RETAIL PROPERTIES OF AMERICA, INC. (Form: 10-Q, Received: 08/01/2018 16:27:57)

Term Loan Due 2023

Maturity Date

Leverage-Based Pricing

Credit Spread

Investment Grade Pricing

Credit Spread

$200,000 unsecured term loan

1.70% – 2.55%

1.50% – 2.45%

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018



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)

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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o

(Do not check if a smaller reporting company)		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

Number of shares outstanding of the registrant’s classes of common stock as of July 27, 2018 :

Class A common stock: 219,550,397 shares

Table of Contents

RETAIL PROPERTIES OF AMERICA, INC.

TABLE OF CONTENTS



PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43

Item 4.	Controls and Procedures	44

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45

Item 6.	Exhibits	47

SIGNATURES		48

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RETAIL PROPERTIES OF AMERICA, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except par value amounts)



	June 30, 2018			December 31, 2017
Assets
Investment properties:
Land	$	1,041,593		$	1,066,705
Building and other improvements	3,570,680			3,686,200
Developments in progress	21,300			33,022
	4,633,573			4,785,927
Less accumulated depreciation	(1,246,096		)	(1,215,990		)
Net investment properties	3,387,477			3,569,937
Cash and cash equivalents	29,125			25,185
Accounts and notes receivable (net of allowances of $7,211 and $6,567, respectively)	71,745			71,678
Acquired lease intangible assets, net	109,054			122,646
Assets associated with investment properties held for sale	—			3,647
Other assets, net	73,990			125,171
Total assets	$	3,671,391		$	3,918,264

Liabilities and Equity
Liabilities:
Mortgages payable, net	$	274,267		$	287,068
Unsecured notes payable, net	696,055			695,748
Unsecured term loans, net	447,583			547,270
Unsecured revolving line of credit	126,000			216,000
Accounts payable and accrued expenses	62,168			82,698
Distributions payable	36,363			36,311
Acquired lease intangible liabilities, net	91,053			97,971
Other liabilities	66,313			69,498
Total liabilities	1,799,802			2,032,564

Commitments and contingencies (Note 14)

Equity:
Preferred stock, $0.001 par value, 10,000 shares authorized, none issued or outstanding	—			—
Class A common stock, $0.001 par value, 475,000 shares authorized, 219,550 and 219,237 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively	219			219
Additional paid-in capital	4,576,752			4,574,428
Accumulated distributions in excess of earnings	(2,710,081		)	(2,690,021		)
Accumulated other comprehensive income	4,699			1,074
Total equity	1,871,589			1,885,700
Total liabilities and equity	$	3,671,391		$	3,918,264

See accompanying notes to condensed consolidated financial statements

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RETAIL PROPERTIES OF AMERICA, INC.

Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss)

(Unaudited)

(in thousands, except per share amounts)



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Revenues
Rental income	$	92,646		$	106,017		$	187,101		$	215,991
Tenant recovery income	25,183			29,524			53,273			60,310
Other property income	1,335			1,798			3,632			4,731
Total revenues	119,164			137,339			244,006			281,032

Expenses
Operating expenses	19,384			21,004			39,639			42,868
Real estate taxes	17,701			21,487			38,169			43,366
Depreciation and amortization	43,710			52,325			88,938			105,799
Provision for impairment of investment properties	724			13,034			1,316			13,034
General and administrative expenses	10,274			10,370			22,769			21,583
Total expenses	91,793			118,220			190,831			226,650

Operating income	27,371			19,119			53,175			54,382

Interest expense	(16,817		)	(21,435		)	(35,582		)	(106,967		)
Other income, net	328			451			550			456
Income (loss) from continuing operations	10,882			(1,865		)	18,143			(52,129		)
Gain on sales of investment properties	—			116,628			34,519			157,792
Net income	10,882			114,763			52,662			105,663
Preferred stock dividends	—			(2,363		)	—			(4,725		)
Net income attributable to common shareholders	$	10,882		$	112,400		$	52,662		$	100,938

Earnings per common share – basic and diluted
Net income per common share attributable to common shareholders	$	0.05		$	0.48		$	0.24		$	0.43

Net income	$	10,882		$	114,763		$	52,662		$	105,663
Other comprehensive income (loss):
Net unrealized gain (loss) on derivative instruments (Note 9)	859			(145		)	3,613			487
Comprehensive income attributable to the Company	$	11,741		$	114,618		$	56,275		$	106,150

Weighted average number of common shares outstanding – basic	218,982			234,243			218,915			235,269

Weighted average number of common shares outstanding – diluted	219,410			234,818			219,406			235,842

See accompanying notes to condensed consolidated financial statements

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RETAIL PROPERTIES OF AMERICA, INC.

Condensed Consolidated Statements of Equity

(Unaudited)

(in thousands, except per share amounts)



	Preferred Stock			Class A Common Stock				Additional Paid-in Capital			Accumulated Distributions in Excess of Earnings			Accumulated Other Comprehensive Income		Total Shareholders’ Equity
	Shares	Amount		Shares		Amount		Additional Paid-in Capital			Accumulated Distributions in Excess of Earnings			Accumulated Other Comprehensive Income		Total Shareholders’ Equity
Balance as of January 1, 2017	5,400	$	5	236,770		$	237	$	4,927,155		$	(2,776,033	)	$	722	$	2,152,086
Net income	—	—		—		—		—			105,663			—		105,663
Other comprehensive income	—	—		—		—		—			—			487		487
Distributions declared to preferred shareholders ($0.875 per share)	—	—		—		—		—			(4,725		)	—		(4,725		)
Distributions declared to common shareholders ($0.33125 per share)	—	—		—		—		—			(77,553		)	—		(77,553		)
Issuance of restricted shares	—	—		285		—		—			—			—		—
Stock-based compensation expense	—	—		—		—		3,549			—			—		3,549
Shares withheld for employee taxes	—	—		(88	)	—		(1,333		)	—			—		(1,333		)
Balance as of June 30, 2017	5,400	$	5	230,943		$	231	$	4,853,680		$	(2,752,648	)	$	1,209	$	2,102,477

Balance as of January 1, 2018	—	$	—	219,237		$	219	$	4,574,428		$	(2,690,021	)	$	1,074	$	1,885,700
Cumulative effect of accounting change	—	—		—		—		—			(12		)	12		—
Net income	—	—		—		—		—			52,662			—		52,662
Other comprehensive income	—	—		—		—		—			—			3,613		3,613
Distributions declared to common shareholders ($0.33125 per share)	—	—		—		—		—			(72,710		)	—		(72,710		)
Issuance of common stock	—	—		59		—		—			—			—		—
Issuance of restricted shares	—	—		382		—		—			—			—		—
Stock-based compensation expense, net of forfeitures	—	—		(12	)	—		3,729			—			—		3,729
Shares withheld for employee taxes	—	—		(116	)	—		(1,405		)	—			—		(1,405		)
Balance as of June 30, 2018	—	$	—	219,550		$	219	$	4,576,752		$	(2,710,081	)	$	4,699	$	1,871,589

See accompanying notes to condensed consolidated financial statements

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RETAIL PROPERTIES OF AMERICA, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)



	Six Months Ended June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	52,662		$	105,663
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	88,938			105,799
Provision for impairment of investment properties	1,316			13,034
Gain on sales of investment properties	(34,519		)	(157,792		)
Amortization of loan fees and debt premium and discount, net	1,780			5,871
Amortization of stock-based compensation	3,729			3,549
Premium paid in connection with defeasance of mortgages payable	—			59,968
Debt prepayment fees	974			4,545
Payment of leasing fees and inducements	(3,652		)	(9,757		)
Changes in accounts receivable, net	(1,520		)	4,094
Changes in accounts payable and accrued expenses, net	(19,554		)	(15,577		)
Changes in other operating assets and liabilities, net	3,287			11,383
Other, net	(4,738		)	(63		)
Net cash provided by operating activities	88,703			130,717

Cash flows from investing activities:
Purchase of investment properties	—			(99,434		)
Capital expenditures and tenant improvements	(32,961		)	(31,629		)
Proceeds from sales of investment properties	187,125			404,996
Investment in developments in progress	(6,933		)	(8,612		)
Net cash provided by investing activities	147,231			265,321

Cash flows from financing activities:
Principal payments on mortgages payable	(12,818		)	(38,571		)
Proceeds from unsecured term loans	—			200,000
Repayments of unsecured term loans	(100,000		)	—
Proceeds from unsecured revolving line of credit	196,000			474,000
Repayments of unsecured revolving line of credit	(286,000		)	(378,000		)
Payment of loan fees and deposits	(5,393		)	(10		)
Debt prepayment fees	(974		)	(4,545		)
Purchase of U.S. Treasury securities in connection with defeasance of mortgages payable	—			(439,403		)
Distributions paid	(72,658		)	(83,182		)
Shares repurchased through share repurchase program	—			(75,697		)
Other, net	(1,405		)	(1,333		)
Net cash used in financing activities	(283,248		)	(346,741		)

Net (decrease) increase in cash, cash equivalents and restricted cash	(47,314		)	49,297
Cash, cash equivalents and restricted cash, at beginning of period	86,335			82,349
Cash, cash equivalents and restricted cash, at end of period	$	39,021		$	131,646
(continued)

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RETAIL PROPERTIES OF AMERICA, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)



	Six Months Ended June 30,
	2018			2017
Supplemental cash flow disclosure, including non-cash activities:
Cash paid for interest, net of interest capitalized	$	34,179		$	41,017
Distributions payable	$	36,363		$	38,318
Accrued capital expenditures and tenant improvements	$	7,550		$	6,089
Accrued leasing fees and inducements	$	761		$	840
Accrued redevelopment costs	$	1,074		$	1,019
Developments in progress placed in service	$	9,355		$	—
U.S. Treasury securities transferred in connection with defeasance of mortgages payable	$	—		$	439,403
Defeasance of mortgages payable	$	—		$	379,435

Purchase of investment properties (after credits at closing):
Net investment properties	$	—		$	(101,307	)
Accounts receivable, acquired lease intangibles and other assets	—			(7,659		)
Accounts payable, acquired lease intangibles and other liabilities	—			7,008
Deferred gain	—			2,524
	$	—		$	(99,434	)

Proceeds from sales of investment properties:
Net investment properties	$	148,448		$	245,853
Accounts receivable, acquired lease intangibles and other assets	10,999			8,280
Accounts payable, acquired lease intangibles and other liabilities	(6,841		)	(6,253		)
Deferred gain	—			(676		)
Gain on sales of investment properties	34,519			157,792
	$	187,125		$	404,996

Reconciliation of cash, cash equivalents and restricted cash reported on the Company’s condensed consolidated balance sheets to such amounts shown in the Company’s condensed consolidated statements of cash flows:
Cash and cash equivalents, at beginning of period	$	25,185		$	53,119
Restricted cash, at beginning of period (included in “Other assets, net”)	61,150			29,230
Total cash, cash equivalents and restricted cash, at beginning of period	$	86,335		$	82,349

Cash and cash equivalents, at end of period	$	29,125		$	28,003
Restricted cash, at end of period (included in “Other assets, net”)	9,896			103,643
Total cash, cash equivalents and restricted cash, at end of period	$	39,021		$	131,646

See accompanying notes to condensed consolidated financial statements

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Readers of this Quarterly Report should refer to the audited financial statements of Retail Properties of America, Inc. for the year ended December 31, 2017 , which are included in its 2017 Annual Report on Form 10-K, as certain footnote disclosures which would substantially duplicate those contained in the Annual Report have been omitted from this Quarterly Report. In the opinion of management, all adjustments necessary, all of which were of normal recurring nature, for a fair presentation have been included in this Quarterly Report.

(1) ORGANIZATION AND BASIS OF PRESENTATION

Retail Properties of America, Inc. (the Company) was formed on March 5, 2003 and its primary purpose is to own and operate high quality, strategically located open-air shopping centers, including properties with a mixed-use component. As of June 30, 2018 , the Company owned 105 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 useful lives of assets, capitalization of development costs, fair value measurements, provision for impairment, including estimates of holding periods, capitalization rates and discount rates (where applicable), provision for income taxes, recoverable amounts of receivables, deferred taxes and initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions. Actual results could differ from these estimates.

All share amounts and dollar amounts in 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 amounts and per square foot amounts.

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

The Company’s property ownership as of June 30, 2018 is summarized below:



	Property Count
Retail operating properties	105
Redevelopment projects:
Reisterstown Road Plaza	1
Circle East – redevelopment portion (a)	—
Carillon (b)	1
Total number of wholly-owned properties	107


(a)	This portion of the property was formerly known as Towson Circle and the operating portion, which was formerly known as Towson Square, is included within the property count for retail operating properties.


(b)	The Company has begun activities in anticipation of future redevelopment of this property, which was formerly known as Boulevard at the Capital Centre.

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Refer to the Company’s 2017 Annual Report on Form 10-K for a summary of its significant accounting policies. Except as disclosed below, there have been no changes to the Company’s significant accounting policies in the six months ended June 30, 2018 .

Recently Adopted Accounting Pronouncements

Effective January 1, 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers , on a modified retrospective basis. This new guidance replaces existing revenue recognition standards. The core principle of this standard is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Substantially all of the Company’s revenue follows the existing leasing guidance and is not impacted by the adoption of this standard, however, the sale of investment property is required to follow the new guidance as well as ASU 2017-05, Other Income–Gains and Losses from the Derecognition of Nonfinancial Assets discussed below. The sale of investment property is reported as “gain on sales of investment properties” in the accompanying condensed consolidated statements of operations and other comprehensive income (loss) and further discussed in Note 4 – Dispositions. The adoption of ASU 2014-09, Revenue from Contracts with Customers , did not have a material effect on the Company’s condensed consolidated financial statements as substantially all of its revenue falls outside of the scope of this guidance.

Effective January 1, 2018, the Company adopted ASU 2017-05, Other Income–Gains and Losses from the Derecognition of Nonfinancial Assets , on a modified retrospective basis. This new pronouncement, which adds guidance for partial sales of nonfinancial assets and clarifies the scope of Subtopic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets , applies to the derecognition of all nonfinancial assets (including real estate) for which the counterparty is not a customer. The sale of investment property is reported as “gain on sales of investment properties” in the accompanying condensed consolidated statements of operations and other comprehensive income (loss) and further discussed in Note 4 – Dispositions. The adoption of this pronouncement did not have a material effect on the Company’s condensed consolidated financial statements as the adoption of the new guidance did not result in a change to the timing or amount of gain recognized upon disposition as compared to the previous guidance.

Effective January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments – Overall , on a prospective basis. This new guidance requires companies to disclose the fair value of financial assets and financial liabilities measured at amortized cost in accordance with the exit price notion, which is consistent with the Company’s existing practices, and no longer requires disclosure of the methods and significant assumptions used, including any changes, to estimate fair value. In addition, companies are required to disclose all financial assets and financial liabilities grouped by (i) measurement category and (ii) form of financial instrument. The adoption of this pronouncement did not have a material effect on the Company’s condensed consolidated financial statements.

The Company elected to early adopt ASU 2017-12, Derivatives and Hedging , as of January 1, 2018. This new guidance amends the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in an entity’s financial statements. It also eliminates the requirement to separately measure and report hedge ineffectiveness. Entities are now required to present the earnings effect of the hedging instrument in the same income statement line item in which they report the earnings effect of the hedged item. In addition, entities may perform the initial quantitative assessment of hedge effectiveness at any time after hedge designation, but no later than the first quarterly effectiveness testing date, and subsequent assessments of hedge effectiveness may be performed qualitatively unless facts and circumstances change. Disclosure requirements have been modified to include a tabular disclosure related to the effect of hedging instruments on the income statement and the requirement to disclose the ineffective portion of the change in fair value of such instruments has been eliminated. The adoption of this pronouncement resulted in a cumulative effect adjustment of $12 to accumulated other comprehensive income and accumulated distributions in excess of earnings related to eliminating the separate measurement of ineffectiveness. The amended presentation and disclosure guidance is required only prospectively.

Recently Issued Accounting Pronouncements

In June 2018, the Securities and Exchange Commission issued a final rule, Inline XBRL Filing of Tagged Data , which will require the use of the Inline eXtensible Business Reporting Language (XBRL) format for the submission of operating company financial statement information. In addition, the final rule will eliminate the requirement for operating companies to post “Interactive Data Files” (i.e., machine-readable computer code that presents information in XBRL format) on their websites. Large accelerated filers

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

that prepare their financial statements in accordance with GAAP will be subject to Inline XBRL requirements beginning with the fiscal period ending on or after June 15, 2019. The Company expects to use Inline XBRL starting with its Form 10-Q for the quarter ending June 30, 2019.

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02, Leases . This new guidance is effective January 1, 2019, with early adoption permitted. The pronouncement will require lessees to recognize a liability to make lease payments and a right-of-use (ROU) asset, initially measured at the present value of lease payments, for both operating and financing leases. For leases with a term of 12 months or less, lessees will be permitted to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease assets. The guidance allows lessors to make an accounting policy election, by class of underlying asset, to not separate non-lease components from lease components, if certain requirements are met. The guidance also provides an optional transition method which would allow entities to initially apply the new guidance in the period of adoption, recognizing a cumulative-effect adjustment to the opening balance of retained earnings, if necessary.

Upon adoption, the Company will recognize a lease liability and an ROU asset for operating leases where it is the lessee, such as ground leases and office leases. The Company is in the process of evaluating the inputs required to calculate the amounts that will be recorded on its balance sheet for each lease. For leases with a term of 12 months or less, the Company expects to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease assets. For leases where it is the lessor, the Company expects that accounting for lease components will be largely unchanged from existing GAAP and to elect the practical expedient to not separate non-lease components from lease components. Only incremental direct leasing costs may be capitalized under the new guidance, which is consistent with the Company’s existing policies. The Company expects to adopt this new guidance on January 1, 2019 and apply the requirements as of that date. The Company will continue to evaluate the impact of this guidance until it becomes effective, but the Company does not expect the guidance regarding capitalization of leasing costs will have any effect on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses . This new guidance is effective January 1, 2020, with early adoption permitted beginning January 1, 2019, and replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. Financial assets that are measured at amortized cost will be required to be presented at the net amount expected to be collected with an allowance for credit losses deducted from the amortized cost basis. In addition, an entity must consider broader information in developing its expected credit loss estimate, including the use of forecasted information. Generally, the pronouncement requires a modified retrospective method of adoption. The Company will continue to evaluate the impact of this guidance until it becomes effective.

(3) ACQUISITIONS

The Company did not acquire any properties during the six months ended June 30, 2018.

The Company closed on the following acquisitions during the six months ended June 30, 2017:

Date

Property Name

Metropolitan
Statistical Area (MSA)

Property Type

Square

Footage

Acquisition

Price

January 13, 2017

Main Street Promenade (a)

Chicago

Multi-tenant retail

181,600

88,000

January 25, 2017

Carillon – Fee Interest

Washington, D.C.

Fee interest (b)

—

2,000

February 24, 2017

One Loudoun Downtown –

Phase II

Washington, D.C.

Additional phase of multi-tenant retail (c)

15,900

4,128

April 5, 2017

One Loudoun Downtown –

Phase III

Washington, D.C.

Additional phase of multi-tenant retail (c)

9,800

2,193

May 16, 2017

One Loudoun Downtown –

Phase IV

Washington, D.C.

Development rights (c)

—

3,500

207,300

99,821

(d)


(a)	This property was acquired through two consolidated VIEs and was used to facilitate an Internal Revenue Code Section 1031 tax-deferred exchange (1031 Exchange).

(b)

The wholly-owned multi-tenant retail operating property formerly known as Boulevard at the Capital Centre, which is located in Largo, Maryland, was previously subject to an approximately 70 acre long-term ground lease with a third party. The Company completed a transaction whereby it received the fee interest in approximately 50 acres of the underlying land in exchange for which (i) the Company paid $1,939 and (ii) the term of the ground lease with respect to the remaining approximately 20 acres was shortened to nine months . The Company derecognized building and improvements of $11,347 related to the remaining ground lease, recognized the fair value of land

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

received of $15,200 and recorded a deferred gain of $2,524 as of June 30, 2017, which was recognized during the three months ended December 31, 2017 upon the expiration of the ground lease on approximately 20 acres. The total number of properties in the Company’s portfolio was not affected by this transaction.


(c)	The Company acquired three additional phases, including the development rights for an additional 123 residential units for a total of 408 units, at its One Loudoun Downtown multi-tenant retail operating property, which were accounted for as asset acquisitions. The total number of properties in the Company’s portfolio was not affected by these transactions.


(d)	Acquisition price does not include capitalized closing costs and adjustments totaling $2,334 .

The following table summarizes the acquisition date values, before prorations, the Company recorded in conjunction with the acquisitions discussed above:



	Six Months Ended June 30, 2017
Land	$	23,559
Building and other improvements, net	77,748
Acquired lease intangible assets (a)	7,343
Acquired lease intangible liabilities (b)	(5,477		)
Other liabilities	(1,076		)
Net assets acquired	$	102,097


(a)	The weighted average amortization period for acquired lease intangible assets is six years for acquisitions completed during the six months ended June 30, 2017 .


(b)	The weighted average amortization period for acquired lease intangible liabilities is 13 years for acquisitions completed during the six months ended June 30, 2017 .

The above acquisitions were funded using a combination of available cash on hand, proceeds from dispositions and proceeds from the Company’s unsecured revolving line of credit. All of the acquisitions completed during 2017 were considered asset acquisitions and, as such, transaction costs were capitalized upon closing.

Variable Interest Entities

During the six months ended June 30, 2017 , the Company entered into an agreement with a qualified intermediary related to a 1031 Exchange. The Company loaned $87,452 to the VIEs to acquire Main Street Promenade on January 13, 2017. The 1031 Exchange was completed during the year ended December 31, 2017 and, in accordance with applicable provisions of the Code, within 180 days after the acquisition date of the property. At the completion of the 1031 Exchange, the sole membership interests of the VIEs were assigned to the Company in satisfaction of the outstanding loan, resulting in the entities being wholly owned by the Company and no longer considered VIEs.

Prior to the completion of the 1031 Exchange, the Company was deemed to be the primary beneficiary of each VIE as it had the ability to direct the activities of the VIEs that most significantly impact their economic performance and had all of the risks and rewards of ownership. Accordingly, the Company consolidated the VIEs. No value or income was attributed to the noncontrolling interest. The assets of the VIEs consisted of the investment property, Main Street Promenade, which was operated by the Company.

(4) DISPOSITIONS

On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers and ASU 2017-05, Other Income–Gains and Losses from the Derecognition of Nonfinancial Assets on a modified retrospective basis. The dispositions completed during the six months ended June 30, 2018 were not considered to be contracts with customers as defined in ASU 2014-09, Revenue from Contracts with Customers , as they are not considered an output of the Company’s ordinary business activities. Rather, the dispositions follow the new guidance of ASU 2017-05, Other Income–Gains and Losses from the Derecognition of Nonfinancial Assets . The adoption on a modified retrospective basis requires the guidance and related disclosure requirements of ASU 2017-05 to be followed for contracts related to the sale of investment properties completed during the six months ended June 30, 2018 . Disclosures related to periods prior to January 1, 2018 for the sale of investment properties are not impacted by the adoption.

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Under the new guidance, derecognition of nonfinancial assets and in substance nonfinancial assets, including real estate, and the related gains on sale of investment properties are recognized when (i) the parties to the sale contract have approved the contract and are committed to perform their respective obligations; (ii) the Company can identify each party’s rights regarding the property transferred; (iii) the Company can identify the payment terms for the property transferred; (iv) the contract has commercial substance (that is, the risk, timing or amount of the entity’s future cash flows is expected to change as a result of the contract); and (v) the Company has satisfied its performance obligations by transferring control of the property. Typically, the timing of payment and satisfaction of performance obligations occur simultaneously on the disposition date upon transfer of the property’s ownership.

The Company closed on the following dispositions during the six months ended June 30, 2018:



Date	Property Name	Property Type	Square Footage	Consideration		Aggregate Proceeds, Net (a)		Gain
January 19, 2018	Crown Theater	Single-user retail	74,200	$	6,900	$	6,350	$	2,952
February 15, 2018	Cranberry Square	Multi-tenant retail	195,200	23,500		23,163		10,174
March 7, 2018	Rite Aid Store (Eckerd)–Crossville, TN	Single-user retail	13,800	1,800		1,768		157
March 20, 2018	Home Depot Plaza (b)	Multi-tenant retail	135,600	16,250		15,873		—
March 21, 2018	Governor's Marketplace	Multi-tenant retail	243,100	23,500		20,993		7,429
March 28, 2018	Stony Creek I & Stony Creek II (c)	Multi-tenant retail	204,800	32,800		32,078		11,628
April 19, 2018	CVS Pharmacy – Lawton, OK	Single-user retail	10,900	1,600		1,596		—
May 31, 2018	Schaumburg Towers	Office	895,400	86,600		73,315		—
			1,773,000	$	192,950	$	175,136	$	32,340


(a)	Aggregate proceeds are net of transaction costs, as well as capital and tenant-related costs credited to the buyer at close, as applicable, and exclude $169 of condemnation proceeds, which did not result in any additional gain recognition.


(b)	The Company repaid a $10,750 mortgage payable in conjunction with the disposition of the property.


(c)	The terms of the disposition of Stony Creek I and Stony Creek II were negotiated as a single transaction.

During the six months ended June 30, 2018, the Company also received net proceeds of $11,820 and recognized a gain of $2,179 in connection with the sale of air rights at the redevelopment portion of Circle East. The aggregate proceeds, net of closing costs, from the property dispositions and other transactions during the six months ended June 30, 2018 totaled $187,125 , with aggregate gains of $34,519 .

Subsequent to June 30, 2018 , the Company closed on the first phase of the sale of a land parcel, which included rights to develop eight residential units, at One Loudoun Downtown, a multi-tenant retail operating property located in Ashburn, Virginia, for a sales price of $1,800 . The sale of land will occur in three phases and will include the rights to develop a total of 30 residential units for a total sales price of $6,800 .

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company closed on the following dispositions during the six months ended June 30, 2017:



Date	Property Name	Property Type	Square Footage	Consideration		Aggregate Proceeds, Net (a)		Gain
January 27, 2017	Rite Aid Store (Eckerd), Culver Rd. – Rochester, NY	Single-user retail	10,900	$	500	$	332	$	—
February 21, 2017	Shoppes at Park West	Multi-tenant retail	63,900	15,383		15,261		7,569
March 7, 2017	CVS Pharmacy – Sylacauga, AL (b)	Single-user retail	10,100	3,700		3,348		1,651
March 8, 2017	Rite Aid Store (Eckerd) – Kill Devil Hills, NC	Single-user retail	13,800	4,297		4,134		1,857
March 15, 2017	Century III Plaza – Home Depot (c)	Single-user parcel	131,900	17,519		17,344		4,487
March 16, 2017	Village Shoppes at Gainesville	Multi-tenant retail	229,500	41,750		41,380		14,107
March 24, 2017	Northwood Crossing (b)	Multi-tenant retail	160,000	22,850		22,723		10,007
April 4, 2017	University Town Center (b)	Multi-tenant retail	57,500	14,700		14,590		9,128
April 4, 2017	Edgemont Town Center (b)	Multi-tenant retail	77,700	19,025		18,857		8,995
April 4, 2017	Phenix Crossing (b)	Multi-tenant retail	56,600	12,400		12,296		5,699
April 27, 2017	Brown’s Lane	Multi-tenant retail	74,700	10,575		10,318		3,408
May 9, 2017	Rite Aid Store (Eckerd) – Greer, SC	Single-user retail	13,800	3,050		2,961		830
May 9, 2017	Evans Town Centre	Multi-tenant retail	75,700	11,825		11,419		5,226
May 25, 2017	Red Bug Village	Multi-tenant retail	26,200	8,100		7,767		2,184
May 26, 2017	Wilton Square	Multi-tenant retail	438,100	49,300		48,503		19,630
May 30, 2017	Town Square Plaza	Multi-tenant retail	215,600	28,600		26,459		3,412
May 31, 2017	Cuyahoga Falls Market Center	Multi-tenant retail	76,400	11,500		11,101		1,300
June 5, 2017	Plaza Santa Fe II	Multi-tenant retail	224,200	35,220		33,506		16,136
June 6, 2017	Rite Aid Store (Eckerd) – Columbia, SC	Single-user retail	13,400	3,250		3,163		1,046
June 16, 2017	Fox Creek Village	Multi-tenant retail	107,500	24,825		24,415		12,470
June 29, 2017	Cottage Plaza	Multi-tenant retail	85,500	23,050		22,685		8,039
June 29, 2017	Magnolia Square	Multi-tenant retail	116,000	16,000		15,692		4,866
June 29, 2017	Cinemark Seven Bridges	Single-user retail	70,200	15,271		14,948		3,973
June 29, 2017	Low Country Village I & II (b)	Multi-tenant retail	139,900	22,075		21,639		10,286
			2,489,100	$	414,765	$	404,841	$	156,306


(a)	Aggregate proceeds are net of transaction costs, as well as capital and tenant-related costs credited to the buyer at close, as applicable, and exclude $150 of condemnation proceeds, which did not result in any additional gain recognition.


(b)	As of June 30, 2017, the following disposition proceeds were temporarily restricted related to 1031 Exchanges and are included in “Other assets, net” in the accompanying condensed consolidated balance sheets:



Property Name	Proceeds Temporarily Restricted
CVS Pharmacy – Sylacauga, AL	$	3,332
Northwood Crossing	22,719
University Town Center	14,595
Edgemont Town Center	18,885
Phenix Crossing	12,324
Low Country Village I & II	21,706
	$	93,561


(c)	The Company disposed of the Home Depot parcel at Century III Plaza, an existing 284,100 square foot multi-tenant retail operating property. The remaining portion of Century III Plaza was classified as held for sale as of June 30, 2017 and was sold on December 15, 2017.

During the six months ended June 30, 2017, the Company also received proceeds of $5 and recognized a gain of $1,486 as a result of the receipt of the escrow related to the disposition of Maple Tree Place on August 12, 2016. The aggregate proceeds, net of closing costs, from the property dispositions and other transactions during the six months ended June 30, 2017 totaled $404,996 , with aggregate gains of $157,792 .

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

None of the dispositions completed during the six months ended June 30, 2018 and 2017 qualified for discontinued operations treatment and none are considered individually significant.

As of June 30, 2018 , no properties qualified for held for sale accounting treatment. Crown Theater was classified as held for sale as of December 31, 2017 and was sold during the six months ended June 30, 2018 .

The following table presents the assets and liabilities associated with the investment property classified as held for sale:



	December 31, 2017
Assets
Land, building and other improvements	$	2,791
Less accumulated depreciation	(27		)
Net investment properties	2,764
Other assets	883
Assets associated with investment properties held for sale	$	3,647

Liabilities
Other liabilities	$	—
Liabilities associated with investment properties held for sale	$	—

(5) EQUITY COMPENSATION PLANS

On May 24, 2018, the Company’s shareholders approved the Company’s Amended and Restated 2014 Long-Term Equity Compensation Plan (Amended 2014 Plan), which amends and restates the Company’s 2014 Long-Term Equity Compensation Plan. The Amended 2014 Plan, subject to certain conditions, authorizes the issuance of incentive and non-qualified stock options, restricted stock and restricted stock units, stock appreciation rights and other similar awards to the Company’s employees, non-employee directors, consultants and advisors in connection with compensation and incentive arrangements that may be established by the Company’s board of directors or executive management.

The following table summarizes the Company’s unvested restricted shares as of and for the six months ended June 30, 2018 :



	Unvested Restricted Shares		Weighted Average Grant Date Fair Value per Restricted Share
Balance as of January 1, 2018	496		$	14.81
Shares granted (a)	382		$	12.81
Shares vested	(345	)	$	14.64
Shares forfeited	(12	)	$	13.26
Balance as of June 30, 2018 (b)	521		$	13.50


(a)	Shares granted vest over periods ranging from 0.9 years to three years in accordance with the terms of applicable award agreements.


(b)	As of June 30, 2018 , total unrecognized compensation expense related to unvested restricted shares was $3,984 , which is expected to be amortized over a weighted average term of 1.4 years .

The following table summarizes the Company’s unvested performance restricted stock units (RSUs) as of and for the six months ended June 30, 2018 :



	Unvested RSUs		Weighted Average Grant Date Fair Value per RSU
RSUs eligible for future conversion as of January 1, 2018	555		$	14.60
RSUs granted (a)	291		$	14.36
Conversion of RSUs to common stock and restricted shares (b)	(141	)	$	14.10
RSUs ineligible for conversion	(56	)	$	15.36
RSUs eligible for future conversion as of June 30, 2018 (c)	649		$	14.54

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(a)

Assumptions and inputs as of the grant dates included a weighted average risk-free interest rate of 2.04% , the Company’s historical common stock performance relative to the peer companies within the National Association of Real Estate Investment Trusts (NAREIT) Shopping Center Index and the Company’s weighted average common stock dividend yield of 5.00% . Subject to continued employment, in 2021, following the performance period which concludes on December 31, 2020, one-third of the RSUs that are earned will convert into shares of common stock and two-thirds will convert into restricted shares with a one year vesting term.

(b)

On February 5, 2018, 141 RSUs converted into 42 shares of common stock and 65 restricted shares that will vest on December 31, 2018, subject to continued employment through such date, after applying a conversion rate of 76% based upon the Company’s Total Shareholder Return (TSR) relative to the TSRs of its peer companies, for the performance period that concluded on December 31, 2017. An additional 16 shares of common stock were also issued representing the dividends that would have been paid on the earned awards during the performance period.


(c)	As of June 30, 2018 , total unrecognized compensation expense related to unvested RSUs was $5,683 , which is expected to be amortized over a weighted average term of 2.7 years .

During the three months ended June 30, 2018 and 2017 , the Company recorded compensation expense of $1,596 and $1,756 , respectively, related to the amortization of unvested restricted shares and RSUs. During the six months ended June 30, 2018 and 2017 , the Company recorded compensation expense of $3,729 and $3,549 , respectively, related to the amortization of unvested restricted shares and RSUs. Included within the amortization of stock-based compensation expense recorded during the six months ended June 30, 2018 is compensation expense of $330 related to the accelerated vesting of 23 restricted shares and remaining amortization related to the 29 RSUs that remain eligible for future conversion in conjunction with the departure of the Company’s former Executive Vice President, General Counsel and Secretary. The total fair value of restricted shares vested during the six months ended June 30, 2018 was $4,195 .

Prior to 2013, non-employee directors had been granted options to acquire shares under the Company’s Third Amended and Restated Independent Director Stock Option and Incentive Plan. As of June 30, 2018 , options to purchase 38 shares of common stock remained outstanding and exercisable. The Company did not grant any options in 2018 or 2017 and did not record any compensation expense related to stock options during the six months ended June 30, 2018 and 2017 .

(6) MORTGAGES PAYABLE

The following table summarizes the Company’s mortgages payable:



	June 30, 2018						December 31, 2017
	Aggregate Principal Balance			Weighted Average Interest Rate		Weighted Average Years to Maturity	Aggregate Principal Balance			Weighted Average Interest Rate		Weighted Average Years to Maturity
Fixed rate mortgages payable (a)	$	274,420		5.00	%	4.6	$	287,238		4.99	%	5.2
Premium, net of accumulated amortization	900						1,024
Discount, net of accumulated amortization	(558		)				(579		)
Capitalized loan fees, net of accumulated amortization	(495		)				(615		)
Mortgages payable, net	$	274,267					$	287,068


(a)	The fixed rate mortgages had interest rates ranging from 3.75% to 8.00% as of June 30, 2018 and December 31, 2017 .

During the six months ended June 30, 2018 , the Company repaid a $10,750 mortgage payable, which had a fixed interest rate of 4.82% , in conjunction with the disposition of the related property and made scheduled principal payments of $2,068 related to amortizing loans.

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Debt Maturities

The following table shows the scheduled maturities and principal amortization of the Company’s indebtedness as of June 30, 2018 for the remainder of 2018 , each of the next four years and thereafter and the weighted average interest rates by year. The table does not reflect the impact of any debt activity that occurred after June 30, 2018 .



	2018			2019			2020			2021			2022			Thereafter			Total
Debt:
Fixed rate debt:
Mortgages payable (a)	$	2,098		$	25,257		$	3,923		$	22,820		$	157,216		$	63,106		$	274,420
Fixed rate term loans (b)	—			—			—			250,000			—			200,000			450,000
Unsecured notes payable (c)	—			—			—			100,000			—			600,000			700,000
Total fixed rate debt	2,098			25,257			3,923			372,820			157,216			863,106			1,424,420

Variable rate debt:
Variable rate revolving line of credit	—			—			—			—			126,000			—			126,000
Total debt (d)	$	2,098		$	25,257		$	3,923		$	372,820		$	283,216		$	863,106		$	1,550,420

Weighted average interest rate on debt:
Fixed rate debt	5.09		%	7.29		%	4.62		%	3.56		%	5.00		%	3.91		%	4.00		%
Variable rate debt (e)	—			—			—			—			3.14		%	—			3.14		%
Total	5.09		%	7.29		%	4.62		%	3.56		%	4.17		%	3.91		%	3.93		%


(a)	Excludes mortgage premium of $900 and discount of $(558) , net of accumulated amortization, as of June 30, 2018 .

(b)

$250,000 of London Interbank Offered Rate (LIBOR)-based variable rate debt has been swapped to a fixed rate through three interest rate swaps. The swaps effectively convert one-month floating rate LIBOR to a fixed rate of 2.00% through January 5, 2021. In addition, $200,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through two interest rate swaps. The swaps effectively convert one-month floating rate LIBOR to a fixed rate of 1.26% through November 22, 2018.


(c)	Excludes discount of $(793) , net of accumulated amortization, as of June 30, 2018 .


(d)	The weighted average years to maturity of consolidated indebtedness was 5.3 years as of June 30, 2018 . Total debt excludes capitalized loan fees of $(6,064) , net of accumulated amortization, as of June 30, 2018 , which are included as a reduction to the respective debt balances.


(e)	Represents interest rates as of June 30, 2018 .

The Company plans on addressing its debt maturities through a combination of cash flows generated from operations, working capital, capital markets transactions and its unsecured revolving line of credit.

(7) UNSECURED NOTES PAYABLE

The following table summarizes the Company’s unsecured notes payable:



		June 30, 2018					December 31, 2017
Unsecured Notes Payable	Maturity Date	Principal Balance			Interest Rate/ Weighted Average Interest Rate		Principal Balance			Interest Rate/ Weighted Average Interest Rate
Senior notes – 4.12% due 2021	June 30, 2021	$	100,000		4.12	%	$	100,000		4.12	%
Senior notes – 4.58% due 2024	June 30, 2024	150,000			4.58	%	150,000			4.58	%
Senior notes – 4.00% due 2025	March 15, 2025	250,000			4.00	%	250,000			4.00	%
Senior notes – 4.08% due 2026	September 30, 2026	100,000			4.08	%	100,000			4.08	%
Senior notes – 4.24% due 2028	December 28, 2028	100,000			4.24	%	100,000			4.24	%
		700,000			4.19	%	700,000			4.19	%
Discount, net of accumulated amortization		(793		)			(853		)
Capitalized loan fees, net of accumulated amortization		(3,152		)			(3,399		)
	Total	$	696,055				$	695,748

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Notes Due 2026 and 2028

The note purchase agreement governing the 4.08% senior unsecured notes due 2026 and the 4.24% senior unsecured notes due 2028 (Notes Due 2026 and 2028) contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the note purchase agreement, the Company is subject to various financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) a minimum interest coverage ratio; (iii) an unencumbered interest coverage ratio (as set forth in the Company’s unsecured credit facility and the note purchase agreement governing the Notes Due 2021 and 2024 described below); and (iv) a fixed charge coverage ratio (as set forth in the Company’s unsecured credit facility).

Notes Due 2025

The indenture, as supplemented (the Indenture), governing the 4.00% senior unsecured notes due 2025 (Notes Due 2025) contains customary covenants and events of default. Pursuant to the terms of the Indenture, the Company is subject to various financial covenants, including the requirement to maintain the following: (i) maximum secured and total leverage ratios; (ii) a debt service coverage ratio; and (iii) maintenance of an unencumbered assets to unsecured debt ratio.

Notes Due 2021 and 2024

The note purchase agreement governing the 4.12% senior unsecured notes due 2021 and the 4.58% senior unsecured notes due 2024 (Notes Due 2021 and 2024) contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the note purchase agreement, the Company is subject to various financial covenants, some of which are based upon the financial covenants in effect in the Company’s unsecured credit facility, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) minimum interest coverage and unencumbered interest coverage ratios; and (iii) a minimum consolidated net worth.

As of June 30, 2018 , management believes the Company was in compliance with the financial covenants under the Indenture and the note purchase agreements.

(8) UNSECURED TERM LOANS AND REVOLVING LINE OF CREDIT

The following table summarizes the Company’s term loans and revolving line of credit:



		June 30, 2018					December 31, 2017
	Maturity Date	Balance			Interest Rate		Balance			Interest Rate
Unsecured credit facility term loan due 2021 – fixed rate (a)	January 5, 2021	$	250,000		3.20	%	$	250,000		3.30	%
Unsecured credit facility term loan due 2018 – variable rate	May 11, 2018	—			—	%	100,000			2.93	%
Unsecured term loan due 2023 – fixed rate (b)	November 22, 2023	200,000			2.96	%	200,000			2.96	%
Subtotal		450,000					550,000
Capitalized loan fees, net of accumulated amortization		(2,417		)			(2,730		)
Term loans, net		$	447,583				$	547,270

Unsecured credit facility revolving line of credit – variable rate (c)	April 22, 2022	$	126,000		3.14	%	$	216,000		2.92	%


(a)	$250,000 of LIBOR -based variable rate debt has been swapped to a fixed rate of 2.00% plus a credit spread based on a leverage grid through January 5, 2021. As of June 30, 2018 , the leverage grid ranged from 1.20% to 1.70% and the applicable credit spread was 1.20% . As of December 31, 2017 , the leverage grid ranged from 1.30% to 2.20% and the applicable credit spread was 1.30% .


(b)	$200,000 of LIBOR -based variable rate debt has been swapped to a fixed rate of 1.26% plus a credit spread based on a leverage grid ranging from 1.70% to 2.55% through November 22, 2018. The applicable credit spread was 1.70% as of June 30, 2018 and December 31, 2017 .


(c)	Excludes capitalized loan fees, which are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Unsecured Credit Facility

On April 23, 2018, the Company entered into its fifth amended and restated unsecured credit agreement (Unsecured Credit Agreement) with a syndicate of financial institutions led by Wells Fargo Bank, National Association serving as syndication agent and KeyBank National Association serving as administrative agent to provide for an unsecured credit facility aggregating $1,100,000 (Unsecured Credit Facility). The Unsecured Credit Facility consists of an $850,000 unsecured revolving line of credit and a $250,000 unsecured term loan and is priced on a leverage grid at a rate of LIBOR plus a credit spread. In accordance with the Unsecured Credit Agreement, the Company may elect to convert to an investment grade pricing grid. As of June 30, 2018 , making such an election would have resulted in a higher interest rate and, as such, the Company has not made the election to convert to an investment grade pricing grid.

The following table summarizes the key terms of the Unsecured Credit Facility:

Leverage-Based Pricing

Investment Grade Pricing

Unsecured Credit Facility

Maturity Date

Extension Option

Extension Fee

Credit Spread

Facility Fee

Credit Spread

Facility Fee

$250,000 unsecured term loan

1/5/2021

N/A

1.20% - 1.70%

N/A

0.90% - 1.75%

N/A

$850,000 unsecured revolving line of credit

4/22/2022

2 six month

0.075%

1.05% - 1.50%

0.15% - 0.30%

0.825%-1.55%

0.125% - 0.30%

The Unsecured Credit Facility has a $500,000 accordion option that allows the Company, at its election, to increase the total Unsecured Credit Facility up to $1,600,000 , subject to (i) customary fees and conditions including, but not limited to, the absence of an event of default as defined in the Unsecured Credit Agreement and (ii) the Company’s ability to obtain additional lender commitments.

The Unsecured Credit Agreement contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the Unsecured Credit Agreement, the Company is subject to various financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; and (ii) minimum fixed charge and unencumbered interest coverage ratios.

The Company previously had a $1,200,000 unsecured credit facility that consisted of the following: (i) a $750,000 unsecured revolving line of credit that bore interest at a rate of LIBOR plus a credit spread ranging from 1.35% to 2.25% and was scheduled to mature on January 5, 2020; (ii) a $250,000 unsecured term loan that bore interest at a rate of LIBOR plus a credit spread ranging from 1.30% to 2.20% and was scheduled to mature on January 5, 2021; and (iii) a $200,000 unsecured term loan that bore interest at a rate of LIBOR plus a credit spread ranging from 1.45% to 2.20% and was scheduled to mature on May 11, 2018. During the year ended December 31, 2017, the Company repaid $100,000 of the unsecured term loan due 2018 and in conjunction with the execution of the Unsecured Credit Agreement in 2018, the Company repaid the remaining $100,000 balance of the unsecured term loan due 2018.

Term Loan Due 2023

On January 3, 2017, the Company received funding on a seven -year $200,000 unsecured term loan (Term Loan Due 2023) with a group of financial institutions, which closed during the year ended December 31, 2016. The Term Loan Due 2023 is priced on a leverage grid at a rate of LIBOR plus a credit spread. In accordance with the term loan agreement (Term Loan Agreement), the Company may elect to convert to an investment grade pricing grid. As of June 30, 2018 , making such an election would have resulted in a higher interest rate and, as such, the Company has not made the election to convert to an investment grade pricing grid.

The following table summarizes the key terms of the Term Loan Due 2023:

The Term Loan Due 2023 has a $100,000 accordion option that allows the Company, at its election, to increase the total unsecured term loan up to $300,000 , subject to customary fees and conditions, including the absence of an event of default as defined in the Term Loan Agreement.

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Term Loan Agreement contains customary representations, warranties and covenants, and events of default, including financial covenants that require the Company to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; and (ii) minimum fixed charge and unencumbered interest coverage ratios. As of June 30, 2018 , management believes the Company was in compliance with the financial covenants and default provisions under the Term Loan Agreement.

(9) DERIVATIVES

The Company elected to early adopt ASU 2017-12, Derivatives and Hedging , as of January 1, 2018. The adoption eliminated the requirement to separately measure and report hedge ineffectiveness. The Company is now required to present the earnings effect of its hedging instruments in the same income statement line item in which it reports the earnings effect of the hedged items. Disclosures related to periods prior to January 1, 2018 are not impacted by the adoption.

The Company’s objective in using interest rate derivatives is to manage its exposure to interest rate movements and add stability to interest expense. To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed rate payments over the life of the agreement without exchange of the underlying notional amount.

As of June 30, 2018 , the Company used five interest rate swaps to hedge the variable cash flows associated with variable rate debt. Changes in fair value of the derivatives that are designated and that qualify as cash flow hedges are recorded in “Accumulated other comprehensive income” and are reclassified to interest expense as interest payments are made on the Company’s variable rate debt. Over the next 12 months, the Company estimates that an additional $1,690 will be reclassified as a decrease to interest expense. Prior to January 1, 2018, only the effective portion of changes in fair value of the derivatives that were designated and that qualified as cash flow hedges was recorded in “Accumulated other comprehensive income” and the ineffective portion of the change in fair value of the derivatives was recognized directly in earnings.

The following table summarizes the Company’s interest rate swaps as of June 30, 2018 , which effectively convert one-month floating rate LIBOR to a fixed rate:



Effective Date	Notional		Fixed Interest Rate		Maturity Date
January 3, 2017	$	100,000	1.26	%	November 22, 2018
January 3, 2017	$	100,000	1.26	%	November 22, 2018
December 29, 2017	$	100,000	2.00	%	January 5, 2021
December 29, 2017	$	100,000	2.00	%	January 5, 2021
December 29, 2017	$	50,000	2.00	%	January 5, 2021

The following table summarizes the Company’s interest rate swaps that were designated as cash flow hedges of interest rate risk:



	Number of Instruments		Notional
Interest Rate Derivatives	June 30, 2018	December 31, 2017	June 30, 2018		December 31, 2017
Interest rate swaps	5	5	$	450,000	$	450,000

The table below presents the estimated fair value of the Company’s derivative financial instruments, which are presented within “Other assets, net” in the condensed consolidated balance sheets. The valuation techniques used are described in Note 13 to the condensed consolidated financial statements.



	Fair Value
	June 30, 2018		December 31, 2017
Derivatives designated as cash flow hedges:
Interest rate swaps	$	4,699	$	1,086

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table presents the effect of the Company’s derivative financial instruments on the accompanying condensed consolidated statements of operations and other comprehensive income (loss) for the three and six months ended June 30, 2018 :



Derivatives in Cash Flow Hedging Relationships	Amount of Gain Recognized in Other Comprehensive Income on Derivative						Location of Gain Reclassified from Accumulated Other Comprehensive Income (AOCI) into Income	Amount of Gain Reclassified from AOCI into Income						Total Interest Expense Presented in the Results of Operations in which the Effects of Cash Flow Hedges are Recorded
	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018				Three Months Ended June 30, 2018			Six Months Ended June 30, 2018			Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Interest rate swaps	$	(1,138	)	$	(3,805	)	Interest expense	$	(279	)	$	(192	)	$	16,817	$	35,582



Derivatives in Cash Flow Hedging Relationships	Amount of Loss (Gain) Recognized in Other Comprehensive Income on Derivative (Effective Portion)					Location of (Gain) Loss Reclassified from AOCI into Income (Effective Portion)	Amount of (Gain) Loss Reclassified from AOCI into Income (Effective Portion)					Location of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Three Months Ended June 30, 2017		Six Months Ended June 30, 2017				Three Months Ended June 30, 2017			Six Months Ended June 30, 2017			Three Months Ended June 30, 2017		Six Months Ended June 30, 2017
Interest rate swaps	$	59	$	(413	)	Interest expense	$	(86	)	$	74	Other income, net	$	5	$	11

(10) EQUITY

In December 2015, the Company entered into an at-the-market (ATM) equity program under which it may issue and sell shares of its Class A common stock, having an aggregate offering price of up to $250,000 , from time to time. Actual sales may depend on a variety of factors, including, among others, market conditions and the trading price of the Company’s Class A common stock. Any net proceeds are expected to be used for general corporate purposes, which may include the funding of acquisitions and redevelopment activities and the repayment of debt, including the Company’s unsecured revolving line of credit. The Company did not sell any shares under its ATM equity program during the six months ended June 30, 2018 and 2017 . As of June 30, 2018 , the Company had Class A common shares having an aggregate offering price of up to $250,000 remaining available for sale under its ATM equity program.

In December 2015, the Company’s board of directors authorized a common stock repurchase program under which the Company may repurchase, from time to time, up to a maximum of $250,000 of shares of its Class A common stock. In December 2017, the Company’s board of directors authorized a $250,000 increase to the common stock repurchase program. The shares may be repurchased in the open market or in privately negotiated transactions and are canceled upon repurchase. The timing and actual number of shares repurchased will depend on a variety of factors, including price in absolute terms and in relation to the value of the Company’s assets, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The common stock repurchase program may be suspended or terminated at any time without prior notice. The Company did not repurchase any shares during the six months ended June 30, 2018 . During the three and six months ended June 30, 2017 , the Company repurchased 6,024 shares at an average price per share of $12.55 for a total of $75,697 . As of June 30, 2018 , $264,057 remained available for repurchases under the common stock repurchase program.

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(11) EARNINGS PER SHARE

The following table summarizes the components used in the calculation of basic and diluted earnings per share (EPS):



	Three Months Ended June 30,								Six Months Ended June 30,
	2018				2017				2018				2017
Numerator:
Income (loss) from continuing operations	$	10,882			$	(1,865	)		$	18,143			$	(52,129	)
Gain on sales of investment properties	—				116,628				34,519				157,792
Preferred stock dividends	—				(2,363		)		—				(4,725		)
Net income attributable to common shareholders	10,882				112,400				52,662				100,938
Earnings allocated to unvested restricted shares	(90		)		(88		)		(172		)		(178		)
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares	$	10,792			$	112,312			$	52,490			$	100,760

Denominator:
Denominator for earnings per common share – basic:
Weighted average number of common shares outstanding	218,982			(a)	234,243			(b)	218,915			(a)	235,269			(b)
Effect of dilutive securities:
Stock options	—			(c)	1			(c)	—			(c)	1			(c)
RSUs	428			(d)	574			(e)	491			(d)	572			(e)
Denominator for earnings per common share – diluted:
Weighted average number of common and common equivalent shares outstanding	219,410				234,818				219,406				235,842


(a)	Excludes 521 shares of unvested restricted common stock as of June 30, 2018 , which equate to 529 and 551 shares, respectively, on a weighted average basis for the three and six months ended June 30, 2018 . These shares will continue to be excluded from the computation of basic EPS until contingencies are resolved and the shares are released.


(b)	Excludes 556 shares of unvested restricted common stock as of June 30, 2017 , which equate to 536 and 550 shares, respectively, on a weighted average basis for the three and six months ended June 30, 2017 . These shares were excluded from the computation of basic EPS as the contingencies remained and the shares had not been released as of the end of the reporting period.

(c)

There were outstanding options to purchase 38 and 41 shares of common stock as of June 30, 2018 and 2017 , respectively, at a weighted average exercise price of $18.85 and $19.25 , respectively. Of these totals, outstanding options to purchase 32 and 35 shares of common stock as of June 30, 2018 and 2017 , respectively, at a weighted average exercise price of $20.19 and $20.55 , respectively, have been excluded from the common shares used in calculating diluted EPS as including them would be anti-dilutive.


(d)	As of June 30, 2018 , there were 649 RSUs eligible for future conversion upon completion of the performance periods (see Note 5 to the condensed consolidated financial statements), which equate to 649 and 667 RSUs, respectively, on a weighted average basis for the three and six months ended June 30, 2018 . These contingently issuable shares are a component of calculating diluted EPS.


(e)	As of June 30, 2017 , there were 644 RSUs eligible for future conversion upon completion of the performance periods, which equate to 644 and 641 RSUs, respectively, on a weighted average basis for the three and six months ended June 30, 2017 . These contingently issuable shares are a component of calculating diluted EPS.

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(12) PROVISION FOR IMPAIRMENT OF INVESTMENT PROPERTIES

As of June 30, 2018 and 2017 , the Company identified indicators of impairment at certain of its properties. Such indicators included a low occupancy rate, difficulty in leasing space and related cost of re-leasing, financially troubled tenants or reduced anticipated holding periods. The following table summarizes the results of these analyses as of June 30, 2018 and 2017 :



	June 30, 2018		June 30, 2017
Number of properties for which indicators of impairment were identified	2		7		(a)
Less: number of properties for which an impairment charge was recorded	—		2
Less: number of properties that were held for sale as of the date the analysis was performed for which indicators of impairment were identified but no impairment charge was recorded	—		2
Remaining properties for which indicators of impairment were identified but no impairment charge was considered necessary	2		3

Weighted average percentage by which the projected undiscounted cash flows exceeded its respective carrying value for each of the remaining properties (b)	38	%	11	%


(a)	Includes five properties which have subsequently been sold as of June 30, 2018 .


(b)	Based upon the estimated holding period for each asset where an undiscounted cash flow analysis was performed.

The Company recorded the following investment property impairment charges during the six months ended June 30, 2018 :



Property Name	Property Type	Impairment Date	Square Footage	Provision for Impairment of Investment Properties
Schaumburg Towers (a)	Office	Various	895,400	$	1,116
CVS Pharmacy – Lawton, OK (b)	Single-user retail	March 31, 2018	10,900	200
				$	1,316
	Estimated fair value of impaired properties as of impairment date			$	76,871


(a)	The Company recorded an impairment charge on March 31, 2018 based upon the terms and conditions of an executed sales contract. This property was classified as held for sale as of March 31, 2018 and was sold on May 31, 2018, at which time additional impairment was recognized pursuant to the terms and conditions of an executed sales contract.


(b)	The Company recorded an impairment charge based upon the terms and conditions of an executed sales contract. The property was sold on April 19, 2018.

The Company recorded the following investment property impairment charges during the six months ended June 30, 2017 :



Property Name	Property Type	Impairment Date	Square Footage	Provision for Impairment of Investment Properties
Century III Plaza, excluding the Home Depot parcel (a)	Multi-tenant retail	June 30, 2017	152,200	$	3,076
Lakepointe Towne Center (b)	Multi-tenant retail	June 30, 2017	196,600	9,958
				$	13,034
Estimated fair value of impaired properties as of impairment date				$	22,500


(a)	The Company recorded an impairment charge based upon the terms and conditions of a bona fide purchase offer. This property was classified as held for sale as of June 30, 2017 and was sold on December 15, 2017. The Home Depot parcel of Century III Plaza was sold on March 15, 2017.


(b)	The Company recorded an impairment charge based upon the terms and conditions of an executed sales contract. This property was classified as held for sale as of June 30, 2017 and was sold on August 4, 2017.

The Company provides no assurance that material impairment charges with respect to its investment properties will not occur in future periods.

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(13) FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value of the Company’s financial instruments:



	June 30, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Derivative asset	$	4,699	$	4,699	$	1,086	$	1,086
Financial liabilities:
Mortgages payable, net	$	274,267	$	279,680	$	287,068	$	298,635
Unsecured notes payable, net	$	696,055	$	670,042	$	695,748	$	693,823
Unsecured term loans, net	$	447,583	$	455,242	$	547,270	$	552,555
Unsecured revolving line of credit	$	126,000	$	126,000	$	216,000	$	216,222

The carrying value of the derivative asset is included in “Other assets, net” in the accompanying condensed consolidated balance sheets.

Recurring Fair Value Measurements

The following table presents the Company’s financial instruments, which are measured at fair value on a recurring basis, by the level in the fair value hierarchy within which those measurements fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table.



	Fair Value
	Level 1		Level 2		Level 3		Total
June 30, 2018
Derivative asset	$	—	$	4,699	$	—	$	4,699

December 31, 2017
Derivative asset	$	—	$	1,086	$	—	$	1,086

Derivative asset: The fair value of the derivative asset is determined using a discounted cash flow analysis on the expected future cash flows of each derivative. This analysis uses observable market data including forward yield curves and implied volatilities to determine the market’s expectation of the future cash flows of the variable component. The fixed and variable components of the derivative are then discounted using calculated discount factors developed based on the LIBOR swap rate and are aggregated to arrive at a single valuation for the period. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives use Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2018 and December 31, 2017 , the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation. As a result, the Company has determined that its derivative valuations in their entirety are classified within Level 2 of the fair value hierarchy. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements. The Company’s derivative instruments are further described in Note 9 to the condensed consolidated financial statements.

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Nonrecurring Fair Value Measurements

The Company did not remeasure any assets to fair value on a nonrecurring basis as of June 30, 2018. The following table presents the Company’s assets measured at fair value on a nonrecurring basis as of December 31, 2017 , aggregated by the level within the fair value hierarchy in which those measurements fall. The table includes information related to properties remeasured to fair value as a result of impairment charges recorded during the year ended December 31, 2017 , except for those properties sold prior to December 31, 2017 . Methods and assumptions used to estimate the fair value of these assets are described after the table.



	Fair Value
	Level 1		Level 2			Level 3		Total		Provision for Impairment (a)
December 31, 2017
Investment properties	$	—	$	74,250	(b)	$	—	$	74,250	$	50,077


(a)	Excludes impairment charges recorded on investment properties sold prior to December 31, 2017 .

(b)

Represents the fair value of the Company’s Schaumburg Towers and Home Depot Plaza investment properties. The estimated fair value of Schaumburg Towers was based on an expected sales price of $87,600 from a bona fide purchase offer, determined to be a Level 2 input, which contemplates historically deferred maintenance and capital requirements. The estimated fair value of $58,000 as of September 30, 2017, the date the asset was measured at fair value, reflects (i) capital expenditures expected to be incurred by the Company prior to sale and (ii) tenant-related costs expected to be credited to the buyer at close. The estimated fair value of Home Depot Plaza of $16,250 as of December 31, 2017, the date the asset was measured at fair value, was based upon the expected sales price for an executed sales contract and determined to be a Level 2 input.

Fair Value Disclosures

The following table presents the Company’s financial liabilities, which are measured at fair value for disclosure purposes, by the level in the fair value hierarchy within which those measurements fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table.



	Fair Value
	Level 1		Level 2		Level 3		Total
June 30, 2018
Mortgages payable, net	$	—	$	—	$	279,680	$	279,680
Unsecured notes payable, net	$	234,853	$	—	$	435,189	$	670,042
Unsecured term loans, net	$	—	$	—	$	455,242	$	455,242
Unsecured revolving line of credit	$	—	$	—	$	126,000	$	126,000

December 31, 2017
Mortgages payable, net	$	—	$	—	$	298,635	$	298,635
Unsecured notes payable, net	$	243,183	$	—	$	450,640	$	693,823
Unsecured term loans, net	$	—	$	—	$	552,555	$	552,555
Unsecured revolving line of credit	$	—	$	—	$	216,222	$	216,222

Mortgages payable, net: The Company estimates the fair value of its mortgages payable by discounting the anticipated future cash flows of each instrument at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rate for each of the Company’s individual mortgages payable based upon the specific terms of the agreement, including the term to maturity, the quality and nature of the underlying property and its leverage ratio. The rates used range from 3.9% to 4.5% and 3.5% to 4.2% as of June 30, 2018 and December 31, 2017 , respectively.

Unsecured notes payable, net: The quoted market price as of June 30, 2018 was used to value the Notes Due 2025. The Company estimates the fair value of its Notes Due 2021 and 2024 and Notes Due 2026 and 2028 by discounting the future cash flows at rates currently offered to the Company by its lenders for similar debt instruments of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rates. The weighted average rates used were 4.90% and 4.28% as of June 30, 2018 and December 31, 2017 , respectively.

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Unsecured term loans, net: The Company estimates the fair value of its unsecured term loans, net by discounting the anticipated future cash flows related to the credit spreads at rates currently offered to the Company by its lenders for similar instruments of comparable maturities. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rates. The weighted average rates used to discount the credit spreads were 1.20% and 1.33% as of June 30, 2018 and December 31, 2017 , respectively.

Unsecured revolving line of credit: The Company estimates the fair value of its unsecured revolving line of credit by discounting the anticipated future cash flows related to the credit spreads at rates currently offered to the Company by its lenders for similar facilities of comparable maturity. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rates. The rates used to discount the credit spreads were 1.05% and 1.30% as of June 30, 2018 and December 31, 2017 , respectively.

There were no transfers between the levels of the fair value hierarchy during the six months ended June 30, 2018 .

(14) COMMITMENTS AND CONTINGENCIES

As of June 30, 2018 , the Company had a letter of credit outstanding in the amount of $143 which serves as collateral for certain capital improvements at one of its properties and reduces the available borrowings on its unsecured revolving line of credit.

As of June 30, 2018 , the Company had active redevelopments at Reisterstown Road Plaza located in Baltimore, Maryland and Circle East located in Towson, Maryland. The Company estimates that it will incur net costs of approximately $9,500 to $10,500 related to the Reisterstown Road Plaza redevelopment and approximately $33,000 to $35,000 related to the Circle East redevelopment. As of June 30, 2018 , the Company has incurred $8,690 related to Reisterstown Road Plaza and $7,180 , net of proceeds of $11,820 from the sale of air rights, related to the redevelopment portion of Circle East.

(15) LITIGATION

The Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of such matters cannot be predicted with certainty, management believes, based on currently available information, that the final outcome of such matters will not have a material effect on the Company’s condensed consolidated financial statements.

(16) SUBSEQUENT EVENTS

Subsequent to June 30, 2018 , the Company:


•	closed on the first phase of the sale of a land parcel, which included rights to develop eight residential units, at One Loudoun Downtown, a multi-tenant retail operating property located in Ashburn, Virginia, for a sales price of $1,800 . The sale of land will occur in three phases and will include the rights to develop a total of 30 residential units for a total sales price of $6,800 ;

•

entered into a development joint venture agreement for the expansion of pads G and H at One Loudoun Downtown. The project encompasses the construction of 378 residential units and up to 80,000 square feet of commercial space. The joint venture facilitates the construction and management of the residential units and construction of a portion of the commercial space, which will be delivered to the Company once complete; and


•	declared the cash dividend for the third quarter of 2018 of $0.165625 per share on its outstanding Class A common stock, which will be paid on October 10, 2018 to Class A common shareholders of record at the close of business on September 25, 2018.

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RETAIL PROPERTIES OF AMERICA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

On July 23, 2018, the Executive Compensation Committee (the Committee) of the Company’s Board of Directors approved the adoption of the Senior Executive Cash Incentive Bonus Plan (Incentive Plan), which is the general plan under which the Company will award annual cash incentive compensation to its executive officers. Under the Incentive Plan, the Committee may select key executives to be eligible to receive cash bonuses based on the attainment of established corporate and/or individual performance goals, which will be measured at the end of each performance period. The Incentive Plan also allows for the establishment of additional bonus opportunities that are higher or lower than the target bonus opportunity and for discretionary bonus payments. Bonus payments under the Incentive Plan will be conditioned upon the executive’s continued employment through the payment date, unless otherwise provided or agreed upon. The Incentive Plan may be amended or terminated at any time.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act). Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “should,” “intends,” “plans,” “estimates,” “continue” or “anticipates” and variations of such words or similar expressions or the negative of such words. You can also identify forward-looking statements by discussions of strategies, plans or intentions. Risks, uncertainties and changes in the following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:


•	economic, business and financial conditions, and changes in our industry and changes in the real estate markets in particular;


•	economic and other developments in 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;


•	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 real estate investment trust (REIT);


•	governmental regulations, tax laws and rates and similar matters;


•	our compliance with laws, rules and regulations;


•	environmental uncertainties and exposure to natural disasters;

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•	insurance coverage; and


•	the likelihood or actual occurrence of terrorist attacks in the U.S.

For a further discussion of these and other factors that could impact our future results, performance or transactions, see Item 1A. “Risk Factors” in this document and in our Annual Report on Form 10-K for the year ended December 31, 2017 . Readers should not place undue reliance on any forward-looking statements, which are based only on information currently available to us (or to third parties making the forward-looking statements). We undertake no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q, except as required by applicable law.

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes included in this report.

Executive Summary

Retail Properties of America, Inc. is a REIT that owns and operates high quality, strategically located open-air shopping centers, including properties with a mixed-use component. As of June 30, 2018 , we owned 105 retail operating properties in the United States representing 19,462,000 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 retail operating portfolio as of June 30, 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	9,798	91.8	%	93.4	%
Power centers	26	5,512	92.0	%	93.0	%
Lifestyle centers and mixed-use properties	15	3,796	92.0	%	94.0	%
Total multi-tenant retail	102	19,106	91.9	%	93.4	%
Single-user retail	3	356	100.0	%	100.0	%
Total retail operating portfolio	105	19,462	92.0	%	93.5	%
Redevelopment projects:
Reisterstown Road Plaza	1
Circle East – redevelopment portion (b)	—
Carillon (c)	1
Total number of wholly-owned properties	107


(a)	Includes leases signed but not commenced.


(b)	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.


(c)	We have begun activities in anticipation of future redevelopment of this property, which was formerly known as Boulevard at the Capital Centre.

During the six months ended June 30, 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. Moving forward, we are focused on growing the portfolio organically through accretive leasing activity and increasing density at our mixed-use redevelopments and expansion projects. Our active and near-term pipeline projects include Reisterstown Road Plaza, the redevelopment portion of Circle East and Carillon, as well as pad developments at Downtown Crown, Main Street Promenade and One Loudoun Downtown.

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Company Highlights — Six Months Ended June 30, 2018

Acquisitions

We did not acquire any properties during the six months ended June 30, 2018 . In total for 2018 , we expect to invest approximately $25,000 to $75,000 on strategic acquisitions and repurchases of our common stock.

Dispositions

During the six months ended June 30, 2018 , we continued to pursue dispositions of select non-target and single-user properties. Consideration from dispositions totaled $192,950 and included the sales of five multi-tenant retail operating properties aggregating 778,700 square feet for total consideration of $96,050, 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.

The following table summarizes our dispositions during the six months ended June 30, 2018 :



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
			1,773,000	$	192,950

In addition to the property dispositions listed above, during the six months ended June 30, 2018 , we received consideration of $11,970 in connection with the sale of air rights at the redevelopment portion of Circle East.

Subsequent to June 30, 2018 , we closed on the first phase of the sale of a land parcel, which included rights to develop eight residential units, at One Loudoun Downtown, a multi-tenant retail operating property located in Ashburn, Virginia, for a sales price of $1,800. The sale of land will occur in three phases and will include the rights to develop a total of 30 residential units for a total sales price of $6,800. In total for 2018 , we expect targeted dispositions to be approximately $200,000.

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Market Summary

The following table summarizes our retail operating portfolio by market as of June 30, 2018 :



Property Type/Market	Number of Properties	Annualized Base Rent (ABR) (a)		% of Total Multi-Tenant Retail ABR (a)		ABR per Occupied Sq. Ft.		GLA (in thousands) (a)	% of Total Multi-Tenant Retail GLA (a)		Occupancy		% Leased Including Signed
Multi-Tenant Retail:
Top 25 MSAs (b)
Dallas	19	$	82,147	24.4	%	$	22.33	3,938	20.6	%	93.4	%	94.0	%
New York	9	35,447		10.5	%	28.49		1,292	6.8	%	96.3	%	96.8	%
Washington, D.C.	8	34,746		10.3	%	27.48		1,384	7.2	%	91.4	%	95.2	%
Chicago	8	28,884		8.6	%	23.28		1,358	7.1	%	91.4	%	92.8	%
Seattle	8	21,156		6.3	%	15.59		1,477	7.7	%	91.9	%	92.7	%
Atlanta	9	18,603		5.5	%	13.70		1,513	7.9	%	89.7	%	92.3	%
Houston	9	15,167		4.5	%	14.69		1,141	6.0	%	90.5	%	92.7	%
Baltimore	4	13,365		4.0	%	17.28		865	4.5	%	89.4	%	90.1	%
San Antonio	3	12,558		3.7	%	17.55		721	3.8	%	99.2	%	100.0	%
Phoenix	3	10,051		3.0	%	17.48		632	3.3	%	91.0	%	93.4	%
Los Angeles	1	5,284		1.6	%	28.24		255	1.3	%	73.4	%	73.4	%
Riverside	1	4,607		1.4	%	15.76		292	1.5	%	100.0	%	100.0	%
St. Louis	1	4,110		1.2	%	9.62		453	2.4	%	94.3	%	94.3	%
Charlotte	1	2,885		0.9	%	13.76		320	1.7	%	65.6	%	75.3	%
Tampa	1	2,379		0.7	%	19.52		126	0.7	%	97.0	%	97.0	%
Subtotal	85	291,389		86.6	%	20.13		15,767	82.5	%	91.8	%	93.3	%

Non-Top 25 MSAs (b)	17	45,236		13.4	%	14.69		3,339	17.5	%	92.2	%	93.9	%

Total Multi-Tenant Retail	102	336,625		100.0	%	19.18		19,106	100.0	%	91.9	%	93.4	%

Single-User Retail	3	8,950				25.19		356			100.0	%	100.0	%

Total Retail Operating Portfolio (c)	105	$	345,575			$	19.29	19,462			92.0	%	93.5	%

(a)

Excludes $11,282 of multi-tenant retail ABR and 1,123 square feet of multi-tenant retail GLA attributable to (i) Reisterstown Road Plaza, which is in active redevelopment, (ii) the redevelopment portion of Circle East, which is in active redevelopment and (iii) Carillon, where we have begun activities in anticipation of future redevelopment, which are located in the Washington, D.C. and Baltimore metropolitan statistical areas (MSAs). Including these amounts, 87.0% of our multi-tenant retail ABR and 83.5% 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.


(c)	Excludes 15 residential units.

Leasing Activity

The following table summarizes the leasing activity in our retail operating portfolio during the six months ended June 30, 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	171	1,050	$	21.78	$	20.68	5.3	%	4.4	$	1.50
Comparable New Leases	18	88	$	22.12	$	20.08	10.2	%	7.7	$	32.70
Non-Comparable New and Renewal Leases (b)	36	188	$	18.83	N/A		N/A		7.6	$	47.44
Total	225	1,326	$	21.80	$	20.63	5.7	%	5.0	$	10.07


(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.

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Our leasing efforts continue to focus on (i) vacant anchor and small shop space, (ii) upcoming natural lease expirations, (iii) space within our redevelopment projects and (iv) properties where we have begun expansion activities. 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 six months ended June 30, 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, consisting of an $850,000 unsecured revolving line of credit and a $250,000 unsecured term loan (collectively, the Unsecured Credit Facility);


•	repaid the remaining $100,000 of our unsecured term loan due 2018 in conjunction with the execution of the Unsecured Credit Agreement;


•	repaid $90,000, net of borrowings, on our unsecured revolving line of credit; and


•	repaid a $10,750 mortgage payable in conjunction with the disposition of the related property and made scheduled principal payments of $2,068 related to amortizing loans.

Distributions

We declared quarterly distributions totaling $0.33125 per share of common stock during the six months ended June 30, 2018 .

Results of Operations

Comparison of Results for the Three Months Ended June 30, 2018 and 2017



	Three Months Ended June 30,
	2018			2017			Change
Revenues
Rental income	$	92,646		$	106,017		$	(13,371	)
Tenant recovery income	25,183			29,524			(4,341		)
Other property income	1,335			1,798			(463		)
Total revenues	119,164			137,339			(18,175		)

Expenses
Operating expenses	19,384			21,004			(1,620		)
Real estate taxes	17,701			21,487			(3,786		)
Depreciation and amortization	43,710			52,325			(8,615		)
Provision for impairment of investment properties	724			13,034			(12,310		)
General and administrative expenses	10,274			10,370			(96		)
Total expenses	91,793			118,220			(26,427		)

Operating income	27,371			19,119			8,252

Interest expense	(16,817		)	(21,435		)	4,618
Other income, net	328			451			(123		)
Income (loss) from continuing operations	10,882			(1,865		)	12,747
Gain on sales of investment properties	—			116,628			(116,628		)
Net income	10,882			114,763			(103,881		)
Preferred stock dividends	—			(2,363		)	2,363
Net income attributable to common shareholders	$	10,882		$	112,400		$	(101,518	)

We owned 132 retail operating properties and one office property as of June 30, 2017 , which decreased to 105 retail operating properties as of June 30, 2018 as a result of the completion of our portfolio transformation during the three months ended June 30, 2018 .

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Net income attributable to common shareholders decreased $101,518 from $112,400 for the three months ended June 30, 2017 to $10,882 for the three months ended June 30, 2018 primarily as a result of the following:


•	a $116,628 decrease in gain on sales of investment properties related to the sales of two investment properties, representing approximately 906,300 square feet of GLA, during the three months ended June 30, 2018 compared to the sales of 17 investment properties, representing approximately 1,869,000 square feet of GLA, during the three months ended June 30, 2017 ; and


•	a $13,371 decrease in rental income primarily consisting of a $15,500 decrease in base rent, which resulted from the operating properties sold during 2017 and 2018 along with our redevelopments, partially offset by an increase from the operating properties acquired during 2017 and growth from our same store portfolio;

partially offset by


•	a $12,310 decrease in provision for impairment of investment properties. Based on the results of our evaluations for impairment (see Notes 12 and 13 to the accompanying condensed consolidated financial statements), we recognized impairment charges of $724 and $13,034 for the three months ended June 30, 2018 and 2017 , respectively;


•	an $8,615 decrease in depreciation and amortization primarily due to the investment properties sold during 2017; and


•	a $4,618 decrease in interest expense primarily consisting of:


•	a $2,261 prepayment penalty incurred during the three months ended June 30, 2017 related to the repayment of a mortgage payable. No such prepayment penalty was incurred during the three months ended June 30, 2018 ;


•	a $1,352 decrease in interest on mortgages payable due to a reduction in mortgage debt; and


•	a $1,048 decrease in term loan interest due to the repayment of a $100,000 variable-rate term loan in April 2018.

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, straight-line ground rent expense (non-cash) and amortization of acquired ground lease intangibles (non-cash). NOI consists of same store NOI (Same Store NOI) and NOI from other investment properties (NOI from Other Investment Properties). We believe that NOI, Same Store NOI and NOI from Other Investment Properties, which are supplemental non-GAAP financial measures, provide an additional and useful operating perspective not immediately apparent from “Operating income” or “Net income attributable to common shareholders” in accordance with accounting principles generally accepted in the United States (GAAP). We use these measures to evaluate our performance on a property-by-property basis because they allow management to evaluate the impact that factors such as lease structure, lease rates and tenant base have on our operating results. NOI, Same Store NOI and NOI from Other Investment Properties do not represent alternatives to “Net income” or “Net income attributable to common shareholders” in accordance with GAAP as indicators of our financial performance. Comparison of our presentation of NOI, Same Store NOI and NOI from Other Investment Properties to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in definition and application by such REITs. For reference and as an aid in understanding our computation of NOI, a reconciliation of net income attributable to common shareholders as computed in accordance with GAAP to Same Store NOI has been presented for each comparable period presented.

Same store portfolio

For the three and six months ended June 30, 2018 , our same store portfolio consisted of 102 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 102 as of June 30, 2018 from 103 as of March 31, 2018 as a result of the following:


•	the removal of one same store investment property sold during the three months ended June 30, 2018 .

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.

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The properties and financial results reported in “Other investment properties” primarily include the following:


•	properties acquired after December 31, 2016;


•	Reisterstown Road Plaza, which is in active redevelopment;


•	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.

The following tables present a reconciliation of net income attributable to common shareholders to Same Store NOI and details of the components of Same Store NOI for the three months ended June 30, 2018 and 2017 :



	Three Months Ended June 30,
	2018			2017			Change
Net income attributable to common shareholders	$	10,882		$	112,400		$	(101,518	)
Adjustments to reconcile to Same Store NOI:
Preferred stock dividends	—			2,363			(2,363		)
Gain on sales of investment properties	—			(116,628		)	116,628
Depreciation and amortization	43,710			52,325			(8,615		)
Provision for impairment of investment properties	724			13,034			(12,310		)
General and administrative expenses	10,274			10,370			(96		)
Interest expense	16,817			21,435			(4,618		)
Straight-line rental income, net	(1,401		)	(919		)	(482		)
Amortization of acquired above and below market lease intangibles, net	(2,354		)	(549		)	(1,805		)
Amortization of lease inducements	246			259			(13		)
Lease termination fees, net	1,692			(510		)	2,202
Straight-line ground rent expense	579			677			(98		)
Amortization of acquired ground lease intangibles	(140		)	(140		)	—
Other income, net	(328		)	(451		)	123
NOI	80,701			93,666			(12,965		)
NOI from Other Investment Properties	(4,452		)	(18,241		)	13,789
Same Store NOI	$	76,249		$	75,425		$	824



	Three Months Ended June 30,
	2018		2017			Change
Same Store NOI:
Base rent	$	82,405	$	81,656		$	749
Percentage and specialty rent	725		558			167
Tenant recovery income	23,946		23,629			317
Other property operating income	1,101		949			152
	108,177		106,792			1,385

Property operating expenses	14,747		14,880			(133		)
Bad debt expense, net	258		(140		)	398
Real estate taxes	16,923		16,627			296
	31,928		31,367			561

Same Store NOI	$	76,249	$	75,425		$	824

Same Store NOI increased $824 , or 1.1% , primarily due to an increase of $749 in base rent primarily as a result of increases in the following: $670 from contractual rent changes and $417 from re-leasing spreads, partially offset by $251 from higher rent abatements.

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Comparison of Results for the Six Months Ended June 30, 2018 and 2017



	Six Months Ended June 30,
	2018			2017			Change
Revenues
Rental income	$	187,101		$	215,991		$	(28,890	)
Tenant recovery income	53,273			60,310			(7,037		)
Other property income	3,632			4,731			(1,099		)
Total revenues	244,006			281,032			(37,026		)

Expenses
Operating expenses	39,639			42,868			(3,229		)
Real estate taxes	38,169			43,366			(5,197		)
Depreciation and amortization	88,938			105,799			(16,861		)
Provision for impairment of investment properties	1,316			13,034			(11,718		)
General and administrative expenses	22,769			21,583			1,186
Total expenses	190,831			226,650			(35,819		)

Operating income	53,175			54,382			(1,207		)

Interest expense	(35,582		)	(106,967		)	71,385
Other income, net	550			456			94
Income (loss) from continuing operations	18,143			(52,129		)	70,272
Gain on sales of investment properties	34,519			157,792			(123,273		)
Net income	52,662			105,663			(53,001		)
Preferred stock dividends	—			(4,725		)	4,725
Net income attributable to common shareholders	$	52,662		$	100,938		$	(48,276	)

Net income attributable to common shareholders decreased $48,276 from $100,938 for the six months ended June 30, 2017 to $52,662 for the six months ended June 30, 2018 primarily as a result of the following:

•

a $123,273 decrease in gain on sales of investment properties related to the sales of nine investment properties, representing approximately 1,773,000 square feet of GLA, and the sale of air rights at the redevelopment portion of Circle East during the six months ended June 30, 2018 compared to the sales of 23 investment properties and a single-user parcel at an existing multi-tenant retail operating property, representing approximately 2,489,100 square feet of GLA, during the six months ended June 30, 2017 ; and


•	a $28,890 decrease in rental income primarily consisting of a $32,576 decrease in base rent, which resulted from the operating properties sold during 2017 and 2018 along with our redevelopments, partially offset by an increase from the operating properties acquired during 2017 and growth from our same store portfolio;

partially offset by


•	a $71,385 decrease in interest expense primarily consisting of:


•	a $63,539 decrease in prepayment penalties and defeasance premiums and a $4,078 decrease in capitalized loan fee write-offs primarily related to the defeasance of the IW JV portfolio of mortgages payable during the six months ended June 30, 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 $2,778 decrease in interest on mortgages payable due to a reduction in mortgage debt;


•	a $16,861 decrease in depreciation and amortization primarily due to the investment properties sold during 2017; and

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•	an $11,718 decrease in provision for impairment of investment properties. Based on the results of our evaluations for impairment (see Notes 12 and 13 to the accompanying condensed consolidated financial statements), we recognized impairment charges of $1,316 and $13,034 for the six months ended June 30, 2018 and 2017 , respectively.

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 six months ended June 30, 2018 and 2017 :



	Six Months Ended June 30,
	2018			2017			Change
Net income attributable to common shareholders	$	52,662		$	100,938		$	(48,276	)
Adjustments to reconcile to Same Store NOI:
Preferred stock dividends	—			4,725			(4,725		)
Gain on sales of investment properties	(34,519		)	(157,792		)	123,273
Depreciation and amortization	88,938			105,799			(16,861		)
Provision for impairment of investment properties	1,316			13,034			(11,718		)
General and administrative expenses	22,769			21,583			1,186
Interest expense	35,582			106,967			(71,385		)
Straight-line rental income, net	(3,880		)	(1,260		)	(2,620		)
Amortization of acquired above and below market lease intangibles, net	(3,208		)	(1,280		)	(1,928		)
Amortization of lease inducements	487			582			(95		)
Lease termination fees, net	673			(2,122		)	2,795
Straight-line ground rent expense	1,245			1,363			(118		)
Amortization of acquired ground lease intangibles	(280		)	(280		)	—
Other income, net	(550		)	(456		)	(94		)
NOI	161,235			191,801			(30,566		)
NOI from Other Investment Properties	(8,264		)	(40,787		)	32,523
Same Store NOI	$	152,971		$	151,014		$	1,957



	Six Months Ended June 30,
	2018		2017		Change
Same Store NOI:
Base rent	$	164,539	$	162,913	$	1,626
Percentage and specialty rent	1,820		1,965		(145		)
Tenant recovery income	50,095		48,090		2,005
Other property operating income	2,230		1,896		334
	218,684		214,864		3,820

Property operating expenses	30,074		30,084		(10		)
Bad debt expense	756		516		240
Real estate taxes	34,883		33,250		1,633
	65,713		63,850		1,863

Same Store NOI	$	152,971	$	151,014	$	1,957

Same Store NOI increased $1,957 , or 1.3% , primarily due to the following:


•	base rent increased $1,626 primarily due to an increase of $1,183 from contractual rent changes and $840 from re-leasing spreads, partially offset by $403 from higher rent abatements; and

•

property operating expenses and real estate taxes, net of tenant recovery income, decreased $382 primarily due to decreases in certain non-recoverable property operating expenses, partially offset by higher net recoverable property operating expenses and real estate taxes, a lower net positive impact from the common area maintenance reconciliation process and lower net real estate tax refunds in 2018.

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Funds From Operations Attributable to Common Shareholders

The National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a financial measure known as funds from operations (FFO). As defined by NAREIT, FFO means net income (loss) computed in accordance with GAAP, excluding gains (or losses) from sales of depreciable real estate, plus depreciation and amortization and impairment charges on depreciable real estate. We have adopted the NAREIT definition in our computation of FFO attributable to common shareholders. Management believes that, subject to the following limitations, FFO attributable to common shareholders provides a basis for comparing our performance and operations to those of other REITs.

We define Operating FFO attributable to common shareholders as FFO attributable to common shareholders excluding the impact of discrete non-operating transactions and other events which we do not consider representative of the comparable operating results of our real estate operating portfolio, which is our core business platform. Specific examples of discrete non-operating transactions and other events include, but are not limited to, the impact on earnings from gains or losses associated with the early extinguishment of debt or other liabilities, gain on sale and impairment charges on assets other than depreciable real estate, litigation involving the Company, including actual or anticipated settlement and associated legal costs, the impact on earnings from executive separation and the excess of redemption value over carrying value of preferred stock redemption, which are not otherwise adjusted in our calculation of FFO attributable to common shareholders.

We believe that FFO attributable to common shareholders and Operating FFO attributable to common shareholders, which are supplemental non-GAAP financial measures, provide an additional and useful means to assess the operating performance of REITs. FFO attributable to common shareholders and Operating FFO attributable to common shareholders do not represent alternatives to (i) “Net Income” or “Net income attributable to common shareholders” as indicators of our financial performance, or (ii) “Cash flows from operating activities” in accordance with GAAP as measures of our capacity to fund cash needs, including the payment of dividends. Comparison of our presentation of Operating FFO attributable to common shareholders to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in definition and application by such REITs.

The following table presents a reconciliation of net income attributable to common shareholders to FFO attributable to common shareholders and Operating FFO attributable to common shareholders:



	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018			2017
Net income attributable to common shareholders	$	10,882	$	112,400		$	52,662		$	100,938
Depreciation and amortization of depreciable real estate	43,415		51,911			88,365			104,990
Provision for impairment of investment properties	724		13,034			1,316			13,034
Gain on sales of depreciable investment properties	—		(116,628		)	(32,340		)	(157,792		)
FFO attributable to common shareholders	$	55,021	$	60,717		$	110,003		$	61,170

FFO attributable to common shareholders per common share outstanding – diluted	$	0.25	$	0.26		$	0.50		$	0.26

FFO attributable to common shareholders	$	55,021	$	60,717		$	110,003		$	61,170
Impact on earnings from the early extinguishment of debt, net	24		2,312			1,052			68,669
Provision for hedge ineffectiveness	—		5			—			11
Gain on sale of non-depreciable investment property	—		—			(2,179		)	—
Impact on earnings from executive separation (a)	—		—			1,737			—
Other (b)	16		(149		)	223			(19		)
Operating FFO attributable to common shareholders	$	55,061	$	62,885		$	110,836		$	129,831

Operating FFO attributable to common shareholders per common share outstanding – diluted	$	0.25	$	0.27		$	0.51		$	0.55


(a)	Reflected as an increase to “General and administrative expenses” in the accompanying condensed consolidated statements of operations and other comprehensive income (loss).


(b)	Primarily consists of the impact on earnings from litigation involving the Company, including actual or anticipated settlement and associated legal costs, which are included in “Other income, net” in the accompanying condensed consolidated statements of operations and other comprehensive income (loss).

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Liquidity and Capital Resources

We anticipate that cash flows from the below-listed sources will provide adequate capital for the next 12 months and beyond for all scheduled principal and interest payments on our outstanding indebtedness, including maturing debt, current and anticipated tenant allowances or other capital obligations, the shareholder distributions required to maintain our REIT status and compliance with the financial covenants of our unsecured debt agreements.

Our primary expected sources and uses of liquidity are as follows:



	SOURCES		USES
▪	Operating cash flow	▪	Tenant allowances and leasing costs
▪	Cash and cash equivalents	▪	Improvements made to individual properties, certain of which are not
▪	Available borrowings under our unsecured revolving		recoverable through common area maintenance charges to tenants
	line of credit	▪	Acquisitions
▪	Proceeds from capital markets transactions	▪	Debt repayments
▪	Proceeds from asset dispositions	▪	Distribution payments
		▪	Redevelopment, renovation or expansion activities
		▪	New development
		▪	Repurchases of our common stock

We have made substantial progress over the last several years in strengthening our balance sheet, as demonstrated by our reduced leverage, improved financial flexibility and higher unencumbered asset ratio. We have funded debt maturities primarily through asset dispositions and capital markets transactions, including the public offering of our common stock and private and public offerings of senior unsecured notes. As of June 30, 2018 , we had $2,098 of principal amortization due through the end of 2018 , which we plan on satisfying through a combination of cash flows from operations, working capital, capital markets transactions and our unsecured revolving line of credit.

The table below summarizes our consolidated indebtedness as of June 30, 2018 :



Debt	Aggregate Principal Amount		Weighted Average Interest Rate		Maturity Date	Weighted Average Years to Maturity
Fixed rate mortgages payable (a)	$	274,420	5.00	%	Various	4.6 years

Unsecured notes payable:
Senior notes – 4.12% due 2021	100,000		4.12	%	June 30, 2021	3.0 years
Senior notes – 4.58% due 2024	150,000		4.58	%	June 30, 2024	6.0 years
Senior notes – 4.00% due 2025	250,000		4.00	%	March 15, 2025	6.7 years
Senior notes – 4.08% due 2026	100,000		4.08	%	September 30, 2026	8.3 years
Senior notes – 4.24% due 2028	100,000		4.24	%	December 28, 2028	10.5 years
Total unsecured notes payable (a)	700,000		4.19	%		6.8 years

Unsecured credit facility:
Term loan due 2021 – fixed rate (b)	250,000		3.20	%	January 5, 2021	2.5 years
Revolving line of credit – variable rate	126,000		3.14	%	April 22, 2022 (c)	3.8 years
Total unsecured credit facility (a)	376,000		3.18	%		3.0 years

Term Loan Due 2023 – fixed rate (a) (d)	200,000		2.96	%	November 22, 2023	5.4 years

Total consolidated indebtedness	$	1,550,420	3.93	%		5.3 years

(a)

Fixed rate mortgages payable excludes mortgage premium of $900 , discount of $(558) and capitalized loan fees of $(495) , net of accumulated amortization, as of June 30, 2018 . Unsecured notes payable excludes discount of $(793) and capitalized loan fees of $(3,152) , net of accumulated amortization, as of June 30, 2018 . Term loans exclude capitalized loan fees of $(2,417) , net of accumulated amortization, as of June 30, 2018 . Capitalized loan fees related to the revolving line of credit are included in “Other assets, net” in the accompanying condensed consolidated balance sheets.


(b)	Reflects $250,000 of London Interbank Offered Rate (LIBOR)-based variable rate debt that has been swapped to a fixed rate of 2.00% plus a credit spread based on a leverage grid ranging from 1.20% to 1.70% through January 5, 2021. The applicable credit spread was 1.20% as of June 30, 2018 .

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(c)	We have two six-month extension options on the revolving line of credit, which we may exercise as long as we are in compliance with the terms of the unsecured credit agreement and we pay an extension fee equal to 0.075% of the commitment amount being extended.


(d)	Reflects $200,000 of LIBOR-based variable rate debt that has been swapped to a fixed rate of 1.26% plus a credit spread based on a leverage grid ranging from 1.70% to 2.55% through November 22, 2018. The applicable credit spread was 1.70% as of June 30, 2018 .

Mortgages Payable

During the six months ended June 30, 2018 , we repaid a $10,750 mortgage payable, which had a fixed interest rate of 4.82% , in conjunction with the disposition of the related property and made scheduled principal payments of $2,068 related to amortizing loans.

Unsecured Notes Payable

Notes Due 2026 and 2028

On September 30, 2016, we issued $100,000 of 4.08% senior unsecured notes due 2026 in a private placement transaction pursuant to a note purchase agreement we entered into with certain institutional investors on September 30, 2016. Pursuant to the same note purchase agreement, on December 28, 2016, we also issued $100,000 of 4.24% senior unsecured notes due 2028 (Notes Due 2026 and 2028). The proceeds were used to pay down our unsecured revolving line of credit, early repay certain longer-dated mortgages payable and for general corporate purposes.

The note purchase agreement governing the Notes Due 2026 and 2028 contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the note purchase agreement, we are subject to various financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) a minimum interest coverage ratio; (iii) an unencumbered interest coverage ratio (as set forth in our unsecured credit facility and the note purchase agreement governing the Notes Due 2021 and 2024 described below); and (iv) a fixed charge coverage ratio (as set forth in our unsecured credit facility).

Notes Due 2025

On March 12, 2015, we completed a public offering of $250,000 in aggregate principal amount of 4.00% senior unsecured notes due 2025 (Notes Due 2025). The Notes Due 2025 were priced at 99.526% of the principal amount to yield 4.058% to maturity. The proceeds were used to repay a portion of our unsecured revolving line of credit.

The indenture, as supplemented (the Indenture), governing the Notes Due 2025 contains customary covenants and events of default. Pursuant to the terms of the Indenture, we are subject to various financial covenants, including the requirement to maintain the following: (i) maximum secured and total leverage ratios; (ii) a debt service coverage ratio; and (iii) maintenance of an unencumbered assets to unsecured debt ratio.

Notes Due 2021 and 2024

On June 30, 2014, we completed a private placement of $250,000 of unsecured notes, consisting of $100,000 of 4.12% senior unsecured notes due 2021 and $150,000 of 4.58% senior unsecured notes due 2024 (Notes Due 2021 and 2024). The proceeds were used to repay a portion of our unsecured revolving line of credit.

The note purchase agreement governing the Notes Due 2021 and 2024 contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the note purchase agreement, we are subject to various financial covenants, some of which are based upon the financial covenants in effect in our unsecured credit facility, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; (ii) minimum interest coverage and unencumbered interest coverage ratios; and (iii) a minimum consolidated net worth.

As of June 30, 2018 , management believes we were in compliance with the financial covenants under the Indenture and the note purchase agreements.

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Unsecured Term Loans and Revolving Line of Credit

Unsecured Credit Facility

On April 23, 2018, we entered into our fifth amended and restated unsecured credit agreement (Unsecured Credit Agreement) with a syndicate of financial institutions led by Wells Fargo Bank, National Association serving as syndication agent and KeyBank National Association serving as administrative agent to provide for an unsecured credit facility aggregating $1,100,000 (Unsecured Credit Facility). The Unsecured Credit Facility consists of an $850,000 unsecured revolving line of credit and a $250,000 unsecured term loan and is priced on a leverage grid at a rate of LIBOR plus a credit spread. In accordance with the Unsecured Credit Agreement, we may elect to convert to an investment grade pricing grid. As of June 30, 2018 , making such an election would have resulted in a higher interest rate and, as such, we have not made the election to convert to an investment grade pricing grid.

The following table summarizes the key terms of the Unsecured Credit Facility:

Leverage-Based Pricing

Investment Grade Pricing

Unsecured Credit Facility

Maturity Date

Extension Option

Extension Fee

Credit Spread

Facility Fee

Credit Spread

Facility Fee

$250,000 unsecured term loan

1/5/2021

N/A

1.20% - 1.70%

N/A

0.90% - 1.75%

N/A

$850,000 unsecured revolving line of credit

4/22/2022

2 six month

0.075%

1.05% - 1.50%

0.15% - 0.30%

0.825%-1.55%

0.125% - 0.30%

The Unsecured Credit Facility has a $500,000 accordion option that allows us, at our election, to increase the total Unsecured Credit Facility up to $1,600,000, subject to (i) customary fees and conditions including, but not limited to, the absence of an event of default as defined in the Unsecured Credit Agreement and (ii) our ability to obtain additional lender commitments.

The Unsecured Credit Agreement contains customary representations, warranties and covenants, and events of default. Pursuant to the terms of the Unsecured Credit Agreement, we are subject to various financial covenants, including the requirement to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; and (ii) minimum fixed charge and unencumbered interest coverage ratios.

As of June 30, 2018 , we had a letter of credit outstanding in the amount of $143 which serves as collateral for certain capital improvements at one of our properties and reduces the available borrowings on our unsecured revolving line of credit.

Term Loan Due 2023

On January 3, 2017, we received funding on a seven-year $200,000 unsecured term loan (Term Loan Due 2023) with a group of financial institutions, which closed during the year ended December 31, 2016. The Term Loan Due 2023 is priced on a leverage grid at a rate of LIBOR plus a credit spread. In accordance with the term loan agreement (Term Loan Agreement), we may elect to convert to an investment grade pricing grid. As of June 30, 2018 , making such an election would have resulted in a higher interest rate and, as such, we have not made the election to convert to an investment grade pricing grid.

The following table summarizes the key terms of the Term Loan Due 2023:

The Term Loan Due 2023 has a $100,000 accordion option that allows us, at our election, to increase the total unsecured term loan up to $300,000, subject to customary fees and conditions, including the absence of an event of default as defined in the Term Loan Agreement.

The Term Loan Agreement contains customary representations, warranties and covenants, and events of default, including financial covenants that require us to maintain the following: (i) maximum unencumbered, secured and consolidated leverage ratios; and (ii) minimum fixed charge and unencumbered interest coverage ratios. As of June 30, 2018 , management believes we were in compliance with the financial covenants and default provisions under the Term Loan Agreement.

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Debt Maturities

The following table summarizes the scheduled maturities and principal amortization of our indebtedness as of June 30, 2018 for the remainder of 2018 , each of the next four years and thereafter and the weighted average interest rates by year, as well as the fair value of our indebtedness as of June 30, 2018 . The table does not reflect the impact of any debt activity that occurred after June 30, 2018 .



	2018			2019			2020			2021			2022			Thereafter			Total			Fair Value
Debt:
Fixed rate debt:
Mortgages payable (a)	$	2,098		$	25,257		$	3,923		$	22,820		$	157,216		$	63,106		$	274,420		$	279,680
Fixed rate term loans (b)	—			—			—			250,000			—			200,000			450,000			455,242
Unsecured notes payable (c)	—			—			—			100,000			—			600,000			700,000			670,042
Total fixed rate debt	2,098			25,257			3,923			372,820			157,216			863,106			1,424,420			1,404,964

Variable rate debt:
Variable rate revolving line of credit	—			—			—			—			126,000			—			126,000			126,000
Total debt (d)	$	2,098		$	25,257		$	3,923		$	372,820		$	283,216		$	863,106		$	1,550,420		$	1,530,964

Weighted average interest rate on debt:
Fixed rate debt	5.09		%	7.29		%	4.62		%	3.56		%	5.00		%	3.91		%	4.00		%
Variable rate debt (e)	—			—			—			—			3.14		%	—			3.14		%
Total	5.09		%	7.29		%	4.62		%	3.56		%	4.17		%	3.91		%	3.93		%


(a)	Excludes mortgage premium of $900 and discount of $(558) , net of accumulated amortization, as of June 30, 2018 .

(b)

$250,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through three interest rate swaps. The swaps effectively convert one-month floating rate LIBOR to a fixed rate of 2.00% through January 5, 2021. In addition, $200,000 of LIBOR-based variable rate debt has been swapped to a fixed rate through two interest rate swaps. The swaps effectively convert one-month floating rate LIBOR to a fixed rate of 1.26% through November 22, 2018.


(c)	Excludes discount of $(793) , net of accumulated amortization, as of June 30, 2018 .


(d)	The weighted average years to maturity of consolidated indebtedness was 5.3 years as of June 30, 2018 . Total debt excludes capitalized loan fees of $(6,064) , net of accumulated amortization, as of June 30, 2018 , which are included as a reduction to the respective debt balances.


(e)	Represents interest rates as of June 30, 2018 .

We plan on addressing our debt maturities through a combination of cash flows from operations, working capital, capital markets transactions and our unsecured revolving line of credit.

Distributions and Equity Transactions

Our distributions of current and accumulated earnings and profits for U.S. federal income tax purposes are taxable to shareholders, generally, as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the shareholders’ basis in the shares to the extent thereof (non-dividend distributions) and thereafter as taxable gain. We intend to continue to qualify as a REIT for U.S. federal income tax purposes. The Internal Revenue Code of 1986, as amended (the Code) generally requires that a REIT annually distributes to its shareholders at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains. The Code imposes tax on any undistributed REIT taxable income.

To satisfy the requirements for qualification as a REIT and generally not be subject to U.S. federal income and excise tax, we intend to make regular quarterly distributions of all, or substantially all, of our taxable income to shareholders. Our future distributions will be at the discretion of our board of directors. When determining the amount of future distributions, we expect to consider, among other factors, (i) the amount of cash generated from our operating activities, (ii) our expectations of future cash flow, (iii) our determination of near-term cash needs for debt repayments and potential future share repurchases, (iv) the market of available acquisitions of new properties and redevelopment, expansions 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 avoid or minimize 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.

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In December 2015, we entered into an at-the-market (ATM) equity program under which we may issue and sell shares of our Class A common stock, having an aggregate offering price of up to $250,000, from time to time. Actual sales may depend on a variety of factors, including, among others, market conditions and the trading price of our Class A common stock. Any net proceeds are expected to be used for general corporate purposes, which may include the funding of acquisitions and redevelopment activities and the repayment of debt, including our unsecured revolving line of credit. We did not sell any shares under our ATM equity program during the six months ended June 30, 2018 . As of June 30, 2018 , we had Class A common shares having an aggregate offering price of up to $250,000 remaining available for sale under our ATM equity program.

In December 2015, our board of directors authorized a common stock repurchase program under which we may repurchase, from time to time, up to a maximum of $250,000 of shares of our Class A common stock. In December 2017, our board of directors authorized a $250,000 increase to the common stock repurchase program. The shares may be repurchased in the open market or in privately negotiated transactions and are canceled upon repurchase. The timing and actual number of shares repurchased will depend on a variety of factors, including price in absolute terms and in relation to the value of our assets, corporate and regulatory requirements, market conditions and other corporate liquidity requirements and priorities. The common stock repurchase program may be suspended or terminated at any time without prior notice. We did not repurchase any shares during the six months ended June 30, 2018 . As of June 30, 2018 , $264,057 remained available for repurchases under the common stock repurchase program.

Capital Expenditures and Redevelopment Activity

We anticipate that obligations related to capital improvements and redevelopments, including expansions and pad developments, can be met with cash flows from operations, working capital, capital markets transactions and our unsecured revolving line of credit.

We began redevelopment activities at Reisterstown Road Plaza and Circle East in 2016. We have invested a total of approximately $16,000 in these projects, which is net of proceeds of approximately $12,000 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 $27,000 to $30,000 of additional funds to complete these projects. In addition, we plan to begin the first phase of the redevelopment at Carillon in 2018.

We capitalized internal salaries and related benefits of personnel directly involved in capital upgrades and tenant improvements of $366 and $757 during the three and six months ended June 30, 2018 , respectively, and $306 and $676 during the three and six months ended June 30, 2017 , respectively. In addition, we capitalized internal leasing incentives of $133 and $168 during the three and six months ended June 30, 2018 , respectively, and $92 and $189 during the three and six months ended June 30, 2017 , respectively, all of which were incremental to signed leases.

We capitalized $542 and $987 of indirect project costs related to redevelopment projects during the three and six months ended June 30, 2018 , respectively, including, among other costs, $247 and $437 of internal salaries and related benefits of personnel directly involved in the redevelopment projects and $77 and $250 of interest, respectively. We capitalized $434 and $785 of indirect project costs related to redevelopment projects during the three and six months ended June 30, 2017 , respectively, including, among other costs, $129 and $237 of internal salaries and related benefits of personnel directly involved in the redevelopment projects and $88 and $166 of interest, respectively.

Dispositions

The following table highlights our property dispositions during 2017 and the six months ended June 30, 2018 pursuant to our portfolio transformation strategy of disposing of select non-target and single-user properties:



	Number of Properties Sold (a)	Square Footage	Consideration		Aggregate Proceeds, Net (b)		Debt Extinguished
2018 Dispositions (through June 30, 2018)	9	1,773,000	$	192,950	$	175,136	$	10,750
2017 Dispositions	47	5,810,700	$	917,808	$	896,301	$	27,353	(c)


(a)	2018 dispositions include the disposition of Crown Theater, which was classified as held for sale as of December 31, 2017. 2017 dispositions include the dispositions of CVS Pharmacy – Sylacauga, AL and Century III Plaza, including the Home Depot parcel, both of which were classified as held for sale as of December 31, 2016.


(b)	Represents total consideration net of transaction costs, as well as capital and tenant-related costs credited to the buyer at close, as applicable. 2017 dispositions include proceeds of $54,087, which were temporarily restricted related to potential Internal Revenue Code Section 1031 tax-deferred exchanges as of December 31, 2017.

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(c)	Excludes $214,505 of mortgages payable repayments or defeasances completed prior to disposition of the respective property for the year ended December 31, 2017.

In addition to the transactions presented in the preceding table, during the six months ended June 30, 2018 , we received (i) net proceeds of $11,820 in connection with the sale of air rights at the redevelopment portion of Circle East and (ii) proceeds of $169 from a condemnation award. During the year ended December 31, 2017 , we also received net proceeds of $155 from other transactions, including escrow funds related to a property disposition and a condemnation award.

Acquisitions

We did not acquire any properties during the six months ended June 30, 2018 . The following table highlights our asset acquisitions during 2017 :



	Number of Assets Acquired	Square Footage	Acquisition Price		Mortgage Debt
2017 Acquisitions (a)	10	443,800	$	202,915	$	—

(a)

2017 acquisitions include the purchase of the following: 1) the fee interest in our Carillon multi-tenant retail property which was previously subject to a ground lease with a third party, 2) the remaining five phases under contract, including the development rights for additional residential units, at our One Loudoun Downtown multi-tenant retail operating property that was acquired in phases as the seller completed construction on stand-alone buildings at the property and 3) a multi-tenant retail outparcel located at our Southlake Town Square multi-tenant retail operating property. The total number of properties in our portfolio was not affected by these transactions.

Summary of Cash Flows



	Six Months Ended June 30,
	2018			2017			Change
Net cash provided by operating activities	$	88,703		$	130,717		$	(42,014	)
Net cash provided by investing activities	147,231			265,321			(118,090		)
Net cash used in financing activities	(283,248		)	(346,741		)	63,493
(Decrease) increase in cash, cash equivalents and restricted cash	(47,314		)	49,297			(96,611		)
Cash, cash equivalents and restricted cash, at beginning of period	86,335			82,349
Cash, cash equivalents and restricted cash, at end of period	$	39,021		$	131,646

Cash Flows from Operating Activities

Cash flows from operating activities consist primarily of net income from property operations, adjusted for the following, among others: (i) depreciation and amortization, (ii) provision for impairment of investment properties and (iii) gain on sales of investment properties. Net cash provided by operating activities during the six months ended June 30, 2018 decreased $42,014 primarily due to the following:


•	a $30,566 decrease in NOI, consisting of a decrease in NOI from properties that were sold or held for sale in 2017 and 2018 and other properties not included in our same store portfolio of $32,523, partially offset by an increase in Same Store NOI of $1,957; and


•	ordinary course fluctuations in working capital accounts;

partially offset by


•	a $6,105 decrease in cash paid for leasing fees and inducements;


•	a $3,267 decrease in cash paid for interest, excluding debt prepayment fees; and


•	an $1,873 decrease in cash bonuses paid.

Cash Flows from Investing Activities

Cash flows from investing activities consist primarily of proceeds from the sales of investment properties, net of cash paid to purchase investment properties and fund capital expenditures, tenant improvements and developments in progress. Net cash flows from investing activities during the six months ended June 30, 2018 decreased $118,090 primarily due to the following:

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•	a $217,871 decrease in proceeds from the sales of investment properties; and


•	a $1,332 increase in capital expenditures and tenant improvements;

partially offset by


•	a $99,434 decrease in cash paid to purchase investment properties; and


•	a $1,679 decrease in investment in developments in progress.

In 2018, we expect to (i) fund redevelopment, expansion and pad development activities, capital expenditures and tenant improvements and (ii) complete targeted acquisitions, including repurchases of our common stock, through cash flows generated from operations, working capital, capital markets transactions and our unsecured revolving line of credit.

Cash Flows from Financing Activities

Cash flows used in financing activities primarily consist of repayments of our unsecured revolving line of credit and unsecured term loans, distribution payments, principal payments on mortgages payable, debt prepayment costs, payment of loan fees and deposits, shares repurchased through our share repurchase program and the purchase of U.S. Treasury securities in connection with the defeasance of mortgages payable, partially offset by proceeds from our unsecured revolving line of credit and the issuance of debt instruments. Net cash flows used in financing activities during the six months ended June 30, 2018 decreased $63,493 primarily due to the following:


•	the $439,403 purchase of U.S. Treasury securities in connection with defeasance of the IW JV portfolio of mortgages payable during the six months ended June 30, 2017 ;


•	a $75,697 decrease in cash paid to repurchase common shares through our common share repurchase program;


•	a $25,753 decrease in principal payments on mortgages payable;


•	a $10,524 decrease in distributions paid as a result of a decrease in common shares outstanding due to the repurchase of common shares through our share repurchase program during 2017 and the redemption of our 7.00% Series A cumulative preferred stock in December 2017; and


•	a $3,571 decrease in debt prepayment fees;

partially offset by


•	a $200,000 decrease in proceeds from the issuance of unsecured term loans related to the funding of the Term Loan Due 2023 in January 2017;


•	a $186,000 decrease in net proceeds from our unsecured revolving line of credit;


•	the $100,000 repayment of our unsecured term loan due 2018 during the six months ended June 30, 2018 ; and


•	a $5,383 increase in the payment of loan fees and deposits.

We plan to continue to address our debt maturities through a combination of cash flows from operations, working capital, capital markets transactions and our unsecured revolving line of credit.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Contractual Obligations

During the six months ended June 30, 2018 , except as otherwise disclosed herein, there were no material changes outside the normal course of business to the contractual obligations identified in our Annual Report on Form 10-K for the year ended December 31, 2017 .

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Critical Accounting Policies and Estimates

Our 2017 Annual Report on Form 10-K contains a description of our critical accounting policies, including those relating to the acquisition of investment properties, impairment of long-lived assets, cost capitalization, depreciation and amortization, development and redevelopment, investment properties held for sale, partially-owned entities, revenue recognition, accounts and notes receivable and allowance for doubtful accounts and income taxes. For the six months ended June 30, 2018 , there were no significant changes to these policies except for the policies related to the derecognition of nonfinancial assets and in substance nonfinancial assets, including real estate, and the recognition of the related gain on sale of investment properties as a result of the adoption of ASU 2014-09, Revenue from Contracts with Customers and ASU 2017-05, Other Income–Gains and Losses from the Derecognition of Nonfinancial Assets , as of January 1, 2018 as described in Note 2 – Summary of Significant Accounting Policies and Note 4 – Dispositions in the accompanying condensed consolidated financial statements.

Impact of Recently Issued Accounting Pronouncements

See Note 2 – Summary of Significant Accounting Policies to our condensed consolidated financial statements contained herein regarding recently issued accounting pronouncements.

Subsequent Events

Subsequent to June 30, 2018 , we:


•	closed on the first phase of the sale of a land parcel, which included rights to develop eight residential units, at One Loudoun Downtown, a multi-tenant retail operating property located in Ashburn, Virginia, for a sales price of $1,800. The sale of land will occur in three phases and will include the rights to develop a total of 30 residential units for a total sales price of $6,800;

•


•	declared the cash dividend for the third quarter of 2018 of $0.165625 per share on our outstanding Class A common stock, which will be paid on October 10, 2018 to Class A common shareholders of record at the close of business on September 25, 2018.

On July 23, 2018, the Executive Compensation Committee (the Committee) of our Board of Directors approved the adoption of the Senior Executive Cash Incentive Bonus Plan (Incentive Plan), which is the general plan under which we will award annual cash incentive compensation to our executive officers. Under the Incentive Plan, the Committee may select key executives to be eligible to receive cash bonuses based on the attainment of established corporate and/or individual performance goals, which will be measured at the end of each performance period. The Incentive Plan also allows for the establishment of additional bonus opportunities that are higher or lower than the target bonus opportunity and for discretionary bonus payments. Bonus payments under the Incentive Plan will be conditioned upon the executive’s continued employment through the payment date, unless otherwise provided or agreed upon. The Incentive Plan may be amended or terminated at any time.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We may be exposed to interest rate changes primarily as a result of our long-term debt that is used to maintain liquidity and fund our operations. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve our objectives, we borrow primarily at fixed rates, and in some cases variable rates with the ability to convert to fixed rates.

With regard to variable rate financing, we assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We maintain risk management control systems to monitor interest rate cash flow risk attributable to both our outstanding or forecasted debt obligations as well as our potential offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on our future cash flows.

As of June 30, 2018 , we had $450,000 of variable rate debt based on LIBOR that has been swapped to fixed rate debt through interest rate swaps. Our interest rate swaps as of June 30, 2018 are summarized in the following table:



	Notional Amount		Maturity Date	Fair Value of Derivative Asset
Fixed rate portion of Unsecured Credit Facility	$	250,000	January 5, 2021	$	3,974
Term Loan Due 2023	200,000		November 22, 2018	725
	$	450,000		$	4,699

For a discussion concerning the scheduled debt maturities and principal amortization of our indebtedness as of June 30, 2018 for the remainder of 2018 , each of the next four years and thereafter and the weighted average interest rates by year to evaluate the expected cash flows and sensitivity to interest rate changes, refer to Note 6 to the condensed consolidated financial statements and “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Debt Maturities.”

A decrease of 1% in market interest rates would result in a hypothetical decrease in our derivative asset of approximately $6,555.

The combined carrying amount of our mortgages payable, unsecured notes payable, Term Loan Due 2023 and Unsecured Credit Facility is approximately $12,941 higher than the fair value as of June 30, 2018 .

We had $126,000 of variable rate debt, excluding $450,000 of variable rate debt that has been swapped to fixed rate debt, with an interest rate based upon LIBOR of 3.14% as of June 30, 2018 . An increase in the variable interest rate on this debt constitutes a market risk. If interest rates increase by 1% based on debt outstanding as of June 30, 2018 , interest expense would increase by approximately $1,260 on an annualized basis.

We may use additional derivative financial instruments to hedge exposures to changes in interest rates. To the extent we do, we are exposed to market and credit risk. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, we generally are not exposed to the credit risk of the counterparty. We minimize credit risk in derivative instruments by entering into transactions with highly rated counterparties or with the same party providing the financing, with the right of offset.

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ITEM 4. CONTROLS AND PROCEDURES

We have established disclosure controls and procedures to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to the members of senior management and the board of directors.

Based on management’s evaluation as of June 30, 2018 , our Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer, to allow timely decisions regarding required disclosure.

There were no changes to our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the fiscal quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. 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 cannot 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 condensed consolidated financial statements.

ITEM 1A. RISK FACTORS

Except to the extent updated below or to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such factors (including, without limitation, the matters discussed in Part I, “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there have been no material changes to our risk factors during the three months ended June 30, 2018 compared to those risk factors presented in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2017 .

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


(a)	Not applicable.


(b)	Not applicable.


(c)	Issuer Purchases of Equity Securities

The following table summarizes the number of shares of Class A common stock surrendered to the Company by employees to satisfy their tax withholding obligations in connection with the vesting of restricted shares for the specified periods 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)
April 1, 2018 to April 30, 2018	—	$	—	—	$	264,057
May 1, 2018 to May 31, 2018	4	$	11.46	—	$	264,057
June 1, 2018 to June 30, 2018	—	$	—	—	$	264,057
Total	4	$	11.46	—	$	264,057


(a)	As disclosed on the Forms 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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

On July 30, 2018, we entered into a retention agreement with Ms. Julie M. Swinehart, who was appointed to serve as our Executive Vice President, Chief Financial Officer and Treasurer in February 2018.

The term of Ms. Swinehart’s retention agreement is for three years beginning on July 30, 2018, with automatic two-year renewals thereafter unless written notice of termination is provided by either party. The term will also be automatically extended if a change in control, as defined in the agreement, occurs before the end of the then current term.

Provided Ms. Swinehart enters into a general release of claims for our benefit, the retention agreement provides for the following payments and benefits in connection with the termination of her employment by us without cause or termination by her for good

reason: (1) cash payment equal to an agreed upon multiple (as described below) times the sum of (i) Ms. Swinehart’s annual base salary at the rate then in effect and (ii) an amount equal to the greater of (A) the dollar amount of Ms. Swinehart’s target annual cash bonus opportunity, or (B) the actual annual cash bonus earned for the most recent completed year for which an annual cash bonus had been determined; (2) cash payment of (i) any unpaid annual cash bonus earned for the prior year and (ii) a pro-rata annual cash bonus for the year in which the termination occurs; (3) acceleration of vesting of unvested equity awards that are only subject to time-based vesting conditions; (4) retention of outstanding equity awards granted on or after the date the retention agreement was entered into that remain subject to performance-based vesting conditions, with the earning of such awards to be based on achievement of the original performance-based vesting conditions in the same manner as if such termination had not occurred; provided that the portion of each such equity awards that is earned will be prorated based on the portion of the performance period that elapsed through the date of termination unless such termination occurred in connection with a change in control; and (5) healthcare continuation premiums for specified periods. The multiple to be used to determine the cash payment described above is one and a half times if the termination does not occur in connection with or within two years after a change in control. If the termination occurs in connection with or within two years after a change in control, the multiple will be two times.

Ms. Swinehart’s retention agreement also provides that upon a change in control, the achievement of the performance-based vesting conditions of any outstanding equity awards granted on or after the date the retention agreement was entered into that remain subject to such vesting conditions will be measured based on performance through the day prior to the date of the change in control using performance metrics that have been prorated, to the extent applicable, to reflect the shortened performance period. Vesting conditions for these awards that are based on continued employment will continue to apply unless accelerated due to a termination of employment or otherwise. Furthermore, Ms. Swinehart’s retention agreement also provides that upon a termination as a result of death or disability, her outstanding unvested equity awards will generally be treated in the same manner as they would in the event of a termination by us without cause or termination by her for good reason.

The foregoing summary is qualified in its entirety by reference to the copy of the retention agreement, which is filed with this report as Exhibit 10.5 and is incorporated herein by reference.

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ITEM 6. EXHIBITS



Exhibit No.		Description

10.1		Fifth Amended and Restated Credit Agreement dated as of April 23, 2018, by and among the Registrant as Borrower and KeyBank National Association as Administrative Agent, Wells Fargo Securities, LLC and KeyBanc Capital Markets Inc. as Joint Book Managers, Wells Fargo Bank, National Association as Syndication Agent, Wells Fargo Securities, LLC, KeyBanc Capital Markets Inc., U.S. Bank National Association, PNC Capital Markets LLC, Capital One, National Association and Regions Capital Markets as Co-Lead Arrangers, each of U.S. Bank National Association, PNC Capital Markets LLC, Regions Bank, Capital One, National Association, Bank of America, N.A., Citibank, N.A., The Bank of Nova Scotia, TD Bank, N.A. and Morgan Stanley Senior Funding, Inc. as Documentation Agents, and certain lenders from time to time parties hereto, as Lenders (Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 and filed on May 2, 2018).
10.2		Retail Properties of America, Inc. Amended and Restated 2014 Long-Term Equity Compensation Plan (Incorporated herein by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on April 6, 2018).
10.3		Retail Properties of America, Inc. Senior Executive Cash Incentive Bonus Plan (Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 26, 2018).
10.4		First Amendment to Term Loan Agreement, dated as of May 17, 2018, by and among the Registrant as Borrower and Capital One, National Association as Administrative Agent and certain lenders from time to time parties hereto, as Lenders (filed herewith).
10.5		Retention Agreement dated July 30, 2018 by and between the Registrant and Julie M. Swinehart (filed herewith).
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 (filed herewith).
31.2		Certification of Executive Vice President, Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 (filed herewith).
32.1		Certification of Chief Executive Officer and Executive Vice President, Chief Financial Officer and Treasurer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 (furnished herewith).
101		Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017, (ii) Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the Three-Month Periods and Six-Month Periods Ended June 30, 2018 and 2017, (iii) Condensed Consolidated Statements of Equity for the Six-Month Periods Ended June 30, 2018 and 2017, (iv) Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2018 and 2017, and (v) Notes to Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

RETAIL PROPERTIES OF AMERICA, INC.



By:	/s/ STEVEN P. GRIMES

	Steven P. Grimes
	Chief Executive Officer
	(Principal Executive Officer)
Date:	August 1, 2018

By:	/s/ JULIE M. SWINEHART

	Julie M. Swinehart
	Executive Vice President,
	Chief Financial Officer and Treasurer
	(Principal Financial Officer and
	Principal Accounting Officer)
Date:	August 1, 2018

Exhibit 10.4

FIRST AMENDMENT TO TERM LOAN AGREEMENT

This First Amendment to Term Loan Agreement (this “ Amendment ”) is made as of May 17, 2018, among RETAIL PROPERTIES OF AMERICA, INC. , a corporation organized under the laws of the State of Maryland (the “ Borrower ”), CAPITAL ONE, NATIONAL ASSOCIATION , a national banking association, as administrative agent (the “ Administrative Agent ”) and each of the Lenders (as defined in the Loan Agreement referenced in the recitals below) party hereto.

W I T N E S S E T H:

WHEREAS, Borrower, Administrative Agent and the Lenders have entered into a certain Term Loan Agreement dated as of November 22, 2016 (as may be amended, restated, supplemented or otherwise modified from time to time, collectively, the “ Loan Agreement ”) wherein Administrative Agent and the Lenders agreed to provide term loans to Borrower in the aggregate principal amount of up to $200,000,000.00 evidenced by those certain Notes dated November 22, 2016 (collectively, the “ Note ”) made by Borrower in favor of each Lender; and

WHEREAS, Borrower, Administrative Agent and the Lenders have agreed to amend the Loan Agreement as set forth herein

NOW, THEREFORE, the parties hereto agree as follows:

1. Defined Terms; References . Unless otherwise specifically defined herein, each term used herein that is defined in the Loan Agreement has the meaning assigned to such term in the Loan Agreement. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Amendment” and each other similar reference contained in the Loan Agreement and other Loan Documents shall, after this Amendment becomes effective, refer to the Loan Agreement as amended hereby.

2. Amendment to Loan Agreement . The Loan Agreement is hereby amended as follows:


(a)	The definition of “Capitalization Rate” in Section 1.1 thereof is hereby amended and restated in its entirety as follows:

“Capitalization Rate” means six and one-half percent (6.50%).


(b)	The definition of “Existing KB/WF Agreement” in Section 1.1 is hereby amended and restated in its entirety as follows:

“Existing KB/WF Agreement” means that certain Fifth Amended and Restated Credit Agreement, dated as of April 23, 2018, by and among, the Borrower, as borrower, the Existing KB/WF Lenders, and KeyBank National Association, in its capacity as administrative agent for the Existing KB/WF Lenders, as the same may be amended or modified from time to time.


(c)	The definition of “LIBOR Base Rate” in Section 1.1 thereof is hereby amended and restated in its entirety as follows:

““LIBOR Base Rate” means, subject to implementation of a Replacement Rate in accordance with Section 3.3(c) , with respect to any LIBOR Rate Advance for any LIBOR Interest Period, the rate of interest obtained by dividing (i) the rate of interest per annum (expressed to the fifth decimal place) determined on the basis of the rate for deposits in Dollars for a period equal to the applicable LIBOR Interest Period as published by the ICE Benchmark Administration Limited, a United Kingdom company, or a comparable or successor quoting service approved by the Administrative Agent, at approximately 11:00 a.m. (London time) two Business Days prior to the first day of the applicable LIBOR Interest Period by (ii) a percentage equal to 1 minus the stated maximum rate (stated as a decimal) of all reserves, if any, required to be maintained with respect to Eurocurrency funding (currently referred to as “Eurocurrency liabilities”) as specified in Regulation D of the Board of Governors of the Federal Reserve System (or against any other category of liabilities which includes deposits by reference to which the interest rate on LIBOR Rate Loans is determined or any applicable category of extensions of credit or other assets which includes loans by an office of any Lender outside of the United States of America). If, for any reason, the rate referred to in the preceding clause (i) is not so published, then the rate to be used for such clause (i) shall be determined by the Administrative Agent to be the arithmetic average of the rate per annum at which deposits in Dollars would be offered by first class banks in the London interbank market to the Administrative Agent at approximately 11:00 a.m. (London time) two Business Days prior to the first day of the applicable LIBOR Interest Period for a period equal to such LIBOR Interest Period. Any change in the maximum rate of reserves described in the preceding clause (ii) shall result in a change in LIBOR Base Rate on the date on which such change in such maximum rate becomes effective. Notwithstanding the foregoing, (x) in no event shall LIBOR Base Rate (including, without limitation, any Replacement Rate with respect thereto) be less than zero and (y) unless otherwise specified in any amendment to this Agreement entered into in accordance with Section 3.3(c) , in the event that a Replacement Rate with respect to LIBOR Base Rate is implemented then all references herein to LIBOR Base Rate shall be deemed references to such Replacement Rate.


(d)	The definition of “Total Asset Value” in Section 1.1 thereof is hereby amended and restated in its entirety as follows:

“Total Asset Value” means, as of any date, (i) (A) the Consolidated NOI attributable to Projects owned by the Borrower or a member of the Consolidated Group (excluding 100% of the Consolidated NOI attributable to Projects not owned for at least four (4) full fiscal quarters as of the end of the fiscal quarter for which Consolidated NOI is calculated and provided that the contribution to Consolidated NOI on account of any Project shall not in any event be a negative number) divided

by (B) the Capitalization Rate, plus (ii) 100% of the price paid for any such Projects first acquired by the Borrower or a member of the Consolidated Group during such four (4) full fiscal quarter period, plus (iii) cash, Cash Equivalents and Marketable Securities owned by the Consolidated Group as of the end of such fiscal quarter, plus (iv) the Consolidated Group Pro Rata Share of (A) Consolidated NOI attributable to Projects owned by Investment Affiliates (excluding Consolidated NOI attributable to Projects not owned for the entire four (4) full fiscal quarters on which Consolidated NOI is calculated and provided that the contribution to Consolidated NOI on account of any Project shall not in any event be a negative number) divided by (B) the Capitalization Rate, plus (v) the Consolidated Group Pro Rata Share of the price paid for such Projects first acquired by an Investment Affiliate during such four (4) full fiscal quarters, plus (vi) Construction in Progress at book value, plus (vii) First Mortgage Receivables owned by the Consolidated Group (at the lower of book value or market value), plus (viii) Unimproved Land at book value. To the extent the amount of Total Asset Value attributable to Unimproved Land, Investments in Investment Affiliates, Construction in Progress, First Mortgage Receivables and Marketable Securities would exceed 25% of Total Asset Value, such excess shall be excluded from Total Asset Value; provided , however that to the extent the amount of Total Asset Value attributable to (v) Unimproved Land and Construction in Progress exceeds 15% of the Total Asset Value, (w) Investment Affiliates exceeds 20% of the Total Asset Value, (x) First Mortgage Receivables exceeds 10% of the Total Asset Value or (y) Marketable Securities exceeds 10% of Total Asset Value, such excess shall be excluded from Total Asset Value.


(e)	The following new definition is added to Section 1.1 in the appropriate alphabetical order:

“Replacement Rate” has the meaning assigned thereto in Section 3.3(c).


(f)	Section 3.3 of the Loan Agreement is hereby amended and restated in its entirety as follows:


3.3.	Availability of Types of Advances; Inability to Determine Rates .

(a) Availability of Types of Advances . If any Lender in good faith determines that maintenance of any of its LIBOR Rate Loans at a suitable Lending Installation would violate any applicable law, rule, regulation or directive, whether or not having the force of law, such Lender shall promptly notify the Administrative Agent thereof and the Administrative Agent shall, with written notice to Borrower, suspend the availability of LIBOR Rate Advances and require any LIBOR Rate Advances to be repaid, then, if for any reason whatsoever the provisions of Section 3.1 are inapplicable, the Administrative Agent shall, with written notice to Borrower, suspend the availability of any LIBOR Rate Advances made after the date of any such determination. If the Borrower is required to so repay a LIBOR

Rate Advance, such LIBOR Rate Advances shall be converted to Floating Rate Advances.

(b) Inability to Determine Rates . Unless and until a Replacement Rate is implemented in accordance with Section 3.3(c) below, if the Administrative Agent reasonably determines, or the Administrative Agent is advised by the Required Lenders, that for any reason in connection with any request for a LIBOR Rate Loan or a conversion to or continuation thereof or otherwise that (i) dollar deposits are not being offered to banks in the London interbank Eurodollar market for the applicable amount and Interest Period of such LIBOR Rate Loan, (ii) adequate and reasonable means do not exist for determining LIBOR Base Rate for any requested LIBOR Interest Period with respect to a proposed LIBOR Rate Loan, or (iii) LIBOR Base Rate for any requested LIBOR Interest Period with respect to a proposed LIBOR Rate Loan does not adequately and fairly reflect the cost to the Required Lenders of funding such Loan, and, in any such event, Administrative Agent shall have also made such determination with respect to similarly situated loans in which it is serving as administrative agent or otherwise consistent with market practice generally, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligations of the Lenders to make or maintain LIBOR Rate Loans and Floating Rate Loans as to which the interest rate is determined by reference to LIBOR Market Index Rate shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice, such revocation not to be unreasonably withheld or delayed. Upon receipt of such notice, the Borrower may revoke any pending request for the borrowing of, conversion to or continuation of LIBOR Rate Loans or, failing that, will be deemed to have converted such request into a request for the borrowing of Loans that are Floating Rate Loans (with the Floating Rate determined other than by reference to LIBOR Market Index Rate) in the amount specified therein.

(c) Alternative Rate of Interest . Notwithstanding anything to the contrary in Section 3.3(b) above, if the Administrative Agent has made the reasonable determination (such determination to be conclusive absent manifest error) that (i) the circumstances described in Section 3.3(b)(i) or (b)(ii) have arisen and that such circumstances are unlikely to be temporary, (ii) any applicable interest rate specified herein is no longer a widely recognized benchmark rate for newly originated loans in the U.S. syndicated loan market in the applicable currency or (iii) the applicable supervisor or administrator (if any) of any applicable interest rate specified herein or any Governmental Authority having, or purporting to have, jurisdiction over the Administrative Agent has made a public statement identifying a specific date after which any applicable interest rate specified herein shall no longer be used for determining interest for loans in the U.S. syndicated loan market in the applicable currency, then the Administrative Agent and the Borrower may amend this Agreement, to the extent practicable (with the consent of the Borrower and as determined by the Administrative Agent to be generally in accordance with similar situations in other transactions in which it is serving as administrative agent

or otherwise consistent with market practice generally), establish a replacement interest rate (the “Replacement Rate”), in which case, the Replacement Rate shall, subject to the next two sentences, replace such applicable interest rate for all purposes under the Loan Documents unless and until (A) an event described in Section 3.3(b)(i), (b)(ii), (c)(i), (c)(ii) or (c)(iii) occurs with respect to the Replacement Rate or (B) the Administrative Agent (or the Required Lenders through the Administrative Agent) notifies the Borrower that the Replacement Rate does not adequately and fairly reflect the cost to the Lenders of funding the Loans bearing interest at the Replacement Rate and, in any such event, Administrative Agent shall have also made such determination with respect to similarly situated loans in which it is serving as administrative agent or otherwise consistent with market practice generally. In connection with the establishment and application of the Replacement Rate, this Agreement and the other Loan Documents shall be amended solely with the consent of the Administrative Agent and the Borrower, as may be necessary or appropriate, in the opinion of the Administrative Agent, to effect the provisions of this Section 3.3(c). Notwithstanding anything to the contrary in this Agreement or the other Loan Documents (including, without limitation, Section 8.2), such amendment shall become effective without any further action or consent of any party other than the Administrative Agent and the Borrower so long as the Administrative Agent shall not have received within five (5) Business Days of the delivery of such amendment to the Lenders, written notices from such Lenders that in the aggregate constitute Required Lenders, with each such notice stating that such Lender objects to such amendment (which such notice shall note with specificity the particular provisions of the amendment to which such Lender objects). To the extent the Replacement Rate is approved by the Administrative Agent in connection with this clause (c), the Replacement Rate shall be applied in a manner consistent with market practice; provided that, in each case, to the extent such market practice is not administratively feasible for the Administrative Agent, such Replacement Rate shall be applied as otherwise reasonably determined by the Administrative Agent (it being understood that any such modification by the Administrative Agent shall not require the consent of, or consultation with, any of the Lenders).


(g)	Section 7.5 of the Loan Agreement is hereby amended and restated in its entirety as follows:

7.5.

Failure of the Borrower or any other member of the Consolidated Group to pay when due any Recourse Indebtedness with respect to which the aggregate recourse liability exceeds $50,000,000 (any such Recourse Indebtedness in excess of such limit being referred to herein as “Material Indebtedness”); or the default by the Borrower or any other member of the Consolidated Group in the performance of any term, provision or condition contained in any agreement, or any other event shall occur or condition exist, which causes, or permits, any such Material Indebtedness to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the stated maturity thereof.


(h)	Section 8.2(c) of the Loan Agreement is hereby amended to insert the following sentence at the end of the last textual paragraph thereof:

The Administrative Agent and the Borrower may, without the consent of any Lender, enter into the amendments or modifications to this Agreement or any of the other Loan Documents or enter into additional Loan Documents as the Administrative Agent reasonably deems appropriate in order to implement any Replacement Rate or otherwise effectuate the terms of Section 3.3(c) in accordance with the terms of Section 3.3(c).

The Loan Agreement, as amended hereby, is referred to herein as the “Amended Loan Agreement”.

3. Conditions Precedent . This Amendment shall not be effective until each of the following conditions precedent has been fulfilled:


(a)	The Administrative Agent shall have received each of the following, in form and substance satisfactory to the Administrative Agent:


(i)	counterparts of this Amendment executed by each of the parties hereto;


(ii)	a Compliance Certificate dated as of the date hereof for the Borrower’s fiscal quarter ending December 31, 2017 signed by the chief executive officer, chief financial officer or treasurer of the Borrower;


(iii)	a certificate signed by an officer of the Borrower, setting forth in reasonable detail the calculation of the Unencumbered Pool Value as of the date hereof;


(iv)	the articles of incorporation of the Borrower certified as of a date not earlier than fifteen (15) days prior to the date hereof by the Maryland;


(v)	a certificate of good standing with respect to the Borrower issued as of a date not earlier than fifteen (15) days prior to the date hereof by the Secretary of State of Maryland;

(vi)

copies certified by the Secretary or Assistant Secretary (or other individual performing similar functions) of the Borrower of the by-laws of the Borrower (except that, if any such document delivered to the Administrative Agent pursuant to the Loan Agreement has not been modified or amended since the Closing Date and remains in full force and effect, a certificate so stating may be delivered in lieu of delivery of another copy of such document);


(vii)	such evidence as Administrative Agent may reasonably require to verify that Borrower has taken all necessary corporate action to

authorize the execution, delivery and performance of this Amendment;


(viii)	evidence that all fees, expenses and reimbursement amounts due and payable to the Administrative Agent and any of the Lenders, including, without limitation, the fees and expenses of counsel to the Administrative Agent, have been paid; and


(ix)	copy of the duly executed Existing KB/WF Agreement.


(b)	In the good faith and reasonable judgment of the Administrative Agent:

(i)

there shall not have occurred or become known to the Administrative Agent or any of the Lenders any event, condition, situation or status since the date of the information contained in the financial and business projections, budgets, pro forma data and forecasts concerning the Borrower most recently delivered to the Administrative Agent and the Lenders prior to the date hereof that has had or could reasonably be expected to result in a Material Adverse Effect;

(ii)

no litigation, action, suit, investigation or other arbitral, administrative or judicial proceeding shall be pending or threatened in writing which could reasonably be expected to (A) result in a Material Adverse Effect or (B) restrain or enjoin, impose materially burdensome conditions on, or otherwise materially and adversely affect, the ability of the Borrower to fulfill its obligations under this Amendment and the Loan Documents to which it is a party;

(iii)

the Borrower shall have received all approvals, consents and waivers, and shall have made or given all necessary filings and notices as shall be required to consummate the transactions contemplated hereby without the occurrence of any default under, conflict with or violation of (A) any applicable law or (B) any material agreement, document or instrument to which the Borrower is a party or by which it or its respective properties is bound; and


(iv)	the Borrower shall have provided all information requested by the Administrative Agent and each Lender in order to comply with applicable “know your customer” and anti-money laundering rules and regulations, including without limitation, the Patriot Act.

The Administrative Agent shall notify in writing the Borrower and the Lenders of the effectiveness of this Amendment, and such notice shall be conclusive and binding.

4. Representations and Warranties, Etc .

Borrower hereby certifies to Administrative Agent and the Lenders that, as of the date hereof, after giving effect to the amendments to the Loan Agreement as set forth in this Amendment:

(a)

All representations and warranties (subject in all cases to all materiality qualifiers and other exceptions in such representations and warranties) made in the Loan Agreement are true and correct on and as of the date hereof, except to the extent that such representations and warranties expressly refer to an earlier date (in which case such representations and warranties shall have been true and correct on and as of such earlier date) and except for changes in factual circumstances not prohibited under the Loan Documents.


(b)	There exists no Default or Unmatured Default.


(c)	This Amendment has been duly authorized, executed and delivered by Borrower so as to constitute the legal, valid and binding obligations of Borrower, enforceable in accordance with its terms, except as the same may be limited by insolvency, bankruptcy, reorganization or other laws relating to or affecting the enforcement of creditors’ rights or by general equitable principles.


(d)	No consent, approval, order or authorization of, or registration or filing with, any third party (other than any required filing with the Securities and Exchange Commission, which the Borrower agrees to file in a timely manner) is required in connection with the execution, delivery and carrying out of this Amendment or, if required, has been obtained.

5. Ratification .

(a)

The Borrower confirms that the Obligations remain outstanding without defense, set off, counterclaim, discount or charge of any kind as of the date of this Amendment. Except as expressly provided herein, this Amendment shall not constitute an amendment, waiver, consent or release with respect to any provision of any Loan Document, a waiver of any Unmatured Default or Default under any Loan Document, or a waiver or release of any of the Lenders’ or the Administrative Agent's rights and remedies (all of which are hereby reserved).

(b)

Without in any way establishing a course of dealing by the Administrative Agent or any Lender, the Borrower hereby ratifies, confirms and reaffirms its obligations under the Amended Loan Agreement and the other Loan Documents to which it is a party and each and every such Loan Document executed by the undersigned in connection with the Loan Agreement remains in full force and effect and is hereby ratified, confirmed and reaffirmed. This Amendment is not intended to and shall not constitute a novation.

6. General Terms . This Amendment, which may be executed in multiple counterparts, constitutes the entire agreement of the parties regarding the matters contained herein and shall not be modified by any prior oral or written discussions. Delivery of an executed counterpart of a

signature page of this Amendment by telecopy or other electronic imaging transmission (e.g. PDF by email) shall be effective as delivery of a manually executed counterpart of this Amendment. This Amendment shall constitute a Loan Document under the Amended Loan Agreement for all purposes. This Amendment expresses the entire understanding of the parties with respect to the transactions contemplated hereby. No prior negotiations or discussions shall limit, modify, or otherwise affect the provisions hereof. The headings of this Amendment are provided for convenience of reference only and shall not affect its construction or interpretation.

7. Illegality . Any determination that any provision of this Amendment or any application hereof is invalid, illegal or unenforceable in any respect and in any instance shall not affect the validity, legality or enforceability of such provision in any other instance, or the validity, legality or enforceability of any other provisions of this Amendment.

8. Independent Review . The Borrower represents and warrants that it has consulted with independent legal counsel of its selection in connection herewith and is not relying on any representations or warranties of the Administrative Agent or its counsel in entering into this Amendment.

9. Governing Law . This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

[SIGNATURES ON FOLLOWING PAGES]

It is intended that this Amendment take effect as an instrument under seal as of the date first written above.



	BORROWER:

	RETAIL PROPERTIES OF AMERICA, INC.

	By:	/s/ JULIE M. SWINEHART
	Name:	Julie M. Swinehart
	Title:	EVP, CFO & Treasurer

Signature Page to First Amendment to Term Loan Agreement



	ADMINISTRATIVE AGENT AND LENDERS:

	CAPITAL ONE, NATIONAL ASSOCIATION, as
	Administrative Agent and as a Lender


	By:	/s/ FREDERICK H. DENECKE
		Name: Frederick H. Denecke
		Title: Senior Vice President

Signature Page to First Amendment to Term Loan Agreement



	PNC BANK, NATIONAL ASSOCIATION, as a
	Lender


	By:	/s/ JOEL DALSON
		Print Name: Joel Dalson
		Title: Senior Vice President

Signature Page to First Amendment to Term Loan Agreement



	TD BANK, N.A., as a Lender


	By:	/s/ RORY DESMOND
		Print Name: Rory Desmond
		Title: Vice President

Signature Page to First Amendment to Term Loan Agreement



	REGIONS BANK, as a Lender


	By:	/s/ MICHAEL EVANS
		Print Name: Michael Evans
		Title: Senior Vice President

Signature Page to First Amendment to Term Loan Agreement



	BRANCH BANKING & TRUST COMPANY, as a
	Lender


	By:	/s/ KENNETH M. BLACKWELL
		Print Name: Kenneth M. Blackwell
		Title: Senior Vice President

Signature Page to First Amendment to Term Loan Agreement

Exhibit 10.5

RETAIL PROPERTIES OF AMERICA, INC.

RETENTION AGREEMENT

This Retention Agreement (the “ Agreement ”) is made and entered into by and between Julie M. Swinehart (“ Executive ”) and Retail Properties of America, Inc., a Maryland corporation (the “ Company ”), effective as of July 30, 2018 (the “ Effective Date ”).

R E C I T A L S

A. Although the Company anticipates the continuation of a mutually rewarding employment relationship with Executive, the Compensation Committee (the “ Committee ”) of the Board of Directors of the Company (the “ Board ”) believes that it is in the best interests of the Company and its stockholders to provide Executive with certain assurances in the event of the occurrence of an involuntary termination of Executive’s employment with the Company. Further, it is expected that the Company from time to time will consider the possibility of an acquisition by another company or other change in control. The Committee recognizes that such consideration as well as the possibility of an involuntary termination or reduction in responsibility can be a distraction to Executive and can cause Executive to consider alternative employment opportunities. Accordingly, the Committee has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of Executive, notwithstanding the possibility, threat or occurrence of such an event.

B. Certain capitalized terms used in this Agreement are defined in Section 8 below.

NOW THEREFORE, the parties hereto agree as follows:

1. Term of Agreement . This Agreement shall have a term commencing on the Effective Date and continuing for three (3) years following the Effective Date (the “ Term ”). The Term shall be automatically extended for successive two (2) year periods unless the Committee has delivered notice to Executive no later than ninety (90) days prior to the completion of the then effective Term that this Agreement is not be extended; provided, however, that if, during the then effective Term, a Change in Control has occurred or the Company has entered into a definitive agreement that, upon consummation, would result in a Change in Control, then the Term shall automatically be extended until the second anniversary of the effective date of such Change in Control or, in the event such a definitive agreement is terminated without the Change in Control being consummated, the second anniversary of the date on which the Company entered into such definitive agreement.

2. Termination Upon Disability or Death . The Company may terminate Executive’s employment immediately at any time following Executive’s Disability. Executive’s employment shall terminate automatically upon Executive’s death. In the event that Executive’s employment is terminated in accordance with this Section 2, Executive shall be entitled to receive only the following payments and benefits: (i) unpaid base salary at the rate then in effect, prorated to the date of Executive’s termination of employment (the “ Termination Date ”), together with any

amounts to which Executive is then entitled pursuant to any employee benefit or business expense reimbursement plan or arrangement in which Executive is then a participant, (ii) acceleration in full upon the Termination Date of the vesting of all then unvested equity awards granted to Executive pursuant to an agreement between the Company and Executive that are subject to vesting conditions that are based solely on Executive’s continued employment or service through specified dates (“ Time-Based Equity Awards ”) and (iii) treatment of unvested equity awards, if any, granted to Executive on or after the date hereof pursuant to an agreement between the Company and Executive that are subject to vesting conditions that are based on the achievement of corporate financial, stockholder return or other performance goals or any condition other than or in addition to Executive’s continued employment or service through specified dates (“ Performance-Based Equity Awards ”) in accordance with the provisions of this Section 2. In the event that Executive’s employment is terminated in accordance with this Section 2, Performance-Based Equity Awards will be treated as follows: (i) if the Termination Date occurs prior to the end of the performance period applicable to a Performance-Based Equity Award, then all of the vesting conditions applicable to such Performance-Based Equity Award that are based on Executive’s continued employment or service through specified dates will be deemed to have been satisfied and the portion of such Performance-Based Equity Award that will be earned and vest based the achievement of corporate financial, stockholder return or other performance goals or any condition other than or in addition to Executive’s continued employment or service through specified dates (the “ Performance-Based Conditions ” of such Performance-Based Equity Award) will equal the portion of such Performance-Based Equity Award that would have been earned or vested based on the achievement of such Performance-Based Conditions if Executive’s employment had not been terminated, determined in accordance with the applicable award agreement (and Section 5 below, if applicable), multiplied by a fraction, the numerator of which is the number of full and partial months in which Executive was employed by the Company during such performance period and the denominator of which is the total number of full and partial months in such performance period; and (b) if the Termination Date occurs after the end of the performance period applicable to a Performance-Based Equity Award, then the portion of such Performance-Based Equity Award that is or was earned based on the achievement of the Performance-Based Conditions of such Performance-Based Equity Award, but would not otherwise vest, will vest upon the later of the Termination Date or the date on which the portion of such Performance-Based Equity Award that is earned based on the achievement of such Performance-Based Conditions is determined. The foregoing provisions, as they relate to the acceleration of vesting, are hereby deemed to be a part of each agreement evidencing each applicable Time-Based Equity Award and Performance-Based Equity Award to which Executive is a party and to supersede any contrary provision in any such agreement unless such agreement specifically refers to and disclaims this provision. Any other unvested equity awards granted pursuant to an agreement between the Company and Executive that are not specifically described herein (i.e., unvested equity awards, if any, granted to Executive prior the date hereof pursuant to an agreement between the Company and Executive that are subject to vesting conditions that are based on the achievement of corporate financial, stockholder return or other performance goals or any condition other than or in addition to Executive’s continued employment or service through specified dates) will not be subject to acceleration pursuant to this Section, but will be governed by their terms. All other Company obligations to Executive

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pursuant to this Agreement shall be automatically terminated and completely extinguished. Executive shall not be entitled to receive the Severance Benefits described in Section 3 below.

3. Involuntary Termination . The Company may terminate Executive’s employment with the Company without Cause at any time. Executive may terminate Executive’s employment with the Company by reason of a Resignation for Good Reason. In the event of any such Involuntary Termination: (i) Executive shall be entitled to receive unpaid base salary at the rate then in effect, prorated to the Termination Date, together with any amounts to which Executive is then entitled pursuant to any employee benefit or business expense reimbursement plan or arrangement in which Executive is then a participant, and (ii) in addition, provided that Executive executes and delivers to the Company in connection with such termination of employment a release of claims substantially in the form attached hereto as Exhibit A , amended as necessary to comply with applicable law (the “ Release ”) and the period for revocation, if any, of the Release has lapsed on or before the sixtieth (60th) day following the Termination Date without the Release having been revoked, the Company shall provide Executive with the following (the “ Severance Benefits ”), and all other Company obligations to Executive pursuant to this Agreement shall be automatically terminated and completely extinguished:

(a) Cash Severance (Non-Change in Control) . Executive shall receive on the sixtieth (60th) day following the Termination Date a lump sum cash amount (less applicable withholdings) equal to (i) one and a half (1.5) times the sum of (x) Executive’s annual base salary at the rate then in effect (without giving effect to any reduction in the base salary rate amounting to Good Reason), (y) an amount equal to the greater of (1) Executive’s target annual cash bonus opportunity for the year in which Executive’s employment was terminated (or the prior year if a target annual cash bonus amount hadn’t yet been established for such year), (the “ Target Bonus ”) or (2) Executive’s actual annual cash bonus earned for the most recent completed year for which an annual cash bonus had been determined preceding the year in which Executive’s employment was terminated, plus (ii) to the extent not paid prior to the date of Executive’s termination of employment, Executive’s annual cash bonus for the year prior to the year in which Executive’s employment was terminated, determined based upon the Company’s and Executive’s actual performance, paid as and when such annual cash bonuses are paid to similarly situated active employees of the Company, plus (iii) an amount equal to the Target Bonus multiplied by a fraction the numerator of which is the number of days in the year up to the Termination Date and the denominator of which is 365.

(b) Cash Severance (Change in Control) . In the event that Executive’s Involuntary Termination occurs in connection with a Change in Control or during a Change in Control Period, then, in lieu of the amounts set forth above under Section 3(a), Executive shall receive on the sixtieth (60th) day following the Termination Date a lump sum cash amount (less applicable withholdings) equal to (i) two (2) times the sum of (x) Executive’s annual base salary at the rate then in effect (without giving effect to any reduction in the base salary rate amounting to Good Reason), (y) an amount equal to the greater of (1) Executive’s Target Bonus or (2) Executive’s actual annual cash bonus earned for the most recent completed year for which an annual cash bonus had been determined preceding the year in which Executive’s employment was terminated, plus (ii) to the extent not paid prior to the date of Executive’s termination of

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employment, Executive’s annual cash bonus for the year prior to the year in which Executive’s employment was terminated, determined based upon the Company’s and Executive’s actual performance, paid as and when such annual cash bonuses are paid to similarly situated active employees of the Company, plus (iii) an amount equal to the Target Bonus multiplied by a fraction the numerator of which is the number of days in the year up to the Termination Date and the denominator of which is 365.

(i) Time-Based Equity Awards . The vesting of all Time-Based Equity Awards shall accelerate in full upon the Termination Date.

(ii) Performance-Based Equity (Non-Change in Control) . In the event that Executive’s Involuntary Termination does not occur in connection with a Change in Control or during a Change in Control Period, Performance-Based Equity Awards will be treated as follows: (i) if the Termination Date occurs prior to the end of the performance period applicable to a Performance-Based Equity Award, then all of the vesting conditions applicable to such Performance-Based Equity Award that are based on Executive’s continued employment or service through specified dates will be deemed to have been satisfied and the portion of such Performance-Based Equity Award that will be earned and vest based the achievement of the Performance-Based Conditions of such Performance-Based Equity Award will equal the portion of such Performance-Based Equity Award that would have been earned or vested based on the achievement of such Performance-Based Conditions if Executive’s employment had not been terminated, determined in accordance with the applicable award agreement (and Section 5 below, if applicable), multiplied by a fraction, the numerator of which is the number of full and partial months in which Executive was employed by the Company during such performance period and the denominator of which is the total number of full and partial months in such performance period; and (b) if the Termination Date occurs after the end of the performance period applicable to a Performance-Based Equity Award, then the portion of such Performance-Based Equity Award that is or was earned based on the achievement of the Performance-Based Conditions of such Performance-Based Equity Award, but would not otherwise vest, will vest upon the later of the Termination Date or the date on which the portion of such Performance-Based Equity Award that is earned based on the achievement of such Performance-Based Conditions is determined.

(iii) Performance-Based Equity (Change in Control) . In the event that Executive’s Involuntary Termination occurs in connection with a Change in Control or during a Change in Control Period, all of the vesting conditions applicable to the Performance-Based Equity Awards that are based on Executive’s continued employment or service through specified dates will be deemed to have been satisfied and the portion of such Performance-Based Equity Awards that will be earned and vest based the achievement of the Performance-Based Conditions of such Performance-Based Equity Awards will equal the portion of such Performance-Based Equity Awards that would have been earned or vested based on the achievement of such Performance-Based Conditions if Executive’s employment had not been terminated, determined in accordance with the applicable award agreement (and Section 5 below, if applicable), with such vesting occurring, for each Performance-Based Equity Award, upon the later of the

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Termination Date or the date on which the portion of such Performance-Based Equity Award that is earned based on the achievement of such Performance-Based Conditions is determined.

(iv) The foregoing provisions are hereby deemed to be a part of each agreement evidencing each applicable Time-Based Equity Award and Performance-Based Equity Award to which Executive is a party and to supersede any contrary provision in any such agreement unless such agreement specifically refers to and disclaims this provision. Any other unvested equity awards granted pursuant to an agreement between the Company and Executive that are not specifically described herein (i.e., unvested equity awards, if any, granted to Executive prior the date hereof pursuant to an agreement between the Company and Executive that are subject to vesting conditions that are based on the achievement of corporate financial, stockholder return or other performance goals or any condition other than or in addition to Executive’s continued employment or service through specified dates) will not be subject to acceleration pursuant to this Section, but will be governed by their terms.

(d) Continued Healthcare . If Executive was participating in the Company’s group health plan immediately prior to the Termination Date then the Company shall pay Executive a monthly cash payment for a period of up to: (x) eighteen (18) months after the Termination Date, in the event of Executive’s Involuntary Termination other than in connection with a Change in Control; or (y) twenty four (24) months after the Termination Date, in the event that Executive’s Involuntary Termination occurs in connection with a Change in Control or during a Change in Control Period, as applicable, equal to the total premiums for such group health plan coverage (based on Executive’s coverage elections in effect as of the Termination Date) (the “ Company Benefit Payment ”); provided , that notwithstanding the foregoing, in no event will Executive be entitled to the Company Benefit Payment after the first date on which Executive becomes eligible for healthcare coverage under the plan of a subsequent employer of Executive.

4. Voluntary Resignation by Executive; Termination for Cause . Executive may voluntarily resign from employment with the Company for any reason, at any time, on thirty (30) days’ advance written notice. In addition, the Company may terminate Executive’s employment immediately at any time for Cause. In the event of Executive’s resignation which is not a Resignation for Good Reason or the Company’s termination of Executive’s employment for Cause, Executive will be entitled to receive only unpaid base salary at the rate then in effect, prorated to the Termination Date, together with any amounts to which Executive is then entitled pursuant to any employee benefit or business expense reimbursement plan or arrangement in which Executive is then a participant. All other Company obligations to Executive pursuant to this Agreement shall be automatically terminated and completely extinguished. Executive shall not be entitled to receive the Severance Benefits described in Section 3 above.

5. Determination of Performance Conditions upon a Change in Control . If, prior to the end of the performance period applicable to a Performance-Based Equity Award, a Change in Control occurs, then the portion of such Performance-Based Equity Award that will be earned and vest based the achievement of the Performance-Based Conditions will be determined: (i) immediately prior to, but subject to the consummation of, the Change in Control, (ii) as if the

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performance period ended on the day prior to the consummation of the Change in Change and (A) with respect to Performance-Based Conditions that are based on stock price, total return to stockholders or a similar market based metric, based on performance through such date and, to the extent applicable, based on the transaction price in connection with the Change in Control, (B) with respect to Performance-Based Conditions that are based on financial or operational metrics, based on performance through the most recently completed quarter prior to such date for which final results are available on such date and (C) with respect to Performance-Based Conditions that are based on other metrics, based on performance through a date on or before such date as may be set forth in the applicable award agreement for such Performance-Based Equity Award or as is otherwise agreed by Executive and the Company and (iii) using metrics for the Performance-Based Conditions that have been pro-rated based on the shortened length of the performance period, as applicable. For avoidance of doubt, this Section is not intended to impact any vesting conditions applicable to Performance-Based Equity Awards that are based on Executive’s continued employment or service through specified dates and such vesting conditions will continue to apply unless otherwise accelerated or waived (e.g., in the event of Executive’s Involuntary Termination in connection with the Change in Control). The foregoing provisions are hereby deemed to be a part of each agreement evidencing each applicable Performance-Based Equity Award to which Executive is a party and to supersede any contrary provision in any such agreement unless such agreement specifically refers to and disclaims this provision.

6. Recoupment . Bonus, incentive and equity compensation paid or provided to Executive, whether pursuant to this Agreement or otherwise, shall be subject to the terms and conditions of such policy of recoupment of compensation as shall be adopted from time to time by the Board or the Committee as it deems necessary or desirable to comply with the requirements of Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (providing for recovery of erroneously awarded compensation), Section 304 of the Sarbanes-Oxley Act of 2002 (providing for forfeiture of certain bonuses and profits), and any implementing rules and regulations of the U.S. Securities and Exchange Commission and applicable listing standards of a national securities exchange adopted in accordance with any such Act (the “ Recoupment Policy ”). The terms and conditions of the Recoupment Policy are hereby incorporated by reference into this Agreement and the Employment Agreement.

7. Golden Parachute Payments . In the event that the severance payments and other benefits provided for in this Agreement, the Employment Agreement or otherwise payable to Executive (i) constitute “parachute payments” within the meaning of Section 280G of the Code and (ii) but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code (“ Excise Tax ”), then Executive’s severance payments and benefits under this Agreement, the Employment Agreement or otherwise shall be payable either

(a) in full, or

(b) in such lesser amount which would result in no portion of such severance payments or benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax,

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results in the receipt by Executive on an after-tax basis, of the greatest amount of severance payments and benefits under this Agreement, the Employment Agreement or otherwise, notwithstanding that all or some portion of such severance payments or benefits may be taxable under Section 4999 of the Code. Any reduction in the severance payments and benefits required by this Section will made in the following order: (i) reduction of cash payments; (ii) reduction of accelerated vesting of equity awards other than stock options; (iii) reduction of accelerated vesting of stock options; and (iv) reduction of other benefits paid or provided to Executive. In the event that acceleration of vesting of equity awards is to be reduced, such acceleration of vesting will be cancelled in the reverse order of the date of grant of Executive’s equity awards. If two or more equity awards are granted on the same date, each award will be reduced on a pro-rata basis.

The professional firm engaged by the Company for general tax purposes as of the day prior to the date of the event that might reasonably be anticipated to result in severance payments and benefits that would otherwise be subject to the Excise Tax will perform the foregoing calculations. If the tax firm so engaged by the Company is serving as accountant or auditor for the acquiring company, the Company will appoint a nationally recognized tax firm to make the determinations required by this Section. The Company will bear all expenses with respect to the determinations by such firm required to be made by this Section. The Company and Executive shall furnish such tax firm such information and documents as the tax firm may reasonably request in order to make its required determination. The tax firm will provide its calculations, together with detailed supporting documentation, to the Company and Executive as soon as practicable following its engagement. Any good faith determinations of the tax firm made hereunder will be final, binding and conclusive upon the Company and Executive.

8. Definition of Terms . Capitalized terms not otherwise defined by this Agreement shall have the following meanings:

(a) “ Cause ” means (i) theft, material dishonesty in connection with Executive’s employment, or intentional falsification of any employment or Company records; (ii) intentional and improper disclosure of the Company’s confidential or proprietary information; (iii) Executive’s conviction (including any plea of guilty or nolo contendere ) for any criminal act that materially impairs Executive’s ability to perform his or her duties for Company; (iv) willful misconduct or breach of fiduciary duty for personal profit by Executive, (v) Executive’s material failure to abide by the Company’s code of conduct or code of ethics policies resulting in demonstrable injury to the Company or its reputation, or (vi) a material breach of this Agreement by Executive which is not cured within thirty (30) days of receipt by Executive of reasonably detailed written notice from Company.

(b) “ Change in Control ” means the first day that any one or more of the following conditions shall have been satisfied:

(i) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), other than Executive or a group that includes Executive, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of stock of the Company that, together with stock held by

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such person or group, constitutes more than thirty percent (30%) of either the total fair market value of the stock of the Company then outstanding or the total voting power of the stock of the Company then outstanding having the right to vote in an election of the Board (the “ Voting Stock ”), excluding the acquisition of beneficial ownership of additional stock by a person or group who, immediately prior to such acquisition, beneficially owned stock that constituted more than thirty percent (30%) of either the total fair market value of the stock of the Company then outstanding or the total voting power of the Voting Stock then outstanding;

(ii) the members of the Board at the beginning of any consecutive 12- month period commencing on or after the date hereof (the “ Incumbent Directors ”) cease for any reason other than due to death to constitute at least a majority of the members of the Board prior to the end of such period; provided that any director whose appointment, election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors, shall be deemed to be an Incumbent Director; and provided, further, that notwithstanding the foregoing, no director initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be deemed an Incumbent Director;

(iii) there is consummated any consolidation or merger of the Company resulting in the Voting Stock of the Company outstanding immediately prior to the consolidation or merger representing (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) less than a majority of the total voting power of the voting securities of the surviving entity or its parent outstanding immediately after such consolidation or merger;

(iv) there is consummated any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to a subsidiary of the Company or an entity in which securities constituting at least a majority of the voting power of the voting securities of such entity or its parent outstanding immediately after such transaction are owned by the stockholders of the Company in substantially the same proportion as their ownership of the Voting Stock immediately prior to such transaction; or

(v) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company.

(c) “ Change in Control Period ” means a period commencing upon the consummation of a Change in Control and ending on the date occurring two (2) years thereafter.

(d) “ Disability ” means Executive has been determined by a physician selected by the Company and reasonably acceptable to Executive to be unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.

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(e) “ Involuntary Termination ” means the occurrence of either (i) termination by the Company of Executive’s employment with the Company for any reason other than Cause or (ii) Executive’s Resignation for Good Reason; provided, however that Involuntary Termination shall not include any termination of Executive’s employment which is (x) for Cause, (y) a result of Executive’s death or Disability, or (z) a result of Executive’s voluntary termination of employment which is not a Resignation for Good Reason.

(f) “ Resignation for Good Reason ” means the voluntary resignation by Executive from employment with the Company at any time on ten (10) days’ advance written notice to the Company given within a period of one hundred eighty (180) days following the initial existence, without Executive’s express written consent, of any of the following conditions (each, a “ Good Reason ”) which remains in effect for thirty (30) days after Executive’s delivery of written notice of the existence of such condition(s) to the Company within ninety (90) days following the initial existence of such condition(s):

(i) a material, adverse change in Executive’s authority, duties or responsibilities;

(ii) a failure to pay when due Executive’s base salary or any bonus actually earned;

(iii) any material reduction in Executive’s base salary rate or the stated target amount of Executive’s annual bonus (the earning of which may be made subject to performance requirements determined by the Company in its sole discretion);

(iv) the relocation of Executive work place for the Company to a location more than thirty (30) miles from location of Executive’s work place prior to such relocation; or

(v) the failure of the Company or any Successor to honor any material term of this Agreement.

9. Successors .

(a) Company’s Successors . Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets (a “ Successor ”) shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “ Company ” shall include any Successor which executes and delivers the assumption agreement described in this Section 9(a) or which becomes bound by the terms of this Agreement by operation of law.

(b) Executive’s Successors . The terms of this Agreement and all rights of Executive hereunder shall inure to the benefit of, and be enforceable by, Executive’s personal or

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legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

10. Notice.

(a) General . Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or one day following mailing via Federal Express or similar overnight courier service. In the case of Executive, mailed notices shall be addressed to Executive at Executive’s home address that the Company has on file for Executive. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Chief Executive Officer.

(b) Notice of Termination . Any termination by the Company for Cause or by Executive pursuant to a Resignation for Good Reason shall be communicated by a notice of termination to the other party hereto given in accordance with Section 10(a) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date, consistent with the requirements of this Agreement. The failure by Executive to include in the notice any fact or circumstance that contributes to a showing of the existence of Good Reason shall not waive any right of Executive hereunder or preclude Executive from asserting such fact or circumstance in enforcing his rights hereunder.

11. Confidentiality; Non-Solicitation.

(a) Confidentiality . Executive hereby agrees to hold in strict confidence and not to disclose or make available to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, any Confidential Information (as defined below). Upon termination of Executive’s employment with the Company, all Confidential Information in Executive’s possession that is in written or other tangible form (together with all copies or duplicates thereof, including computer files) shall be returned to the Company and shall not be retained by Executive or furnished to any third party, in any form except as provided herein; provided, however , that Executive shall not be obligated to treat as confidential, or return to the Company copies of any Confidential Information that (i) was publicly known at the time of disclosure to Executive, (ii) becomes publicly known or available thereafter other than by any means in violation of this Agreement or any other duty owed to the Company by any person or entity, or (iii) is lawfully disclosed to Executive by a third party. For purposes of this Agreement, the term “ Confidential Information ” shall mean information disclosed to Executive or known by Executive as a consequence of or through his or her relationship with the Company, about the customers, employees, business methods, public relations methods, organization, procedures or finances, including, without limitation, information of or relating to customer lists, of the Company and its affiliates. Executive understands that pursuant to the Defend Trade Secrets Act of 2016, Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the

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purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In addition, nothing in this Agreement shall be interpreted or applied to prohibit Executive from making any good faith report to any governmental agency or other governmental entity concerning any acts or omissions that Executive may believe to constitute a possible violation of federal or state law or making other disclosures that are protected under the whistleblower provisions of applicable federal or state law or regulation. Further, this Agreement does not limit your ability to communicate with any government agency or otherwise participate in any investigation or proceeding that may be conducted by any government agency, including providing documents or other information, without notice to the Company nor does it limit any right you may have to receive an award for information provided to any government agencies.

(b) Non-Solicitation; Non-Disparagement . Executive shall not for a period of one (1) year following Executive’s termination of employment for any reason, either on Executive’s own account or jointly with or as a manager, agent, officer, employee, consultant, partner, joint venturer, owner or shareholder or otherwise on behalf of any other person, firm or corporation, directly or indirectly solicit or attempt to solicit away from the Company any of its officers or employees or offer employment to any person who is an officer or employee of the Company; provided, however , that a general advertisement to which an employee of the Company responds shall in no event be deemed to result in a breach of this Section 11(b). Executive also agrees not to harass or disparage the Company or its employees, clients, directors or agents.

(c) Survival of Provisions . The provisions of this Section 11 shall survive the termination or expiration of the Executive’s employment with the Company and shall be fully enforceable thereafter. If it is determined by a court of competent jurisdiction in any state that any restriction in this Section 11 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state.

12. Dispute Resolution .

(a) To ensure the timely and economical resolution of disputes that arise in connection with this Agreement, Executive and the Company agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance or interpretation of this Agreement, Executive’s employment, or the termination of Executive’s employment, shall be resolved to the fullest extent permitted by law by final, binding and confidential arbitration, by a single neutral arbitrator, in DuPage County, Illinois, conducted by the American Arbitration Association. (“ AAA ”) under its rules for arbitration of employment disputes. By agreeing to this arbitration procedure, both Executive and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. The arbitrator shall: (i) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (ii) issue a written arbitration decision, to include the arbitrator’s essential findings and conclusions and a statement

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of the award. The arbitrator shall be authorized to award any or all remedies that Executive or the Company would be entitled to seek in a court of law. Each party shall bear its own respective attorney fees and all other costs, unless provided by law and awarded by the arbitrator; provided, however, that the Company shall pay all AAA arbitration fees in excess of the amount of court fees that would be required if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, Executive and the Company each have the right to resolve any issue or dispute over intellectual property rights by Court action instead of arbitration.

(b) Executive understands that this Agreement does not prohibit Executive from pursuing an administrative claim with a local, state or federal administrative body such as the Department of Fair Employment and Housing, the Equal Employment Opportunity Commission or the workers’ compensation Committee. This Agreement, does, however, preclude Executive from pursuing court action regarding any such claim.

(c) Executive acknowledges and agrees that Executive is executing this Agreement voluntarily and without any duress or undue influence by the Company or anyone else. Executive further acknowledges and agrees that Executive has carefully read this Agreement and that Executive has asked any questions needed for Executive to understand the terms, consequences and binding effect of this Agreement and fully understands it, including that Executive is waiving Executive’s right to a jury trial. Finally, Executive agrees that Executive has been provided an opportunity to seek the advice of an attorney of Executive’s choice before signing this Agreement.

13. Compliance with Section 409A of the Code . The parties intend that this Agreement (and all payments and other benefits provided under this Agreement) be exempt from the requirements of Section 409A of the Code and the regulations and ruling issued thereunder (collectively “ Section 409A ”), to the maximum extent possible, whether pursuant to the short-term deferral exception described in Treasury Regulation Section 1.409A-1(b)(4), the involuntary separation pay plan exception described in Treasury Regulation Section 1.409A-1(b)(9)(iii), or otherwise. To the extent Section 409A is applicable to such payments, the parties intend that this Agreement (and such payments and benefits) comply with the deferral, payout and other limitations and restrictions imposed under Section 409A. Notwithstanding any other provision of this Agreement to the contrary, this Agreement shall be interpreted, operated and administered in a manner consistent with such intentions. Without limiting the generality of the foregoing, and notwithstanding any other provision of this Agreement to the contrary:

(a) No amount payable pursuant to this Agreement which constitutes a “deferral of compensation” within the meaning of Section 409A shall be paid unless and until Executive has incurred a “separation from service” within the meaning of Section 409A. Furthermore, to the extent that Executive is a “specified employee” within the meaning of Section 409A (determined using the identification methodology selected by the Company from time to time, or if none, the default methodology) as of the date of Executive’s separation from service, no amount that constitutes a deferral of compensation which is payable on account of

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Executive’s separation from service shall paid to Executive before the date (the “ Delayed Payment Date ”) which is first day of the seventh month after the date of Executive’s separation from service or, if earlier, the date of Executive’s death following such separation from service. All such amounts that would, but for this Section, become payable prior to the Delayed Payment Date will be accumulated and paid on the Delayed Payment Date.

(b) Each payment made under this Agreement shall be treated as a separate payment and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments.

(c) With regard to any provision in this Agreement that provides for reimbursement of expenses or in-kind benefits, except for any expense, reimbursement or in-kind benefit provided pursuant to this Agreement that does not constitute a “deferral of compensation,” within the meaning of Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (ii) shall not be deemed to be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect, and (iii) such payments shall be made on or before the last day of Executive’s taxable year following the taxable year in which the expense occurred.

(d) The Company intends that income provided to Executive pursuant to this Agreement will not be subject to taxation under Section 409A of the Code. However, the Company does not guarantee any particular tax effect for income provided to Executive pursuant to this Agreement. In any event, except for the Company’s responsibility to withhold applicable income and employment taxes from compensation paid or provided to Executive, the Company shall not be responsible for the payment of any applicable taxes on compensation paid or provided to Executive pursuant to this Agreement.

14. Miscellaneous Provisions.

(a) At-Will Employment . Executive acknowledges and agrees that nothing in this Agreement shall be construed to imply that Executive’s employment is guaranteed for any period of time. Unless stated in a written agreement signed by an officer of the Company authorized by the Board or Committee and Executive, Executive’s employment is at-will and either the Company or Executive may terminate the employment relationship at any time with or without cause and with or without notice.

(b) Unfunded Obligation . Any amounts payable to Executive pursuant to this Agreement are unfunded obligations. The Company shall not be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any

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account shall not create or constitute a trust or fiduciary relationship between the Board or the Company and Executive, or otherwise create any vested or beneficial interest in Executive or Executive’s creditors in any assets of the Company.

(c) No Duty to Mitigate . Executive shall not be required to mitigate the amount of any payment or benefit contemplated by this Agreement by seeking employment with a new employer or otherwise, nor shall any such payment or benefit be reduced by any compensation or benefits that Executive may receive from employment by another employer other than as provided in Section 3(d).

(d) Waiver . No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Executive and by an authorized officer of the Company (other than Executive). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(e) Whole Agreement . This Agreement represents the entire understanding of the parties hereto with respect to the subject matter hereof and supersede all prior arrangements and understandings regarding same.

(f) Tax Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes.

(g) Choice of Law; Venue . The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Illinois without giving effect to any conflict of law principles. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties pursuant to this Agreement that is not subject to arbitration pursuant to Section 12, the parties hereby submit to and consent to the jurisdiction of the State of Illinois and agree that such litigation shall be conducted only in the courts of DuPage County, Illinois, or the federal courts of the United States for the Northern District of Illinois, and no other courts.

(h) Severability . The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

(i) Benefits Not Assignable . Except as otherwise provided herein or by law, no right or interest of Executive under this Agreement shall be assignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including, without limitation, by execution, levy, garnishment, attachment, pledge or in any other manner, and no attempted transfer or assignment thereof shall be effective. No right or interest of Executive under this Agreement shall be liable for, or subject to, any obligation or liability of Executive.

(j) Further Assurances . From time to time, at the Company’s request and without further consideration, Executive shall execute and deliver such additional documents and

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take all such further action as reasonably requested by the Company to be necessary or desirable to make effective, in the most expeditious manner possible, the terms of this Agreement and the Release, and to provide adequate assurance of Executive’s due performance thereunder.

(k) Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

(l) Acknowledgment. Executive acknowledges that Executive has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year set forth below.



RETAIL PROPERTIES OF AMERICA, INC.

By:	/s/ STEVEN P. GRIMES	Date:	July 30, 2018

Title:	CEO



EXECUTIVE
/s/ JULIE M. SWINEHART		Date:	July 30, 2018

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EXHIBIT A

FORM OF
SEPARATION AGREEMENT AND GENERAL RELEASE

This Separation Agreement and General Release (“ Agreement ”) is being entered into by Retail Properties of America, Inc. (“ Employer ” or “ Company ”) and ______________ (“ Employee ”) (together, the “ Parties ”).

1. SEPARATION DATE

1.1 Employee and Employer are parties to a Retention Agreement, dated effective as of ___________, ____ (the “ Retention Agreement ”). Employee’s last day of employment with Employer is ________________ (“ Separation Date ”).

2. VALUABLE CONSIDERATION

2.1 Severance Package . Employer agrees to provide Employee with the following payments and benefits (“ Severance Package ”). Employee acknowledges and agrees that the Severance Package constitutes adequate legal consideration for the promises and representations made by him or her in the Agreement. Receipt of the Severance Package is contingent upon the following conditions: (i) Employee must continue to abide by the covenants regarding confidentiality, non-solicitation and non-disparagement described in Section 11 of the Retention Agreement, and (ii) application of the Recoupment Policy described in Section 6 of the Retention Agreement, the Golden Parachute Payments provision described in Section 7 of the Retention Agreement, and the provisions regarding compliance with Section 409A of the Internal Revenue Code described in Section 13 of the Retention Agreement. Subject to the foregoing, Employer will pay the Severance Payment on the sixtieth (60th) day after the Separation Date.

2.1.1. Severance Payment . Employer agrees to pay Employee a total of $___________, computed in accordance with Section [3(a)] [3(b)] of the Retention Agreement, less all appropriate federal and state income and employment taxes (“ Severance Payment ”).

2.1.2. Acceleration of Vesting . The vesting of all unvested equity awards granted to Employee that are listed on Exhibit A hereto shall become vested in accordance with Section 3(c) of the Retention Agreement. The Performance-Based Equity Awards (as defined in the Retention Agreement), or the portions thereof, that are listed as such on Exhibit A will remain outstanding following the Separation Date and will vest based on the achievement of the Performance-Based Conditions (as defined in the Retention Agreement) of such Performance-Based Equity Awards determined in accordance with the applicable award agreement (and Section 5 of the Retention Agreement, if applicable) All other equity awards (or portions thereof) made to the Employee by the Employer that were unvested immediately prior to the Separation Date will be forfeited as of the Separation Date.

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2.1.3. Continued Healthcare . Employer will pay the amounts described in Section 3(d) of the Retention Agreement on the terms set forth therein.

2.2 Employee acknowledges that the benefits described above are over and above anything owed to him or her by law, contract or under the policies of Employer, and that they are being provided to him or her expressly in exchange for his or her entering into this Agreement.

3. GENERAL RELEASE AND WAIVER

3.1 In consideration of Employer’s promises made within this Agreement, Employee unconditionally, irrevocably and absolutely waives, releases and discharges Employer, and any parent and subsidiary corporations, divisions and affiliated corporations, partnerships or other affiliated entities of Employer, past and present, as well as the past and present employees, officers, directors, agents, successors and assigns of Employer (collectively, “ Released Parties ”), from all claims related in any way to the transactions or occurrences between them to date, to the fullest extent permitted by law, including, but not limited to, Employee’s employment with Employer, the termination of Employee’s employment with Employer, and all other losses, liabilities, claims, charges, demands and causes of action, known or unknown, suspected or unsuspected, arising directly or indirectly out of or in any way connected with Employee’s employment with Employer. This release is intended to have the broadest possible application and includes, but is not limited to, any tort, contract, common law, constitutional or other statutory claims, including, but not limited to claims involving intellectual property or innovations that Employee may have worked on or come up with during the period in which he or she was being compensated by any of the Released Parties, alleged violations of the Illinois Human Rights Act, the Illinois Minimum Wage Law, the Illinois Wage Payment and Collection Act, the Illinois One Day Rest in Seven Act, the Illinois Victims' Economic Security and Safety Act, the Illinois Personnel Record Review Act, the Illinois Worker Adjustment and Retraining Notification Act, the Illinois Right to Privacy in the Workplace Act, the Illinois Workers' Compensation Act and any other statute set forth in Chapter 820 or any other chapter of the Illinois Compiled Statutes that pertains or relates to, or otherwise touches upon, the employment relationship between Employer and Employee, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, and all claims for attorneys’ fees, costs and expenses. Employee expressly waives Employee’s right to recovery of any type, including damages, in any administrative or court action, whether state or federal, and whether brought by Employee or on Employee’s behalf, related in any way to the matters released herein. However, this general release is not intended to bar any claims that, by statute, may not be waived, such as claims for any challenge to the validity of Employee’s release of claims under the Age Discrimination in Employment Act, as set forth in this Agreement. Further, nothing in this Section 3.1 shall release any of the Released Parties’ obligations, covenants, and agreements under this Agreement or Employee’s rights under applicable law, the Company’s Bylaws, any Company officer indemnity agreement to which Employee is a party or the Company’s director and officer liability policy to seek indemnity for acts committed, or omissions, within the course and scope of Employee’s employment duties.

3.2 Employee acknowledges that Employee may discover facts or law different from, or in addition to, the facts or law that Employee knows or believes to be true with respect to the

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claims released in this Agreement and agrees, nonetheless, that this Agreement and the release contained in it shall be and remain effective in all respects notwithstanding such different or additional facts or the discovery of them.

3.3 Employee declares and represents that Employee intends this Agreement to be complete and not subject to any claim of mistake, and that the release herein expresses a full and complete release and Employee intends the release herein to be final and complete.

3.4 Employee represents that, as of the date of this Agreement, he or she has not filed any lawsuits, charges, complaints, petitions, claims or other accusatory pleadings against Employer or any of the other Released Parties in any court or with any governmental agency.

3.5 Employee acknowledges and agrees that the general release and waiver clause in this Agreement is an essential and material term of the Agreement, and that without such clause, no agreement would have been reached by the Parties.

4. ACKNOWLEDGEMENTS BY EMPLOYEE

4.1 Employee acknowledges that he or she is subject to, and will continue to abide by, all surviving provisions of the Retention Agreement, including, without limitation, the covenants regarding confidentiality, non-solicitation and non-disparagement set forth in Section 11 of the Retention Agreement (the “ Covenants ”), all of which are incorporated herein by reference as if set forth herein in their entirety. Nothing in this Agreement is intended to modify, supersede or replace any provision, right or obligation of Employee under the Covenants.

4.2 Employee acknowledges that he or she has been paid all wages, commissions, incentive payments, and bonuses owed to him or her by Employer, to date.

5. NON-DISPARAGEMENT

5.1 Employee confirms and agrees that he or she will not make any oral or written statements to any third party about any of the Released Parties that are intended or reasonably likely either to disparage any of the Released Parties. Employee acknowledges and agrees that the non-disparagement clause in this Agreement is an essential and material term of the Agreement, and that without such clause, no agreement would have been reached by the Parties. Additionally, if Employee is compelled by the legal process to provide statements, information, or testimony regarding his or her employment with any of the Released Parties, he or she will do so in a truthful manner, and doing so is not a breach of the terms of this Agreement.

6. OLDER WORKERS’ BENEFIT PROTECTION ACT. This Agreement is intended to satisfy the requirements of the Older Workers’ Benefit Protection Act, 29 U.S.C. sec. 626(f). Employee is advised to consult with an attorney before executing this Agreement.

6.1 Acknowledgements/Time to Consider . Employee acknowledges and agrees that (a) Employee has read and understands the terms of this Agreement; (b) Employee has been advised in writing to consult with an attorney before executing this Agreement; (c) Employee has obtained

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and considered such legal counsel as Employee deems necessary; (d) Employee has been given twenty-one (21) days to consider whether or not to enter into this Agreement (although Employee may elect not to use the full 21-day period at Employee’s option); and (e) by signing this Agreement, Employee acknowledges that Employee does so freely, knowingly, and voluntarily.

6.2 Revocation/Effective Date . This Agreement shall not become effective or enforceable until the eighth day after Employee signs this Agreement. In other words, Employee may revoke Employee’s acceptance of this Agreement within seven (7) days after the date Employee signs it. Employee’s revocation must be in writing and received by ______________, the Company’s ______________ Officer, 2021 Spring Road, Suite 200, Oak Brook, IL 60523 by 5:00 p.m. Central Time on the seventh day in order to be effective. If Employee does not revoke acceptance within the seven (7) day period, Employee’s acceptance of this Agreement shall become binding and enforceable on the eighth day (“ Effective Date ”). The Severance Package shall become due and payable in accordance with Section 2 above after the Effective Date.

6.3 Preserved Rights of Employee . This Agreement does not waive or release any rights or claims that Employee may have under the Age Discrimination in Employment Act that arise after the execution of this Agreement. In addition, this Agreement does not prohibit Employee from challenging the validity of this Agreement’s waiver and release of claims under the Age Discrimination in Employment Act.

7. CONFIDENTIALITY/RETURN OF COMPANY PROPERTY

7.1 Employee represents and warrants that as of the Separation Date, he or she will have returned all property belonging to Employer. Such property includes, but is not limited to, keys, passwords, access cards, credit or phone cards, any computer hardware or software, any products relating to Employer or its competition, any design work, product engineering, test results, customer information, pricing and cost information, financial data or information, any vendor samples or information, management materials, including all correspondence, manuals, letters, notes, notebooks, data report programs, plan proposals, and other confidential, proprietary and/or trade secret information, regardless of whether the information is in written, printed, electronic, or other form and regardless of whether it was written or compiled by Employee or other persons, as well as any and all other property that comprises property owned by Employer. Employee agrees that he or she will not retain any originals or copies of any Employer property, whether prepared or created by Employee or otherwise coming into Employee’s possession or control in the course of his or her employment with Employer. Employee agrees to keep the terms of the Agreement confidential between him or her and Employer, except that he or she may tell his or her immediate family and attorney or accountant, if any, as needed, but in no event should he or she discuss the Agreement or its terms with any current or prospective employee of Employer. Notwithstanding the foregoing, Executive understands that pursuant to the Defend Trade Secrets Act of 2016, Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In addition, nothing

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in this Agreement shall be interpreted or applied to prohibit Executive from making any good faith report to any governmental agency or other governmental entity concerning any acts or omissions that Executive may believe to constitute a possible violation of federal or state law or making other disclosures that are protected under the whistleblower provisions of applicable federal or state law or regulation. Further, this Agreement does not limit your ability to communicate with any government agency or otherwise participate in any investigation or proceeding that may be conducted by any government agency, including providing documents or other information, without notice to the Company nor does it limit any right you may have to receive an award for information provided to any government agencies.

8. MISCELLANEOUS

8.1 The Parties agree that this Agreement, including the surviving provisions of the Retention Agreement expressly incorporated herein by reference, set forth the entire agreement between them and supersedes all other written or oral understandings or contracts. This Agreement may not be modified or amended except by a written instrument executed by both of the Parties.

8.2 The Parties agree to do all things necessary and to execute all further documents necessary and appropriate to carry out and effectuate the terms and purposes of this Agreement.

8.3 Each of the Parties to this Agreement represents and warrants that: (a) no other person or entity has or has had any interest in the claims released under this Agreement and (b) he, she or it has not assigned, transferred, conveyed, subjected to a security interest, or otherwise encumbered or impaired in any way any of the claims released under this Agreement.

8.4 In the event any provision of this Agreement is adjudicated to be unenforceable in whole or in part, the Parties intend for such provision to be modified to the extent necessary to render it enforceable, or alternatively, excised from the Agreement without effecting the validity of the remaining provisions of the Agreement.

8.5 By entering into this Agreement, the Released Parties make no admission that they have engaged, or are now engaging, in any unlawful conduct. This Agreement is not an admission of wrongdoing or liability by either Employer or Employee and shall not be used or construed as such in any legal or administrative proceeding.

8.6 This Agreement may be pled as a full and complete defense to, and may be used as a basis for an injunction against, any action, suit or other proceeding that may be prosecuted, instituted or attempted by Employee in breach hereof.

8.7 This Agreement shall be subject to and construed in accordance with the laws of the State of Illinois. Venue shall be in DuPage County for any disputes arising out of the interpretation or enforcement of this Agreement.

8.8 This Agreement is binding on and inures to the benefit of Employer, its successors and assigns, and is binding on and inures to the benefit of Employee, his or her heirs and assigns.

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8.9 This Agreement may be executed in counterparts. Signatures transmitted electronically are as effective as original signatures.

8.10 Each person signing this Agreement hereby expressly represents and warrants that he or she is expressly authorized in law and in fact to do so individually and/or on behalf of any entity listed herein as a signatory of this Agreement.

HAVING READ AND UNDERSTOOD THIS AGREEMENT, CONSULTED COUNSEL OR VOLUNTARILY ELECTED NOT TO CONSULT COUNSEL, AND HAVING HAD SUFFICIENT TIME TO CONSIDER WHETHER TO ENTER INTO THIS AGREEMENT, THE UNDERSIGNED HEREBY EXECUTE THIS AGREEMENT ON THE DATES SET FORTH BELOW.



EMPLOYEE			RETAIL PROPERTIES OF AMERICA, INC.
			By:

Date:			Date:

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Exhibit A

Unvested Equity Awards

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Exhibit 31.1

CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Steven P. Grimes, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Retail Properties of America, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



By:	/s/ STEVEN P. GRIMES

	Steven P. Grimes
	Chief Executive Officer

Date:	August 1, 2018

Exhibit 31.2

CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Julie M. Swinehart, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Retail Properties of America, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



By:	/s/ JULIE M. SWINEHART

	Julie M. Swinehart
	Executive Vice President,
	Chief Financial Officer and Treasurer

Date:	August 1, 2018

Exhibit 32.1

Certification Pursuant to

18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Retail Properties of America, Inc. (the “Company”) for the period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Steven P. Grimes as Chief Executive Officer of the Company and Julie M. Swinehart as Executive Vice President, Chief Financial Officer and Treasurer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his or her knowledge:


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



By:	/s/ STEVEN P. GRIMES

	Steven P. Grimes
	Chief Executive Officer

Date:	August 1, 2018

By:	/s/ JULIE M. SWINEHART

	Julie M. Swinehart
	Executive Vice President,
	Chief Financial Officer and Treasurer

Date:	August 1, 2018