Organization and Basis of Presentation

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND BASIS OF PRESENTATION

Retail Properties of America, Inc. (the Company) was formed on March 5, 2003 and its primary purpose is to own and operate high quality, strategically located open-air shopping centers, including properties with a mixed-use component. As of September 30, 2020, the Company owned 102 retail operating properties in the United States.

The Company has elected to be taxed as a real estate investment trust (REIT) under the Internal Revenue Code of 1986, as amended (the Code). The Company believes it qualifies for taxation as a REIT and, as such, the Company generally will not be subject to U.S. federal income tax on taxable income that is distributed to its shareholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal income tax on its taxable income. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property or net worth and U.S. federal income and excise taxes on its undistributed income. The Company has one wholly owned subsidiary that has jointly elected to be treated as a taxable REIT subsidiary (TRS) and is subject to U.S. federal, state and local income taxes at regular corporate tax rates. The income tax expense incurred by the TRS did not have a material impact on the Company’s accompanying condensed consolidated financial statements.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. For example, significant estimates and assumptions have been made with respect to capitalization of development costs, provision for impairment, including estimates of holding periods, capitalization rates and discount rates (where applicable), and initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions and initial recognition of right-of-use lease assets and lease liabilities. Actual results could differ from these estimates.

In accordance with Accounting Standards Codification Topic 205, Presentation of Financial Statements, certain prior year balances have been reclassified in order to conform to the current period presentation. Specifically, for the nine months ended September 30, 2019, the reserve for uncollectible lease income of $1,860 has been presented as a component of “Changes in accounts receivable, net” rather than the previous presentation where it was included as a component of “Other, net” in the accompanying condensed consolidated statements of cash flows within “Cash flows from operating activities.” There has been no change to “Net cash provided by operating activities” for the nine months ended September 30, 2019 as a result of this reclassification.

All share amounts and dollar amounts in this Quarterly Report on Form 10-Q, including the condensed consolidated financial statements and notes thereto, are stated in thousands with the exception of per share, per square foot and per unit amounts.

The accompanying condensed consolidated financial statements include the accounts of the Company, as well as all wholly owned subsidiaries and consolidated variable interest entities (VIEs). All intercompany balances and transactions have been eliminated in consolidation. Wholly owned subsidiaries generally consist of limited liability companies, limited partnerships and statutory trusts.

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus (COVID-19) a global pandemic. COVID-19 has caused, and could continue to cause, significant disruptions to the U.S. and global economy, including the retail sector within the U.S., and has contributed to significant volatility and negative pressure in the financial markets. Many U.S. states and cities, including where the Company owns properties and/or has development sites, imposed measures, and continue to impose measures to varying degrees, intended to control the spread of COVID-19, such as instituting “shelter-in-place” rules, limitations on public gatherings and restrictions on certain business operations and/or the types of construction projects that

may continue. As a result of the pandemic and the measures implemented to mitigate its impact, a number of the Company’s tenants were required to temporarily close their stores or modify their operations and, as a result, requested lease concessions. As of September 30, 2020, all of the Company’s properties were open for the benefit of the communities and customers that the Company’s tenants serve and approximately 94% of the Company’s tenants, based on gross leasable area, were open. While many U.S. states and cities have eased or lifted such restrictions, some have subsequently reinstated restrictions and others may do so in the future.

The Company continues to closely monitor the impact of the pandemic on all aspects of its business. Due to numerous uncertainties, it is not possible to accurately predict the ultimate impact the pandemic will have on the Company’s financial condition, results of operations and cash flows.

During the second and third quarters of 2020, the Company agreed in principle, and, in certain circumstances, executed agreements, with tenants regarding lease concessions. See a discussion regarding lease concessions executed or agreed in principle as a result of the COVID-19 pandemic and related accounting treatment in Note 2 and Note 6 to the condensed consolidated financial statements.

The Company’s property ownership as of September 30, 2020 is summarized below:


			Property Count
Retail operating properties			102
Expansion and redevelopment projects:
Circle East			1
One Loudoun Downtown – Pads G & H (a)			—
Carillon			1
The Shoppes at Quarterfield			1
Total number of properties			105

(a)The operating portion of this property is included within the property count for retail operating properties.