4.00% Notes Due 2025 (the Indenture) contains customary covenants and events of default. Pursuant to the terms of the Indenture, we are subject to various financial covenants, including the requirement to maintain the following: (i) maximum secured and total leverage ratios; (ii) a debt service coverage ratio; and (iii) maintenance of an unencumbered assets to unsecured debt ratio.
The note purchase agreement governing the Notes Due 2021 and 2024 contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the note purchase agreement, we are subject to various financial covenants, some of which are based upon the financial covenants in effect in our primary credit facility, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) minimum interest coverage and unencumbered interest coverage ratios; and (iii) a minimum consolidated net worth.
As of
September 30, 2016
, management believes we were in compliance with the financial covenants under the Indenture and the note purchase agreements.
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. We received investment grade credit ratings from two rating agencies in 2014. In accordance with the unsecured credit agreement, we may elect to convert to an investment grade pricing grid. As of
September 30, 2016
, making such an election would have resulted in a higher interest rate and, as such, we have not made the election to convert to an investment grade pricing grid.
The following table summarizes the key terms of our 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%
|
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
September 30, 2016
, management believes we were in compliance with the financial covenants and default provisions under the unsecured credit agreement.
As of
September 30, 2016
, we had letter(s) of credit outstanding totaling
$143
which serve as collateral for certain capital improvements at one of our properties and reduce the available borrowings on our unsecured revolving line of credit.
Debt Maturities
The following table shows the scheduled maturities and principal amortization of our indebtedness as of
September 30, 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
September 30, 2016
. The table does not reflect the impact of any debt activity that occurred after
September 30, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
Thereafter
|
|
Total
|
|
Fair Value
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages payable (a)
|
$
|
2,865
|
|
|
$
|
227,451
|
|
|
$
|
11,647
|
|
|
$
|
444,324
|
|
|
$
|
4,334
|
|
|
$
|
314,258
|
|
|
$
|
1,004,879
|
|
|
$
|
1,094,472
|
|
Unsecured credit facility – fixed rate term loan (b)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250,000
|
|
|
250,000
|
|
|
250,000
|
|
Unsecured notes payable (c)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
600,000
|
|
|
600,000
|
|
|
617,473
|
|
Total fixed rate debt
|
2,865
|
|
|
227,451
|
|
|
11,647
|
|
|
444,324
|
|
|
4,334
|
|
|
1,164,258
|
|
|
1,854,879
|
|
|
1,961,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured credit facility – variable rate term loan
|
—
|
|
|
—
|
|
|
200,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
200,000
|
|
|
200,000
|
|
Total variable rate debt
|
—
|
|
|
—
|
|
|
200,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
200,000
|
|
|
200,000
|
|
Total debt (d)
|
$
|
2,865
|
|
|
$
|
227,451
|
|
|
$
|
211,647
|
|
|
$
|
444,324
|
|
|
$
|
4,334
|
|
|
$
|
1,164,258
|
|
|
$
|
2,054,879
|
|
|
$
|
2,161,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate on debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt
|
7.18
|
%
|
|
5.08
|
%
|
|
6.52
|
%
|
|
7.49
|
%
|
|
4.58
|
%
|
|
3.85
|
%
|
|
4.90
|
%
|
|
|
Variable rate debt (e)
|
—
|
|
|
—
|
|
|
1.97
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.97
|
%
|
|
|
Total
|
7.18
|
%
|
|
5.08
|
%
|
|
2.22
|
%
|
|
7.49
|
%
|
|
4.58
|
%
|
|
3.85
|
%
|
|
4.61
|
%
|
|
|
|
|
(a)
|
Excludes mortgage premium of
$1,544
and discount of
$(633)
, net of accumulated amortization, as of
September 30, 2016
.
|
|
|
(b)
|
$250,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through two interest rate swaps. The swaps effectively convert one-month floating rate LIBOR to a weighted average fixed rate of 0.6677% through December 31, 2017.
|
|
|
(c)
|
Excludes discount of
$(1,001)
, net of accumulated amortization, as of
September 30, 2016
and $100,000 of 12-year 4.24% senior unsecured notes which we expect to issue on December 28, 2016 pursuant to a note purchase agreement we entered into with certain institutional investors on September 30, 2016.
|
|
|
(d)
|
Total debt excludes capitalized loan fees of
$(11,919)
, net of accumulated amortization, as of
September 30, 2016
which are included as a reduction to the respective debt balances. The weighted average years to maturity of consolidated indebtedness was
4.8 years
as of
September 30, 2016
. The $107,066 difference between total debt outstanding and its fair value is primarily attributable to a $57,011 difference related to our IW JV 2009, LLC pool of mortgages. This pool matures in 2019, has an interest rate of 7.50% and an outstanding principal balance of
$391,436
as of
September 30, 2016
.
|
|
|
(e)
|
Represents interest rates as of
September 30, 2016
.
|
We plan on addressing our debt maturities through a combination of proceeds from asset dispositions, capital markets transactions and our unsecured revolving line of credit.
Distributions and Equity Transactions
Our distributions of current and accumulated earnings and profits for U.S. federal income tax purposes are taxable to shareholders, generally, as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the shareholders’ basis in the shares to the extent thereof (non-dividend distributions) and thereafter as taxable gain. We intend to continue to qualify as a REIT for U.S. federal income tax purposes. The Internal Revenue Code of 1986, as amended (the Code) generally requires that a REIT annually distributes to its shareholders at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains. The Code imposes tax on any undistributed REIT taxable income.
To satisfy the requirements for qualification as a REIT and generally not be subject to U.S. federal income and excise tax, we intend to make regular quarterly distributions of all, or substantially all, of our taxable income to shareholders. Our future distributions will be at the discretion of our board of directors. When determining the amount of future distributions, we expect to consider, among other factors, (i) the amount of cash generated from our operating activities, (ii) our expectations of future cash flow, (iii) our determination of near-term cash needs for debt repayments, 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
nine
months ended
September 30, 2016
. As of
September 30, 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
September 30, 2016
, we had not repurchased any shares under this program.
Capital Expenditures and Redevelopment Activity
We anticipate that obligations related to capital improvements, including expansions and pad developments, at our operating properties in
2016
can be met with cash flows from operations and working capital.
As of
September 30, 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. We began active redevelopment at Reisterstown Road Plaza, located in Baltimore, Maryland, in the third quarter of 2016. We anticipate stabilization in 2017 and estimate that we will incur net costs of approximately $11,000 to $12,000 related to the redevelopment, of which $610 has been incurred as of
September 30, 2016
. We anticipate funding the redevelopment with cash flows from operations, working capital and proceeds from our unsecured revolving line of credit.
Dispositions
We continue to execute our long-term portfolio repositioning strategy of disposing of select non-target and single-user properties. The following table highlights our property dispositions during
2015
and the
nine
months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Properties Sold
|
|
Square
Footage
|
|
Consideration
|
|
Aggregate
Proceeds, Net (a)
|
|
Debt
Extinguished
|
|
2016 Dispositions (through September 30, 2016)
|
|
28
|
|
|
2,384,300
|
|
|
$
|
390,682
|
|
|
$
|
304,806
|
|
|
$
|
94,353
|
|
(b)
|
2015 Dispositions
|
|
26
|
|
|
3,917,200
|
|
|
$
|
516,444
|
|
|
$
|
505,524
|
|
|
$
|
25,724
|
|
(c)
|
|
|
(a)
|
Represents total consideration net of transaction costs. 2015 dispositions include the disposition of two development properties, one of which had been held in a consolidated joint venture.
|
|
|
(b)
|
Represents The Gateway’s outstanding mortgage payable prior to the lender-directed sale of the property. Immediately prior to the disposition, the lender reduced our loan obligation to $75,000 which was assumed by the buyer in connection with the disposition. Along with the loan reduction, the lender received the balance of the restricted escrows that they held and the rights to unpaid accounts receivable and forgave accrued interest, resulting in a net gain on extinguishment of debt of $13,653.
|
|
|
(c)
|
Excludes $95,881 of mortgages payable repayments or defeasances completed prior to disposition of the respective property for the year ended December 31, 2015.
|
In addition to the transactions presented in the preceding table, during the
nine
months ended
September 30, 2016
, we received net proceeds of $2,549 from the sale of an outparcel at one of our properties. During the year ended
December 31, 2015
, we received net proceeds of $300 from condemnation awards.
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
nine
months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Assets Acquired
|
|
Square
Footage
|
|
Acquisition
Price
|
|
Mortgage
Debt
|
2016 Acquisitions (through September 30, 2016) (a)
|
|
8
|
|
|
761,700
|
|
|
$
|
283,337
|
|
|
$
|
15,971
|
|
2015 Acquisitions (b)
|
|
11
|
|
|
1,179,800
|
|
|
$
|
463,136
|
|
|
$
|
—
|
|
|
|
(a)
|
2016 acquisitions include the purchase of the fee interest in our Ashland & Roosevelt multi-tenant retail operating property that was previously subject to a ground lease with a third party and the anchor space improvements in our Woodinville Plaza multi-tenant retail operating property that was previously subject to a ground lease with us. The total number of properties in our portfolio was not affected by these transactions.
|
|
|
(b)
|
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.
|