Retail Properties of America, Inc. Reports Fourth Quarter and Full Year 2020 Results

OAK BROOK, Ill., Feb. 16, 2021 /PRNewswire/ -- Retail Properties of America, Inc. (NYSE: RPAI) (the "Company") today reported financial and operating results for the quarter and year ended December 31, 2020.

FINANCIAL RESULTS
For the quarter ended December 31, 2020, the Company reported:

• Net income attributable to common shareholders of $1.8 million, or $0.01 per diluted share, compared to $16.2 million, or $0.08 per diluted share, for the same period in 2019;
• Funds from operations (FFO) attributable to common shareholders of $40.5 million, or $0.19 per diluted share, compared to $57.9 million, or $0.27 per diluted share, for the same period in 2019;
• Operating funds from operations (Operating FFO) attributable to common shareholders of $41.7 million, or $0.20 per diluted share, compared to $58.5 million, or $0.27 per diluted share, for the same period in 2019;
• Cash collections as of February 8, 2021 of 94.1% of billed fourth quarter base rent, up from an updated 87.6% of billed third quarter base rent; and
• A $13.6 million decrease in lease income, equating to $0.06 per diluted share, compared to the same period in 2019, primarily driven by the impact on the Company's business from the novel coronavirus (COVID-19) pandemic during the fourth quarter of 2020. A $2.8 million decrease in straight-line rental income, equating to $0.01 per diluted share, largely driven by the movement of certain additional tenants to the cash basis of accounting, contributed to this decline in lease income.

For the year ended December 31, 2020, the Company reported:

• Net income attributable to common shareholders of $14.6 million, or $0.07 per diluted share, compared to $32.4 million, or $0.15 per diluted share, for the same period in 2019;
• FFO attributable to common shareholders of $180.5 million, or $0.85 per diluted share, compared to $219.0 million, or $1.03 per diluted share, for the same period in 2019;
• Operating FFO attributable to common shareholders of $180.0 million, or $0.84 per diluted share, compared to $229.7 million, or $1.08 per diluted share, for the same period in 2019;
• Cash collections as of February 8, 2021 of 94.1% of billed fourth quarter base rent, 87.6% of billed third quarter base rent, up from 84.2% previously reported, and 78.0% of billed second quarter base rent, up from 73.6% most recently reported; and
• A $51.6 million decrease in lease income, equating to $0.24 per diluted share, compared to the same period in 2019, primarily driven by the impact on the Company's business from the COVID-19 pandemic during the second, third and fourth quarters of 2020. A $6.7 million decrease in straight-line rental income, equating to $0.03 per diluted share, largely driven by the movement of certain additional tenants to the cash basis of accounting, contributed to this decline in lease income.

OPERATING RESULTS
For the quarter ended December 31, 2020, the Company's portfolio results were as follows:

• 11.4% decrease in same store net operating income (NOI) over the comparable period in 2019, primarily driven by the impact on the Company's business from the COVID-19 pandemic;
• Retail portfolio occupancy: 91.7% at December 31, 2020, down 50 basis points from 92.2% at September 30, 2020 and down 350 basis points from 95.2% at December 31, 2019. Bankruptcy-related move-outs account for 210 basis points of the 350-basis point occupancy decline since December 31, 2019;
• Retail portfolio percent leased, including leases signed but not commenced: 93.1% at December 31, 2020, down 70 basis points from 93.8% at September 30, 2020 and down 310 basis points from 96.2% at December 31, 2019. Bankruptcy-related move-outs account for 210 basis points of the 310-basis point decline in retail portfolio percent leased since December 31, 2019;
• Total retail portfolio annualized base rent (ABR) per occupied square foot of $19.36 at December 31, 2020, down 0.4% from $19.44 ABR per occupied square foot at September 30, 2020 and down 0.8% from $19.52 ABR per occupied square foot at December 31, 2019;
• 748,000 square feet of retail leasing transactions comprised of 118 new and renewal leases;
• A blended re-leasing spread of positive 3.8%, comprised of comparable cash leasing spreads of positive 3.8% on renewal leases and positive 3.3% on new leases; and
• Portfolio square footage open: 98% based on gross leasable area (GLA) and 97% based on ABR as of February 12, 2021.

For the year ended December 31, 2020, the Company's portfolio results were as follows:

• 11.2% decrease in same store NOI over the comparable period in 2019, primarily driven by the impact on the Company's business from the COVID-19 pandemic during the second, third and fourth quarters of 2020;
• 2,166,000 square feet of retail leasing transactions comprised of 371 new and renewal leases; and
• A blended re-leasing spread of positive 3.0%, comprised of comparable cash leasing spreads of positive 4.0% on renewal leases and negative (2.8)% on new leases.

"Our team continued to drive incremental operational gains in the fourth quarter as exemplified by our strong leasing results and sequentially higher cash collections," stated Steve Grimes, chief executive officer. "We enter 2021 holding optimism about our intermediate- and long-term business prospects as well as pragmatism toward the near-term challenges posed by the current backdrop."

BALANCE SHEET AND CAPITAL MARKETS ACTIVITY
During 2020, as previously announced, the Company engaged in multiple transactions to enhance balance sheet strength and financial flexibility, including:

• In July, in a reopening, issued an additional $100.0 million aggregate principal amount of its 4.00% senior unsecured notes due 2025;
• In August, in a new issuance, issued $400.0 million aggregate principal amount of its 4.75% senior unsecured notes due 2030;
• In July and August, repaid the $135.0 million balance outstanding as of June 30, 2020 under the Company's $850.0 million unsecured revolving line of credit;
• In August, prepaid the Company's $250.0 million term loan due January 2021 and terminated the related interest rate swaps that had effectively fixed this variable rate loan; and
• In September, prepaid the Company's $100.0 million private placement notes due June 2021.

Following this activity, as of December 31, 2020, the Company holds no debt maturities until 2022, a fully undrawn $850.0 million unsecured revolving line of credit and approximately $891.5 million in total available liquidity, up from $877.1 million as of September 30, 2020, and $841.7 million as of December 31, 2019.

As of December 31, 2020, the Company had $1.8 billion of gross consolidated indebtedness with a weighted average contractual interest rate of 4.19% and a weighted average maturity of 5.9 years, up from 4.7 years as of December 31, 2019. The Company continues to benefit from substantial headroom relative to its debt covenants, including a debt service coverage ratio of 3.4x, well in excess of the 1.5x requirement under its debt agreements.

DIVIDEND
As previously announced on December 8, 2020, the Company's board of directors declared a fourth quarter dividend for its outstanding Class A common stock of $0.06 per common share, up from the $0.05 per common share declared for the third quarter. The quarterly dividend of $0.06 per common share, which totaled $12.9 million, was paid on January 8, 2021, to Class A common stockholders of record on December 23, 2020.

The Company's board of directors will continue to monitor financial performance and declare additional dividend payments to at least cover the Company's minimum taxable distribution requirements, aiming to grow this quarterly dividend amount over time. During the calendar year 2020, the Company paid aggregate dividends of $81.6 million.

INVESTMENT ACTIVITY
Expansions and Redevelopments
The Company continues to make progress on the execution of its active expansion and redevelopment projects and invested $81.4 million during 2020 at Circle East, One Loudoun Downtown, Carillon, The Shoppes at Quarterfield and Southlake Town Square, with the vast majority of this investment related to the One Loudoun Downtown Pads G & H expansion project.

Active Projects
One Loudoun Downtown
During the quarter, the Company and KETTLER, its joint venture partner for the multi-family component of the mixed-use expansion of Pads G & H at One Loudoun Downtown located in the Washington, D.C. metropolitan statistical area (MSA), advanced work toward the planned spring opening of Pad G's 99 multi-family rental units. Additionally, the Company has executed a contract with Vivint Smart Home for the installation and servicing of smart home technology for the multi-family rental units at Pads G & H, branded Vyne.

The Company also is working to complete interior finishes for Pad G's 33,000 square feet of office space, branded One Endicott. As previously announced, this project received a Wired Certified Platinum rating, the highest rating possible, from WiredScore, confirming One Endicott as best-in-class across connectivity features. At Pad H's 279 multi-family rental units, the Company and KETTLER continue drywall installation and other finishes.

The aggregate One Loudoun Downtown Pads G & H expansion project, which includes 378 multi-family rental units as well as 67,000 to 70,000 square feet of commercial GLA, remains on track to stabilize in Q2 – Q3 2022.

Circle East
During the quarter, the Company signed two leases for in-line space at its 80,000 square foot Circle East mixed-use project located in Towson, MD within the Baltimore MSA, bringing the project to 17% leased. Ethan Allen, one of the two anchor tenants for the project, opened on January 21, 2021, and Shake Shack, the other anchor tenant, plans to open in the near term.

Other Projects
During the quarter, as previously announced, the Company delivered space to ALDI at The Shoppes at Quarterfield, representing 37% of the project's GLA. The Company has extended the aggregate targeted stabilization date for this redevelopment project to Q1 – Q2 2022 due to delays related to concession negotiation and construction with the other anchor tenant for this space. The project remains 100% leased.

Construction continues at the single-tenant pad development at Southlake Town Square with targeted stabilization in Q1 – Q2 2021.

Dispositions
During the first quarter of 2020, as previously reported, the Company completed the sale of one non-target, multi-tenant power center asset for $13.9 million.

Acquisitions
During the first quarter of 2020, as previously reported, the Company acquired the fee interest in an existing multi-tenant, community center retail property for a gross purchase price of $55.0 million. In connection with this acquisition, the Company also assumed the lessor position in a ground lease with a shadow anchor.

2021 GUIDANCE
Taking into account the current macroeconomic and public health outlook, among other factors and variables, the Company currently expects to generate net income attributable to common shareholders of $0.02 to $0.10 per diluted share in 2021. The Company also expects to generate Operating FFO attributable to common shareholders of $0.76 to $0.84 per diluted share in 2021 based, in part, on the following assumptions:

• General and administrative expenses of $41 to $43 million; and
• Acquisitions, property dispositions and capital markets transactions evaluated and executed opportunistically.

Additional factors influencing the 2021 guidance ranges include, among others:

• Occupancy expectations;
• Collectibility of lease income amounts deferred from 2020 that are due in 2021;
• Collection of 2021 lease income amounts due from tenants accounted for on the cash basis of accounting, which aggregated 12% of ABR as of December 31, 2020, the population of which is subject to evaluation and adjustment each reporting period, and the impact of any such adjustment could be significant; and
• Variability in non-cash items, including straight-line rent, which is largely dependent on changes to the aforementioned population of cash-basis tenants.

WEBCAST AND CONFERENCE CALL INFORMATION
The Company's management team will hold a webcast on Wednesday, February 17, 2021 at 11:00 AM (ET), to discuss its quarterly and full year financial results and operating performance, as well as business highlights and outlook. In addition, the Company may discuss business and financial developments and trends and other matters affecting the Company, some of which may not have been previously disclosed.

A live webcast will be available online on the Company's website at www.rpai.com in the INVEST section. A replay of the webcast will be available. To listen to the replay, please go to www.rpai.com in the INVEST section of the website and follow the instructions.

The conference call can be accessed by dialing (877) 705-6003 or (201) 493-6725 for international callers. Please dial in at least ten minutes prior to the start of the call to register. A replay of the call will be available from 2:00 PM (ET) on February 17, 2021, until midnight (ET) on March 3, 2021. The replay can be accessed by dialing (844) 512-2921 or (412) 317-6671 for international callers and entering pin number 13713677.

SUPPLEMENTAL INFORMATION
The Company has posted supplemental financial and operating information and other data in the INVEST section of its website.

ABOUT RPAI
Retail Properties of America, Inc. is a REIT that owns and operates high quality, strategically located open-air shopping centers, including properties with a mixed-use component. As of December 31, 2020, the Company owned 102 retail operating properties in the United States representing 20.0 million square feet. The Company is publicly traded on the New York Stock Exchange under the ticker symbol RPAI. Additional information about the Company is available at www.rpai.com.

SAFE HARBOR LANGUAGE
The statements and certain other information contained in this press release, which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "should," "intends," "plans," "estimates" or "anticipates" and variations of such words or similar expressions or the negative of such words, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbors created thereby. These forward-looking statements reflect the Company's current views about its plans, intentions, expectations, strategies and prospects, which are based on the information currently available to the Company and on assumptions it has made. Although the Company believes that its plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, the Company can give no assurance that such plans, intentions, expectations or strategies will be attained or achieved. Furthermore, these forward-looking statements should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. Such risks and uncertainties could cause actual results to differ materially from those projected. These uncertainties include, but are not limited to, economic, business and financial conditions, and changes in the Company's industry and changes in the real estate markets in particular, economic and other developments in markets where the Company has a high concentration of properties, the Company's business strategy, the Company's 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, insolvency or general downturn in the business of a major tenant or a significant number of smaller tenants, adverse impact of e-commerce developments and shifting consumer retail behavior on tenants, interest rates or operating costs, the discontinuation of London Interbank Offered Rate (LIBOR), real estate and zoning laws and changes in real property tax rates, real estate valuations, the Company's leverage, the Company's ability to generate sufficient cash flows to service outstanding indebtedness and make distributions to shareholders, changes in the dividend policy for the Company's Class A common stock, the Company's 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 the Company's Class A common stock, risks generally associated with real estate acquisitions and dispositions, including the Company's ability to identify and pursue acquisition and disposition opportunities, risks generally associated with redevelopment, including the impact of construction delays and cost overruns and related impact on the Company's estimated investments in such redevelopment, the Company's ability to lease redeveloped space, the Company's ability to identify and pursue redevelopment opportunities and the risk that it takes longer than expected for development assets to stabilize or that the Company does not achieve its estimated returns on such investments, the Company's ability to enter into new leases or renew leases on favorable terms, pandemics or other public health crises, such as the COVID-19 pandemic, and the related impact on (i) the Company's ability to manage its properties, finance its operations and perform necessary administrative and reporting functions and (ii) the ability of the Company's tenants to operate their businesses, generate sales and meet their financial obligations, including the obligation to pay rent and other charges as specified in their leases, the Company's ability to create long-term shareholder value, regulatory changes and other risk factors, including those detailed in the sections of the Company's most recent Forms 10-K and 10-Q filed with the SEC titled "Risk Factors," which you should interpret as heightened as a result of the numerous and ongoing adverse impacts of COVID-19. The extent to which COVID-19 impacts the Company and its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, including the adoption of available COVID-19 vaccines, and the direct and indirect economic effects of the pandemic and containment measures, among others. The Company assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

NON-GAAP FINANCIAL MEASURES
As defined by the National Association of Real Estate Investment Trusts (NAREIT), an industry trade group, Funds From Operations (FFO) means net income computed in accordance with generally accepted accounting principles (GAAP), excluding (i) depreciation and amortization related to real estate, (ii) gains from sales of real estate assets, (iii) gains and losses from change in control and (iv) impairment write-downs of real estate assets and investments in entities directly attributable to decreases in the value of real estate held by the entity. The Company has adopted the NAREIT definition in its computation of FFO attributable to common shareholders. The Company believes that, subject to the following limitations, FFO attributable to common shareholders provides a basis for comparing its performance and operations to those of other real estate investment trusts (REITs). The Company believes that FFO attributable to common shareholders, which is a supplemental non-GAAP financial measure, provides an additional and useful means to assess the operating performance of REITs. FFO attributable to common shareholders does not represent an alternative to (i) "Net income" or "Net income attributable to common shareholders" as an indicator of the Company's financial performance, or (ii) "Cash flows from operating activities" in accordance with GAAP as a measure of the Company's capacity to fund cash needs, including the payment of dividends.

The Company also reports Operating FFO attributable to common shareholders, which is defined as FFO attributable to common shareholders excluding the impact of discrete non-operating transactions and other events which the Company does not consider representative of the comparable operating results of its real estate operating portfolio, which is its 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, litigation involving the Company, including gains recognized as a result of settlement and costs to engage outside counsel related to litigation with former tenants, 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 the Company's calculation of FFO attributable to common shareholders. The Company believes that Operating FFO attributable to common shareholders, which is a supplemental non-GAAP financial measure, provides an additional and useful means to assess the operating performance of REITs. Operating FFO attributable to common shareholders does not represent an alternative to (i) "Net income" or "Net income attributable to common shareholders" as an indicator of the Company's financial performance, or (ii) "Cash flows from operating activities" in accordance with GAAP as a measure of the Company's capacity to fund cash needs, including the payment of dividends. Comparison of the Company's 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 Company also reports Net Operating Income (NOI), which it defines as all revenues other than (i) straight-line rental income (non-cash), (ii) amortization of lease inducements, (iii) amortization of acquired above and below market lease intangibles and (iv) lease termination fee income, less real estate taxes and all operating expenses other than lease termination fee expense and non-cash ground rent expense, which is comprised of amortization of right-of-use lease assets and amortization of lease liabilities. NOI consists of Same Store NOI and NOI from Other Investment Properties. Same Store NOI represents NOI from the Company's same store portfolio consisting of 101 retail operating properties acquired or placed in service and stabilized prior to January 1, 2019. NOI from Other Investment Properties represents NOI primarily from (i) properties acquired or placed in service during 2019 and 2020, (ii) the multi-family rental units at Plaza del Lago, a redevelopment project that was placed in service during 2019, (iii) Circle East, which is in active redevelopment, (iv) One Loudoun Downtown – Pads G & H, which are in active development, (v) Carillon, a redevelopment project where the Company halted plans for vertical construction during the three months ended March 31, 2020 in response to macroeconomic conditions due to the impact of the COVID-19 pandemic. As of December 31, 2020, the Company had completed the current scope of site work preparation at the property in anticipation of future vertical development at the site, (vi) The Shoppes at Quarterfield, which is in active redevelopment, (vii) land held for future development, (viii) properties that were sold or held for sale during 2019 and 2020, and (ix) the net income from the Company's wholly owned captive insurance company. The Company believes that NOI, Same Store NOI and NOI from Other Investment Properties, which are supplemental non-GAAP financial measures, provide an additional and useful operating perspective not immediately apparent from "Net income" or "Net income attributable to common shareholders" in accordance with GAAP. The Company uses these measures to evaluate its 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 the Company's 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 the Company's financial performance. Comparison of the Company's 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.

CONTACT INFORMATION
Michael Gaiden
Vice President – Capital Markets and Investor Relations
Retail Properties of America, Inc.        
(630) 634-4233

SOURCE Retail Properties of America, Inc.

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www.rpai.com

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