10-K 1 rpai-2018x1231x10k.htm 10-K Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to
Commission File Number: 001-35481
RETAIL PROPERTIES OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
 
Maryland
 
42-1579325
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
2021 Spring Road, Suite 200, Oak Brook, Illinois
 
60523
(Address of principal executive offices)
 
(Zip Code)
(630) 634-4200
(Registrant’s telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of each exchange on which registered
Class A Common Stock, $.001 par value
 
New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:
 
Title of class
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of June 29, 2018, the aggregate market value of the Class A common stock held by non-affiliates was approximately $2.8 billion based upon the closing price as reported on the New York Stock Exchange on June 29, 2018 of $12.78 per share. (For this computation, the Registrant has excluded the market value of all shares of Class A common stock reported as beneficially owned by executive officers and directors of the Registrant. Such exclusion shall not be deemed to constitute an admission that any such person is an affiliate of the Registrant.)
Number of shares outstanding of the registrant’s classes of common stock as of February 8, 2019:
Class A common stock:    213,482,981 shares
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Registrant’s Proxy Statement relating to its Annual Meeting of Stockholders to be held on May 23, 2019 is incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III. The Registrant intends to file such Proxy Statement with the Securities and Exchange Commission no later than 120 days after the end of its fiscal year ended December 31, 2018.



RETAIL PROPERTIES OF AMERICA, INC.
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I
All dollar amounts and share amounts in this Form 10-K in Items 1. through 7A. are stated in thousands with the exception of per share amounts. In this report, all references to “we,” “our” and “us” refer collectively to Retail Properties of America, Inc. and its subsidiaries.
ITEM 1. BUSINESS
General
Retail Properties of America, Inc. is a real estate investment trust (REIT) that owns and operates high quality, strategically located open-air shopping centers, including properties with a mixed-use component. As of December 31, 2018, we owned 105 retail operating properties in the United States representing 20,131,000 square feet of gross leasable area (GLA). Our retail operating portfolio includes (i) neighborhood and community centers, (ii) power centers, and (iii) lifestyle centers and multi-tenant retail-focused mixed-use properties, as well as single-user retail properties.
The following table summarizes our portfolio as of December 31, 2018:
Property Type
 
Number of
Properties
 
GLA
(in thousands)
 
Occupancy
 
Percent Leased
Including Leases
Signed (a)
Retail operating portfolio:
 
 
 
 
 
 
 
 
Multi-tenant retail:
 


 
 
 
 
 
 
Neighborhood and community centers
 
61

 
9,783

 
94.0
%
 
94.4
%
Power centers
 
25

 
5,454

 
93.4
%
 
95.6
%
Lifestyle centers and mixed-use properties (b)
 
16

 
4,538

 
93.5
%
 
94.4
%
Total multi-tenant retail
 
102

 
19,775

 
93.7
%
 
94.7
%
Single-user retail
 
3

 
356

 
100.0
%
 
100.0
%
Total retail operating portfolio
 
105

 
20,131

 
93.8
%
 
94.8
%
Redevelopment projects:
 
 
 
 
 
 
 
 
Circle East – redevelopment portion (c)
 

 


 
 
 
 
Plaza del Lago – multi-family rental units (d)
 

 
 
 
 
 
 
Carillon (e)
 
1

 
 
 
 
 
 
Total number of properties
 
106

 
 
 
 
 
 
(a)
Includes leases signed but not commenced.
(b)
Includes Reisterstown Road Plaza, which was reclassified from active redevelopment into our retail operating portfolio during the three months ended December 31, 2018.
(c)
This portion of the property was formerly known as Towson Circle and the operating portion, which was formerly known as Towson Square, is included in lifestyle centers and mixed-use properties within the property count for our retail operating portfolio.
(d)
We began redevelopment activities on the multi-family rental units at the property during the three months ended December 31, 2018. The operating portion of the property is included in lifestyle centers and mixed-use properties within the property count for our retail operating portfolio.
(e)
We have begun activities in anticipation of future redevelopment of this property, which was formerly known as Boulevard at the Capital Centre.
Operating History
We are a Maryland corporation formed in March 2003 and have been publicly held and subject to U.S. Securities and Exchange Commission (SEC) reporting requirements since 2003. We were initially formed as Inland Western Retail Real Estate Trust, Inc. and on March 8, 2012, we changed our name to Retail Properties of America, Inc.
Business Objectives and Strategies
In 2012, management began transforming our portfolio in an effort to focus the portfolio on high quality, multi-tenant retail properties. The core objective of this effort was to become a prominent owner of multi-tenant retail properties primarily located in certain markets. We believe that a geographically focused portfolio allows us to optimize our operating platform and enhance

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our operating performance. The markets we identified include: Dallas, Washington, D.C./Baltimore, New York, Chicago, Seattle, Atlanta, Houston, San Antonio, Phoenix and Austin, which generally feature one or more of the following characteristics:
well-diversified local economy;
strong demographic profile with significant long-term population growth or above-average existing density, high disposable income and/or a highly educated employment base;
fiscal and regulatory environment conducive to business activity and growth;
strong barriers to entry, whether topographical, regulatory or density driven; and
ability to create critical mass and realize operational efficiencies.
We completed our portfolio transformation during the first half of 2018 and as a result of these efforts, we have strengthened our portfolio and balance sheet and have geographically focused our portfolio. Since our inaugural investor day in 2013, including our pro rata share of unconsolidated joint ventures, we have (i) improved our retail annualized base rent (ABR) by 32% to $19.11 per square foot as of December 31, 2018 from $14.46 per square foot as of March 31, 2013, (ii) increased our concentration in lifestyle and mixed-use properties by 18% based on multi-tenant retail ABR to 34% as of December 31, 2018 from 16% as of March 31, 2013, and (iii) reduced our indebtedness by 37% to $1,628,450 as of December 31, 2018 from $2,601,912 as of March 31, 2013. Additionally, as of December 31, 2018, approximately 87.2% of our multi-tenant retail ABR was in the top 25 metropolitan statistical areas (MSAs), as determined by the United States Census Bureau and ranked based on the most recently available population estimates.
We have been primarily focused on growing our portfolio organically through accretive leasing activity and mixed-use redevelopment and expansion projects. In 2018, we signed 512 new and renewal leases across 3,407,000 square feet of GLA for a blended comparable re-leasing spread of 6.0%. In addition, we completed the major redevelopment construction activities at Reisterstown Road Plaza in 2017 and reclassified the property from active redevelopment into our retail operating portfolio during the three months ended December 31, 2018. Our active and near-term expansion and redevelopment projects consist of approximately $390,000 to $430,000 of expected investment during 2019 to 2022 and include the redevelopment portion of Circle East, the first phase of Carillon and the redevelopment of the existing multi-family rental units at Plaza del Lago, as well as pad developments and expansions at several of our mixed-use and lifestyle centers, including Downtown Crown, Main Street Promenade and One Loudoun Downtown. Our current portfolio of assets contains several additional projects in the longer-term pipeline, including, among others, future projects at Merrifield Town Center, Tysons Corner, Southlake Town Square, Lakewood Towne Center and One Loudoun Uptown.
Competition
In seeking new investment opportunities, we compete with other real estate investors, including other REITs, pension funds, insurance companies, foreign investors, real estate partnerships, private equity funds, private individuals and other real estate companies.
From an operational perspective, we compete with other property owners on a variety of factors, including, but not limited to, location, visibility, quality and aesthetic value of construction, and strength and name recognition of tenants. These factors combine to determine the level of occupancy and rental rates that we are able to achieve at our properties. Because our revenue potential may be linked to the success of retailers, we indirectly share exposure to the same competitive factors that our retail tenants experience when trying to attract customers. These factors include other forms of retailing, including e-commerce and direct consumer sales, and general competition from other shopping centers. To remain competitive, we evaluate all of the factors affecting our centers and work to position them accordingly. We believe the principal factors that retailers consider in making their leasing decisions include:
consumer demographics;
quality, design and location of properties;
diversity and perceived quality of retailers within individual shopping centers;
management and operational expertise of the landlord; and

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rental rates.
Based on these factors, we believe that the size and scope of our property portfolio and operating platform, as well as the overall quality and attractiveness of our individual properties, enable us to compete effectively for retail tenants. We believe that our geographically-focused strategy enhances our ability to drive revenue growth by more thoroughly understanding the local market dynamics and by increasing our market relevancy.
Tax Status
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, or the Code. To maintain our qualification as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we annually distribute to our shareholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains. As a REIT, we generally are not subject to U.S. federal income tax on the taxable income we distribute to our shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income tax at the generally applicable corporate tax rate. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income, property or net worth and U.S. federal income and excise taxes on our undistributed income. We have one wholly-owned consolidated subsidiary that has jointly elected to be treated as a taxable REIT subsidiary, or TRS, for U.S. federal income tax purposes. A TRS is taxed on its net income at the generally applicable corporate tax rate. The income tax expense incurred through the TRS has not had a material impact on our consolidated financial statements.
Regulation
General
The properties in our portfolio, including common areas, are subject to various laws, ordinances and regulations.
Americans with Disabilities Act (ADA)
Our properties must comply with Title III of the ADA to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to allow access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe our existing properties are substantially in compliance with the ADA and that we will not be required to incur significant capital expenditures to address the requirements of the ADA. Refer to Item 1A. “Risk Factors” for more information regarding compliance with the ADA.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or release of hazardous substances, waste, or petroleum products at, on, in, under or from such property, including costs for investigation, remediation, natural resource damages or third party liability for personal injury or property damage. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence or release of such materials, and the liability may be joint and several.
Independent environmental consultants conducted Phase I Environmental Site Assessments or similar environmental audits for all of our investment properties. A Phase I Environmental Site Assessment is a written report that identifies existing or potential environmental conditions associated with a particular property. These environmental site assessments generally involve a review of records and visual inspection of the property, but do not include soil sampling or ground water analysis. These environmental site assessments have not revealed, nor are we aware of, any environmental liability that we believe will have a material adverse effect on our operations. Refer to Item 1A. “Risk Factors” for more information regarding environmental matters.
Insurance
We carry comprehensive liability and property insurance coverage inclusive of fire, extended coverage, earthquakes, terrorism and loss of income insurance covering all of the properties in our portfolio under a blanket policy. We believe the policy specifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage and industry practice. We believe that the properties in our portfolio are adequately insured. Terrorism insurance is carried on all properties in an amount and with deductibles that we believe are commercially reasonable. Refer to Item 1A. “Risk Factors” for more information. The terrorism insurance is subject to exclusions for loss or damage caused by nuclear substances, pollutants, contaminants and biological and chemical weapons. Insurance coverage is not provided for losses attributable to riots or certain acts of God.

3


Employees
As of December 31, 2018, we had 211 employees.
Access to Company Information
We make available, free of charge, through our website and by responding to requests addressed to our investor relations group, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K including exhibits and all amendments to those reports and proxy statements filed or furnished pursuant to 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. These reports are available as soon as reasonably practical after such material is electronically filed or furnished to the SEC. Our website address is www.rpai.com. The information contained on our website, or other websites linked to our website, is not part of this document. Our reports may also be obtained by accessing the EDGAR database at the SEC’s website at www.sec.gov.
Shareholders wishing to communicate directly with our board of directors or any committee thereof can do so by writing to the attention of the Board of Directors or applicable committee in care of Retail Properties of America, Inc. at 2021 Spring Road, Suite 200, Oak Brook, Illinois 60523.
Recent Tax Updates
This summary is for general information purposes only and is not tax advice. This discussion does not address all aspects of taxation that may be relevant to particular holders of our securities in light of their personal investment or tax circumstances.
The following discussion supplements and updates the disclosures under “Material U.S. Federal Income Tax Considerations” in the prospectus dated November 2, 2018 contained in our Registration Statement on Form S-3 filed with the SEC on November 2, 2018.
Recent FATCA Regulations
On December 18, 2018, the Internal Revenue Service (IRS) promulgated proposed Treasury Regulations under Sections 1471-1474 of the Code (commonly referred to as FATCA), which proposed regulations eliminate FATCA withholding on gross proceeds of a disposition of property that can produce U.S. source interest or dividends and thus implicate certain tax-related disclosures contained in the prospectus. While these proposed Treasury Regulations have not yet been finalized, taxpayers are generally entitled to rely on the proposed Treasury Regulations (subject to certain limited exceptions). As a result, the following revisions are made to the prospectus:
In the first sentence under “Material U.S. Federal Income Tax Considerations—Taxation of Holders of Certain Fixed Rate Debt Securities—Taxation of Non-U.S. Holders of Debt Securities—Disposition of the Debt Securities,” the phrase “(subject to the discussion below regarding FATCA withholding)” is deleted; and
The last two sentences in the paragraph under “Material U.S. Federal Income Tax Considerations—Foreign Accounts Tax Compliance Act Withholding Rules” are replaced with the following: “Withholding under this legislation applies with respect to any payment of interest, dividends, and certain other types of generally passive income if such payment is from sources within the United States. However, the following payments are not subject to FATCA withholding: (i) income from our stock or our debt securities that is treated as income effectively connected with the conduct of a trade or business within the United States; or (ii) distributions and proceeds from a sale or other disposition of our stock or our debt securities.”
Recent Partnership Audit Regulations
On December 21, 2018, the IRS adopted final Treasury Regulations under Sections 6221-6241 of the Code to implement the centralized partnership audit regime and applicable finalized Treasury Regulations retain the ability of a REIT that is a partner in a partnership to use deficiency dividend procedures with respect to partnership adjustments resulting from a “push-out election.”
Clarifications
Finally, certain discussions in the prospectus are clarified. The discussion of TRSs is clarified in light of the Tax Cuts and Jobs Act that, among other amendments, deleted former Section 163(j)(3)(C) of the Code, which imposed certain limits on the ability

4


of a TRS of a REIT to deduct interest payments made by such TRS to such REIT. As a result, the following revisions are made to the prospectus in the second paragraph under “Material U.S. Federal Income Tax Considerations—Investments in TRSs”:
the third sentence is deleted; and
the fourth sentence is revised as follows: “For example, we will be obligated to pay a 100% penalty tax on some payments that we receive or on certain expenses deducted by the TRS if the economic arrangements among us, our tenants, and/or the TRS are not comparable to similar arrangements among unrelated parties.”
Further, the discussion under “Material U.S. Federal Income Tax Considerations—Taxation of Non-U.S. Shareholders— Distributions” is clarified to explain that the exception to withholding under the Foreign Investment in Real Property Tax Act of 1980 on distributions with respect to a class of our common stock or preferred stock that are attributable to gain from our sale or exchange of United States real property interests for 10% or smaller holders may apply only if such class of common stock or preferred stock is regularly traded an established securities market located in the United States.
ITEM 1A. RISK FACTORS
In evaluating our company, careful consideration should be given to the following risk factors, in addition to the other information included in this annual report. Each of these risk factors could adversely affect our business operating results and/or financial condition, as well as adversely affect the value of our common stock or unsecured debt. In addition to the following disclosures, please refer to the other information contained in this report including the accompanying consolidated financial statements and the related notes.
RISKS RELATED TO OUR BUSINESS AND OUR PROPERTIES
There are inherent risks associated with real estate investments and the real estate industry, any of which could have an adverse impact on our financial performance and the value of our properties.
Real estate investments are subject to various risks, many of which are beyond our control. Our operating and financial performance and the value of our properties can be affected by many of these risks, including, but not limited to, the following:
national, regional and local economies, which may be negatively impacted by inflation, deflation, government deficits, high unemployment rates, severe weather or other natural disasters, decreased consumer confidence, industry slowdowns, reduced corporate profits, lack of liquidity and other adverse business conditions;
local real estate conditions, such as an oversupply of retail space or a reduction in demand for retail space, resulting in vacancies or compromising our ability to rent space on favorable terms;
the convenience and quality of competing retail properties and other retailing platforms such as the internet;
adverse changes in the financial condition of tenants at our properties, including financial difficulties, lease defaults or bankruptcies;
competition for investment opportunities from other real estate investors with significant capital, including other REITs, real estate operating companies and institutional investment funds;
the illiquid nature of real estate investments, which may limit our ability to sell properties at the terms desired or at terms favorable to us;
fluctuations in interest rates and the availability of financing, which could adversely affect our ability and the ability of potential buyers and tenants at our properties to obtain financing on favorable terms or at all;
changes in, and changes in the enforcement of, laws, regulations and governmental policies, including, without limitation, health, safety, environmental, zoning and tax laws, government fiscal policies and the ADA; and
civil unrest, acts of war, terrorist attacks and natural disasters, including earthquakes, hurricanes and floods, which may result in uninsured and underinsured losses.
During a period of economic slowdown or recession, or the public perception that such a period may occur, declining demand for real estate could result in a general decline in rents and/or an increase in the number of defaults among our existing tenants, and,

5


consequently, our properties may fail to generate revenues sufficient to meet operating, debt service and other expenses. As a result, we may have to borrow funds to cover fixed costs, and our cash flow, financial condition and results of operations could be adversely affected. As such, the per share trading price of our Class A common stock, the market price of our debt securities and our ability to satisfy our principal and interest obligations and make distributions to our shareholders may be adversely affected.
Our financial condition and results of operations could be adversely affected by poor economic or market conditions where our properties are located, especially in markets where we have a high concentration of properties.
The economic conditions in markets where our properties are concentrated greatly influence our financial condition and results of operations. We are particularly susceptible to adverse economic and other developments in such areas, including increased unemployment, industry slowdowns, corporate layoffs or downsizing, relocations of businesses, decreased consumer confidence, adverse changes in demographics, increases in real estate and other taxes, increased regulation and natural disasters. As of December 31, 2018, approximately 82.9% of our GLA and approximately 86.1% of our ABR in our retail operating portfolio was from 15 of the top 25 MSAs, including amounts attributable to our active and near-term redevelopments, and we may continue to increase our concentration in these markets. Notably, approximately 33.8% of our GLA and approximately 34.3% of our ABR in our retail operating portfolio was located in the state of Texas as of December 31, 2018. In addition, approximately 16.5% of our GLA and approximately 17.1% of our ABR in our retail operating portfolio, including amounts attributable to our active and near-term redevelopments, was located in the Washington, D.C./Baltimore MSAs as of December 31, 2018. Poor economic or market conditions in markets where our properties are located, including those in Texas and the Washington, D.C./Baltimore MSAs, may adversely affect our cash flow, financial condition and results of operations.
A shift in retail shopping from brick and mortar stores to online shopping may have an adverse impact on our cash flow, financial condition and results of operations.
Many retailers operating brick and mortar stores have made online sales a vital piece of their business. Although many of the retailers operating at our properties sell groceries and other necessity-based soft goods or provide services, including entertainment and dining options, the shift to online shopping may cause declines in brick and mortar sales generated by certain of our tenants and/or may cause certain of our tenants to reduce the size or number of their retail locations in the future. As a result, our cash flow, financial condition and results of operations could be adversely affected.
We may choose not to renew leases or be unable to renew leases, lease vacant space or re-lease space as leases expire. In addition, rents associated with new or renewed leases may be less than expiring rents or, to facilitate leasing, we may choose to provide significant lease inducements, rent abatements or incur significant capital expenditures to improve our properties, which could adversely affect our cash flow, financial condition and results of operations.
Approximately 5.2% of the total GLA in our retail operating portfolio was vacant as of December 31, 2018, excluding leases signed but not commenced. In addition, as of December 31, 2018, leases accounting for approximately 33.6% of the ABR in our retail operating portfolio are scheduled to expire within the next three years. We may choose not to renew leases based on various strategic factors such as operating strength of the occupying tenant, its retail category, merchandising composition of the property, other leasing opportunities available to us or redevelopment plans for the property. In our efforts to lease space, we compete with numerous developers, owners and operators of retail properties, many of whom own properties similar to, and in the same sub-markets as, our properties. As a result, we cannot assure you that leases will be renewed or that current or future vacancies will be re-leased at rental rates equal to or above the current average rental rates without significant down time, or that substantial lease inducements, rent abatements, tenant improvements, early termination and co-tenancy rights or below-market renewal options will not be offered to attract new tenants or retain existing tenants. Additionally, we may incur significant capital expenditures or accommodate requests for renovations and other improvements to make our properties more attractive to tenants. If we choose not to or are unable to renew existing leases, lease vacant space or re-lease space as leases expire, or if rents associated with new or renewed leases are less than expiring rents or we incur significant capital expenditures to improve our properties, our cash flow, financial condition and results of operations could be adversely affected.
Our inability to collect rents from tenants or collect balances due on our leases from any tenants in bankruptcy or experiencing other significant financial hardship may negatively impact our cash flow, financial condition and results of operations.
Substantially all of our income is derived from rentals of real property. If sales generated by retailers operating at our properties decline sufficiently or if tenants encounter other significant financial hardships, they may be unable to pay their existing minimum rents or other charges. Tenants may also decline to extend or renew a lease upon its expiration on terms favorable to us, or at all, or may even exercise early termination rights to the extent available. If a significant number of our tenants are unable to make their rental payments to us or otherwise meet their lease obligations, our cash flow, financial condition and results of operations

6


may be materially adversely affected. In addition, although minimum rent is generally supported by long-term lease contracts, tenants who file bankruptcy have the legal right to reject any or all of their leases and close their stores. In the event that a tenant with a significant number of leases at our properties files bankruptcy and rejects its leases, we could experience a significant reduction in our revenues and we may not be able to collect all pre-petition amounts owed, which could adversely affect our cash flow, financial condition and results of operations.
If any of our anchor tenants experience a downturn in their business or terminate their leases, our cash flow, financial condition and results of operations could be adversely affected.
Anchor tenants occupy a significant amount of the square footage and pay a significant portion of the total rent in our retail operating portfolio. Specifically, our 20 largest tenants based on ABR, many of which are anchor tenants, represent 36.7% of occupied GLA and 27.8% of ABR as of December 31, 2018. In addition, anchor tenants and “shadow” anchors, or retailers in or adjacent to our properties that occupy space we do not own, contribute to the success of other tenants by drawing customers to a property. The bankruptcy, insolvency or downturn in business of any of our anchor tenants could result in another tenant vacating its space, defaulting on its lease obligations, terminating its lease, exercising co-tenancy rights or renewing its lease at lower rental rates. As a result, our cash flow, financial condition and results of operations could be adversely affected.
If small shop tenants are not successful and, consequently, terminate their leases, our cash flow, financial condition and results of operations could be adversely affected.
Small shop tenants, those that occupy less than 10,000 square feet, in our retail operating portfolio represent 31.8% of occupied GLA, but 48.2% of ABR as of December 31, 2018. Such tenants may have more limited resources than larger tenants and, as a result, may be more vulnerable to negative economic conditions. If a significant number of our small shop tenants experience financial difficulties or are unable to remain open, our cash flow, financial condition and results of operations could be adversely affected.
Many of the leases at our retail properties contain provisions, which, if triggered, may allow tenants to pay reduced rent, cease operations or terminate their leases, any of which could adversely affect our cash flow, financial condition and results of operations.
Some anchor tenants have the right to vacate their space and continue to pay rent through the end of their lease term, which inhibits our ability to re-lease the space during that period. Additionally, many of the leases at our retail properties contain provisions that condition a tenant’s obligation to remain open, the amount of rent payable by the tenant or potentially its obligation to remain in the lease, on certain factors, including (i) the presence and continued operation of a certain anchor tenant or tenants, (ii) minimum occupancy levels at the applicable property or (iii) the amount of tenant sales. If such a provision is triggered by a failure of any of these or other applicable conditions, a tenant could have the right to cease operations at the applicable property, have its rent reduced or terminate its lease early. A tenant ceasing operations as a result of these provisions could cause a decrease in customer traffic and, therefore, decreased sales for other tenants at that property. To the extent these provisions result in lower revenue, our cash flow, financial condition and results of operations could be adversely affected.
Our expenses may remain constant or increase, even if income from our properties decreases, causing our cash flow, financial condition and results of operations to be adversely affected.
Certain costs associated with our business, such as real estate taxes, state and local taxes, insurance, utilities, mortgage payments and corporate expenses, are relatively inflexible and generally do not decrease when (i) a property’s occupancy decreases, (ii) rental rates decrease, (iii) a tenant fails to pay rent or (iv) other circumstances cause our revenues to decrease. If we are unable to reduce our operating costs in response to declines in revenue, our cash flow, financial condition and results of operations could be adversely affected. In addition, inflationary or other price increases could result in increased operating costs and increases in assessed values or changes in tax rates could result in increased real estate taxes for us and our tenants. The extent to which we are unable to fully recover such increases in operating expenses and real estate taxes from our tenants, our cash flow, financial condition and results of operations could be adversely affected.
We depend on external sources of capital that are outside of our control, which may affect our ability to execute on strategic opportunities, satisfy our debt obligations and make distributions to our shareholders.
In order to maintain our qualification as a REIT, under the Code, we are generally required to annually distribute to our shareholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. In addition, as a REIT, we will be subject to income tax at the generally applicable corporate rate to the extent that we

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distribute less than 100% of our REIT taxable income, including any net capital gains. Because of these distribution requirements, we may not be able to fund future capital needs (including redevelopment and acquisition activities, payments of principal and interest on our existing debt, tenant improvements and leasing costs) from operating cash flow. Consequently, we may rely on third party sources to fund our capital needs. We may not be able to obtain the necessary capital on favorable terms, in the time period we desire, or at all. Additional debt we incur may increase our leverage, expose us to the risk of default and impose operating restrictions on us, and any additional equity we raise could be dilutive to existing shareholders. Our access to third party sources of capital depends, in part, on general market conditions, the market’s view of the quality of our assets, operating platform and growth potential, our current debt levels, and our current and expected future earnings, cash flow and distributions to our shareholders. If we cannot obtain capital from third-party sources, we may be unable to acquire or redevelop properties when strategic opportunities exist, satisfy our principal and interest obligations or make cash distributions to our shareholders necessary to maintain our qualification as a REIT.
We may be unable to sell a property at the time we desire and on favorable terms or at all, which could limit our ability to access capital through dispositions and could adversely affect our cash flow, financial condition and results of operations.
Real estate investments generally cannot be sold quickly. Our ability to dispose of properties on advantageous terms depends on factors beyond our control, including (i) competition from other sellers, (ii) increases in market capitalization rates and (iii) the availability of attractive financing for potential buyers of our properties, and we cannot predict the market conditions affecting real estate investments that will exist at any particular time in the future. As a result of the uncertainty of market conditions, we cannot provide any assurance that we will be able to sell properties at a profit, or at all. In addition, and subject to certain safe harbor provisions, the Code generally imposes a 100% tax on gain recognized by REITs upon the disposition of assets if the assets are held primarily for sale in the ordinary course of business, rather than for investment, which may cause us to forego or defer sales of properties that otherwise would be attractive from a pre-tax perspective. Accordingly, our ability to access capital through dispositions may be limited, which could limit our ability to fund future capital needs.
We may be unable to complete acquisitions and even if acquisitions are completed, our operating results at acquired properties may not meet our financial expectations.
We continue to evaluate the market of available properties and expect to continue to acquire properties when we believe strategic opportunities exist. Our ability to acquire properties on favorable terms and successfully operate or develop them is subject to the following risks:
we may be unable to acquire a desired property because of competition from other real estate investors with substantial capital, including other REITs, real estate operating companies and institutional investment funds;
even if we are able to acquire a desired property, competition from other potential investors may significantly increase the purchase price;
we may incur significant costs and divert management’s attention in connection with the evaluation and negotiation of potential acquisitions, including ones that are subsequently not completed;
we may be unable to finance acquisitions on favorable terms and in the time period we desire, or at all;
we may be unable to quickly and efficiently integrate newly acquired properties, particularly the acquisition of portfolios of properties, into our existing operations;
we may acquire properties that are not initially accretive to our results and we may not successfully manage and lease those properties to meet our expectations; and
we may acquire properties that are subject to liabilities without any recourse, or with only limited recourse to former owners, with respect to unknown liabilities for clean-up of undisclosed environmental contamination, claims by tenants or other persons to former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.
If we are unable to acquire properties on favorable terms, obtain financing in a timely manner and on favorable terms, or operate acquired properties to meet our financial expectations, our cash flow, financial condition and results of operations could be adversely affected.

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Joint venture investments could be adversely affected by our lack of sole decision-making authority.
As of December 31, 2018, we had entered into joint ventures in connection with two of our expansion and redevelopment projects, One Loudoun Downtown and Carillon, and we expect to enter into additional joint venture arrangements in the future. Our existing joint ventures and any additional joint venture arrangements in which we may engage in the future are or could be subject to various risks, including the following:
lack of exclusive control over the joint venture, which may prevent us from taking actions that are in our best interest;
future capital constraints of our partners or failure of our partners to fund their share of required capital contributions, which may require us to contribute more capital than we anticipated to fund the developments and/or cover the joint venture’s liabilities;
actions by our partners that could jeopardize our REIT status, require us to pay taxes or subject the properties owned by the joint venture to liabilities greater than those contemplated by the terms of the joint venture agreements;
disputes between us and our partners may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business;
joint venture agreements may require prior consent of our joint venture partners for a sale or transfer to a third party of our interest in the joint venture, which would restrict our ability to dispose of our interest in such a joint venture; and
joint venture agreements may contain buy-sell provisions pursuant to which one partner may initiate procedures requiring us to buy the other partner’s interest.
If any of the foregoing were to occur, our cash flow, financial condition and results of operations could be adversely affected.
Development, redevelopment, expansions and pad development activities have inherent risks that could adversely impact our cash flow, financial condition and results of operations.
As of December 31, 2018, we had two projects in active redevelopment, the redevelopment portion of Circle East and the multi-family rental units at Plaza del Lago. We have invested a total of approximately $11,000 in these projects, which is net of proceeds of $11,820 from the sale of air rights at the redevelopment portion of Circle East. These projects are at various stages of completion, and based on our current plans and estimates, we anticipate that it will require approximately $24,000 to $26,000 of additional funds to complete these projects. We anticipate engaging in additional redevelopment, expansions and pad development of commercial retail space and residential units in the future. In addition to the risks associated with real estate investments in general as described elsewhere, the risks associated with future development, redevelopment, expansions and pad development activities include the following:
expenditure of capital and time on projects that may never be completed;
failure or inability to obtain financing on favorable terms or at all;
inability to secure necessary zoning or regulatory approvals;
higher than estimated construction or operating costs, including labor and material costs;
inability to complete construction on schedule due to a number of factors, including (i) inclement weather, (ii) labor disruptions, (iii) construction delays, (iv) delays or failure to receive zoning or other regulatory approvals, (v) acts of terror or other acts of violence, or (vi) acts of God (such as fires, earthquakes, hurricanes or floods);
significant time lag between commencement and stabilization resulting in delayed returns and greater risks due to fluctuations in the general economy, shifts in demographics and competition;
decrease in customer traffic during the redevelopment period causing a decrease in tenant sales;
inability to secure key anchor or other tenants for commercial retail projects or complete the lease-up of residential units at anticipated absorption rates or at all; and
occupancy and rental rates at a newly completed project may not meet expectations.

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If any of the above events were to occur, the development, redevelopment, expansion or pad development of the properties could hinder our growth and have an adverse effect on our cash flow, financial condition and results of operations. In addition, new development and significant redevelopment activities, regardless of whether they are ultimately successful, typically require substantial time and attention from management.
We are subject to litigation that could negatively impact our cash flow, financial condition and results of operations.
We are a defendant from time to time in lawsuits and regulatory proceedings relating to our business. Due to the inherent uncertainties of litigation and regulatory proceedings, we may not be able to accurately predict the ultimate outcome of any such litigation or proceedings. A significant unfavorable outcome could negatively impact our cash flow, financial condition and results of operations.
If we are found to be in breach of a ground lease at one of our properties or are unable to renew a ground lease, we could be materially and adversely affected.
We have seven properties in our portfolio that are either completely or partially on land that is owned by third parties and leased to us pursuant to ground leases. Accordingly, we only own a long-term leasehold or similar interest in those properties. If we are found to be in breach of a ground lease and that breach cannot be cured, we could lose our interest in the improvements and the right to operate the property. In addition, unless we can purchase a fee interest in the underlying land or extend the terms of these leases before or at their expiration, as to which no assurance can be given, we will lose our interest in the improvements and the right to operate these properties. Assuming we exercise all available options to extend the terms of our ground leases, all of our ground leases will expire between 2050 and 2115. However, in certain cases, our ability to exercise such options is subject to the condition that we are not in default under the terms of the ground lease at the time we exercise such options, and we can provide no assurances that we will be able to exercise our options at such time. If we were to lose the right to operate a property due to a breach or non-renewal of the ground lease, we would be unable to derive income from such property, which could materially and adversely affect us.
Uninsured losses or losses in excess of insurance coverage could materially and adversely affect our cash flow, financial condition and results of operations.
Each tenant is responsible for insuring its goods and demised premises and, in most circumstances, is required to reimburse us for its share of the cost of acquiring comprehensive insurance for the property, including casualty, liability, fire and extended coverage customarily obtained for similar properties in amounts which have been determined as sufficient to cover reasonably foreseeable losses. Tenants with net leases typically are required to pay all insurance costs associated with their space. However, material losses may occur in excess of insurance proceeds with respect to any property and, specific to net leases, tenants may fail to obtain adequate insurance. Additionally, losses of a catastrophic nature including loss due to wars, acts of terrorism, earthquakes, floods, hurricanes, wind, other natural disasters, pollution or environmental matters may be considered uninsurable or not economically insurable, or may be insured subject to limitations such as large deductibles or co-payments. In the instance of a loss that is uninsured or that exceeds policy limits, a significant portion of the capital invested in the damaged property could be lost, as well as the anticipated future revenue of the property, which could materially and adversely affect our financial condition and results of operations. A variety of factors, including, among others, changes in building codes and ordinances and environmental considerations, might also make it impractical or undesirable to use insurance proceeds to replace a property after it has been damaged or destroyed. Furthermore, we may be unable to obtain adequate insurance coverage at reasonable costs in the future, as the costs associated with property and casualty renewals may be higher than anticipated.
A number of our properties are located in areas which are susceptible to, and could be significantly affected by, natural disasters that could cause significant damage. For example, many of our properties are located in coastal regions and would, therefore, be affected by any future increases in sea levels or in the frequency or severity of hurricanes and tropical storms to the extent they are located in impacted areas. In addition, some of our properties are located in California and other regions that are especially susceptible to earthquakes.
The occurrence of terrorist acts could sharply increase the premiums paid for terrorism insurance coverage. Further, mortgage lenders, in some cases, insist that specific coverage against terrorism be purchased by commercial property owners as a condition for providing mortgage loans. It is uncertain whether such insurance policies will be available, or available at reasonable costs, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot provide assurance that we will have adequate coverage for such losses and, to the extent we are required to pay unexpectedly large amounts for insurance, our cash flow, financial condition and results of operations could be materially and adversely affected.

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We may incur significant costs complying with the ADA and similar laws, which could adversely affect our cash flow, financial condition and results of operations.
Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Although we believe the properties in our portfolio substantially comply with the present requirements of the ADA, we have not conducted an audit or investigation of all of our properties to determine our compliance, nor can we be assured that requirements will not change. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and make alterations as appropriate in this respect. If one or more of the properties in our portfolio is not in compliance with the ADA, we would be required to incur costs to bring the property into compliance and it could result in the imposition of fines or an award of damages to private litigants. Additional federal, state and local laws may also require modifications to our properties or restrict our ability to renovate our properties. We cannot predict the ultimate cost of compliance with the ADA or other legislation. If we incur substantial costs to comply with the ADA and any other legislation, our cash flow, financial condition and results of operations could be adversely affected.
We may become liable with respect to contaminated property or incur costs to comply with environmental laws, which could negatively impact our cash flow, financial condition and results of operations.
Under various federal, state and local laws, ordinances and regulations, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or release of hazardous substances, waste or petroleum products at, on, in, under or from such property, including costs for investigation, remediation, natural resource damages or third party liability for personal injury or property damage. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence or release of such materials, and the liability may be joint and several. In addition, the presence of contamination or the failure to remediate contamination at our properties may adversely affect our ability to sell, redevelop, or lease such property or borrow funds using the property as collateral. Environmental laws may also create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which that property may be used or how businesses may be operated on that property. Some of our properties have been or may be impacted by contamination arising from current or prior uses of the property or adjacent properties for commercial or industrial purposes. Such contamination may arise from spills of petroleum or hazardous substances or releases from tanks used to store such materials. We may also be liable for the cost of remediating contamination at off-site disposal or treatment facilities when we arrange for disposal or treatment of hazardous substances at such facilities. The environmental site assessments described in Item 1. “Business — Environmental Matters” have a limited scope and may not reveal all potential environmental liabilities. Further, material environmental conditions may have arisen after the review was completed or may arise in the future, and future laws, ordinances or regulations may impose additional material environmental liability beyond what was known at the time the site assessment was conducted.
In addition, our properties are subject to various federal, state and local environmental, health and safety laws, including laws governing the management of waste and underground and aboveground storage tanks. Noncompliance with these environmental, health and safety laws could subject us or our tenants to liability, which could affect a tenant’s ability to make rental payments to us. Moreover, changes in laws could increase the potential cost of compliance with environmental, health and safety laws or increase liability for noncompliance. This could result in significant unanticipated expenditures or could otherwise materially and adversely affect our operations, or those of our tenants, which could in turn have a material adverse effect on us.
As the owner or operator of real property, we may also incur liability based on various building conditions. For example, buildings and other structures on properties that we currently own or operate or those we acquire or operate in the future contain, may contain, or may have contained, asbestos-containing material, or ACM. Environmental, health and safety laws require that ACM be properly managed and maintained and fines or penalties may be imposed on owners, operators or employers for non-compliance with these requirements. These requirements include special precautions, such as removal, abatement or air monitoring, if ACM would be disturbed during maintenance, renovation or demolition of a building, potentially resulting in substantial costs. In addition, we may be subject to liability for personal injury or property damage sustained as a result of exposure to ACM or releases of ACM into the environment.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur if it is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants is alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants

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or to increase ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants, or others if property damage or personal injury occurs.
To the extent we incur costs or liabilities as a result of environmental issues, our cash flow, financial condition and results of operations could be materially and adversely affected.
We could experience a decline in the fair value of our assets, which could materially and adversely impact our results of operations.
A decline in the fair value of our assets could require us to recognize an impairment charge on such assets under accounting principles generally accepted in the United States (GAAP) if we were to determine that we do not have the ability and intent to hold such assets for a period of time sufficient to allow for recovery to the asset’s carrying value. If such a determination were to be made, we would recognize an impairment charge through earnings and write down the carrying value of such assets to a new cost basis based on the fair value of such assets on the date they are considered to not be recoverable. For the years ended December 31, 2018, 2017 and 2016, we recognized aggregate impairment charges related to investment properties of $2,079, $67,003 and $20,376, respectively. We may be required to recognize additional asset impairment charges in the future.
We face risks associated with security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology (IT) networks and related systems.
We face risks associated with security breaches, whether through (i) cyber attacks or cyber intrusions, (ii) malware or ransomware, (iii) computer viruses, (iv) people with access or who gain access to our systems, and (v) other significant disruptions of our IT networks and related systems. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations. Although we make efforts to maintain the security and integrity of our IT networks and related systems, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. A security breach or other significant disruption involving our IT networks and related systems could significantly disrupt the proper functioning of our networks and systems and, as a result, disrupt our operations, which could have a material adverse effect on our cash flow, financial condition and results of operations.
Our success depends on key personnel whose continued service is not guaranteed.
We depend on the efforts and expertise of our senior management team to manage our day-to-day operations and strategic business direction. While we have retention agreements with the members of our executive management team that provide for certain payments in the event of a change in control or termination without cause, we do not have employment agreements with the members of our executive management team. Therefore, we cannot guarantee their continued service. The loss of their services and our inability to find suitable replacements could have an adverse effect on our operations.
RISKS RELATED TO OUR DEBT FINANCING
We are generally subject to the risks associated with debt financing and our debt service obligations could adversely affect our financial health and operating flexibility.
Required principal and interest payments on our indebtedness reduce funds available for general business purposes and distributions to our shareholders. Our existing debt financing and debt service obligations also increase our vulnerability to general adverse economic and industry conditions, including increases in interest rates. In addition, as our existing debt comes due, we may be unable to refinance it on favorable terms, or at all, which could adversely affect our cash flow, financial condition and results of operations.
Credit ratings may not reflect all the risks of an investment in our debt.
Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of our publicly-traded debt. Credit ratings may be revised or withdrawn at any time by the rating agency at its sole discretion. We do not undertake any obligation to maintain the ratings or advise our debt holders of any change in our ratings. There can be no assurance that we will be able to maintain our current credit ratings. Adverse changes in our credit ratings could impact our ability to obtain additional debt and equity financing on favorable terms, if at all, and could significantly reduce the market price of our publicly-traded debt.

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Our cash flow, financial condition and results of operations could be adversely affected by financial and other covenants and provisions under the unsecured credit agreement governing our Unsecured Credit Facility or our other debt agreements.
Our Unsecured Credit Facility, which is comprised of our unsecured revolving line of credit and unsecured term loan, is governed by our unsecured credit agreement (the Unsecured Credit Agreement). Our other debt agreements include, but are not limited to, the Indenture, as supplemented, governing our Notes Due 2025 (the Indenture), the note purchase agreements governing our Notes Due 2021, 2024, 2026 and 2028 (the Note Purchase Agreements) and the credit agreement governing our Term Loan Due 2023 (the Term Loan Agreement). The Unsecured Credit Agreement, the Indenture, the Note Purchase Agreements, the Term Loan Agreement and any future debt agreements require, or may require, compliance with certain financial and operating covenants, including, among others, the requirement to maintain maximum unencumbered, secured and consolidated leverage ratios, minimum interest, fixed charge, debt service and unencumbered interest coverage ratios, a minimum ratio of assets to unsecured debt and a minimum consolidated net worth. They also contain or may contain customary events of default, including defaults on any of our recourse indebtedness in excess of $50,000. The provisions of these agreements could limit our ability to obtain additional funds needed to address cash shortfalls or pursue growth opportunities or other accretive transactions.
In addition, our senior unsecured debt obligations, including our Unsecured Credit Facility, Notes Due 2021, 2024, 2025, 2026 and 2028 and Term Loan Due 2023, are pari passu in priority of payment. Therefore, a breach of these covenants or other events of default would allow the lenders to require us to accelerate payment of amounts outstanding under one or all of these agreements. If payment is accelerated, our liquid assets may not be sufficient to repay such debt in full and, as a result, such an event could have a material adverse effect on our cash flow, financial condition and results of operations.
Given the restrictions in our debt covenants, we may be limited in our operating and financial flexibility and in our ability to respond to changes in our business or pursue strategic opportunities in the future.
Increases in interest rates would cause our borrowing costs to rise and may limit our ability to refinance debt.
Although a significant amount of our outstanding debt has fixed interest rates, we also borrow funds at variable interest rates. As of December 31, 2018, we had $273,000 of unhedged London Interbank Offered Rate (LIBOR)-based variable rate debt outstanding. During 2018, LIBOR increased, and interest rates may continue to increase in the future, which would increase our interest expense on any outstanding unhedged variable rate debt and could affect the terms under which we refinance our existing debt as it matures, which would adversely affect our cash flow, financial condition and results of operations.
We may choose to retire debt prior to its stated maturity date and incur debt prepayment costs as a result, some of which could be significant.
At times, management has chosen to retire debt prior to its stated maturity date, and in doing so, we have incurred prepayment or defeasance premiums in accordance with the relevant loan agreements. If we choose to retire debt prior to its stated maturity date in the future, we may incur significant debt prepayment costs or defeasance premiums, which could have an adverse effect on our cash flow and results of operations.
Defaults on secured indebtedness may result in foreclosure.
In the event that we default on mortgages in the future, either as a result of ceasing to make debt service payments or failing to meet applicable covenants, the lenders may accelerate the related debt obligations and foreclose and/or take control of the properties that secure their loans. In the event of a default under any of our recourse indebtedness, we may also remain liable for any deficiency between the value of the property securing such loan and the principal and accrued interest on the loan.
Further, for tax purposes, the foreclosure of a mortgage may result in the recognition of taxable income related to the extinguished debt without us having received any accompanying cash proceeds. As a result, since we have elected to be taxed as a REIT, we may be required to identify and use sources of cash for distributions to our shareholders related to such taxable income in order to avoid incurring corporate tax or to meet the REIT distribution requirements imposed by the Code.
RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE
Our board of directors may change significant corporate policies without shareholder approval.
Our investment, financing and distribution policies are determined by our board of directors. These policies may be amended or revised at any time at the discretion of the board of directors without a vote of our shareholders. As a result, the ability of our shareholders to control our policies and practices is extremely limited. We could make investments and engage in business activities

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that are different from, and possibly riskier than, the investments and businesses described in this report. In addition, our board of directors may change our policies with respect to conflicts of interest provided that such changes are consistent with applicable legal and regulatory requirements, including the listing standards of the New York Stock Exchange (NYSE). A change in these policies could have an adverse effect on our cash flow, financial condition and results of operations.
We could increase the number of authorized shares of stock and issue stock without shareholder approval.
Subject to applicable legal and regulatory requirements, our charter authorizes our board of directors, without shareholder approval, to increase the aggregate number of authorized shares of stock or the number of authorized shares of stock of any class or series, to issue authorized but unissued shares of our common stock or preferred stock, classify or reclassify any unissued shares of our common stock or preferred stock and to set the preferences, rights and other terms of such classified or unclassified shares. As a result, we may issue series or classes of common stock or preferred stock with preferences, dividends, powers and rights, voting or otherwise, that are senior to, or otherwise conflict with, the rights of holders of our common stock. In addition, our board of directors could establish a series of preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction or a change in control that might involve a premium price for our common stock or that our shareholders may believe is in their best interests.
Certain provisions of our charter may limit the ability of a third party to acquire control of our company.
Our charter provides that no person may beneficially own more than 9.8% in value or number of shares, whichever is more restrictive, of our outstanding common stock or 9.8% in value of the aggregate outstanding shares of our capital stock. While these charter provisions help ensure we maintain our REIT status, these ownership limitations may prevent an acquisition of control of our company by a third party without our board of directors’ approval, even if our shareholders believe the change in control is in their best interests.
Certain provisions of Maryland law could inhibit changes of control, which could lower the value of our Class A common stock.
Certain provisions of the Maryland General Corporation Law, or MGCL, may have the effect of inhibiting or deterring a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:
“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested shareholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of our then outstanding voting shares) or an affiliate of an interested shareholder for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter, may impose special shareholder voting requirements unless certain minimum price conditions are satisfied; and
“control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of outstanding “control shares”) have no voting rights except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
As permitted by the MGCL, our board of directors has adopted a resolution exempting any business combinations between us and any other person or entity from the business combination provisions of the MGCL. Our bylaws provide that such resolution or any other resolution of our board of directors exempting any business combination from the business combination provisions of the MGCL may only be revoked, altered or amended, and our board of directors may only adopt a resolution that is inconsistent with any such prior resolution (including any amendment to that bylaw provision), which we refer to as an opt-in to the business combination provisions, with the approval of stockholders entitled to cast a majority of all votes cast by the holders of the issued and outstanding shares of our common stock. In addition, as permitted by the MGCL, our bylaws contain a provision exempting from the control share acquisition provisions of the MGCL any acquisition by any person of shares of our stock. This bylaw provision may be amended, which we refer to as an opt-in to the control share acquisition provisions, only with the affirmative vote of a majority of the votes cast on such matter by holders of the issued and outstanding shares of our common stock.
Title 3, Subtitle 8 of the MGCL permits our board of directors, without shareholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, including adopting a classified board. Such takeover

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defenses may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us under the circumstances that otherwise could provide our common shareholders with the opportunity to realize a premium over the then-prevailing market price.
In addition, the provisions of our charter on removal of directors and the advance notice provisions of our bylaws, among others, could delay, defer or prevent a transaction or a change in control of our company that might involve a premium price for holders of our common stock or that our shareholders may believe to be in their best interests. Likewise, if our company’s board of directors were to opt-in to the provisions of Title 3, Subtitle 8 of the MGCL, or if our board of directors were to opt-in to the business combination provisions or the control share acquisition provisions of the MGCL, with shareholder approval, these provisions could have similar anti-takeover effects.
Our rights and the rights of our shareholders to take action against our directors and officers are limited, which could limit shareholder recourse in the event of actions that our shareholders do not believe are in their best interests.
Maryland law provides that a director or officer has no liability in that capacity if he or she satisfies his or her duties to us and our shareholders. As permitted by the MGCL, our charter limits the liability of our directors and officers to us and our shareholders for monetary damages, except for liability resulting from the following:
actual receipt of an improper benefit or profit in money, property or services; or
a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated.
In addition, our charter and bylaws and indemnification agreements that we have entered into with our directors and certain of our officers require us to indemnify our directors and officers, among others, for actions taken by them in those capacities to the maximum extent permitted by Maryland law. As a result, we and our shareholders may have more limited rights against our directors and officers than might otherwise exist. Accordingly, in the event that actions taken in good faith by any of our directors or officers impede the performance of our company, the ability of our shareholders to recover damages from such director or officer will be limited. In addition, we will be obligated to advance the defense costs incurred by our directors and officers who have indemnification agreements, and may, at the discretion of our board of directors, advance the defense costs incurred by our employees and other agents in connection with legal proceedings.
Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our shareholders to effect changes to our management.
Our charter provides that a director may only be removed for cause upon the affirmative vote of holders of a majority of the votes entitled to be cast in the election of directors. Vacancies may be filled only by a majority vote of the remaining directors in office, even if less than a quorum. These requirements make it more difficult to change our management by removing and replacing directors and may prevent a change in control that is in the best interests of our shareholders.
RISKS RELATED TO OUR REIT STATUS
Failure to qualify as a REIT would cause us to be taxed as a regular corporation and, even if we qualify as a REIT, we may face other tax liabilities which could substantially reduce funds available for distribution to our shareholders and materially and adversely affect our cash flow, financial condition and results of operations.
We believe that we have been organized, owned and operated in conformity with the requirements for qualification and taxation as a REIT under the Code beginning with our taxable year ended December 31, 2003, and that our intended manner of ownership and operation will enable us to continue to meet the requirements for qualification and taxation as a REIT for U.S. federal income tax purposes. However, we cannot assure you that we have qualified or will qualify as such.
Qualification as a REIT involves the application of highly technical and complex provisions of the Code as to which there are only limited judicial and administrative interpretations and involves the determination of facts and circumstances not entirely within our control. For example, to qualify as a REIT, we generally are required to annually distribute to our shareholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our taxable income, we will be subject to U.S. federal corporate income tax on our undistributed taxable income.

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If we fail to qualify as a REIT in any taxable year, we will face serious tax consequences that will substantially reduce the funds available for distributions to our shareholders because of the following:
we would not be allowed a deduction for dividends paid to shareholders in computing our taxable income and would be subject to U.S. federal income tax at the generally applicable corporate rate;
we could be subject to increased state and local taxes; and
unless we are entitled to relief under certain U.S. federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT.
In addition, if we fail to qualify as a REIT, it could result in default under certain of our indebtedness agreements. As a result of all of these factors, our failure to qualify as a REIT could adversely affect our cash flow, financial condition and results of operations.
We may be subject to adverse legislative or regulatory tax changes that could negatively impact our cash flow, financial condition and results of operations.
At any time, the U.S. federal income tax laws governing REITs or the administrative interpretation of those laws (or other laws affecting our business) may be amended. We cannot predict if or when any new or amended U.S. federal income tax law, regulation or administrative interpretation (or any repeal thereof) will become effective, and any such law, regulation, interpretation or repeal may take effect retroactively. Any such changes could adversely affect our cash flow, financial condition and results of operations.
We may be required to borrow funds or sell assets to satisfy our REIT distribution requirements.
Our cash flows may be insufficient to fund distributions required to maintain our qualification as a REIT as a result of differences in timing between the actual receipt of income and the recognition of income for U.S. federal income tax purposes, the effect of non-deductible expenses, such as capital expenditures, limitations on interest deductions, payments of compensation for which Section 162(m) of the Code denies a deduction, the creation of reserves or required amortization payments or limitations on the deduction of net operating losses. If we do not have other funds available in these situations, we may need to borrow funds on a short-term basis or sell assets, even if the then-prevailing market conditions are not favorable for these borrowings or sales, in order to satisfy our REIT distribution requirements. Such actions could adversely affect our cash flow and results of operations.
Dividends payable by REITs generally do not qualify for reduced tax rates.
Certain qualified dividends paid by corporations to individuals, trusts and estates that are U.S. shareholders are taxed at capital gain rates, which are lower than ordinary income rates. Dividends of current and accumulated earnings and profits payable by REITs, however, are generally taxed at ordinary income rates as opposed to the capital gain rates (provided that for taxable years 2018 to 2025, non-corporate taxpayers generally may deduct up to 20% of their ordinary REIT dividends, subject to certain limitations). Dividends payable by REITs 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 and thereafter as taxable gain. The more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs, including us, to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends. In addition, non-REIT corporations may begin to pay dividends or increase dividends as a result of the lower corporate income tax rate that went into effect in 2018. As a result, the trading price of our Class A common stock may be negatively impacted.
Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments.
To qualify as a REIT, we must continually satisfy tests concerning, among other things, (i) the sources of our income, (ii) the nature and diversification of our assets, (iii) the amounts we distribute to our shareholders, (iv) the number of or aggregate value of dispositions completed annually and (v) the ownership of our capital stock. In order to meet these tests, we may be required to forego investments we might otherwise make and refrain from engaging in certain activities. Thus, compliance with the REIT requirements may hinder our performance.
In addition, if we fail to comply with certain asset ownership tests at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification. As a result, we may be required to liquidate otherwise attractive investments.

16


If a transaction intended to qualify as an Internal Revenue Code Section 1031 tax-deferred exchange (1031 Exchange) is later determined to be taxable, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may be unable to dispose of properties on a tax-deferred basis.
From time to time, we may dispose of properties in transactions that are intended to qualify as 1031 Exchanges. It is possible that the qualification of a transaction as a 1031 Exchange could be successfully challenged and determined to be currently taxable. In such case, our taxable income and earnings and profits would increase, which could increase the ordinary dividend income to our stockholders. In some circumstances, we may be required to pay additional dividends or, in lieu of that, corporate income tax, possibly including interest and penalties. As a result, we may be required to borrow funds in order to pay additional dividends or taxes, and the payment of such taxes could cause us to have less cash available to distribute to our stockholders. In addition, if a 1031 Exchange was later determined to be taxable, we may be required to amend our tax returns for the applicable year in question, including any information reports we sent our stockholders. Moreover, it is possible that legislation could be enacted that could modify or repeal the laws with respect to 1031 Exchanges, which could make it more difficult or impossible for us to dispose of properties on a tax-deferred basis.
Shareholders may be restricted from acquiring or transferring certain amounts of our stock.
In order to maintain our REIT qualification, among other requirements, no more than 50% in value of our outstanding stock may be owned, directly or indirectly, by five or fewer individuals, as defined in the Code to include certain kinds of entities, during the last half of any taxable year, other than the first year for which we made a REIT election. To assist us in qualifying as a REIT, our charter contains an aggregate stock ownership limit of 9.8% and a common stock ownership limit of 9.8%. Generally, shareholders must include stock of affiliates for purposes of determining whether they own stock in excess of any of these ownership limits.
If anyone attempts to transfer or own shares of our stock in a way that would violate the aggregate stock ownership limit or the common stock ownership limit, unless such ownership limits have been waived by our board of directors, or in a way that would prevent us from continuing to qualify as a REIT, those shares instead will be transferred to a trust for the benefit of a charitable beneficiary and will either be redeemed by us or sold to a person whose ownership of the shares will not violate the aggregate stock ownership limit or the common stock ownership limit. Purported transferees generally bear any decline in the market price of such stock held in such trust but do not benefit from any increase. If this transfer to a trust fails to prevent such a violation or our disqualification as a REIT, then the initial intended transfer or ownership will be null and void from the outset.
The ability of our board of directors to revoke our REIT qualification without shareholder approval may cause adverse consequences to our shareholders.
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our shareholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we will not be allowed a deduction for dividends paid to shareholders in computing our taxable income and we will be subject to U.S. federal income tax at the generally applicable corporate rate and state and local taxes, which may have adverse consequences on our total return to our shareholders.
Prospective investors are urged to consult with their tax advisors regarding the effects of recently enacted tax legislation and other legislative, regulatory and administrative developments.
On December 22, 2017, H.R. 1, informally titled the Tax Cuts and Jobs Act (TCJA), was enacted. The TCJA made major changes to the Code, including a number of provisions of the Code that affect the taxation of REITs and their stockholders. The long-term effect of the significant changes made by the TCJA remains uncertain, and additional administrative guidance will be required in order to fully evaluate the effect of many provisions. The effect of any technical corrections with respect to the TCJA could have an adverse effect on us or our stockholders or holders of our debt securities.
GENERAL INVESTMENT RISKS
The market prices and trading volume of our debt and equity securities may be volatile.
The market prices of our debt and equity securities depend on various factors that may be unrelated to our operating performance or prospects. We cannot assure you that the market prices of our debt and equity securities, including our Class A common stock, will not fluctuate or decline significantly in the future.

17


A number of factors could negatively affect, or result in fluctuations in, the prices or trading volume of our debt and equity securities, including:
actual or anticipated changes in our operating results and changes in expectations of future financial performance;
our operating performance and the performance of other similar companies;
our strategic decisions, such as acquisitions, dispositions, spin-offs, joint ventures, strategic investments or changes in business strategy;
adverse market reaction to any indebtedness we incur in the future;
equity issuances or buybacks by us or the perception that such issuances or buybacks may occur;
increases in market interest rates or decreases in our distributions to shareholders that lead purchasers of our shares to demand a higher yield;
changes in market valuations of similar companies;
changes in real estate valuations;
additions or departures of key management personnel;
changes in the real estate industry, including increased competition due to shopping center supply growth, and in the retail industry, including growth in e-commerce, catalog companies and direct consumer sales;
publication of research reports about us or our industry by securities analysts;
speculation in the press or investment community;
the passage of legislation or other regulatory developments that adversely affect us, our tax status, or our industry;
changes in accounting principles;
our failure to satisfy the listing requirements of the NYSE;
our failure to comply with the requirements of the Sarbanes‑Oxley Act;
our failure to qualify as a REIT; and
general market conditions, including factors unrelated to our performance.
In the past, securities class action litigation has often been instituted against companies following periods of volatility in the price of their common stock. This type of litigation could result in substantial costs and divert management’s attention and resources, which could have a material adverse effect on our cash flow, financial condition and results of operations.
Increases in market interest rates may result in a decrease in the value of our publicly-traded debt and equity securities.
One of the factors that may influence the prices of our publicly-traded debt and equity securities is the interest rate on our publicly-traded debt and the dividend yield on our common stock relative to market interest rates. If market interest rates, which are currently at low levels relative to historical rates, rise, our borrowing costs could rise and result in less funds being available for distribution. Therefore, we may not be able to, or we may choose not to, provide a higher distribution rate on our common stock. In addition, fluctuations in interest rates could adversely affect the market value of our properties. These factors could result in a decline in the market prices of our publicly-traded debt and equity securities.
Future offerings of debt securities, which would be senior to our common stock, would dilute the interests of our existing shareholders and may be senior to our existing common stock, may adversely affect the market price of our common stock.
We currently have $700,000 of unsecured notes outstanding and in the future, we may attempt to increase our capital resources by making additional offerings of debt or equity securities, including senior or subordinated notes and classes of preferred or common stock. Holders of debt securities or shares of preferred stock will generally be entitled to receive interest payments or

18


distributions, both current and in connection with any liquidation or sale, prior to the holders of our common stock. Furthermore, offerings of common stock or other equity securities may dilute the holdings of our existing shareholders. We are not required to offer any such equity securities to existing shareholders on a preemptive basis, and future offerings of debt or equity securities, or perceptions that such offerings may occur, may reduce the market price of our common stock or the distributions that we pay with respect to our common stock. Because we may generally issue any such debt or equity securities in the future without obtaining the consent of our shareholders, our shareholders bear the risk of our future offerings reducing the market price of our common stock and diluting their proportionate ownership.
Our ability to pay dividends is limited by the requirements of Maryland law.
Our ability to pay dividends on our common stock is limited by the laws of the State of Maryland. Under applicable Maryland law, a Maryland corporation generally may not make a distribution if, after giving effect to the distribution, the corporation would not be able to pay its debts as they become due in the usual course of business, or the corporation’s total assets would be less than the sum of its total liabilities plus, unless the corporation’s charter provides otherwise, the amount that would be needed, if the corporation were dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. Accordingly, we generally may not make a distribution on our common stock if, after giving effect to the distribution, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities plus, unless the terms of such class or series provide otherwise, the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of shares of any class or series of preferred stock then outstanding, if any, with preferences senior to those of our common stock.
Changes in accounting standards may adversely impact our financial results.
The Financial Accounting Standards Board (FASB) recently issued new guidance on a variety of topics, including, among others, lease accounting, that may impact how we account for certain transactions. Specifically, the new lease accounting guidance will require the recognition of a lease liability and a right-of-use (ROU) asset for operating leases where we are the lessee, such as ground leases and office leases. We have assessed the impact of adoption of this new standard and expect to record a lease liability and a ROU asset of approximately $95,000 to $110,000 as of January 1, 2019 for existing leases as of that date. The ROU asset will be presented net of our existing straight-line ground rent liability of $31,030 and our acquired ground lease intangible liability of $11,898. We continue to assess the impact of this new standard and are unable to predict the full impact other new accounting standards that we have not yet adopted could have on the presentation of our consolidated financial statements, results of operations and financial ratios required by our debt covenants.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The following table sets forth summary information regarding our retail operating portfolio as of December 31, 2018. Dollars (other than per square foot information) and square feet of GLA are presented in thousands. This information is grouped into divisions based on the manner in which we have structured our asset management, property management and leasing operations. For additional property details on our operating portfolio, see “Real Estate and Accumulated Depreciation (Schedule III)” herein.
Division
 
Number of
Properties
 
ABR
 
% of Total
ABR
 
ABR per
Occupied
Sq. Ft.
 
GLA
 
% of Total
GLA
 
Occupancy (a)
Eastern Division
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Florida, Georgia, Maryland, Massachusetts, Michigan, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia
 
42

 
$
150,130

 
41.6
%
 
$
19.33

 
8,279

 
41.1
%
 
93.8
%
Western Division
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Arizona, California, Illinois, Missouri, Texas, Washington
 
63

 
210,804

 
58.4
%
 
18.96

 
11,852

 
58.9
%
 
93.8
%
Total retail operating portfolio (b)
 
105

 
$
360,934

 
100.0
%
 
$
19.11

 
20,131

 
100.0
%
 
93.8
%
(a)
Calculated as the percentage of economically occupied GLA as of December 31, 2018. Including leases signed but not commenced, our retail operating portfolio was 94.8% leased as of December 31, 2018.
(b)
Excludes (i) the redevelopment portion of Circle East, which is in active redevelopment, (ii) the multi-family rental units at Plaza del Lago, which are in active redevelopment, and (ii) Carillon, where we have begun activities in anticipation of future redevelopment.

19


The following table sets forth information regarding the 20 largest tenants in our retail operating portfolio based on ABR as of December 31, 2018. Dollars (other than per square foot information) and square feet of GLA are presented in thousands.
Tenant
 
Primary DBA
 
Number
of Stores
 
ABR
 
% of
Total ABR
 
ABR per
Occupied
Sq. Ft.
 
Occupied
GLA
 
% of
Occupied
GLA
Best Buy Co., Inc.
 
Best Buy, Pacific Sales
 
12

 
$
8,443

 
2.3
%
 
$
17.20

 
491

 
2.6
%
The TJX Companies, Inc.
 
HomeGoods, Marshalls, T.J. Maxx
 
23

 
7,020

 
1.9
%
 
10.68

 
657

 
3.5
%
Regal Entertainment Group
 
Edwards Cinema
 
2

 
6,968

 
1.9
%
 
31.82

 
219

 
1.2
%
Bed Bath & Beyond Inc.
 
Bed Bath & Beyond, Buy Buy Baby, Cost Plus World Market
 
18

 
6,780

 
1.9
%
 
14.13

 
480

 
2.5
%
AB Acquisition LLC
 
Safeway, Jewel-Osco, Tom Thumb
 
9

 
6,649

 
1.8
%
 
13.68

 
486

 
2.6
%
Ross Stores, Inc.
 
Ross Dress for Less
 
20

 
6,566

 
1.8
%
 
11.24

 
584

 
3.1
%
PetSmart, Inc.
 
 
 
17

 
5,626

 
1.6
%
 
16.26

 
346

 
1.8
%
Ahold U.S.A. Inc.
 
Stop & Shop, Giant Eagle
 
4

 
5,389

 
1.5
%
 
22.27

 
242

 
1.3
%
Michaels Stores, Inc.
 
Michaels, Aaron Brothers Art & Frame
 
17

 
4,997

 
1.4
%
 
13.05

 
383

 
2.0
%
Ascena Retail Group Inc.
 
Dress Barn, Lane Bryant, Justice, Catherine’s, Ann Taylor, Maurices, LOFT
 
40

 
4,734

 
1.3
%
 
22.65

 
209

 
1.1
%
Gap Inc.
 
Old Navy, Banana Republic, The Gap, Gap Factory Store, Athleta
 
22

 
4,676

 
1.3
%
 
18.41

 
254

 
1.3
%
BJ’s Wholesale Club, Inc.
 
 
 
2

 
4,659

 
1.3
%
 
19.02

 
245

 
1.3
%
Lowe’s Companies, Inc.
 
 
 
4

 
3,944

 
1.1
%
 
6.47

 
610

 
3.2
%
The Kroger Co.
 
Kroger, Harris Teeter, QFC
 
7

 
3,638

 
1.0
%
 
10.42

 
349

 
1.9
%
Party City Holdings Inc.
 
 
 
17

 
3,495

 
1.0
%
 
14.09

 
248

 
1.3
%
The Home Depot, Inc.
 
 
 
3

 
3,484

 
1.0
%
 
9.60

 
363

 
1.9
%
Office Depot, Inc.
 
Office Depot, OfficeMax
 
11

 
3,449

 
1.0
%
 
13.96

 
247

 
1.3
%
Barnes & Noble, Inc.
 
 
 
7

 
3,415

 
0.9
%
 
19.85

 
172

 
0.9
%
Pier 1 Imports, Inc.
 
 
 
16

 
3,172

 
0.9
%
 
19.70

 
161

 
0.9
%
Petco Animal Supplies, Inc.
 
 
 
13

 
3,147

 
0.9
%
 
17.58

 
179

 
1.0
%
Total Top Retail Tenants
 
 
 
264

 
$
100,251

 
27.8
%
 
$
14.48

 
6,925

 
36.7
%
The following table sets forth a summary, as of December 31, 2018, of lease expirations scheduled to occur during 2019 and each of the nine calendar years from 2020 to 2028 and thereafter, assuming no exercise of renewal options or early termination rights for all leases in our retail operating portfolio. The following table is based on leases commenced as of December 31, 2018. Dollars (other than per square foot information) and square feet of GLA are presented in thousands.
Lease Expiration Year
 
Lease
Count
 
ABR
 
% of Total
ABR
 
ABR per
Occupied
Sq. Ft.
 
GLA
 
% of
Occupied
GLA
2019 (a)
 
329

 
$
37,190

 
10.3
%
 
$
22.14

 
1,680

 
8.9
%
2020
 
341

 
36,756

 
10.2
%
 
20.77

 
1,770

 
9.4
%
2021
 
303

 
46,169

 
12.8
%
 
19.57

 
2,359

 
12.5
%
2022
 
316

 
49,522

 
13.7
%
 
16.60

 
2,984

 
15.8
%
2023
 
333

 
49,017

 
13.5
%
 
19.28

 
2,543

 
13.5
%
2024
 
283

 
42,273

 
11.7
%
 
17.94

 
2,356

 
12.4
%
2025
 
115

 
22,134

 
6.1
%
 
16.58

 
1,335

 
7.1
%
2026
 
81

 
16,116

 
4.5
%
 
21.66

 
744

 
4.0
%
2027
 
81

 
13,025

 
3.6
%
 
15.96

 
816

 
4.3
%
2028
 
80

 
18,632

 
5.2
%
 
22.95

 
812

 
4.3
%
Thereafter
 
80

 
29,162

 
8.1
%
 
20.22

 
1,442

 
7.6
%
Month-to-month
 
21

 
938

 
0.3
%
 
20.39

 
46

 
0.2
%
Total
 
2,363

 
$
360,934

 
100.0
%
 
$
19.11

 
18,887

 
100.0
%
(a)
Excludes month-to-month leases.

20


ITEM 3. LEGAL PROCEEDINGS
We are subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of such matters may not be predicted with certainty, we believe, based on currently available information, that the final outcome of such matters will not have a material effect on our consolidated financial statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

21


PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our Class A common stock trades on the NYSE under the trading symbol RPAI. The closing share price of our Class A common stock on February 8, 2019, as reported on the NYSE, was $13.17.
As of February 8, 2019, there were approximately 12,600 record holders of our Class A common stock. The number of holders does not include individuals or entities who beneficially own shares but whose shares of record are held by a broker or clearing agency.
We declared quarterly distributions totaling $0.6625 per share of our Class A common stock during 2018 and 2017.
We intend to continue to qualify as a REIT for U.S. federal income tax purposes. 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 REIT taxable income to shareholders. Our future distributions will be at the sole discretion of our board of directors. When determining the amount of future distributions, we expect to consider, among other factors, (i) the amount of cash generated from our operating activities, (ii) our expectations of future cash flow, (iii) our determination of near-term cash needs for debt repayments and potential future share repurchases, (iv) the market of available acquisitions of new properties and redevelopment, expansion and pad development opportunities, (v) the timing of significant re-leasing activities and the establishment of additional cash reserves for anticipated tenant allowances and general property capital improvements, (vi) our ability to continue to access additional sources of capital and (vii) the amount required to be distributed to maintain our status as a REIT, which is a requirement of our unsecured credit agreement, and to reduce any income and excise taxes that we otherwise would be required to pay. 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.
If our operations do not generate sufficient cash flow to allow us to satisfy the REIT distribution requirements, we may be required to fund distributions from working capital or by borrowing funds, issuing equity or selling assets. Our actual results of operations will be affected by a number of factors, including the revenues we receive from tenants at our properties, our operating and other expenses, interest expense, the ability of our tenants to meet their obligations and unanticipated expenditures. For more information regarding risk factors that could materially adversely affect our actual results of operations, please see Item 1A. “Risk Factors.”
Sales of Unregistered Equity Securities
There were no unregistered sales of equity securities during the quarter ended December 31, 2018.

22


Issuer Purchases of Equity Securities
The following table summarizes our common stock repurchases during the quarter ended December 31, 2018, including, where applicable, shares of common stock surrendered to the Company by employees to satisfy their tax withholding obligations in connection with the vesting of restricted shares, and amounts outstanding under our common stock repurchase program:
Period
 
Total number
of shares of
Class A common
stock purchased
 
Average price
paid per share
of Class A
common stock
 
Total number of
shares purchased
as part of publicly
announced plans
or programs
 
Maximum number
(or approximate dollar
value) of shares that
may yet be purchased
under the plans
or programs (a)
October 1, 2018 to October 31, 2018
 
1,526

 
$
12.11

 
1,526

 
$
214,354

November 1, 2018 to November 30, 2018
 
459

 
$
11.91

 
459

 
$
208,879

December 1, 2018 to December 31, 2018
 
1,822

 
$
11.03

 
1,789

 
$
189,105

Total
 
3,807

 
$
11.57

 
3,774

 
$
189,105

(a)
As disclosed on the Current Reports on Form 8-K dated December 15, 2015 and December 14, 2017, represents the amount outstanding under our $500,000 common stock repurchase program, which has no scheduled expiration date.

23


ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the accompanying consolidated financial statements and related notes appearing elsewhere in this annual report.
RETAIL PROPERTIES OF AMERICA, INC.
As of and for the years ended December 31, 2018, 2017, 2016, 2015 and 2014
(Amounts in thousands, except per share amounts)
 
 
2018 (a)
 
2017
 
2016
 
2015
 
2014
Net investment properties
 
$
3,379,152

 
$
3,569,937

 
$
4,056,173

 
$
4,254,647

 
$
4,314,905

Total assets
 
$
3,647,470

 
$
3,918,264

 
$
4,452,973

 
$
4,621,251

 
$
4,787,989

Total debt
 
$
1,622,049

 
$
1,746,086

 
$
1,997,925

 
$
2,166,238

 
$
2,318,735

Total shareholders’ equity
 
$
1,746,591

 
$
1,885,700

 
$
2,152,086

 
$
2,155,337

 
$
2,187,881

 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
482,497

 
$
538,139

 
$
583,143

 
$
603,960

 
$
600,614

Total expenses
 
(368,987
)
 
(478,904
)
 
(456,997
)
 
(462,890
)
 
(497,969
)
Interest expense
 
(73,746
)
 
(146,092
)
 
(109,730
)
 
(138,938
)
 
(133,835
)
Gain on sales of investment properties, net
 
37,211

 
337,975

 
129,707

 
121,792

 
42,196

Other, net
 
665

 
373

 
20,694

 
1,700

 
32,294

Net income
 
77,640

 
251,491

 
166,817

 
125,624

 
43,300

Net income attributable to noncontrolling interest
 

 

 

 
(528
)
 

Net income attributable to the Company
 
77,640

 
251,491

 
166,817

 
125,096

 
43,300

Preferred stock dividends
 

 
(13,867
)
 
(9,450
)
 
(9,450
)
 
(9,450
)
Net income attributable to common shareholders
 
$
77,640

 
$
237,624

 
$
157,367

 
$
115,646

 
$
33,850

 
 
 
 
 
 
 
 
 
 
 
Earnings per common share – basic and diluted
 
$
0.35

 
$
1.03

 
$
0.66

 
$
0.49

 
$
0.14

 
 
 
 
 
 
 
 
 
 
 
Distributions declared – preferred
 
$

 
$
9,161

 
$
9,450

 
$
9,450

 
$
9,450

Distributions declared per preferred share
 
$

 
$
1.70

 
$
1.75

 
$
1.75

 
$
1.75

Excess of redemption value over carrying value of
preferred stock redemption
 
$

 
$
4,706

 
$

 
$

 
$

Distributions declared – common
 
$
144,409

 
$
151,612

 
$
157,168

 
$
157,173

 
$
156,742

Distributions declared per common share
 
$
0.66

 
$
0.66

 
$
0.66

 
$
0.66

 
$
0.66

 
 
 
 
 
 
 
 
 
 
 
Cash flows provided by operating activities
 
$
204,163

 
$
247,516

 
$
266,130

 
$
266,650

 
$
263,161

Cash flows provided by investing activities
 
$
87,275

 
$
608,302

 
$
12,444

 
$
2,623

 
$
95,721

Cash flows used in financing activities
 
$
(358,172
)
 
$
(851,832
)
 
$
(283,453
)
 
$
(352,806
)
 
$
(286,509
)
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding – basic
 
217,830

 
230,747

 
236,651

 
236,380

 
236,184

Weighted average number of common shares outstanding – diluted
 
218,231

 
230,927

 
236,951

 
236,382

 
236,187

(a)
On January 1, 2018, we adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, on a modified retrospective basis. The selected financial data for the years ended December 31, 2017, 2016, 2015 and 2014 was not retrospectively adjusted.

24


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” “Business” and elsewhere in this Annual Report on Form 10-K 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” 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 markets where we have a high concentration of properties;
our business strategy;
our projected operating results;
rental rates and/or vacancy rates;
frequency and magnitude of defaults on, early terminations of or non-renewal of leases by tenants;
bankruptcy or insolvency of a major tenant or a significant number of smaller tenants;
adverse impact of e-commerce developments and shifting consumer retail behavior on our tenants;
interest rates or operating costs;
real estate and zoning laws and changes in real property tax rates;
real estate valuations;
our leverage;
our ability to generate sufficient cash flows to service our outstanding indebtedness and make distributions to our shareholders;
our ability to obtain necessary outside financing;
the availability, terms and deployment of capital;
general volatility of the capital and credit markets and the market price of our Class A common stock;
risks generally associated with real estate acquisitions and dispositions, including our ability to identify and pursue acquisition and disposition opportunities;
risks generally associated with redevelopment, including the impact of construction delays and cost overruns, our ability to lease redeveloped space and our ability to identify and pursue redevelopment opportunities;
composition of members of our senior management team;
our ability to attract and retain qualified personnel;
our ability to continue to qualify as a REIT;

25


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.” 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 Annual Report on Form  10-K, except as required by applicable law.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included in this report.
Executive Summary
Retail Properties of America, Inc. is a REIT that owns and operates high quality, strategically located open-air shopping centers, including properties with a mixed-use component. As of December 31, 2018, we owned 105 retail operating properties in the United States representing 20,131,000 square feet of GLA. Our retail operating portfolio includes (i) neighborhood and community centers, (ii) power centers, and (iii) lifestyle centers and multi-tenant retail-focused mixed-use properties, as well as single-user retail properties.
The following table summarizes our portfolio as of December 31, 2018:
Property Type
 
Number of
Properties
 
GLA
(in thousands)
 
Occupancy
 
Percent Leased
Including Leases
Signed (a)
Retail operating portfolio:
 
 
 
 
 
 
 
 
Multi-tenant retail:
 


 
 
 
 
 
 
Neighborhood and community centers
 
61

 
9,783

 
94.0
%
 
94.4
%
Power centers
 
25

 
5,454

 
93.4
%
 
95.6
%
Lifestyle centers and mixed-use properties (b)
 
16

 
4,538

 
93.5
%
 
94.4
%
Total multi-tenant retail
 
102

 
19,775

 
93.7
%
 
94.7
%
Single-user retail
 
3

 
356

 
100.0
%
 
100.0
%
Total retail operating portfolio
 
105

 
20,131

 
93.8
%
 
94.8
%
Redevelopment projects:
 
 
 
 
 
 
 
 
Circle East – redevelopment portion (c)
 

 


 
 
 
 
Plaza del Lago – multi-family rental units (d)
 

 
 
 
 
 
 
Carillon (e)
 
1

 
 
 
 
 
 
Total number of properties
 
106

 
 
 
 
 
 
(a)
Includes leases signed but not commenced.
(b)
Includes Reisterstown Road Plaza, which was reclassified from active redevelopment into our retail operating portfolio during the three months ended December 31, 2018.
(c)
This portion of the property was formerly known as Towson Circle and the operating portion, which was formerly known as Towson Square, is included in lifestyle centers and mixed-use properties within the property count for our retail operating portfolio.
(d)
We began redevelopment activities on the multi-family rental units at the property during the three months ended December 31, 2018. The operating portion of the property is included in lifestyle centers and mixed-use properties within the property count for our retail operating portfolio.
(e)
We have begun activities in anticipation of future redevelopment of this property, which was formerly known as Boulevard at the Capital Centre.

26


During the first half of 2018, we completed our portfolio transformation, the core objective of which was to become a prominent owner of multi-tenant retail properties primarily located in the following markets: Dallas, Washington, D.C./Baltimore, New York, Chicago, Seattle, Atlanta, Houston, San Antonio, Phoenix and Austin.
We have been primarily focused on growing our portfolio organically through accretive leasing activity and mixed-use redevelopment and expansion projects. We completed the major redevelopment construction activities at Reisterstown Road Plaza in 2017 and reclassified the property from active redevelopment into our retail operating portfolio during the three months ended December 31, 2018. Our active and near-term expansion and redevelopment projects consist of approximately $390,000 to $430,000 of expected investment during 2019 to 2022 and include the redevelopment portion of Circle East, the first phase of Carillon and the redevelopment of the existing multi-family rental units at Plaza del Lago, as well as pad developments and expansions at several of our mixed-use and lifestyle centers, including Downtown Crown, Main Street Promenade and One Loudoun Downtown. Our current portfolio of assets contains several additional projects in the longer-term pipeline, including, among others, future projects at Merrifield Town Center, Tysons Corner, Southlake Town Square, Lakewood Towne Center and One Loudoun Uptown.
2018 Company Highlights
Acquisitions
During the year ended December 31, 2018, we acquired One Loudoun Uptown, a 58-acre land parcel, of which 32 acres are developable, located adjacent to One Loudoun Downtown, our multi-tenant retail operating property located in Ashburn, Virginia, for a purchase price of $25,000. The acquired land parcel is classified as land held for development and is included in “Developments in progress” in the accompanying consolidated balance sheets.
Developments in Progress
During the year ended December 31, 2018, we:
invested $12,226 in our active redevelopment projects at Reisterstown Road Plaza, Circle East and Plaza del Lago;
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 the redevelopment portion of Circle East, which is shown net in the “Developments in progress” balance as of December 31, 2018 in the accompanying consolidated balance sheets;
commenced active redevelopment on the multi-family rental units at Plaza del Lago; and
placed the Reisterstown Road Plaza redevelopment project in service and reclassified the related costs from “Developments in progress” into “Buildings and other improvements” in the accompanying consolidated balance sheets.
The following table summarizes developments in progress as of December 31, 2018:
Property Name
 
MSA
 
December 31, 2018
Active developments/redevelopments:
 
 
 
 
Circle East – redevelopment portion
 
Baltimore
 
$
22,383

Plaza del Lago – multi-family rental units
 
Chicago
 
536

 
 
 
 
22,919

Land held for development:
 
 
 
 
One Loudoun Uptown
 
Washington, D.C.
 
25,450

Total developments in progress
 
 
 
$
48,369

Dispositions
During the year ended December 31, 2018, we continued to pursue targeted dispositions of select non-target and single-user properties. Consideration from dispositions totaled $201,400 and included the sales of six multi-tenant retail operating properties aggregating 836,900 square feet for total consideration of $104,500, three single-user retail properties aggregating 98,900 square feet for total consideration of $10,300 and Schaumburg Towers, an 895,400 square foot office complex, for consideration of $86,600.

27


The following table summarizes our 2018 dispositions:
Date
 
Property Name
 
Property Type
 
Square
Footage
 
Consideration
January 19, 2018
 
Crown Theater
 
Single-user retail
 
74,200

 
$
6,900

February 15, 2018
 
Cranberry Square
 
Multi-tenant retail
 
195,200

 
23,500

March 7, 2018
 
Rite Aid Store (Eckerd) – Crossville, TN
 
Single-user retail
 
13,800

 
1,800

March 20, 2018
 
Home Depot Plaza
 
Multi-tenant retail
 
135,600

 
16,250

March 21, 2018
 
Governor's Marketplace
 
Multi-tenant retail
 
243,100

 
23,500

March 28, 2018
 
Stony Creek I & Stony Creek II
 
Multi-tenant retail
 
204,800

 
32,800

April 19, 2018
 
CVS Pharmacy – Lawton, OK
 
Single-user retail
 
10,900

 
1,600

May 31, 2018
 
Schaumburg Towers
 
Office
 
895,400

 
86,600

December 28, 2018
 
Orange Plaza (Golfland Plaza)
 
Multi-tenant retail
 
58,200

 
8,450

 
 
 
 
 
 
1,831,200

 
$
201,400

In addition to the property dispositions listed above, during the year ended December 31, 2018, we received (i) consideration of $11,970 in connection with the sale of air rights at the redevelopment portion of Circle East and (ii) consideration of $1,800 in connection with the first phase of the sale of a land parcel, which included rights to develop eight residential units, at One Loudoun Downtown.
Market Summary
The following table summarizes our retail operating portfolio by market as of December 31, 2018:
Property Type/Market
 
Number of
Properties
 
ABR (a)
 
% of Total
Multi-Tenant
Retail ABR (a)
 
ABR per
Occupied
Sq. Ft.
 
GLA (a)
 
% of Total
Multi-Tenant
Retail GLA (a)
 
Occupancy
 
% Leased
Including
Signed
Multi-Tenant Retail:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Top 25 MSAs (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dallas
 
19

 
$
81,616

 
23.2
%
 
$
22.36

 
3,938

 
19.9
%
 
92.7
%
 
93.2
%
Washington, D.C.
 
8

 
38,101

 
10.8
%
 
28.44

 
1,387

 
7.0
%
 
96.6
%
 
97.2
%
New York
 
9

 
36,287

 
10.3
%
 
28.76

 
1,292

 
6.5
%
 
97.6
%
 
97.6
%
Chicago
 
8

 
29,341

 
8.3
%
 
23.20

 
1,358

 
6.9
%
 
93.1
%
 
93.4
%
Baltimore (c)
 
5

 
21,791

 
6.2
%
 
14.71

 
1,603

 
8.1
%
 
92.4
%
 
96.9
%
Seattle
 
8

 
21,432

 
6.1
%
 
15.63

 
1,477

 
7.5
%
 
92.8
%
 
93.6
%
Atlanta
 
9

 
19,695

 
5.6
%
 
13.77

 
1,513

 
7.7
%
 
94.6
%
 
94.6
%
Houston
 
9

 
15,746

 
4.5
%
 
14.73

 
1,141

 
5.8
%
 
93.7
%
 
94.3
%
San Antonio
 
3

 
12,715

 
3.6
%
 
17.65

 
721

 
3.6
%
 
99.8
%
 
100.0
%
Phoenix
 
3

 
10,556

 
3.0
%
 
17.79

 
632

 
3.2
%
 
94.0
%
 
94.0
%
Los Angeles
 
1

 
5,394

 
1.5
%
 
28.23

 
241

 
1.2
%
 
79.4
%
 
79.4
%
Riverside
 
1

 
4,610

 
1.3
%
 
15.76

 
292

 
1.5
%
 
100.0
%
 
100.0
%
St. Louis
 
1

 
4,163

 
1.2
%
 
9.67

 
453

 
2.3
%
 
95.0
%
 
95.0
%
Charlotte
 
1

 
3,060

 
0.9
%
 
12.71

 
320

 
1.6
%
 
75.3
%
 
90.6
%
Tampa
 
1

 
2,374

 
0.7
%
 
19.47

 
126

 
0.6
%
 
97.0
%
 
97.0
%
Subtotal
 
86

 
306,881

 
87.2
%
 
19.85

 
16,494

 
83.4
%
 
93.7
%
 
94.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Top 25 MSAs (b)
 
16

 
45,103

 
12.8
%
 
14.68

 
3,281

 
16.6
%
 
93.6
%
 
94.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Multi-Tenant Retail
 
102

 
351,984

 
100.0
%
 
18.99

 
19,775

 
100.0
%
 
93.7
%
 
94.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Single-User Retail
 
3

 
8,950

 
 
 
25.19

 
356

 
 
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Retail
Operating Portfolio (d)
 
105

 
360,934

 
 
 
$
19.11

 
20,131

 
 
 
93.8
%
 
94.8
%
(a)
Excludes $2,271 of multi-tenant retail ABR and 395 square feet of multi-tenant retail GLA attributable to (i) the redevelopment portion of Circle East, which is in active redevelopment and (ii) Carillon, where we have begun activities in anticipation of future redevelopment, which are located in the Baltimore and Washington, D.C. MSAs, respectively. Including these amounts, 87.3% of our multi-tenant retail ABR and 83.7% of our multi-tenant retail GLA is located in the top 25 MSAs.
(b)
Top 25 MSAs and Non-Top 25 MSAs are determined by the United States Census Bureau and ranked based on the most recently available population estimates.

28


(c)
Includes Reisterstown Road Plaza, a formerly active redevelopment that was reclassified into our retail operating portfolio during the three months ended December 31, 2018.
(d)
Excludes the multi-family rental units at Plaza del Lago, which are in active redevelopment.
Leasing Activity
The following table summarizes the leasing activity in our retail operating portfolio during the year ended December 31, 2018. Leases with terms of less than 12 months have been excluded from the table.
 
 
Number of
Leases Signed
 
GLA Signed
(in thousands)
 
New
Contractual
Rent per Square
Foot (PSF) (a)
 
Prior
Contractual
Rent PSF (a)
 
% Change
over Prior
ABR (a)
 
Weighted
Average
Lease Term
 
Tenant
Allowances
PSF
Comparable Renewal Leases
 
350

 
2,439

 
$
20.13

 
$
19.20

 
4.8
%
 
4.8

 
$
1.29

Comparable New Leases
 
53

 
312

 
24.09

 
21.06

 
14.4
%
 
9.4

 
44.68

Non-Comparable New and Renewal Leases (b)
 
109

 
656

 
19.65

 
N/A

 
N/A

 
6.6

 
34.23

Total
 
512

 
3,407

 
$
20.58

 
$
19.41

 
6.0
%
 
5.6

 
$
11.62

(a)
Total excludes the impact of Non-Comparable New and Renewal Leases.
(b)
Includes (i) leases signed on units that were vacant for over 12 months, (ii) leases signed without fixed rental payments and (iii) leases signed where the previous and the current lease do not have a consistent lease structure.
We anticipate our leasing efforts in 2019 will focus on (i) vacant anchor and small shop space, (ii) upcoming lease expirations and (iii) spaces within our redevelopment and expansion projects. As we lease vacant space, we look to capitalize on the opportunity to mark rents to market, upgrade our tenancy and optimize the mix of operators and unique retailers at our properties.
Capital Markets
During the year ended December 31, 2018, we:
entered into our fifth amended and restated unsecured credit agreement (Unsecured Credit Agreement) with a syndicate of financial institutions to provide for an unsecured credit facility aggregating $1,100,000, comprised of an $850,000 unsecured revolving line of credit and a $250,000 unsecured term loan (collectively, the Unsecured Credit Facility), which increased capacity on the unsecured revolving line of credit by $100,000, extended its maturity date by 2.3 years and improved the pricing on borrowings under the unsecured revolving line of credit and unsecured term loan by 0.30% and 0.10%, respectively;
repaid the remaining $100,000 of our unsecured term loan due 2018 in conjunction with the execution of the Unsecured Credit Agreement;
amended the agreement governing our term loan due 2023 to improve our credit spread by 0.50%;
entered into two agreements to swap a total of $200,000 of LIBOR-based variable rate debt to a fixed interest rate of 2.85% through November 22, 2023 upon the expiration of the previous swap agreements;
borrowed $57,000, net of repayments, on our unsecured revolving line of credit;
repaid $77,987 of mortgages payable, incurred $5,791 of debt prepayment fees and made scheduled principal payments of $3,801 related to amortizing loans; and
repurchased 6,341 shares of our Class A common stock at an average price per share of $11.80 for a total of $74,952, resulting in $189,105 remaining available for repurchases under our $500,000 common stock repurchase program.
Distributions
We declared quarterly distributions totaling $0.6625 per share of our Class A common stock during 2018.

29


Results of Operations
Comparison of Results for the Years Ended December 31, 2018 to 2017
 
Year Ended December 31,
 
 
 
2018
 
2017
 
Change
Revenues
 
 
 
 
 
Rental income
$
370,638

 
$
414,804

 
$
(44,166
)
Tenant recovery income
105,170

 
115,944

 
(10,774
)
Other property income
6,689

 
7,391

 
(702
)
Total revenues
482,497

 
538,139

 
(55,642
)
 
 
 
 
 
 
Expenses
 
 
 
 
 
Operating expenses
74,885

 
84,556

 
(9,671
)
Real estate taxes
73,683

 
82,755

 
(9,072
)
Depreciation and amortization
175,977

 
203,866

 
(27,889
)
Provision for impairment of investment properties
2,079

 
67,003

 
(64,924
)
General and administrative expenses
42,363

 
40,724

 
1,639

Total expenses
368,987

 
478,904

 
(109,917
)
 
 
 
 
 
 
Other (expense) income
 
 
 
 
 
Interest expense
(73,746
)
 
(146,092
)
 
72,346

Gain on sales of investment properties
37,211

 
337,975

 
(300,764
)
Other income, net
665

 
373

 
292

Net income
77,640

 
251,491

 
(173,851
)
Preferred stock dividends

 
(13,867
)
 
13,867

Net income attributable to common shareholders
$
77,640

 
$
237,624

 
$
(159,984
)
We owned 112 retail operating properties and one office complex as of December 31, 2017, which decreased to 105 retail operating properties as of December 31, 2018 as a result of the completion of our portfolio transformation during the first half of 2018.
Net income attributable to common shareholders decreased $159,984 from $237,624 for the year ended December 31, 2017 to $77,640 for the year ended December 31, 2018 primarily as a result of the following:
a $300,764 decrease in gain on sales of investment properties related to the sales of 10 investment properties and a land parcel, representing approximately 1,831,200 square feet of GLA, and the sale of air rights at the redevelopment portion of Circle East during the year ended December 31, 2018 compared to the sales of 47 investment properties, representing approximately 5,810,700 square feet of GLA, during the year ended December 31, 2017; and
a $44,166 decrease in rental income primarily consisting of a $46,084 decrease in base rent, which resulted from the operating properties sold during 2017 and 2018, partially offset by the growth from our same store portfolio and an increase in base rent from the operating properties acquired during 2017;
partially offset by
a $72,346 decrease in interest expense primarily consisting of:
a $62,675 decrease in prepayment penalties and defeasance premiums and a $4,079 decrease in capitalized loan fee write-offs primarily related to the defeasance of the IW JV portfolio of mortgages payable during the year ended December 31, 2017, which resulted in a defeasance premium and associated fees totaling $60,198 and the write-off of $4,003 of capitalized loan fees; and
a $5,357 decrease in interest on mortgages payable due to a reduction in mortgage debt;
a $64,924 decrease in provision for impairment of investment properties. Based on the results of our evaluations for impairment (see Notes 14 and 15 to the accompanying consolidated financial statements), we recognized impairment charges of $2,079 and $67,003 for the year ended December 31, 2018 and 2017, respectively. Impairment charges recorded during 2017 were primarily related to Schaumburg Towers, which was sold on May 31, 2018;

30


a $27,889 decrease in depreciation and amortization primarily due to the investment properties sold during 2017 and 2018; and
a $13,867 decrease in preferred stock dividends due to the redemption of our 7.00% Series A cumulative redeemable preferred stock on December 20, 2017.
Net operating income (NOI)
We define NOI as all revenues other than (i) straight-line rental income (non-cash), (ii) amortization of lease inducements, (iii) amortization of acquired above and below market lease intangibles and (iv) lease termination fee income, less real estate taxes and all operating expenses other than lease termination fee expense and non-cash ground rent expense, which is comprised of straight-line ground rent expense and amortization of acquired ground lease intangibles. 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 “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 – 2018 and 2017
For the year ended December 31, 2018, our same store portfolio consisted of 101 retail operating properties acquired or placed in service and stabilized prior to January 1, 2017. The number of properties in our same store portfolio decreased to 101 as of December 31, 2018 from 102 as of December 31, 2017 as a result of the following:
the removal of eight same store investment properties sold during the year ended December 31, 2018;
partially offset by
the addition of seven same store investment properties acquired prior to January 1, 2017.
The sale of Crown Theater on January 19, 2018 did not impact the number of same store investment properties as it was classified as held for sale as of December 31, 2017. In addition, the sale of Schaumburg Towers on May 31, 2018 did not impact the number of same store investment properties as it was not previously included in our same store portfolio.
The properties and financial results reported in “Other investment properties” primarily include the following:
properties acquired after December 31, 2016, including Plaza del Lago, of which the multi-family rental units are in active redevelopment;
Reisterstown Road Plaza, which was reclassified from active redevelopment into our retail operating portfolio during 2018;
the redevelopment portion of Circle East, which is in active redevelopment;
Carillon, where we have begun activities in anticipation of future redevelopment;
properties that were sold or held for sale in 2017 and 2018, including Schaumburg Towers; and
the net income from our wholly-owned captive insurance company.

31


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 years ended December 31, 2018 and 2017:
 
Year Ended December 31,
 
 
 
2018
 
2017
 
Change
Net income attributable to common shareholders
$
77,640

 
$
237,624

 
$
(159,984
)
Adjustments to reconcile to Same Store NOI:
 
 
 
 
 
Preferred stock dividends

 
13,867

 
(13,867
)
Gain on sales of investment properties
(37,211
)
 
(337,975
)
 
300,764

Depreciation and amortization
175,977

 
203,866

 
(27,889
)
Provision for impairment of investment properties
2,079

 
67,003

 
(64,924
)
General and administrative expenses
42,363

 
40,724

 
1,639

Interest expense
73,746

 
146,092

 
(72,346
)
Straight-line rental income, net
(5,717
)
 
(4,646
)
 
(1,071
)
Amortization of acquired above and below market lease intangibles, net
(5,467
)
 
(3,313
)
 
(2,154
)
Amortization of lease inducements
1,020

 
1,065

 
(45
)
Lease termination fees, net
179

 
(2,021
)
 
2,200

Non-cash ground rent expense, net
1,844

 
2,150

 
(306
)
Other income, net
(665
)
 
(373
)
 
(292
)
NOI
325,788

 
364,063

 
(38,275
)
NOI from Other Investment Properties
(19,114
)
 
(64,115
)
 
45,001

Same Store NOI
$
306,674

 
$
299,948

 
$
6,726

 
Year Ended December 31,
 
 
 
2018
 
2017
 
Change
Same Store NOI:
 
 
 
 
 
Base rent
$
329,512

 
$
325,398

 
$
4,114

Percentage and specialty rent
3,624

 
3,819

 
(195
)
Tenant recovery income
99,140

 
96,594

 
2,546

Other property operating income
4,616

 
4,111

 
505

 
436,892

 
429,922

 
6,970

 
 
 
 
 
 
Property operating expenses
60,049

 
61,577

 
(1,528
)
Bad debt expense
1,706

 
1,123

 
583

Real estate taxes
68,463

 
67,274