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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to
Commission File Number: 001-35481
RETAIL PROPERTIES OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Maryland42-1579325
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2021 Spring Road, Suite 200, Oak Brook, Illinois 60523
(Address of principal executive offices) (Zip Code)
(630) 634-4200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.001 par valueRPAINew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No x
Number of shares outstanding of the registrant’s class of common stock as of October 30, 2020:
Class A common stock:    214,252,627 shares


Table of Contents
RETAIL PROPERTIES OF AMERICA, INC.
TABLE OF CONTENTS




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

September 30,
2020
December 31,
2019
Assets  
Investment properties:  
Land$1,075,037 $1,021,829 
Building and other improvements3,576,289 3,544,582 
Developments in progress168,365 113,353 
4,819,691 4,679,764 
Less: accumulated depreciation(1,482,583)(1,383,274)
Net investment properties (includes $59,678 and $12,445 from consolidated
variable interest entities, respectively)
3,337,108 3,296,490 
Cash and cash equivalents27,371 9,989 
Accounts and notes receivable, net86,589 73,832 
Acquired lease intangible assets, net70,837 79,832 
Right-of-use lease assets43,234 50,241 
Other assets, net (includes $336 and $164 from consolidated
variable interest entities, respectively)
69,678 75,978 
Total assets$3,634,817 $3,586,362 
Liabilities and Equity  
Liabilities:  
Mortgages payable, net$92,075 $94,155 
Unsecured notes payable, net1,185,479 796,247 
Unsecured term loans, net467,391 716,523 
Unsecured revolving line of credit 18,000 
Accounts payable and accrued expenses
69,036 78,902 
Distributions payable10,713 35,387 
Acquired lease intangible liabilities, net63,591 63,578 
Lease liabilities84,898 91,129 
Other liabilities (includes $7,361 and $1,707 from consolidated
variable interest entities, respectively)
74,357 56,368 
Total liabilities2,047,540 1,950,289 
Commitments and contingencies (Note 13)
Equity:  
Preferred stock, $0.001 par value, 10,000 shares authorized, none issued or outstanding
  
Class A common stock, $0.001 par value, 475,000 shares authorized,
214,253 and 213,600 shares issued and outstanding as of September 30, 2020
and December 31, 2019, respectively
214 214 
Additional paid-in capital4,517,996 4,510,484 
Accumulated distributions in excess of earnings(2,899,388)(2,865,933)
Accumulated other comprehensive loss(36,052)(12,288)
Total shareholders’ equity1,582,770 1,632,477 
Noncontrolling interests4,507 3,596 
Total equity1,587,277 1,636,073 
Total liabilities and equity$3,634,817 $3,586,362 

See accompanying notes to condensed consolidated financial statements
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RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss)
(Unaudited)
(in thousands, except per share amounts)

Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Revenues:  
Lease income$107,358 $119,717 $322,856 $360,869 
Expenses:    
Operating expenses15,620 16,088 46,877 50,903 
Real estate taxes19,720 18,583 56,169 55,520 
Depreciation and amortization41,741 67,460 125,669 153,609 
Provision for impairment of investment properties2,279 11,177 2,625 11,177 
General and administrative expenses8,514 10,334 26,170 30,186 
Total expenses87,874 123,642 257,510 301,395 
Other (expense) income:
Interest expense(21,941)(25,084)(58,347)(59,877)
Gain on sales of investment properties 1,969  18,872 
Gain on litigation settlement  6,100  
Other income (expense), net169 (1,113)(377)(2,244)
Net (loss) income(2,288)(28,153)12,722 16,225 
Net income attributable to noncontrolling interests    
Net (loss) income attributable to common shareholders$(2,288)$(28,153)$12,722 $16,225 
(Loss) earnings per common share – basic and diluted:    
Net (loss) income per common share attributable to common shareholders$(0.01)$(0.13)$0.06 $0.07 
Net (loss) income$(2,288)$(28,153)$12,722 $16,225 
Other comprehensive income (loss):
Net unrealized gain (loss) on derivative instruments (Note 8)3,124 (7,152)(23,764)(16,973)
Comprehensive income (loss) attributable to the Company$836 $(35,305)$(11,042)$(748)
Weighted average number of common shares outstanding – basic213,385 212,995 213,312 212,932 
Weighted average number of common shares outstanding – diluted213,385 212,995 213,312 213,056 

See accompanying notes to condensed consolidated financial statements
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RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Statements of Equity
(Unaudited)
(in thousands, except per share amounts)
 Class A
Common Stock
Additional
Paid-in
Capital
Accumulated
Distributions
in Excess of
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Total
Shareholders’
Equity
Noncontrolling
Interests
Total Equity
Three Months EndedSharesAmount
Balance as of July 1, 2019213,662 $214 $4,507,488 $(2,783,183)$(11,343)$1,713,176 $1,445 $1,714,621 
Net loss— — — (28,153)— (28,153)— (28,153)
Other comprehensive loss— — — — (7,152)(7,152)— (7,152)
Contributions from noncontrolling interests— — — — — — 975 975 
Distributions declared to common shareholders
($0.165625 per share)
— — — (35,382)— (35,382)— (35,382)
Stock-based compensation expense, net of forfeitures(7)— 1,849 — — 1,849 — 1,849 
Balance as of September 30, 2019213,655 $214 $4,509,337 $(2,846,718)$(18,495)$1,644,338 $2,420 $1,646,758 
Three Months Ended
Balance as of July 1, 2020214,253 $214 $4,515,716 $(2,886,387)$(39,176)$1,590,367 $3,718 $1,594,085 
Net loss— — — (2,288)— (2,288)— (2,288)
Other comprehensive income— — — — 3,124 3,124 — 3,124 
Contributions from noncontrolling interests— — — — — — 789 789 
Distributions declared to common shareholders
($0.05 per share)
— — — (10,713)— (10,713)— (10,713)
Stock-based compensation expense— — 2,280 — — 2,280 — 2,280 
Balance as of September 30, 2020214,253 $214 $4,517,996 $(2,899,388)$(36,052)$1,582,770 $4,507 $1,587,277 
Nine Months Ended
Balance as of January 1, 2019213,176 $213 $4,504,702 $(2,756,802)$(1,522)$1,746,591 $418 $1,747,009 
Net income— — — 16,225 — 16,225 — 16,225 
Other comprehensive loss— — — — (16,973)(16,973)— (16,973)
Contributions from noncontrolling interests— — — — — — 2,002 2,002 
Distributions declared to common shareholders
($0.496875 per share)
— — — (106,141)— (106,141)— (106,141)
Issuance of common stock111 — — — — — — — 
Issuance of restricted shares469 1 — — — 1 — 1 
Stock-based compensation expense, net of forfeitures
(16)— 5,672 — — 5,672 — 5,672 
Shares withheld for employee taxes
(85)— (1,037)— — (1,037)— (1,037)
Balance as of September 30, 2019213,655 $214 $4,509,337 $(2,846,718)$(18,495)$1,644,338 $2,420 $1,646,758 
Nine Months Ended
Balance as of January 1, 2020213,600 $214 $4,510,484 $(2,865,933)$(12,288)$1,632,477 $3,596 $1,636,073 
Net income— — — 12,722 — 12,722 — 12,722 
Other comprehensive loss— — — — (23,764)(23,764)— (23,764)
Contributions from noncontrolling interests— — — — — — 3,128 3,128 
Termination of consolidated joint ventures— — 2,217 — — 2,217 (2,217)— 
Distributions declared to common shareholders
($0.215625 per share)
— — — (46,177)— (46,177)— (46,177)
Issuance of common stock
148 — — — — — — — 
Issuance of restricted shares
624 — — — — — — — 
Stock-based compensation expense
— — 6,734 — — 6,734 — 6,734 
Shares withheld for employee taxes
(119)— (1,439)— — (1,439)— (1,439)
Balance as of September 30, 2020214,253 $214 $4,517,996 $(2,899,388)$(36,052)$1,582,770 $4,507 $1,587,277 
See accompanying notes to condensed consolidated financial statements
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RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine Months Ended September 30,
 20202019
Cash flows from operating activities:  
Net income$12,722 $16,225 
Adjustments to reconcile net income to net cash provided by operating activities:
  
Depreciation and amortization125,669 153,609 
Provision for impairment of investment properties2,625 11,177 
Gain on sales of investment properties (18,872)
Amortization of loan fees and debt premium and discount, net3,249 1,913 
Amortization of stock-based compensation6,734 5,672 
Debt prepayment fees2,786 8,151 
Payment of leasing fees and inducements(5,787)(6,880)
Changes in accounts receivable, net(17,195)3,071 
Changes in right-of-use lease assets1,391 1,438 
Changes in accounts payable and accrued expenses, net(12,392)(4,222)
Changes in lease liabilities(671)(496)
Changes in other operating assets and liabilities, net621 6,156 
Other, net(1,111)(6,254)
Net cash provided by operating activities118,641 170,688 
Cash flows from investing activities:  
Purchase of investment properties(54,970)(29,891)
Capital expenditures and tenant improvements(44,955)(59,971)
Proceeds from sales of investment properties11,369 44,656 
Investment in developments in progress(58,939)(17,817)
Net cash used in investing activities(147,495)(63,023)
Cash flows from financing activities:  
Principal payments on mortgages payable(2,160)(109,917)
Proceeds from unsecured notes payable493,746 100,000 
Repayments of unsecured notes payable(100,000) 
Proceeds from unsecured term loans 270,000 
Repayments of unsecured term loans(250,000) 
Proceeds from unsecured revolving line of credit937,704 208,000 
Repayments of unsecured revolving line of credit(955,704)(457,000)
Payment of loan fees and deposits(5,403)(2,519)
Debt prepayment fees(2,786)(8,151)
Distributions paid(70,851)(106,141)
Other, net1,689 965 
Net cash provided by (used in) financing activities46,235 (104,763)
Net increase in cash, cash equivalents and restricted cash17,381 2,902 
Cash, cash equivalents and restricted cash, at beginning of period14,447 19,601 
Cash, cash equivalents and restricted cash, at end of period$31,828 $22,503 
(continued)
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RETAIL PROPERTIES OF AMERICA, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine Months Ended September 30,
20202019
Supplemental cash flow disclosure, including non-cash activities:  
Cash paid for interest, net of interest capitalized$52,919 $56,950 
Cash paid for amounts included in the measurement of operating lease liabilities$4,406 $4,523 
Distributions payable$10,713 $35,387 
Accrued capital expenditures and tenant improvements$8,182 $6,048 
Accrued leasing fees and inducements$1,594 $1,184 
Accrued redevelopment costs$2,678 $565 
Amounts reclassified to developments in progress$305 $34,746 
Developments in progress placed in service$4,725 $1,377 
Change in noncontrolling interest due to termination of joint ventures$2,217 $ 
Lease liabilities arising from obtaining right-of-use lease assets$383 $103,519 
Straight-line ground rent liabilities reclassified to right-of-use lease asset$ $31,030 
Straight-line office rent liability reclassified to right-of-use lease asset$ $507 
Acquired ground lease intangible liability reclassified to right-of-use lease asset$ $11,898 
Purchase of investment properties (after credits at closing):
Net investment properties$(58,760)$(28,486)
Right-of-use lease assets5,999  
Accounts receivable, acquired lease intangibles and other assets(1,801)(1,792)
Lease liabilities(5,942) 
Accounts payable, acquired lease intangibles and other liabilities5,534 387 
Purchase of investment properties (after credits at closing)$(54,970)$(29,891)
Proceeds from sales of investment properties:  
Net investment properties$11,307 $30,119 
Right-of-use lease assets 8,242 
Accounts receivable, acquired lease intangibles and other assets167 1,591 
Lease liabilities (11,326)
Accounts payable, acquired lease intangibles and other liabilities(105)(2,842)
Gain on sales of investment properties 18,872 
Proceeds from sales of investment properties$11,369 $44,656 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents, at beginning of period$9,989 $14,722 
Restricted cash, at beginning of period (included within “Other assets, net”)4,458 4,879 
Total cash, cash equivalents and restricted cash, at beginning of period$14,447 $19,601 
Cash and cash equivalents, at end of period$27,371 $17,076 
Restricted cash, at end of period (included within “Other assets, net”)4,457 5,427 
Total cash, cash equivalents and restricted cash, at end of period$31,828 $22,503 

See accompanying notes to condensed consolidated financial statements
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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, 2019, which are included in its 2019 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 open-air shopping centers, including properties with a mixed-use component. As of September 30, 2020, the Company owned 102 retail operating properties 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 capitalization of development costs, provision for impairment, including estimates of holding periods, capitalization rates and discount rates (where applicable), and initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions and initial recognition of right-of-use lease assets and lease liabilities. Actual results could differ from these estimates.
In accordance with Accounting Standards Codification Topic 205, Presentation of Financial Statements, certain prior year balances have been reclassified in order to conform to the current period presentation. Specifically, for the nine months ended September 30, 2019, the reserve for uncollectible lease income of $1,860 has been presented as a component of “Changes in accounts receivable, net” rather than the previous presentation where it was included as a component of “Other, net” in the accompanying condensed consolidated statements of cash flows within “Cash flows from operating activities.” There has been no change to “Net cash provided by operating activities” for the nine months ended September 30, 2019 as a result of this reclassification.
All share amounts and dollar amounts in this Quarterly Report on Form 10-Q, including the condensed consolidated financial statements and notes thereto, are stated in thousands with the exception of per share, per square foot and per unit amounts.
The accompanying condensed consolidated financial statements include the accounts of the Company, as well as all wholly owned subsidiaries and consolidated variable interest entities (VIEs). All intercompany balances and transactions have been eliminated in consolidation. Wholly owned subsidiaries generally consist of limited liability companies, limited partnerships and statutory trusts.
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus (COVID-19) a global pandemic. COVID-19 has caused, and could continue to cause, significant disruptions to the U.S. and global economy, including the retail sector within the U.S., and has contributed to significant volatility and negative pressure in the financial markets. Many U.S. states and cities, including where the Company owns properties and/or has development sites, imposed measures, and continue to impose measures to varying degrees, intended to control the spread of COVID-19, such as instituting “shelter-in-place” rules, limitations on public gatherings and restrictions on certain business operations and/or the types of construction projects that
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RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
may continue. As a result of the pandemic and the measures implemented to mitigate its impact, a number of the Company’s tenants were required to temporarily close their stores or modify their operations and, as a result, requested lease concessions. As of September 30, 2020, all of the Company’s properties were open for the benefit of the communities and customers that the Company’s tenants serve and approximately 94% of the Company’s tenants, based on gross leasable area, were open. While many U.S. states and cities have eased or lifted such restrictions, some have subsequently reinstated restrictions and others may do so in the future.
The Company continues to closely monitor the impact of the pandemic on all aspects of its business. Due to numerous uncertainties, it is not possible to accurately predict the ultimate impact the pandemic will have on the Company’s financial condition, results of operations and cash flows.
During the second and third quarters of 2020, the Company agreed in principle, and, in certain circumstances, executed agreements, with tenants regarding lease concessions. See a discussion regarding lease concessions executed or agreed in principle as a result of the COVID-19 pandemic and related accounting treatment in Note 2 and Note 6 to the condensed consolidated financial statements.
The Company’s property ownership as of September 30, 2020 is summarized below:
Property Count
Retail operating properties102 
Expansion and redevelopment projects:
Circle East1 
One Loudoun Downtown – Pads G & H (a) 
Carillon1 
The Shoppes at Quarterfield1 
Total number of properties105 
(a)The operating portion of this property is included within the property count for retail operating properties.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Refer to the Company’s 2019 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 for a summary of its significant accounting policies. Except as disclosed below, there have been no changes to the Company’s significant accounting policies in the three months ended September 30, 2020.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses. This new guidance was effective January 1, 2020 and replaced the incurred loss impairment methodology with a methodology that reflects expected credit losses. Financial assets that are measured at amortized cost are 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. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, which clarifies that receivables arising from operating leases are not within the scope of this new guidance. Generally, the pronouncement requires a modified retrospective method of adoption. The adoption of this pronouncement on January 1, 2020 did not have any effect on the Company’s consolidated financial statements as it did not have any financial assets within the scope of this guidance.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement. This new guidance was effective January 1, 2020 and provides new and, in some cases, eliminates or modifies the previously existing disclosure requirements on fair value measurements. Public entities are now required to disclose the following: (i) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. In addition, public entities are no longer required to disclose the following: (i) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (ii) the policy for timing of transfers between levels and (iii) the valuation processes for Level 3 fair value measurements. The new pronouncement also clarifies and modifies certain existing provisions to promote the appropriate exercise of discretion by entities when considering fair value measurement
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RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
disclosures and clarifies that materiality is an appropriate consideration when evaluating disclosure requirements. As permitted by the new pronouncement, the Company removed the discussion of its valuation processes for Level 3 fair value measurements. The Company did not remove any other disclosures as it did not have any transfers between levels of the fair value hierarchy during the current and comparative periods. The adoption of this pronouncement on January 1, 2020 did not have any effect on the Company’s consolidated financial statements. The amended disclosure guidance will be applied prospectively.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform. This temporary guidance is effective as of March 12, 2020 through December 31, 2022 to ease potential burdens related to the accounting for, or recognizing the effects of, reference rate reform on financial reporting. The guidance provides optional expedients for applying existing GAAP to contract modifications and hedging relationships affected by the move of global capital markets away from interbank offered rates, most notably the London Interbank Offered Rate (LIBOR). Specifically, the guidance allows for certain changes in critical terms of a designated hedging instrument or hedged item as a result of reference rate reform to not result in the dedesignation of the hedging relationship. In addition, the optional expedients related to probability and effectiveness assessments allow companies to disregard certain economic mismatches in a hedging relationship arising due to reference rate reform until both the derivative and hedged transactions have completed the transition, where current GAAP requires those mismatches to be modeled into the assessment of effectiveness. The Company adopted this guidance as of the effective date and elected to apply the optional expedients related to probability and effectiveness prospectively. The Company has not modified any hedging relationships and has disregarded the potential economic mismatches in hedging relationships due to reference rate reform during the nine months ended September 30, 2020.
In April 2020, the FASB staff issued a question-and-answer (Q&A) document focusing on the application of the lease guidance in ASC 842, Leases, for lease concessions provided as a result of the COVID-19 pandemic. Prior to the Q&A, changes to lease payments that are not stipulated in the original lease contract are generally accounted for as lease modifications under ASC 842. Within the Q&A, the FASB staff provides relief for lease concessions offered as a result of the effects of the COVID-19 pandemic and does not require these concessions to be accounted for in accordance with the lease modification guidance in ASC 842.
Under existing lease guidance, a company determines, on a lease-by-lease basis, if a lease concession is the result of a new arrangement with the tenant or if it is under the enforceable rights and obligations within the lease agreement. Under the relief guidance, a company can account for certain concessions (i) as if no changes to the existing lease contract were made or (ii) as a negative variable lease adjustment to lease income. This optionality is offered in circumstances when the total future payments required by the modified contract are substantially the same as the total payments required by the existing contract. Also, under the relief guidance, a company can account for certain other concessions only as a variable lease adjustment. This singular relief option is offered in circumstances including when the total future payments required by the modified contract are less than the total payments required by the existing contract (i.e., abatement) or when the total payments required are the same, but extend over a longer period of time as compared to the existing contract.
Application of the relief guidance is optional; however, it is required to be applied consistently to leases with similar characteristics and similar circumstances. The Company has elected to apply the relief guidance where lease concessions (i) have been granted as relief due to the COVID-19 pandemic and (ii) result in the cash flows remaining to be substantially the same or less than the existing contract.
Based on the policy elections made under the relief guidance as well as modifications that do not qualify for the relief guidance, the Company has accounted for lease concessions as follows:
Lease ConcessionAccounting Treatment of Concession
(i) Deferral of payment to a future period, with no change in lease termTreated as if there are no changes to the existing lease contract; no change to lease income recognized, including straight-line rental income.
(ii) Deferral of payment to a future period, with a modest extension of the lease term
(iii) Abatement
(iv) Combination of abatement and deferral
Treated as a variable lease adjustment; reduction in lease income for the abated and deferred amounts; however, no change in straight-line rental income. Any deferred amounts will be recognized as lease income when payment is received.
(v) Significant lease extension resulting in an increase in cash flowsExisting lease modification guidance under ASC 842 is followed.
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RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
See a discussion regarding lease concessions agreed to with tenants as a result of the COVID-19 pandemic and related impact in Note 6 to the condensed consolidated financial statements.
(3) ACQUISITIONS AND DEVELOPMENTS IN PROGRESS
Acquisitions
The Company closed on the following acquisition during the nine months ended September 30, 2020:
DateProperty NameMetropolitan
Statistical Area (MSA)
Property TypeSquare
Footage
Acquisition
Price
February 6, 2020Fullerton MetrocenterLos AngelesFee interest (a)154,700 $55,000 
154,700 $55,000 (b)
(a)The Company acquired the fee interest in an existing multi-tenant retail operating property. In connection with this acquisition, the Company also assumed the lessor position in a ground lease with a shadow anchor.
(b)Acquisition price does not include capitalized closing costs and adjustments totaling $240.
The Company closed on the following acquisitions during the nine months ended September 30, 2019:
DateProperty NameMSAProperty TypeSquare
Footage
Acquisition
Price
March 7, 2019North Benson CenterSeattleMulti-tenant retail70,500 $25,340 
June 10, 2019Paradise Valley Marketplace – ParcelPhoenixLand (a) 1,343 
August 13, 2019Southlake Town Square – ParcelDallasSingle-user parcel (b)3,100 3,293 
73,600 $29,976 (c)
(a)The Company acquired a parcel adjacent to its Paradise Valley Marketplace multi-tenant retail operating property. The total number of properties in the Company’s portfolio was not affected by this transaction.
(b)The Company acquired a single-user parcel at its Southlake Town Square multi-tenant retail operating property. The total number of properties in the Company’s portfolio was not affected by this transaction.
(c)Acquisition price does not include capitalized closing costs and adjustments totaling $316.
The following table summarizes the acquisition date values, before prorations, the Company recorded in conjunction with the acquisitions discussed above:
Nine Months Ended September 30,
20202019
Land$57,137 $14,819 
Building and other improvements, net1,623 13,667 
Acquired lease intangible assets (a)2,014 2,040 
Acquired lease intangible liabilities (b)(5,534)(234)
Net assets acquired$55,240 $30,292 
(a)The weighted average amortization period for acquired lease intangible assets is 17 years and six years for acquisitions completed during the nine months ended September 30, 2020 and 2019, respectively.
(b)The weighted average amortization period for acquired lease intangible liabilities is 17 years and five years for acquisitions completed during the nine months ended September 30, 2020 and 2019, respectively.
These acquisitions were funded using a combination of available cash on hand, proceeds from dispositions and proceeds from the Company’s unsecured revolving line of credit. All of the acquisitions completed during 2020 and 2019 were considered asset acquisitions and, as such, transaction costs were capitalized upon closing.
In addition, the Company capitalized $633 and $1,900 of internal salaries and related benefits of personnel directly involved in capital upgrades and tenant improvements during the three and nine months ended September 30, 2020, respectively, and $679 and $2,004 during the three and nine months ended September 30, 2019, respectively. The Company also capitalized internal leasing incentives of $66 and $168 during the three and nine months ended September 30, 2020, respectively, and $111 and $247 during the three and nine months ended September 30, 2019, respectively, all of which were incremental to signed leases.
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RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Developments in Progress
The carrying amount of the Company’s developments in progress are as follows:
Property NameMSASeptember 30, 2020December 31, 2019
Expansion and redevelopment projects
Circle East (a)Baltimore$36,774 $33,628 
One Loudoun DowntownWashington, D.C.70,100 27,868 
CarillonWashington, D.C.33,086 26,407 
The Shoppes at QuarterfieldBaltimore2,003  
Pad development projects
Southlake Town SquareDallas952  
142,915 87,903 
Land held for future development
One Loudoun UptownWashington, D.C.25,450 25,450 
Total developments in progress$168,365 $113,353 
(a)During the year ended December 31, 2018, the Company received net proceeds of $11,820 in connection with the sale of air rights to a third party to develop multi-family rental units at Circle East, which is shown net in the “Developments in progress” balance as of September 30, 2020 and December 31, 2019 in the accompanying condensed consolidated balance sheets.
In response to current macroeconomic conditions related to the COVID-19 pandemic, the Company halted plans for vertical construction at its Carillon redevelopment during the three months ended March 31, 2020 and materially reduced the planned scope and spend for the project. As of September 30, 2020, the Company had completed the current scope of site work preparation at the property in anticipation of future vertical development at the site.
The Company capitalized $1,338 and $4,001 of indirect project costs related to redevelopment projects during the three and nine months ended September 30, 2020, including, among other costs, $318 and $1,019 of internal salaries and related benefits of personnel directly involved in the redevelopment projects and $804 and $2,325 of interest, respectively. The Company capitalized $1,204 and $2,437 of indirect project costs related to redevelopment projects during the three and nine months ended September 30, 2019, including, among other costs, $366 and $1,066 of internal salaries and related benefits of personnel directly involved in the redevelopment projects and $570 and $940 of interest, respectively.
Variable Interest Entities
As of January 1, 2020, the Company had joint ventures related to the development, ownership and operation of the (i) multi-family rental portion of the expansion project at One Loudoun Downtown – Pads G & H, of which joint venture the Company owned 90%; (ii) multi-family rental portion of the redevelopment project at Carillon, of which joint venture the Company owned 95%, and (iii) medical office building portion of the redevelopment project at Carillon, of which joint venture the Company owned 95%.
The joint ventures are considered VIEs primarily because the Company’s joint venture partners do not have substantive kick-out rights or substantive participating rights. The Company is considered the primary beneficiary as it has a controlling financial interest in each joint venture. As such, the Company has consolidated these joint ventures and presented the joint venture partners’ interests as noncontrolling interests.
As a result of halting the planned vertical construction at Carillon, the Company terminated (i) the joint venture related to the multi-family rental portion of the redevelopment during the three months ended March 31, 2020 and (ii) the joint venture related to the medical office building portion of the redevelopment during the three months ended June 30, 2020. In accordance with the terms of the joint venture agreements, costs incurred prior to the terminations were funded evenly by the partners and there was no payment between the partners upon termination. Subsequent to the terminations, if the Company commences the redevelopment and uses the materials developed, or approvals obtained, by the joint venture partners, the Company is required to reimburse the partners’ costs incurred in connection with such materials and/or approvals. As a result of the terminations, the Company reclassified the noncontrolling interest balance of $2,217 from noncontrolling interests to additional paid-in capital within equity. There was no gain or loss recognized in connection with the terminations.
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RETAIL PROPERTIES OF AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of September 30, 2020 and December 31, 2019, the Company recorded the following related to the consolidated joint ventures:
September 30, 2020December 31, 2019
One Loudoun Downtown –
Pads G & H
Carillon – Phase One
Multi-family Rental
Carillon – Phase One
Medical Office
TotalOne Loudoun Downtown –
Pads G & H
Carillon – Phase One
Multi-family Rental
Carillon – Phase One
Medical Office
Total
Net investment properties$59,678 $ $ $59,678 $8,830 $2,940 $675 $12,445 
Other assets, net$336 $ $ $336 $164 $ $ $164 
Other liabilities$7,361 $ $ $7,361 $1,546 $32 $