UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021March 31, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-38517
RETAIL VALUE INC.
(Exact name of registrant as specified in its charter)
Ohio |
| 82-4182996 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
3300 Enterprise Parkway Beachwood, OH |
| 44122 |
(Address of principal executive offices) |
| (Zip Code.) |
Registrant’s telephone number, including area code: (216) 755-5500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
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 |
| ☐ |
| Accelerated filer |
| ☒ |
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| |||
Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☐ |
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| Emerging growth company |
| ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐☒ No ☒☐
As of July 30, 2021,April 22, 2022, the registrant had 21,117,150 shares of common stock, $0.10 par value per share, outstanding.
Retail Value Inc.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED June 30, 2021March 31, 2022
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION |
| |
Item 1. | Financial Statements – Unaudited |
|
| Consolidated Balance Sheets as of | 2 |
| 3 | |
| 4 | |
| 5 | |
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| |
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| |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. OTHER INFORMATION |
| |
Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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Retail Value Inc.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share amounts)
| June 30, 2021 |
|
| December 31, 2020 |
| March 31, 2022 |
|
| December 31, 2021 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land | $ | 337,869 |
|
| $ | 397,699 |
| |||||||
Buildings |
| 918,294 |
|
|
| 1,031,886 |
| $ | 51,261 |
|
| $ | 51,261 |
|
Fixtures and tenant improvements |
| 114,580 |
|
|
| 134,335 |
|
| 8,305 |
|
|
| 8,260 |
|
|
| 1,370,743 |
|
|
| 1,563,920 |
|
| 59,566 |
|
|
| 59,521 |
|
Less: Accumulated depreciation |
| (554,434 | ) |
|
| (593,691 | ) |
| (36,802 | ) |
|
| (36,195 | ) |
|
| 816,309 |
|
|
| 970,229 |
| |||||||
Construction in progress |
| 2,489 |
|
|
| 1,515 |
| |||||||
Total real estate assets, net |
| 818,798 |
|
|
| 971,744 |
|
| 22,764 |
|
|
| 23,326 |
|
Cash and cash equivalents |
| 67,185 |
|
|
| 56,849 |
|
| 44,769 |
|
|
| 110,470 |
|
Restricted cash |
| 59,048 |
|
|
| 115,939 |
|
| 1,098 |
|
|
| 1,993 |
|
Accounts receivable |
| 17,501 |
|
|
| 25,302 |
|
| 2,364 |
|
|
| 3,891 |
|
Other assets, net |
| 17,960 |
|
|
| 26,042 |
|
| 4,498 |
|
|
| 4,718 |
|
| $ | 980,492 |
|
| $ | 1,195,876 |
| $ | 75,493 |
|
| $ | 144,398 |
|
Liabilities and Equity |
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Mortgage indebtedness, net | $ | 207,243 |
|
| $ | 344,485 |
| |||||||
Accounts payable and other liabilities |
| 30,420 |
|
|
| 38,603 |
| $ | 6,996 |
|
| $ | 8,331 |
|
Dividends payable |
| 0 |
|
|
| 23,002 |
|
| 0 |
|
|
| 69,053 |
|
Total liabilities |
| 237,663 |
|
|
| 406,090 |
|
| 6,996 |
|
|
| 77,384 |
|
Commitments and contingencies (Note 5) |
|
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| |||||||
Redeemable preferred equity |
| 190,000 |
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|
| 190,000 |
| |||||||
Commitments and contingencies (Note 1) |
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| |||||||
Retail Value Inc. shareholders' equity |
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|
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Common shares, with par value, $0.10 stated value; 200,000,000 shares authorized; 21,104,840 and 19,829,498 shares issued at June 30, 2021 and December 31, 2020, respectively |
| 2,110 |
|
|
| 1,983 |
| |||||||
Common shares, with par value, $0.10 stated value; 200,000,000 shares authorized; 21,117,748 shares issued at March 31, 2022 and December 31, 2021 |
| 2,112 |
|
|
| 2,112 |
| |||||||
Additional paid-in capital |
| 740,548 |
|
|
| 721,234 |
|
| 740,517 |
|
|
| 740,517 |
|
Accumulated distributions in excess of net loss |
| (189,800 | ) |
|
| (123,428 | ) |
| (674,119 | ) |
|
| (675,602 | ) |
Less: Common shares in treasury at cost: 1,620 and 234 shares at June 30, 2021 and December 31, 2020 |
| (29 | ) |
|
| (3 | ) | |||||||
Less: Common shares in treasury at cost: 598 shares at March 31, 2022 and December 31, 2021 |
| (13 | ) |
|
| (13 | ) | |||||||
Total equity |
| 552,829 |
|
|
| 599,786 |
|
| 68,497 |
|
|
| 67,014 |
|
| $ | 980,492 |
|
| $ | 1,195,876 |
| $ | 75,493 |
|
| $ | 144,398 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Retail Value Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSINCOME
(unaudited, in thousands, except per share amounts)
| Three Months |
| |||||
| Ended June 30, |
| |||||
| 2021 |
|
| 2020 |
| ||
Revenues from operations: |
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|
|
|
Rental income | $ | 41,857 |
|
| $ | 39,299 |
|
Other income |
| 54 |
|
|
| (7 | ) |
|
| 41,911 |
|
|
| 39,292 |
|
Rental operation expenses: |
|
|
|
|
|
|
|
Operating and maintenance |
| 9,169 |
|
|
| 9,627 |
|
Real estate taxes |
| 3,757 |
|
|
| 5,483 |
|
Property and asset management fees |
| 4,034 |
|
|
| 4,890 |
|
Impairment charges |
| 79,050 |
|
|
| 10,910 |
|
General and administrative |
| 1,258 |
|
|
| 924 |
|
Depreciation and amortization |
| 11,204 |
|
|
| 14,211 |
|
|
| 108,472 |
|
|
| 46,045 |
|
Other income (expense): |
|
|
|
|
|
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|
Interest expense, net |
| (3,437 | ) |
|
| (5,660 | ) |
Debt extinguishment costs |
| (1,112 | ) |
|
| (12 | ) |
Other income, net |
| 197 |
|
|
| 0 |
|
Gain on disposition of real estate, net |
| 1,420 |
|
|
| 10,958 |
|
|
| (2,932 | ) |
|
| 5,286 |
|
Loss before tax expense |
| (69,493 | ) |
|
| (1,467 | ) |
Tax expense |
| (88 | ) |
|
| (519 | ) |
Net loss | $ | (69,581 | ) |
| $ | (1,986 | ) |
Comprehensive loss | $ | (69,581 | ) |
| $ | (1,986 | ) |
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Per share data: |
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Basic and diluted | $ | (3.30 | ) |
| $ | (0.10 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Retail Value Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited, in thousands, except per share amounts)
| Six Months |
| Three Months |
| ||||||||||
| Ended June 30, |
| Ended March 31, |
| ||||||||||
| 2021 |
|
| 2020 |
| 2022 |
|
| 2021 |
| ||||
Revenues from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income | $ | 83,279 |
|
| $ | 89,629 |
| $ | 2,279 |
|
| $ | 18,153 |
|
Other income |
| 91 |
|
|
| 32 |
|
| 2 |
|
|
| 17 |
|
|
| 83,370 |
|
|
| 89,661 |
|
| 2,281 |
|
|
| 18,170 |
|
Rental operation expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and maintenance |
| 18,776 |
|
|
| 20,689 |
|
| 288 |
|
|
| 2,384 |
|
Real estate taxes |
| 8,023 |
|
|
| 11,202 |
|
| 42 |
|
|
| 3,134 |
|
Property and asset management fees |
| 8,069 |
|
|
| 9,766 |
|
| 191 |
|
|
| 1,548 |
|
Impairment charges |
| 81,060 |
|
|
| 26,820 |
| |||||||
General and administrative |
| 2,123 |
|
|
| 2,001 |
|
| 699 |
|
|
| 865 |
|
Depreciation and amortization |
| 24,562 |
|
|
| 30,681 |
|
| 607 |
|
|
| 6,988 |
|
|
| 142,613 |
|
|
| 101,159 |
|
| 1,827 |
|
|
| 14,919 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
| (7,428 | ) |
|
| (12,952 | ) |
| 0 |
|
|
| (3,151 | ) |
Debt extinguishment costs |
| (1,242 | ) |
|
| (3,977 | ) |
| 0 |
|
|
| (73 | ) |
Other income, net |
| 197 |
|
|
| 334 |
| |||||||
Gain on disposition of real estate, net |
| 1,541 |
|
|
| 13,632 |
|
| 295 |
|
|
| 148 |
|
|
| (6,932 | ) |
|
| (2,963 | ) |
| 295 |
|
|
| (3,076 | ) |
Loss before tax expense |
| (66,175 | ) |
|
| (14,461 | ) | |||||||
Income before tax expense |
| 749 |
|
|
| 175 |
| |||||||
Tax expense |
| (197 | ) |
|
| (592 | ) |
| (38 | ) |
|
| (66 | ) |
Net loss | $ | (66,372 | ) |
| $ | (15,053 | ) | |||||||
Comprehensive loss | $ | (66,372 | ) |
| $ | (15,053 | ) | |||||||
Income from continuing operations |
| 711 |
|
|
| 109 |
| |||||||
Income from discontinued operations |
| 772 |
|
|
| 3,100 |
| |||||||
Net income | $ | 1,483 |
|
| $ | 3,209 |
| |||||||
Comprehensive income | $ | 1,483 |
|
| $ | 3,209 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
| |||||||
Basic and diluted | $ | (3.16 | ) |
| $ | (0.76 | ) | |||||||
Basic and diluted earnings per share data: |
|
|
|
|
|
|
| |||||||
Income from continuing operations | $ | 0.03 |
|
| $ | 0 |
| |||||||
Income from discontinued operations |
| 0.04 |
|
|
| 0.15 |
| |||||||
Net income | $ | 0.07 |
|
| $ | 0.15 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Retail Value Inc.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited, in thousands)
|
| Common Shares |
|
| Additional Paid-in Capital |
|
| Accumulated Distributions in Excess of Net Loss |
|
| Treasury Stock at Cost |
|
| Total |
| |||||
Balance as of December 31, 2020 |
| $ | 1,983 |
|
| $ | 721,234 |
|
| $ | (123,428 | ) |
| $ | (3 | ) |
| $ | 599,786 |
|
Issuance of common shares related to stock dividend and stock plan |
|
| 125 |
|
|
| 18,896 |
|
|
| — |
|
|
| — |
|
|
| 19,021 |
|
Net income |
|
| — |
|
|
| — |
|
|
| 3,209 |
|
|
| — |
|
|
| 3,209 |
|
Balance, March 31, 2021 |
|
| 2,108 |
|
|
| 740,130 |
|
|
| (120,219 | ) |
|
| (3 | ) |
|
| 622,016 |
|
Issuance of common shares related to stock dividend and stock plan |
|
| 2 |
|
|
| 418 |
|
|
| — |
|
|
| (26 | ) |
|
| 394 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (69,581 | ) |
|
| — |
|
|
| (69,581 | ) |
Balance, June 30, 2021 |
| $ | 2,110 |
|
| $ | 740,548 |
|
| $ | (189,800 | ) |
| $ | (29 | ) |
| $ | 552,829 |
|
|
| Common Shares |
|
| Additional Paid-in Capital |
|
| Accumulated Distributions in Excess of Net Loss |
|
| Treasury Stock at Cost |
|
| Total |
| |||||
Balance as of December 31, 2021 |
| $ | 2,112 |
|
| $ | 740,517 |
|
| $ | (675,602 | ) |
| $ | (13 | ) |
| $ | 67,014 |
|
Net income |
|
| — |
|
|
| — |
|
|
| 1,483 |
|
|
| — |
|
|
| 1,483 |
|
Balance, March 31, 2022 |
| $ | 2,112 |
|
| $ | 740,517 |
|
| $ | (674,119 | ) |
| $ | (13 | ) |
| $ | 68,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Shares |
|
| Additional Paid-in Capital |
|
| Accumulated Distributions in Excess of Net Loss |
|
| Treasury Stock at Cost |
|
| Total |
| |||||
Balance as of December 31, 2019 |
| $ | 1,905 |
|
| $ | 692,871 |
|
| $ | (6,857 | ) |
| $ | (16 | ) |
| $ | 687,903 |
|
Issuance of common shares related to stock dividend |
|
| 77 |
|
|
| 28,022 |
|
|
| — |
|
|
| — |
|
|
| 28,099 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (13,067 | ) |
|
| — |
|
|
| (13,067 | ) |
Balance, March 31, 2020 |
|
| 1,982 |
|
|
| 720,893 |
|
|
| (19,924 | ) |
|
| (16 | ) |
|
| 702,935 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (1,986 | ) |
|
| — |
|
|
| (1,986 | ) |
Balance, June 30, 2020 |
| $ | 1,982 |
|
| $ | 720,893 |
|
| $ | (21,910 | ) |
| $ | (16 | ) |
| $ | 700,949 |
|
|
| Common Shares |
|
| Additional Paid-in Capital |
|
| Accumulated Distributions in Excess of Net Loss |
|
| Treasury Stock at Cost |
|
| Total |
| |||||
Balance as of December 31, 2020 |
| $ | 1,983 |
|
| $ | 721,234 |
|
| $ | (123,428 | ) |
| $ | (3 | ) |
| $ | 599,786 |
|
Issuance of common shares related to stock dividend and stock plan |
|
| 125 |
|
|
| 18,896 |
|
|
| — |
|
|
| — |
|
|
| 19,021 |
|
Net income |
|
| — |
|
|
| — |
|
|
| 3,209 |
|
|
| — |
|
|
| 3,209 |
|
Balance, March 31, 2021 |
| $ | 2,108 |
|
| $ | 740,130 |
|
| $ | (120,219 | ) |
| $ | (3 | ) |
| $ | 622,016 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Retail Value Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
| Six Months |
| Three Months |
| ||||||||||
| Ended June 30, |
| Ended March 31, |
| ||||||||||
| 2021 |
|
| 2020 |
| 2022 |
|
| 2021 |
| ||||
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss | $ | (66,372 | ) |
| $ | (15,053 | ) | |||||||
Adjustments to reconcile net loss to net cash flow provided by operating activities: |
|
|
|
|
|
|
| |||||||
Net income | $ | 1,483 |
|
| $ | 3,209 |
| |||||||
Adjustments to reconcile net income to net cash flow provided by operating activities: |
|
|
|
|
|
|
| |||||||
Depreciation and amortization |
| 24,562 |
|
|
| 30,681 |
|
| 607 |
|
|
| 13,358 |
|
Amortization and write-off of above- and below-market leases, net |
| (424 | ) |
|
| (587 | ) |
| 0 |
|
|
| (236 | ) |
Amortization and write-off of debt issuance costs and fair market value of debt adjustments |
| 2,461 |
|
|
| 5,500 |
| |||||||
Amortization and write-off of debt issuance costs |
| 0 |
|
|
| 781 |
| |||||||
Gain on disposition of real estate, net |
| (1,541 | ) |
|
| (13,632 | ) |
| (289 | ) |
|
| (121 | ) |
Impairment charges |
| 81,060 |
|
|
| 26,820 |
|
| 0 |
|
|
| 2,010 |
|
Assumption of building due to ground lease termination |
| (1,350 | ) |
|
| 0 |
| |||||||
Net change in accounts receivable |
| 6,159 |
|
|
| (8,721 | ) |
| 779 |
|
|
| 3,298 |
|
Net change in accounts payable and other liabilities |
| (2,709 | ) |
|
| (7,881 | ) |
| (478 | ) |
|
| (1,883 | ) |
Net change in other operating assets |
| 5,763 |
|
|
| 3,083 |
|
| 1,126 |
|
|
| 2,035 |
|
Total adjustments |
| 113,981 |
|
|
| 35,263 |
|
| 1,745 |
|
|
| 19,242 |
|
Net cash flow provided by operating activities |
| 47,609 |
|
|
| 20,210 |
|
| 3,228 |
|
|
| 22,451 |
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate improvements to operating real estate |
| (6,073 | ) |
|
| (13,053 | ) |
| (854 | ) |
|
| (3,378 | ) |
Proceeds from disposition of real estate |
| 56,021 |
|
|
| 167,452 |
|
| 83 |
|
|
| 61 |
|
Net cash flow provided by investing activities |
| 49,948 |
|
|
| 154,399 |
| |||||||
Net cash flow used for investing activities |
| (771 | ) |
|
| (3,317 | ) | |||||||
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of mortgage debt, including repayment costs |
| (139,657 | ) |
|
| (154,596 | ) |
| 0 |
|
|
| (51,168 | ) |
Payment of debt issuance costs |
| (74 | ) |
|
| 0 |
| |||||||
Payment of credit facility costs |
| 0 |
|
|
| (75 | ) | |||||||
Dividends paid |
| (4,381 | ) |
|
| (10,958 | ) |
| (69,053 | ) |
|
| (4,381 | ) |
Net cash flow used for financing activities |
| (144,112 | ) |
|
| (165,554 | ) |
| (69,053 | ) |
|
| (55,624 | ) |
|
|
|
|
|
|
|
| |||||||
Net (decrease) increase in cash, cash equivalents and restricted cash |
| (46,555 | ) |
|
| 9,055 |
| |||||||
Net decrease in cash, cash equivalents and restricted cash |
| (66,596 | ) |
|
| (36,490 | ) | |||||||
Cash, cash equivalents and restricted cash, beginning of period |
| 172,788 |
|
|
| 183,293 |
|
| 112,463 |
|
|
| 172,788 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 126,233 |
|
| $ | 192,348 |
| $ | 45,867 |
|
| $ | 136,298 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
1. | Nature of Business and Financial Statement Presentation |
Nature of Business
Retail Value Inc. and its related consolidated real estate subsidiaries (collectively, the “Company” or “RVI”) were formed in December 2017 and owned and operated a portfolio of 48 retail shopping centers, comprised of 36 continental U.S. assets and 12 Puerto Rico assets, at the time of their separation from SITE Centers Corp. (“SITE Centers” or the “Manager”) on July 1, 2018. The Company focuses on realizing valueAt March 31, 2022, RVI’s only remaining real estate investment was Crossroads Center in its business through operations and sales of its assets. At June 30, 2021, RVI owned 17 retail shopping centers that included 8 continental U.S. assets and 9 Puerto Rico assets (including 4 enclosed malls)Gulfport, Mississippi comprising 7.30.6 million square feet of Company-owned gross leasable area (“GLA”) located, which was 92.1% occupied. This asset was sold on April 12, 2022.
The Company, its subsidiaries and the Manager have entered into a new External Management Agreement, effective January 1, 2022 (the “New Management Agreement”), which compensates the Manager for property management, leasing services and disposition efforts for Crossroads Center (prior to its sale) and for corporate services in 8 states and Puerto Rico. These properties serve as direct or indirect collateral for a mortgage loan which, as of June 30, 2021, had an aggregate principal balance of $214.5 million.
In connection with the separation from SITE Centers, SITE Centers retained 1,000 sharesanticipated wind-up of RVI’s series A preferred stock having an aggregate dividend preference equal to $190 million, which amount may increase by up to an additional $10 million depending on the amount of aggregate gross proceeds generated by RVI asset sales.
On July 1, 2018, the Company and SITE Centers also entered into an external management agreement (the “External Management Agreement”) which, together with various property management agreements, governs the fees, terms and conditions pursuant to which SITE Centers manages RVI and its properties. SITE Centers provides RVI with day-to-day management, subject to supervision and certain discretionary limits and authorities granted by the RVI Board of Directors. The Company does not have any employees. In general, either SITE Centers or RVI may terminate the management agreements on December 31, 2021, or at the end of any six-month renewal period thereafter.Company’s business. SITE Centers and RVI also entered into a tax matters agreement that governs the rights and responsibilities of the parties following RVI’s separation from SITE Centers with respect to various tax matters and provides for the allocation of tax-related assets, liabilities and obligations. SITE Centers provides RVI with day-to-day management, subject to supervision and certain discretionary limits and authorities granted by the RVI Board of Directors. The Company does not have any employees.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the year. The Company considered impacts to its estimates related to the COVID-19 pandemic, as appropriate, within its unaudited condensed consolidated financial statements, and there may be changes to those estimates in future periods. The Company believes that its accounting estimates are appropriate after giving consideration to the uncertainties surrounding the severity and duration of the COVID‑19 pandemic. Actual results could differ from those estimates.
Unaudited Interim Financial Statements
These financial statements have been prepared by the Company in accordance with U.S. GAAP for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results of the periods presented. The results of operations for the three and six months ended June 30,March 31, 2022 and 2021, and 2020, are not necessarily indicative of the results that may be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Statements of Cash Flows and Supplemental Disclosure of Non-Cash Investing and Financing Information
Non-cash investing and financing activities are summarized as follows (in millions):
| Six Months |
| |||||
| Ended June 30, |
| |||||
| 2021 |
|
| 2020 |
| ||
Accounts payable related to construction in progress | $ | 1.6 |
|
| $ | 4.1 |
|
Assumption of building due to ground lease termination |
| 1.4 |
|
| 0 |
| |
Stock dividends |
| 18.6 |
|
|
| 28.1 |
|
| Three Months |
| |||||
| Ended March 31, |
| |||||
| 2022 |
|
| 2021 |
| ||
Accounts payable related to construction in progress (continuing operations) | $ | 0 |
|
| $ | 0.2 |
|
Accounts payable related to construction in progress (discontinued operations) |
| 0 |
|
|
| 1.0 |
|
Stock dividends |
| 0 |
|
|
| 18.6 |
|
Impact of COVID-19 Pandemic on Revenue and Receivables
Beginning in March 2020, the retail sector within the continental U.S. and Puerto Rico has been significantly impacted by the COVID-19 pandemic. Though the impact of the COVID-19 pandemic on tenant operations has varied by tenant category, local conditions and applicable government mandates, a significant number of the Company’s tenants have experienced a reduction in sales and foot traffic, and many tenants were forced to limit their operations or close their businesses for a period of time. The COVID-19 pandemic had a significant impact on the Company’s collection of rents from April 2020 through the end of 2020.
The Company engaged in discussions with most of its larger tenants that failed to satisfy all or a portion of their rent obligations and has agreed to terms on rent-deferral arrangements (and, in a small number of cases, rent abatements) and other lease modifications with a significant number of such tenants, of which $1.0 million remains outstanding under these deferral arrangements at June 30, 2021 for tenants that are not accounted for on the cash basis. The Company continues to evaluate its options with respect to tenants with which the Company has not reached satisfactory resolution of unpaid rents and has commenced collections actions against several tenants.
For those tenants where the Company is unable to assert that collection of amounts due over the lease term is probable, regardless if the Company has entered into a deferral agreement to extend the payment terms, the Company has categorized these tenants on the cash basis of accounting. As a result, all existing accounts receivable relating to these tenants have been reserved in full, including straight-line rental income and no rental income is recognized from such tenants once they have been placed on the cash basis of accounting until payments are received. The Company will remove the cash basis designation and resume recording rental income from such tenants on a straight-line basis at such time it believes collection from the tenants is probable based upon a demonstrated payment history or a recapitalization event.
During the three and six months ended June 30, 2021, the Company recorded net uncollectible revenue that resulted in rental income of $2.8 million and $3.1 million, respectively, primarily due to rental income paid in 2021 related to outstanding receivables in 2020 from tenants on the cash basis of accounting. The aggregate amount of uncollectible revenue reported during the quarter primarily was due to the impact of the COVID-19 pandemic.
Income Taxes
The aggregate net tax basis of the assets for federal income tax purposes was approximately $1.3 billion at June 30, 2021, of which $0.8 billion relates to the assets in Puerto Rico (Note 9).
|
|
Other Assets and Intangibles, net consists of the following (in thousands):
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Intangible assets: |
|
|
|
|
|
|
|
In-place leases, net | $ | 2,408 |
|
| $ | 3,244 |
|
Above-market leases, net |
| 273 |
|
|
| 410 |
|
Lease origination costs, net |
| 298 |
|
|
| 487 |
|
Tenant relationships, net |
| 2,697 |
|
|
| 3,802 |
|
Total intangible assets, net(A) |
| 5,676 |
|
|
| 7,943 |
|
Operating lease ROU assets |
| 1,402 |
|
|
| 1,509 |
|
Notes receivable(B) |
| 3,000 |
|
|
| 3,000 |
|
Other assets: |
|
|
|
|
|
|
|
Prepaid expenses |
| 7,565 |
|
|
| 13,314 |
|
Other assets |
| 317 |
|
|
| 276 |
|
Total other assets, net | $ | 17,960 |
|
| $ | 26,042 |
|
|
|
|
|
|
|
|
|
Below-market leases, net (other liabilities) | $ | 11,828 |
|
| $ | 13,829 |
|
|
|
|
|
|
|
Mortgage Indebtedness
The Company has a mortgage loan, which had an outstanding aggregate principal amount of $214.5 million at June 30, 2021, and is secured, directly and indirectly, by all of its properties. In June 2021, the Company made a $20.0 million voluntary prepayment on the mortgage loan.
On March 9, 2021, the Company exercised its first one-year extension option under the loan agreement to extend the maturity date to March 9, 2022, subject to 2 remaining one-year extensions at the borrowers’ option conditioned upon, among other items, (i) an event of default shall not be continuing, (ii) in the case of the second one-year extension option (exercisable March 2022), in addition to (i) above, evidence that the Debt Yield (as defined and calculated in accordance with the loan agreement) equals or exceeds 13% and (iii) in the case of the third one-year extension option (exercisable March 2023), in addition to (i) above, evidence that the Debt Yield equals or exceeds 14% on the extension date.
As of June 30, 2021, the Company was in compliance with all provisions of the loan agreements. The Company expects to continue to use cash flow from operations and asset sales to repay the mortgage loan. As of August 3, 2021, the Company plans to exercise the second one-year extension option effective March 9, 2022 to the extent the mortgage loan remains outstanding. The Debt Yield as of June 30, 2021 was 23.84%, which is in excess of the required threshold of 13% in order to exercise the second one-year extension option. If the Debt Yield requirement is not met at the time of the extension exercise, the Company can utilize unrestricted cash to pay down principal to satisfy the Debt Yield requirement. If the Company does not have sufficient cash to pay down the principal to satisfy the required Debt Yield, the Company would need to obtain alternative sources of capital, which could include a refinancing of the current mortgage loan or other financing options.
As of June 30, 2021, the interest rate of the Company’s mortgage loan was 4.5% per annum. The interest rate on the mortgage loan is equal to the one-month LIBOR plus a weighted-average spread of 4.4% per annum as of June 30, 2021, provided that such spread is subject to an increase of 0.25% per annum in connection with any exercise of the third extension option. Application of voluntary prepayments will cause the weighted-average interest rate spread to increase over time as senior tranches of the mortgage debt are repaid first.
Credit Agreement
The Company maintains a Credit Agreement (the “Revolving Credit Agreement”) with PNC Bank, National Association, as lender and administrative agent (“PNC”) that was amended and extended in February 2021. The Revolving Credit Agreement provides for borrowings of up to $30.0 million. Borrowings under the Revolving Credit Agreement may be used by the Company for general corporate purposes and working capital. The Company’s borrowings under the Revolving Credit Agreement bear interest at variable rates at the Company’s election, based on either (i) LIBOR plus a specified spread ranging from 1.30% to 1.75% per annum depending on the Company’s Leverage Ratio (as defined in the Revolving Credit Agreement) or (ii) the Alternate Base Rate (as defined in the Revolving Credit Agreement) plus a specified spread ranging from 0.30% to 0.75% per annum depending on the Company’s Leverage Ratio. The Company is also required to pay a facility fee on the aggregate revolving commitments at a rate per annum that ranges from 0.15% to 0.30% depending on the Company’s Leverage Ratio.
The Revolving Credit Agreement matures on the earliest of (i) February 9, 2022, (ii) the date on which the External Management Agreement is terminated, (iii) the date on which DDR Asset Management, LLC or another wholly-owned subsidiary of SITE Centers ceases to be the “Service Provider” under the External Management Agreement as a result of assignment or operation of law or otherwise and (iv) the date on which the principal amount outstanding under the Company’s mortgage loan is repaid or refinanced.
At June 30, 2021, there were 0 amounts outstanding under the Revolving Credit Agreement.
|
|
The following methods and assumptions were used by the Company in estimating fair value disclosures of financial instruments:
Cash and Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable and Other Liabilities
The carrying amounts reported in the Company’s consolidated balance sheets for these financial instruments approximated fair value because of their short-term maturities.
Debt
The fair market value of debt is estimated using a discounted cash flow technique that incorporates future contractual interest and principal payments and a market interest yield curve with adjustments for duration, optionality and risk profile, including the Company’s non-performance risk and loan to value and is classified as Level 3 in the fair value hierarchy.
Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The carrying amount of debt, including deferred financing costs, was $207.2 million and $344.5 million at June 30, 2021 and December 31, 2020, respectively.The fair value of debt was $222.8 million and $362.7 million at June 30, 2021 and December 31, 2020, respectively.
|
|
Hurricane Loss
In 2017, Hurricane Maria made landfall in Puerto Rico. At the time of the hurricane, the Company owned 12 assets in Puerto Rico, aggregating 4.4 million square feet of Company-owned GLA, which sustained varying degrees of damage. In August 2019, the Company reached a settlement with its insurer with respect to the Company’s claims relating to the hurricane damage. The Company continued to own 9 of these Puerto Rico assets at June 30, 2021.
The remaining unutilized property damage settlement proceeds of $30.7 million, along with other related reserves required by the mortgage lender of $6.5 million, are reflected in the Company’s consolidated balance sheets as Restricted Cash and will be disbursed to the Company in accordance with the terms of the Company’s mortgage financing upon the lender’s satisfaction that all necessary restoration work has been completed.
Legal Matters
The Company and its subsidiaries are subject to various legal proceedings, which, taken together, are not expected to have a material adverse effect on the Company. The Company is also subject to a variety of legal actions for personal injury or property damage arising in the ordinary course of its business, most of which are covered by insurance. While the resolution of all matters
cannot be predicted with certainty, management believes that the final outcome of such legal proceedings and claims will not have a material adverse effect on the Company’s liquidity, financial position or results of operations.
|
|
Impairment charges were recorded on assets based on the difference between the carrying valueOther Assets consists of the assets and the estimated fair market value after the assets failed a step-one analysis that compared the sum of estimated future undiscounted cash flows to the assets’ carrying value. In the second quarter of 2021, the impairment charges recorded were triggered by a change in the hold period assumptions for the Puerto Rico assets. The impairments recorded in the first quarter of 2021 and prior years primarily were triggered by indicative bids received and changes in market assumptions due to the disposition process, as well as changes in projected cash flows. The following table summarizes the impairment charges during the three and six months ended June 30, 2021 and 2020 (in millions)thousands):
| Three Months |
|
| Six Months |
| ||||||||||
| Ended June 30, |
|
| Ended June 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Puerto Rico Assets | $ | 79.1 |
|
| $ | 0 |
|
| $ | 81.1 |
|
| $ | 0 |
|
Continental U.S. Assets |
| 0 |
|
|
| 10.9 |
|
|
| 0 |
|
|
| 26.8 |
|
Total impairment charges | $ | 79.1 |
|
| $ | 10.9 |
|
| $ | 81.1 |
|
| $ | 26.8 |
|
Items Measured at Fair Value
The valuation of impaired real estate assets is determined using widely accepted valuation techniques including actual sales negotiations and bona fide purchase offers received from third parties, an income capitalization approach considering prevailing market capitalization rates and analysis of recent comparable sales transactions, as well as discounted cash flow analysis on the expected cash flows of each asset. In general, the Company considers multiple valuation techniques when measuring fair value of real estate. However, in certain circumstances, a single valuation technique may be appropriate.
For operational real estate assets, the significant assumptions included the capitalization rate used in the income capitalization valuation, as well as the projected property net operating income. These valuation adjustments were calculated based on market conditions and assumptions made by SITE Centers or the Company at the time the valuation adjustments and impairments were recorded, which may differ materially from actual results if market conditions or the underlying assumptions change.
The following table presents information about the fair value of real estate that was impaired, and therefore, measured on a fair value basis, along with the related impairment charge, for the six months ended June 30, 2021. The table also indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in millions).
|
| Fair Value Measurements |
| |||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Total Impairment Charges |
| |||||
June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets held and used |
| $ | 0 |
|
| $ | 0 |
|
| $ | 324.5 |
|
| $ | 324.5 |
|
| $ | 81.1 |
|
The following table presents quantitative information about the significant unobservable inputs used by the Company to determine the fair value for the six months ended June 30, 2021 (in millions):
|
| Quantitative Information about Level 3 Fair Value Measurements | ||||||||||
Description |
| Fair Value at June 30, 2021 |
|
| Valuation Technique |
| Unobservable Inputs |
| Range |
| Weighted Average | |
Long-lived assets held and used |
| $ | 324.5 |
|
| Indicative Bid (A) |
| Indicative Bid(A) |
| N/A |
| N/A |
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Operating lease ROU assets | $ | 1,088 |
|
| $ | 1,098 |
|
Notes receivable(A) |
| 3,000 |
|
|
| 3,000 |
|
Other assets: |
|
|
|
|
|
|
|
Prepaid expenses |
| 282 |
|
|
| 511 |
|
Other assets |
| 128 |
|
|
| 109 |
|
Total other assets | $ | 4,498 |
|
| $ | 4,718 |
|
(A) |
|
| Discontinued Operations |
The Company previously sold all of its properties located in Puerto Rico, which represented a strategic shift in the Company’s geographic concentration and business and, as such, the Puerto Rico properties are reflected as discontinued operations for all periods presented. Only Interest Expense, which was specifically identifiable to the Puerto Rico assets, is included in the computation of interest expense attributable to discontinued operations. The operating results related to the Puerto Rico segment were as follows (in thousands):
| Three Months |
| |||||
| Ended March 31, |
| |||||
| 2022 |
|
| 2021 |
| ||
Revenues from operations: |
|
|
|
|
|
|
|
Rental income | $ | 847 |
|
| $ | 23,269 |
|
Other income |
| 0 |
|
|
| 20 |
|
|
| 847 |
|
|
| 23,289 |
|
Rental operation expenses: |
|
|
|
|
|
|
|
Operating and maintenance |
| 57 |
|
|
| 7,223 |
|
Real estate taxes |
| 0 |
|
|
| 1,132 |
|
Property and asset management fees |
| 0 |
|
|
| 2,487 |
|
Impairment charges |
| 0 |
|
|
| 2,010 |
|
Depreciation and amortization |
| 0 |
|
|
| 6,370 |
|
|
| 57 |
|
|
| 19,222 |
|
Other income (expense): |
|
|
|
|
|
|
|
Interest expense, net |
| 0 |
|
|
| (840 | ) |
Debt extinguishment costs |
| 0 |
|
|
| (57 | ) |
Loss on disposition of real estate |
| (6 | ) |
|
| (27 | ) |
|
| (6 | ) |
|
| (924 | ) |
Income from discontinued operations before tax expense |
| 784 |
|
|
| 3,143 |
|
Tax expense |
| (12 | ) |
|
| (43 | ) |
Income from discontinued operations | $ | 772 |
|
| $ | 3,100 |
|
The following table summarizes cash flow data relating to discontinued operations for the three months ended March 31, 2021 (in thousands):
| Three Months |
| |
| Ended March 31, |
| |
| 2021 |
| |
Depreciation and amortization | $ | 6,370 |
|
Amortization and write-off of above- and below-market leases, net |
| 79 |
|
Impairment charges |
| 2,010 |
|
Real estate improvements to operating real estate |
| 2,745 |
|
4. | Transactions with SITE Centers |
The following table presents fees and other amounts charged by SITE Centers (in thousands):
| Three Months |
|
| Six Months |
| Three Months |
| |||||||||||||||
| Ended June 30, |
|
| Ended June 30, |
| Ended March 31, |
| |||||||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| 2022 |
|
| 2021 |
| ||||||
Property management fees(A) | $ | 2,264 |
|
| $ | 2,566 |
|
| $ | 4,528 |
|
| $ | 5,118 |
| $ | 66 |
|
| $ | 2,265 |
|
Asset management fees(B) |
| 1,770 |
|
|
| 2,324 |
|
|
| 3,541 |
|
|
| 4,648 |
|
| 125 |
|
|
| 1,770 |
|
Leasing commissions(C) |
| 617 |
|
|
| 473 |
|
|
| 1,395 |
|
|
| 1,704 |
|
| 7 |
|
|
| 778 |
|
Maintenance services and other(D) |
| 308 |
|
|
| 341 |
|
|
| 652 |
|
|
| 682 |
|
| 6 |
|
|
| 344 |
|
Disposition fees(E) |
| 592 |
|
|
| 210 |
|
|
| 592 |
|
|
| 1,766 |
| |||||||
Legal fees(F) |
| 105 |
|
|
| 92 |
|
|
| 209 |
|
|
| 185 |
| |||||||
Legal fees(E) |
| 32 |
|
|
| 104 |
| |||||||||||||||
| $ | 5,656 |
|
| $ | 6,006 |
|
| $ | 10,917 |
|
| $ | 14,103 |
| $ | 236 |
|
| $ | 5,261 |
|
(A) |
|
(B) |
|
(C) | Leasing commissions represent fees charged for the execution of the leasing of retail space. Leasing commissions are included within Real Estate Assets on the consolidated balance sheets. |
(D) | Maintenance services represent amounts charged to the properties for the allocation of compensation and other benefits of personnel directly attributable to the management of the properties. Amounts are recorded in Operating and Maintenance Expense on the consolidated statements of operations. |
(E) |
|
| Legal fees charged for collection activity, negotiating and reviewing tenant leases and contracts for asset dispositions. |
In October 2020,On December 15, 2021, the Company entered into an Amended and Restated Agreement (the “Agreement”) with an affiliatecertain subsidiaries of SITE Centers entered into the New Management Agreement, which took effect on January 1, 2022 and compensates the Manager for property management and leasing services for Crossroads Center (prior to its sale on April 12, 2022) and for corporate services in order to addressconnection with the impactanticipated wind-up of the COVID-19 pandemic on the level of effort required to manage the portfolio and the property management fees for the six-month period ending June 30, 2021.Company’s business. Pursuant to the terms of the Company’s existing propertyNew Management Agreement, the Company will pay the Manager an asset management agreementsfee for services rendered in connection with SITE Centers, propertycorporate management fees are determinedof the Company in an aggregate amount of (i) $500,000 for calendar year 2022, (ii) $300,000 per annum commencing on each July 1 and January 1, based on gross
property revenues received during2023 until the three-month periodend of the calendar quarter in which the Company’s shares are deregistered under the Securities Exchange Act of 1934 (the “Exchange Act”) and/or the Company’s reporting obligations under the Exchange Act are suspended or terminated, and (iii) $100,000 per annum, commencing from the calendar quarter immediately preceding such determination date.following the calendar quarter in which the Company’s shares are deregistered under the Exchange Act and/or the Company’s reporting obligations under the Exchange Act are suspended or terminated until the expiry of the term of the New Management Agreement (i.e. five years from the date that the Company files a certificate of dissolution with the Secretary of State of the State of Ohio) or the earlier termination thereof. In orderaddition, pursuant to offset the impact of reduced property collections duringNew Management Agreement, the three-month period preceding January 1, 2021 onCompany paid the Manager a property management fee applicable to the first six months of 2021, the Agreement provided that beginning$22,000 per month through April 2022 on January 1, 2021, the Company was to pay JDN Development Company (an affiliateaccount of SITE Centers) a monthly supplementalfee in an amount equal to (i) the average monthly property management fee paid during 2019 with respect to the properties owned by the Company and its subsidiaries as of October 1, 2020 (which amount is $737,377) minus (ii) the monthly property management fee determined on January 1, 2021 for the first six months of 2021Crossroads Center. In April 2022, in accordance with the existing property management agreements (which amount is $634,848)terms of the New Management Agreement, the Company paid SITE a $385,000 disposition fee for the sale of Crossroads Center and a $500,000 incentive payment in recognition of the successful completion of the Company’s disposition program (including the sale of Crossroads Center). This arrangement is similar
The New Management Agreement also obligates the Company to pay or reimburse the prior arrangement betweenManager for all commercially reasonable third-party costs and expenses incurred in the parties governingperformance of its duties under the paymentNew Management Agreement, including, but not limited to, all fees and expenses paid to outside advisors (legal and accounting), consultants, architects, engineers and other professionals reasonably required for the performance of a monthly supplemental fee with respect to the last six months of 2020.Manager’s duties.
| Earnings Per Share |
The following table provides the net lossincome and the number of common shares used in the computations of “basic” earnings per share (“EPS”), which utilizes the weighted-average number of common shares outstanding, and “diluted” EPS (in thousands, except per share amounts):
| Three Months |
|
| Six Months |
| Three Months |
| |||||||||||||||
| Ended June 30, |
|
| Ended June 30, |
| Ended March 31, |
| |||||||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| 2022 |
|
| 2021 |
| ||||||
Numerators – Basic and Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders after allocation to participating securities | $ | (69,581 | ) |
| $ | (1,986 | ) |
| $ | (66,372 | ) |
| $ | (15,053 | ) | |||||||
Net income attributable to common shareholders from continuing operations | $ | 711 |
|
| $ | 109 |
| |||||||||||||||
Net income attributable to common shareholders from discontinued operations |
| 772 |
|
|
| 3,100 |
| |||||||||||||||
Total | $ | 1,483 |
|
| $ | 3,209 |
| |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Denominators – Number of Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted—Average shares outstanding |
| 21,094 |
|
|
| 19,816 |
|
|
| 21,006 |
|
|
| 19,782 |
|
| 21,117 |
|
|
| 20,916 |
|
Loss Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Basic and Diluted | $ | (3.30 | ) |
| $ | (0.10 | ) |
| $ | (3.16 | ) |
| $ | (0.76 | ) | |||||||
|
|
|
|
|
|
|
| |||||||||||||||
Basic and Diluted Earnings Per Share: |
|
|
|
|
|
|
| |||||||||||||||
Income from continuing operations | $ | 0.03 |
|
| $ | — |
| |||||||||||||||
Income from discontinued operations |
| 0.04 |
|
|
| 0.15 |
| |||||||||||||||
Total | $ | 0.07 |
|
| $ | 0.15 |
|
Dividends
In November 2020,December 2021, the Board of Directors of the Company declared a cash dividend on itsof $3.27 per common shares of $1.16 per share that was paid in January 2021 in a combination of cash and the Company’s common shares, subject to a Puerto Rico withholding tax of 10%. The aggregate amount of cash paid to shareholders was limited to 10% of the total dividend paid. In connection with the 2020 dividend, in January 2021, the Company issued 1,253,988 common shares, based on the volume-weighted average trading price of $14.8492 per share, and paid $4.4 million in cash, which included the Puerto Rico withholding tax.2022.
|
|
The Company has 2 reportable operating segments: continental U.S. and Puerto Rico. The table below presents information about the Company’s reportable operating segments (in thousands):
| Three Months Ended June 30, 2021 |
| |||||||||||||
| Continental U.S. |
|
| Puerto Rico |
|
| Other |
|
| Total |
| ||||
Lease revenue and other property revenue | $ | 17,462 |
|
| $ | 24,449 |
|
|
|
|
|
| $ | 41,911 |
|
Rental operation expenses |
| (4,946 | ) |
|
| (7,980 | ) |
|
|
|
|
|
| (12,926 | ) |
Net operating income |
| 12,516 |
|
|
| 16,469 |
|
|
|
|
|
|
| 28,985 |
|
Property and asset management fees |
| (1,547 | ) |
|
| (2,487 | ) |
|
|
|
|
|
| (4,034 | ) |
Impairment charges |
| 0 |
|
|
| (79,050 | ) |
|
|
|
|
|
| (79,050 | ) |
Depreciation and amortization |
| (4,700 | ) |
|
| (6,504 | ) |
|
|
|
|
|
| (11,204 | ) |
Unallocated expenses(A) |
|
|
|
|
|
|
|
| $ | (5,610 | ) |
|
| (5,610 | ) |
Gain (loss) on disposition of real estate, net |
| 1,696 |
|
|
| (276 | ) |
|
|
|
|
|
| 1,420 |
|
Loss before tax expense |
|
|
|
|
|
|
|
|
|
|
|
| $ | (69,493 | ) |
| Three Months Ended June 30, 2020 |
| |||||||||||||
| Continental U.S. |
|
| Puerto Rico |
|
| Other |
|
| Total |
| ||||
Lease revenue and other property revenue | $ | 19,051 |
|
| $ | 20,241 |
|
|
|
|
|
| $ | 39,292 |
|
Rental operation expenses |
| (7,054 | ) |
|
| (8,056 | ) |
|
|
|
|
|
| (15,110 | ) |
Net operating income |
| 11,997 |
|
|
| 12,185 |
|
|
|
|
|
|
| 24,182 |
|
Property and asset management fees |
| (2,417 | ) |
|
| (2,473 | ) |
|
|
|
|
|
| (4,890 | ) |
Impairment charges |
| (10,910 | ) |
|
|
|
|
|
|
|
|
|
| (10,910 | ) |
Depreciation and amortization |
| (6,961 | ) |
|
| (7,250 | ) |
|
|
|
|
|
| (14,211 | ) |
Unallocated expenses(A) |
|
|
|
|
|
|
|
| $ | (6,596 | ) |
|
| (6,596 | ) |
Gain on disposition of real estate, net |
| 10,958 |
|
|
|
|
|
|
|
|
|
|
| 10,958 |
|
Loss before tax expense |
|
|
|
|
|
|
|
|
|
|
|
| $ | (1,467 | ) |
| Six Months Ended June 30, 2021 |
| |||||||||||||
| Continental U.S. |
|
| Puerto Rico |
|
| Other |
|
| Total |
| ||||
Lease revenue and other property revenue | $ | 35,631 |
|
| $ | 47,739 |
|
|
|
|
|
| $ | 83,370 |
|
Rental operation expenses |
| (10,464 | ) |
|
| (16,335 | ) |
|
|
|
|
|
| (26,799 | ) |
Net operating income |
| 25,167 |
|
|
| 31,404 |
|
|
|
|
|
|
| 56,571 |
|
Property and asset management fees |
| (3,095 | ) |
|
| (4,974 | ) |
|
|
|
|
|
| (8,069 | ) |
Impairment charges |
| 0 |
|
|
| (81,060 | ) |
|
|
|
|
|
| (81,060 | ) |
Depreciation and amortization |
| (11,688 | ) |
|
| (12,874 | ) |
|
|
|
|
|
| (24,562 | ) |
Unallocated expenses(A) |
|
|
|
|
|
|
|
| $ | (10,596 | ) |
|
| (10,596 | ) |
Gain (loss) on disposition of real estate, net |
| 1,845 |
|
|
| (304 | ) |
|
|
|
|
|
| 1,541 |
|
Loss before tax expense |
|
|
|
|
|
|
|
|
|
|
|
| $ | (66,175 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross real estate assets | $ | 527,068 |
|
| $ | 846,164 |
|
|
|
|
|
| $ | 1,373,232 |
|
Total real estate assets, net | $ | 305,598 |
|
| $ | 513,200 |
|
|
|
|
|
| $ | 818,798 |
|
| Six Months Ended June 30, 2020 |
| |||||||||||||
| Continental U.S. |
|
| Puerto Rico |
|
| Other |
|
| Total |
| ||||
Lease revenue and other property revenue | $ | 44,006 |
|
| $ | 45,655 |
|
|
|
|
|
| $ | 89,661 |
|
Rental operation expenses |
| (15,331 | ) |
|
| (16,560 | ) |
|
|
|
|
|
| (31,891 | ) |
Net operating income |
| 28,675 |
|
|
| 29,095 |
|
|
|
|
|
|
| 57,770 |
|
Property and asset management fees |
| (4,835 | ) |
|
| (4,931 | ) |
|
|
|
|
|
| (9,766 | ) |
Impairment charges |
| (26,820 | ) |
|
|
|
|
|
|
|
|
|
| (26,820 | ) |
Depreciation and amortization |
| (16,191 | ) |
|
| (14,490 | ) |
|
|
|
|
|
| (30,681 | ) |
Unallocated expenses(A) |
|
|
|
|
|
|
| �� | $ | (18,596 | ) |
|
| (18,596 | ) |
Gain on disposition of real estate, net |
| 13,632 |
|
|
|
|
|
|
|
|
|
|
| 13,632 |
|
Loss before tax expense |
|
|
|
|
|
|
|
|
|
|
|
| $ | (14,461 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross real estate assets | $ | 726,607 |
|
| $ | 1,088,218 |
|
|
|
|
|
| $ | 1,814,825 |
|
Total real estate assets, net | $ | 452,598 |
|
| $ | 740,127 |
|
|
|
|
|
| $ | 1,192,725 |
|
|
|
| Subsequent Events |
On July 13, 2021, the general due diligence period expired under the Purchase and Sale Agreement, dated as of June 30, 2021 (the “Puerto Rico Purchase Agreement”), by and amongApril 12, 2022, the Company and RVT PR Mezz Borrower 1 LLC, a wholly-owned subsidiary of the Company (collectively, the “Sellers”), and Kildare Acquisitions US, LLC (the “Purchaser”). Pursuant to the Puerto Rico Purchase Agreement, the Sellers have agreed to sell to the Purchaser all of their interestssold Crossroads Center in the limited liability companies that
own all of the Company’s remaining assets located in Puerto Rico (comprising approximately 3.5 million square feet of Company-owned gross leasable area)Gulfport, Mississippi for $550 million in cash, subject to adjustment for certain closing pro-rations, allocations and adjustments. The sale does not include any cash or restricted cash held by or on behalf of the limited liability companies at closing and the Sellers will retain the right to pursue and collect amounts from tenants relating to pre-closing periods (including amounts relating to pre-closing periods which have been deferred and are to be repaid by tenants sometime after the closing date). Closing remains subject to customary conditions, including but not limited to delivery of estoppel letters from tenants, the accuracy of Sellers’ representations in all material respects and the absence of condemnation or casualty events exceeding $30 million in the aggregate.$38.5 million. In connection with the expirysale, in April 2022, the Board of Directors of the Purchaser’s general due diligence period,Company authorized an incentive payment of $0.5 million to the Purchaser posted a deposit of $15 millionManager in accordance with the escrow agent for the transaction, which deposit is nonrefundable (except in certain limited circumstances as set forth in the Puerto Rico Purchase Agreement) and will be credited to the Purchaser against the purchase price at closing. Closingterms of the transaction is expected to occur byNew Management Agreement (Note 4). In addition, on April 12, 2022, the endBoard of Directors of the third quarterCompany declared a cash dividend of 2021. The$2.13 per common share, which the Company anticipates utilizing a portion of the net proceeds from this transaction to repay the entire balance of the mortgage loan, as required under the mortgage agreement (Note 3).will pay on May 10, 2022.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of OPERATIONS |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides readers with a perspective from management on the financial condition, results of operations and liquidity of Retail Value Inc. and its related consolidated real estate subsidiaries (collectively, the “Company” or “RVI”) (NYSE: RVI)(OTC Pink Market: RVIC) and other factors that may affect the Company’s future results. The Company believes it is important to read the MD&A in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2020,2021, as well as other publicly available information. On April 7, 2022, the Company de-listed its common shares from the New York Stock Exchange (the “NYSE”) in anticipation of the Company’s sale of Crossroads Center. See further discussion below “Liquidity, Capital Resources and Financing Activities – Winding up and Dissolution.”
RVI is an Ohio companyThe Company was formed in December 2017 that, as a wholly-owned subsidiary of June 30, 2021,SITE Centers Corp. (“SITE Centers” or the “Manager”). On July 1, 2018, the date of the Company’s spin-off from SITE Centers into a separate publicly traded company, the Company owned 48 properties and operated a portfolio of 17 assets, composed of eighthad two reportable segments: continental U.S. assets and ninePuerto Rico. As a result of the sale of the Company’s remaining Puerto Rico assets in August 2021, the Company ceased reporting financial results for the Puerto Rico. These properties consistedRico segment and instead reports the financial results of retail shopping centers (including four enclosed malls) composed of 7.3the Puerto Rico segment as discontinued operations for all periods presented. At March 31, 2022, RVI’s only remaining real estate investment was Crossroads Center in Gulfport, Mississippi comprising 0.6 million square feet of Company-owned gross leasable area (“GLA”) and were located in eight states and Puerto Rico. The Company’s continental U.S. properties and Puerto Rico properties comprised approximately 43% and 57%, respectively, of its total consolidated revenue for the six months ended June 30, 2021. At June 30, 2021, the aggregate occupancy of the Company’s shopping center portfoliowhich was 89.7%, and the average annualized base rent per occupied square foot92.1% occupied. This asset was $16.26.
All of the Company’s properties serve as direct or indirect collateral for a mortgage loan which, as of June 30, 2021, had an aggregate principal balance of $214.5 million. In connection with the Company’s separation from SITE Centers Corp. (“SITE Centers”) in 2018, SITE Centers retained 1,000 shares of RVI’s series A preferred stock having an aggregate dividend preference equal to $190 million, which amount may increase by up to an additional $10 million dependingsold on the amount of aggregate gross proceeds generated by RVI asset sales (the “RVI Preferred Shares”).April 12, 2022.
EXECUTIVE SUMMARY
The Company continues its focusremains focused on realizing value in its portfolio through operations and salesmaximizing the collection of its assets. The Company primarily intendsaccounts receivable, the proceeds of which are expected to use net asset sale proceeds first to repay mortgage debt, second to make distributions on account of the RVI Preferred Shares, up to the preference amount,be used for wind-up expenses and third to make distributions to holders of the Company’s common shares.
From January 1, 2021 through July 30, 2021, the Company sold the following assets (in thousands):
Date Sold |
| Property Name |
| City, State |
| Total Owned GLA |
|
| Gross Sales Price |
| ||
4/9/21 |
| Marketplace of Brown Deer |
| Brown Deer, WI |
|
| 405 |
|
| $ | 10,250 |
|
4/13/21 |
| Noble Town Center |
| Jenkintown, PA |
|
| 168 |
|
|
| 14,000 |
|
4/14/21 |
| Plaza Vega Baja |
| Vega Baja, PR |
|
| 185 |
|
|
| 4,500 |
|
4/21/21 |
| Uptown Solon |
| Solon, OH |
|
| 182 |
|
|
| 10,100 |
|
6/3/21 |
| Señorial Plaza |
| Rio Piedras, PR |
|
| 202 |
|
|
| 20,350 |
|
|
|
|
|
|
|
| 1,142 |
|
| $ | 59,200 |
|
Transaction Update
On June 30, 2021, the Company and a wholly-owned subsidiary entered into a purchase and sale agreement to sell all of the Company’s interests in its remaining assets located in Puerto Rico (comprising approximately 3.5 million square feet of gross leasable area) for $550 million in cash, subject to adjustment for certain closing pro-rations, allocations and adjustments.shareholders. The general due diligence period has expired under this agreement and the closing is expected to occur by the end of the third quarter of 2021 subject to the satisfaction of various closing conditions. The Company anticipates utilizing a portion of the net proceeds from this transaction to repay the entire balance of the mortgage loan, as required under the mortgage agreement. See discussion below under “Liquidity,“Liquidity, Capital Resources and Financing Activities – Dispositions.Winding up and Dissolution.”
COVID-19Transaction Update
In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and it continues to spread throughout the United States and other countries across the world. Beginning in mid-March 2020, federal, state and local governments took various actions to limit the spread of COVID-19, including ordering the temporary closure of non-essential businesses (which included many of the Company’s tenants) and imposing significant social distancing guidelines and restrictions on the continued operations of essential businesses and the reopening of non-essential businesses. As of July 30, 2021, 100% of the Company’s tenants, based on average base rents, were open for business, up from a low of approximately 34% in early April 2020 due to the impact of the
COVID‑19 pandemic. Operating restrictions on many tenant businesses were lifted in the continental U.S. in the second quarter of 2021 and restrictions were lifted in Puerto Rico in July 2021.
The COVID-19 pandemic had a significant impact on the Company’s collection of rents from April 2020 through the end of 2020. The Company’s collection rates have shown significant improvement in 2021 relative to 2020 levels. A substantial majority of tenants, including tenants previously on the cash basis of accounting, are paying their monthly rent and are repaying deferred rents relating to prior periods. Results for the second quarter of 2021 included $2.3 million of net revenue related to prior periods (including deferred rents), which was collected in the current period primarily from cash basis tenants. At June 30, 2021,2022, the Company had contractual accounts receivable outstandingsold its remaining real estate investment, Crossroads Center in Gulfport, Mississippi, for a sale price of $1.0 million for tenants that are not accounted for on$38.5 million. Net proceeds from the cash basis.
Although rent collection levels continued to improve in the second quarter of 2021, collection levels remained below historical averages during the first half of 2021, and future rent collections may be negatively impacted by any surges in COVID-19 contagion, the discovery of new COVID-19 variants which are more infectious or resistant to COVID-19 vaccines or decreases in the effectiveness of such vaccines and any implementation of additional restrictions on tenant business as a result thereof. For a further discussion on the impact of the COVID-19 pandemic on the Company’s business, see “Liquidity, Capital Resources and Financing Activities” and “Economic Conditions” included in this section and Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.transaction were approximately $37.2 million.
Manager
The Company is party to an external management agreement (the “External“New Management Agreement”) with SITE Centers, which together with various property management agreements, governs the fees, terms and conditions pursuant to which SITE Centers serves as the Company’s manager. The Company does not have any employees. In general, either the Company or SITE Centers may terminate these management agreements on December 31, 2021 or at the end of any six-month renewal period thereafter.
PursuantEffective January 1, 2022, pursuant to the Externalterms of the New Management Agreement, the Company pays SITE Centers and certain of its subsidiaries a monthlywill pay the Manager an asset management fee for services rendered in connection with corporate management of the Company in an aggregate amount of 0.5%(i) $500,000 for calendar year 2022, (ii) $300,000 per annum commencing on January 1, 2023 until the end of the gross asset valuecalendar quarter in which the Company’s shares are deregistered under the Securities Exchange Act of 1934 (the “Exchange Act”) and/or the Company’s reporting obligations under the Exchange Act are suspended or terminated, and (iii) $100,000 per annum, commencing from the calendar quarter immediately following the calendar quarter in which the Company’s shares are deregistered under the Exchange Act and/or the Company’s reporting obligations under the Exchange Act are suspended or terminated until the expiry of the Company’s properties (determinedterm of the New Management Agreement (i.e., five years from the date that the Company files a certificate of dissolution with the Secretary of State of the State of Ohio) or the earlier termination thereof. In addition, pursuant to the New Management Agreement, the Company paid the Manager a property management fee of $22,000 per month through April 2022 on the immediately preceding June 30 or December 31 and calculatedaccount of Crossroads Center. In April 2022, in accordance with the terms of the ExternalNew Management Agreement)Agreement, the Company paid SITE a $385,000 disposition fee for the sale of Crossroads Center and a $500,000 incentive payment in recognition of the successful completion of the Company’s disposition program (including the sale of Crossroads Center).
The ExternalNew Management Agreement also providesobligates the Company to pay or reimburse the Manager for all commercially reasonable third-party costs and expenses incurred in the performance of its duties under the New Management Agreement, including, but not limited to, all fees and expenses paid to outside advisors (legal and accounting), consultants, architects, engineers and other professionals reasonably required for the reimbursement of certain expenses incurred by SITE Centers in connection with the services it provides to the Company, along with the payment of transaction-based fees to SITE Centers in the event of any debt financings or change of control transactions.
Pursuant to the property management agreements, the Company pays SITE Centers and certain of its subsidiaries a monthly property management fee in an aggregate amount of 3.5% and 5.5%performance of the average gross monthly property revenue collected during the most recent second or fourth quarter in respect to the Company’s continental U.S. properties and the Puerto Rico properties, respectively. In order to address the impact of the pandemic on the level of effort required to manage the portfolio and property management fees paid in the first half of 2021, the Company has agreed to pay an affiliate of SITE Centers a supplemental monthly fee during the six-month period ending June 30, 2021 (see Note 7, “Transactions with SITE Centers” of the Company’s consolidated financial statements included herein). The property management agreements also provide for the payment to SITE Centers of certain leasing commissions and a disposition fee of 1% of the gross sales price of each asset sold by the Company.Manager’s duties.
2021 RESULTS OF OPERATIONS
Where used, referencesFor the three months ended March 31, 2022, the Company had one operating property, Crossroads Center, which was sold in April 2022. The operations of this property account for substantially all of the revenues and operating expenses reported for the three months ended March 31, 2022. The change in income as compared to “Comparable Portfolio Properties” reflect shopping center properties owned asthe three months ended March 31, 2021 is a result of June 30, 2021. the sale of
Revenues from Operations (in thousands)
| Three Months |
|
|
|
|
| |||||
| Ended June 30, |
|
|
|
|
| |||||
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
Rental income | $ | 41,857 |
|
| $ | 39,299 |
|
| $ | 2,558 |
|
Other income |
| 54 |
|
|
| (7 | ) |
|
| 61 |
|
Total revenues | $ | 41,911 |
|
| $ | 39,292 |
|
| $ | 2,619 |
|
| Six Months |
|
|
|
|
| |||||
| Ended June 30, |
|
|
|
|
| |||||
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
Rental income(A) | $ | 83,279 |
|
| $ | 89,629 |
|
| $ | (6,350 | ) |
Other income |
| 91 |
|
|
| 32 |
|
|
| 59 |
|
Total revenues (B) | $ | 83,370 |
|
| $ | 89,661 |
|
| $ | (6,291 | ) |
|
|
|
| Three Months |
|
|
|
|
| |||||
|
| Ended June 30, |
|
|
|
|
| |||||
Contractual Lease Payments |
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
Base and percentage rental income |
| $ | 26,200 |
|
| $ | 33,498 |
|
| $ | (7,298 | ) |
Recoveries from tenants |
|
| 9,574 |
|
|
| 11,819 |
|
|
| (2,245 | ) |
Uncollectible revenue |
|
| 2,840 |
|
|
| (6,820 | ) |
|
| 9,660 |
|
Ancillary rental income |
|
| 1,455 |
|
|
| 783 |
|
|
| 672 |
|
Lease termination fees |
|
| 1,788 |
|
|
| 19 |
|
|
| 1,769 |
|
Total contractual lease payments |
| $ | 41,857 |
|
| $ | 39,299 |
|
| $ | 2,558 |
|
|
| Six Months |
|
|
|
|
| |||||
|
| Ended June 30, |
|
|
|
|
| |||||
Contractual Lease Payments |
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
Base and percentage rental income(1) |
| $ | 55,195 |
|
| $ | 69,111 |
|
| $ | (13,916 | ) |
Recoveries from tenants(2) |
|
| 19,869 |
|
|
| 24,716 |
|
|
| (4,847 | ) |
Uncollectible revenue(3) |
|
| 3,078 |
|
|
| (7,678 | ) |
|
| 10,756 |
|
Ancillary rental income |
|
| 3,264 |
|
|
| 2,961 |
|
|
| 303 |
|
Lease termination fees |
|
| 1,873 |
|
|
| 519 |
|
|
| 1,354 |
|
Total contractual lease payments |
| $ | 83,279 |
|
| $ | 89,629 |
|
| $ | (6,350 | ) |
|
|
| Shopping Center Portfolio June 30, |
| |||||
| 2021 |
|
| 2020 |
| ||
Centers owned | 17 |
|
| 25 |
| ||
Aggregate occupancy rate |
| 89.7 | % |
|
| 87.2 | % |
Average annualized base rent per occupied square foot | $ | 16.26 |
|
| $ | 16.14 |
|
| Continental U.S. June 30, |
|
| Puerto Rico June 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Centers owned | 8 |
|
| 13 |
|
| 9 |
|
| 12 |
| ||||
Aggregate occupancy rate |
| 87.7 | % |
|
| 88.8 | % |
|
| 91.8 | % |
|
| 85.2 | % |
Average annualized base rent per occupied square foot | $ | 13.41 |
|
| $ | 13.60 |
|
| $ | 19.40 |
|
| $ | 19.80 |
|
For the six months ended June 30, 2021, the decrease in base and percentage rental income primarily was due to property dispositions. The decrease in the continental U.S. occupancy rateinterest expense primarily was due to the disposition of higher occupancy properties and a combination of tenant expirations and bankruptcies. The increase in the occupancy rate for the Puerto Rico portfolio primarily was due to the disposition of two properties with lower occupancy rates.
|
|
|
|
|
|
|
| Continental U.S. |
|
| Puerto Rico |
|
| Total |
| |||
Comparable Portfolio Properties |
| $ | 4.6 |
|
| $ | 5.1 |
|
| $ | 9.7 |
|
Disposition of shopping centers |
|
| (13.0 | ) |
|
| (3.0 | ) |
|
| (16.0 | ) |
|
| $ | (8.4 | ) |
| $ | 2.1 |
|
| $ | (6.3 | ) |
Expenses from Operations (in thousands)
| Three Months |
|
|
|
|
| |||||
| Ended June 30, |
|
|
|
|
| |||||
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
Operating and maintenance | $ | 9,169 |
|
| $ | 9,627 |
|
| $ | (458 | ) |
Real estate taxes |
| 3,757 |
|
|
| 5,483 |
|
|
| (1,726 | ) |
Property and asset management fees |
| 4,034 |
|
|
| 4,890 |
|
|
| (856 | ) |
Impairment charges |
| 79,050 |
|
|
| 10,910 |
|
|
| 68,140 |
|
General and administrative |
| 1,258 |
|
|
| 924 |
|
|
| 334 |
|
Depreciation and amortization |
| 11,204 |
|
|
| 14,211 |
|
|
| (3,007 | ) |
| $ | 108,472 |
|
| $ | 46,045 |
|
| $ | 62,427 |
|
| Six Months |
|
|
|
|
| |||||
| Ended June 30, |
|
|
|
|
| |||||
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
Operating and maintenance(A) | $ | 18,776 |
|
| $ | 20,689 |
|
| $ | (1,913 | ) |
Real estate taxes(B) |
| 8,023 |
|
|
| 11,202 |
|
|
| (3,179 | ) |
Property and asset management fees |
| 8,069 |
|
|
| 9,766 |
|
|
| (1,697 | ) |
Impairment charges(C) |
| 81,060 |
|
|
| 26,820 |
|
|
| 54,240 |
|
General and administrative(D) |
| 2,123 |
|
|
| 2,001 |
|
|
| 122 |
|
Depreciation and amortization(E) |
| 24,562 |
|
|
| 30,681 |
|
|
| (6,119 | ) |
| $ | 142,613 |
|
| $ | 101,159 |
|
| $ | 41,454 |
|
|
|
|
| Continental U.S. |
|
| Puerto Rico |
|
| Total |
| |||
Comparable Portfolio Properties |
| $ | — |
|
| $ | 1.3 |
|
| $ | 1.3 |
|
Disposition of shopping centers |
|
| (2.0 | ) |
|
| (1.2 | ) |
|
| (3.2 | ) |
|
| $ | (2.0 | ) |
| $ | 0.1 |
|
| $ | (1.9 | ) |
|
|
|
| Continental U.S. |
|
| Puerto Rico |
|
| Total |
| |||
Comparable Portfolio Properties |
| $ | 0.4 |
|
| $ | (0.1 | ) |
| $ | 0.3 |
|
Disposition of shopping centers |
|
| (3.3 | ) |
|
| (0.2 | ) |
|
| (3.5 | ) |
|
| $ | (2.9 | ) |
| $ | (0.3 | ) |
| $ | (3.2 | ) |
|
|
|
|
|
|
|
Other Income and Expenses (in thousands)
| Three Months |
|
|
|
|
| |||||
| Ended June 30, |
|
|
|
|
| |||||
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
Interest expense, net | $ | (3,437 | ) |
| $ | (5,660 | ) |
| $ | 2,223 |
|
Debt extinguishment costs |
| (1,112 | ) |
|
| (12 | ) |
|
| (1,100 | ) |
Other income, net |
| 197 |
|
|
| — |
|
|
| 197 |
|
Gain on disposition of real estate, net |
| 1,420 |
|
|
| 10,958 |
|
|
| (9,538 | ) |
Tax expense |
| (88 | ) |
|
| (519 | ) |
|
| 431 |
|
| $ | (3,020 | ) |
| $ | 4,767 |
|
| $ | (7,787 | ) |
| Six Months |
|
|
|
|
| |||||
| Ended June 30, |
|
|
|
|
| |||||
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
Interest expense, net(A) | $ | (7,428 | ) |
| $ | (12,952 | ) |
| $ | 5,524 |
|
Debt extinguishment costs(B) |
| (1,242 | ) |
|
| (3,977 | ) |
|
| 2,735 |
|
Other income, net |
| 197 |
|
|
| 334 |
|
|
| (137 | ) |
Gain on disposition of real estate, net(C) |
| 1,541 |
|
|
| 13,632 |
|
|
| (12,091 | ) |
Tax expense |
| (197 | ) |
|
| (592 | ) |
|
| 395 |
|
| $ | (7,129 | ) |
| $ | (3,555 | ) |
| $ | (3,574 | ) |
|
|
|
|
|
|
Net Loss (in thousands)
| Three Months |
|
|
|
|
| |||||
| Ended June 30, |
|
|
|
|
| |||||
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
Net loss | $ | (69,581 | ) |
| $ | (1,986 | ) |
| $ | (67,595 | ) |
| Six Months |
|
|
|
|
| |||||
| Ended June 30, |
|
|
|
|
| |||||
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
Net loss | $ | (66,372 | ) |
| $ | (15,053 | ) |
| $ | (51,319 | ) |
The increase in net loss primarily was attributable to an increase in impairment charges in 2021, the impact of asset sales partially offset by a reduction in interest expense and debt extinguishment costs and rental income paid in 2021 by cash basis tenants, which related to amounts (including deferred rent) originally owed in 2020.
NON-GAAP FINANCIAL MEASURES
Funds from Operations and Operating Funds from Operations
Definition and Basis of Presentation
The Company believes that Funds from Operations, or FFO, and Operating FFO, both non-GAAP financial measures, provide additional and useful means to assess the financial performance of real estate investment trusts (“REITs”). FFO and Operating FFO are frequently used by the real estate industry, as well as securities analysts, investors and other interested parties, to evaluate the performance of REITs. The Company also believes that FFO and Operating FFO more appropriately measure the core operations of the Company and provide benchmarks to its peer group.
FFO excludes GAAP historical cost depreciation and amortization of real estate and real estate investments, which assume that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions, and many companies use different depreciable lives and methods. Because FFO excludes depreciation and amortization unique to real estate and gains and losses from property dispositions, it can provide a performance measure that, when compared year over year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, interest costs and acquisition, disposition and development activities. This provides a perspectiverepayment of the Company’s financial performance not immediately apparent from net income determinedmortgage loan in accordance with GAAP.
FFO is generally defined and calculated byAugust 2021. Debt extinguishment costs (primarily related to the Company as net income (loss) (computednon-cash write-off of unamortized deferred financing costs) were incurred in accordance with GAAP), adjusted to exclude (i) gains and losses from disposition of real estate property and related investments, which are presented net of taxes, if any, (ii) impairment charges on real estate property and related investments and (iii) certain non-cash items. These non-cash items principally include real property depreciation and amortization of intangibles. The Company’s calculation of FFO is consistentconnection with the definition of FFO provided by NAREIT.
The Company believes that certain charges and income recorded in its operating results are not comparable or reflective of its core operating performance. Operating FFO is useful to investors as the Company removes non-comparable charges and income to analyze the results of its operations and assess performanceprepayment of the core operating real estate portfolio. As a result,mortgage loan with asset sale proceeds. Additionally, included in discontinued operations for the Company also computes Operating FFO and discusses it withthree months ended March 31, 2022, is 2021 overage rent (for the users of its financial statements, in addition to other measures such as net income (loss) determined in accordance with GAAP and FFO. Operating FFO is generally defined and calculated by the Company as FFO excluding certain charges and gains that management believes are not comparable and indicativeCompany’s ownership period of the resultsasset) from a major tenant in Puerto Rico that was not required to report the sales information until the first quarter of the Company’s operating real estate portfolio. Such adjustments include gains/losses on the early extinguishment of debt, net hurricane-related activity, transaction costs and other restructuring type costs. The disclosure of these charges and income is generally requested by users of the Company’s financial statements.
The adjustment for these charges and income may not be comparable to how other REITs or real estate companies calculate their results of operations, and the Company’s calculation of Operating FFO differs from NAREIT’s definition of FFO. Additionally, the Company provides no assurances that these charges and income are non-recurring. These charges and income could be reasonably expected to recur in future results of operations.
These measures of performance are used by the Company for several business purposes and by other REITs. The Company uses FFO and/or Operating FFO in part (i) as a disclosure to improve the understanding of the Company’s operating results among the investing public, (ii) as a measure of a real estate asset’s performance and (iii) to compare the Company’s performance to that of other publicly traded shopping center REITs.
For the reasons described above, management believes that FFO and Operating FFO provide the Company and investors with an important indicator of the Company’s operating performance. They provide recognized measures of performance other than GAAP net income, which may include non-cash items (often significant). Other real estate companies may calculate FFO and Operating FFO in a different manner.
The Company’s management recognizes the limitations of FFO and Operating FFO when compared to GAAP’s net income. FFO and Operating FFO do not represent amounts available for dividends, capital replacement or expansion, debt service obligations or other commitments and uncertainties. The Company’s management does not use FFO or Operating FFO as an indicator of the Company’s cash obligations and funding requirements for future commitments or redevelopment activities. Neither FFO nor Operating FFO represents cash generated from operating activities in accordance with GAAP, and neither is necessarily indicative of cash available to fund cash needs. Neither FFO nor Operating FFO should be considered an alternative to net income (computed in accordance with GAAP) or as an alternative to cash flow as a measure of liquidity. FFO and Operating FFO are simply used as additional indicators of the Company’s operating performance. The Company believes that to further understand its performance, FFO and Operating FFO should be compared with the Company’s reported net income (loss) and considered in addition to cash flows
determined in accordance with GAAP, as presented in its consolidated financial statements. Reconciliations of these measures to their most directly comparable GAAP measure of net income (loss) have been provided below.2022.
Reconciliation Presentation
FFO and Operating FFO were as follows (in thousands):
| Three Months |
|
|
|
|
| |||||
| Ended June 30, |
|
|
|
|
| |||||
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
FFO | $ | 19,236 |
|
| $ | 12,159 |
|
| $ | 7,077 |
|
Operating FFO |
| 20,151 |
|
|
| 12,171 |
|
|
| 7,980 |
|
| Six Months |
|
|
|
|
| |||||
| Ended June 30, |
|
|
|
|
| |||||
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
FFO | $ | 37,675 |
|
| $ | 28,781 |
|
| $ | 8,894 |
|
Operating FFO |
| 38,720 |
|
|
| 32,425 |
|
|
| 6,295 |
|
The increase in FFO primarily was due to the decrease in interest expense and debt extinguishment costs partially offset by the impact from the disposition of assets, as well as rental income paid in 2021 by cash basis tenants which related to amounts (including deferred rent) originally owed in 2020. The change in Operating FFO primarily was due to the same factors impacting FFO, (except for the exclusion of debt extinguishments costs).
The Company’s reconciliation of net loss to FFO and Operating FFO is as follows (in thousands). The Company provides no assurances that these charges and income adjusted in the calculation of Operating FFO are non-recurring. These charges and income could reasonably be expected to recur in future results of operations.
| Three Months |
|
| Six Months |
| ||||||||||
| Ended June 30, |
|
| Ended June 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net loss | $ | (69,581 | ) |
| $ | (1,986 | ) |
| $ | (66,372 | ) |
| $ | (15,053 | ) |
Depreciation and amortization of real estate investments |
| 11,187 |
|
|
| 14,193 |
|
|
| 24,528 |
|
|
| 30,646 |
|
Impairment of real estate assets |
| 79,050 |
|
|
| 10,910 |
|
|
| 81,060 |
|
|
| 26,820 |
|
Gain on disposition of real estate |
| (1,420 | ) |
|
| (10,958 | ) |
|
| (1,541 | ) |
|
| (13,632 | ) |
FFO |
| 19,236 |
|
|
| 12,159 |
|
|
| 37,675 |
|
|
| 28,781 |
|
Debt extinguishment and other expenses |
| 915 |
|
|
| 12 |
|
|
| 1,045 |
|
|
| 3,644 |
|
Non-operating items, net |
| 915 |
|
|
| 12 |
|
|
| 1,045 |
|
|
| 3,644 |
|
Operating FFO | $ | 20,151 |
|
| $ | 12,171 |
|
| $ | 38,720 |
|
| $ | 32,425 |
|
LIQUIDITY, CAPITAL RESOURCES AND FINANCING ACTIVITIES
The Company requires capitalmaintains and administers a reserve fund to fund its operatingsatisfy projected expenses capital expenditures and investment activities. Absentknown and unknown claims which might arise during the occurrence of an Amortization Period (as described below), theanticipated winding up and dissolution process. The Company’s capital sources may include unrestricted cash on the balance sheet related to retained asset sale proceeds and future cash flow from operations, as well as availability under its Revolving Credit Agreement (as defined below).
Although the Company experienced a reduction in timely collectionscollection of rentaccounts receivable. See further discussion below “Liquidity, Capital Resources and delays in the execution of its disposition strategy during 2020 as a result of the impacts of the COVID-19 pandemic, the Company witnessed significant improvement in rent collectionsFinancing Activities – Winding up and transaction markets during the first half of 2021 and believes that it has sufficient liquidity and capital resources to operate its business for at least the next twelve months. At June 30, 2021, the Company had an unrestricted cash balance of $67.2 million, restricted cash on deposit with its mortgage lender of $59.0 million and $30.0 million of availability under its Revolving Credit Agreement (subject to satisfaction of applicable borrowing conditions). Debt outstanding was $214.5 million at June 30, 2021.Dissolution.” The Company’s mortgage loan generally requires interest-only payments subject to maintenance of a minimum debt yield and has a maturity date of March 9, 2022 with two remaining one-year extensions at the Company’s option based on the satisfaction of certain conditions. The Company anticipates utilizing a portion of the net proceeds from the pending sale of its Puerto Rico assets discussed below under “—Dispositions,” to repay the entire balance of the mortgage loan,liquidity is reflected as required under the mortgage agreement. No assurance can be provided that this sale transaction will close or that the Company’s debt obligations, including the mortgage loan,follows (in millions):
Unrestricted cash available at March 31, 2022 | $ | 44.8 |
|
April 2022: net proceeds from sale of Crossroads Center |
| 37.2 |
|
April 2022: declaration of RVI common share dividend ($2.13 per share) |
| (45.0 | ) |
Pro forma cash available at March 31, 2022 |
| 37.0 |
|
Less: Potential liabilities under purchase and sale agreements (disclosed below) |
| (21.7 | ) |
Less: Estimate of wind-up costs (mid-point of range disclosed below) |
| (10.0 | ) |
Pro forma net cash available at March 31, 2022 | $ | 5.3 |
|
will be repaid, extended or refinanced as currently anticipated. Apart from capital expenditures deemed advisable in connection with the maintenance and leasing of its properties, and the completion of restoration work in Puerto Rico, the Company does not anticipate any material capital projects or development spending during the remainder of 2021.
Mortgage Indebtedness
As of June 30, 2021, the aggregate principal amount of the mortgage loan was $214.5 million. On March 9, 2021, the Company exercised its first one-year extension option under the loan agreement to extend the maturity date to March 9, 2022, subject to two remaining one-year extensions at the borrowers’ option conditioned upon, among other items, (i) an event of default shall not be continuing, (ii) in the case of the second one-year extension option (exercisable March 2022), in addition to (i) above, evidence that the Debt Yield (as defined and calculated in accordance with the loan agreement) equals or exceeds 13% and (iii) in the case of the third one-year extension option (exercisable March 2023), in addition to (i) above, evidence that the Debt Yield equals or exceeds 14% on the extension date. The Debt Yield as of June 30, 2021, was 23.84%.
As of June 30, 2021, the interest rate applicable to the notes was equal to one-month LIBOR plus a weighted-average spread of 4.4% per annum, provided that such spread is subject to an increase of 0.25% per annum in connection with any exercise of the third extension option. The borrowers are required to maintain an interest rate cap with respect to the principal amount of the notes having (i) during the initial two-year term of the loan, a LIBOR strike rate equal to 4.5%, (ii) during the initial one-year extension period, a LIBOR strike rate equal to 9.27% and (iii) with respect to any subsequent extension period, a LIBOR strike rate that would result in a debt service coverage ratio of 1.20x based on the Mortgaged Properties (as defined below). Application of voluntary prepayments as described below will cause the weighted-average interest rate spread to increase over time as senior tranches of the mortgage debt are repaid first. At June 30, 2021, the interest rate applicable to the mortgage loan was 4.5%.
The borrowers’ obligations to pay principal, interest and other amounts under the mortgage loan are evidenced by certain promissory notes executed by the borrowers, referred to collectively as the notes, which are secured by, among other things: (i) mortgages encumbering the borrowers’ properties located in the continental U.S. (which comprise substantially all of the Company’s properties located in the continental U.S.) and Plaza del Sol located in Bayamon, Puerto Rico (collectively, the “Mortgaged Properties”); (ii) a pledge of the equity of the Company’s subsidiaries that own each of the Company’s properties located in Puerto Rico (collectively, the “Pledged Properties”) and a pledge of related rents and other cash flows, insurance proceeds and condemnation awards and (iii) a pledge of any reserves and accounts of any borrower. The originating lenders placed the notes into a securitization trust that issued and sold mortgage-backed securities to investors.
The loan facility is structured as an interest-only loan throughout the initial two-year term and any exercised extension options. As a result, so long as no Amortization Period (as described below) or event of default exists, any property cash flows available following payment of debt service and funding of certain required reserve accounts (including reserves for payment of real estate taxes, insurance premiums, ground rents, tenant improvements and capital expenditures) will be available to the borrowers to pay operating expenses and for other general corporate purposes. An Amortization Period will be deemed to commence in the event the borrowers fail to achieve a Debt Yield of 10.0% at the end of any fiscal quarter. The Debt Yield as of June 30, 2021, was 23.84%. During the pendency of an Amortization Period, any property cash flows available following payment of debt service and the funding of certain reserve accounts (including the reserve accounts referenced above and additional reserves established for payment of approved operating expenses, SITE Centers management fees, certain public company costs, certain taxes and the minimum cash portion of required REIT distributions) shall be applied to the repayment of the notes. During an Amortization Period, cash flow from the borrowers’ operations will be made available to the Company only to pay required REIT distributions in an amount equal to the minimum portion of required REIT distributions allowed by law to be paid in cash (currently 10% for distributions declared in 2020, otherwise limited to 20%), with the remainder of required REIT distributions during an Amortization Period likely to be paid in common shares of the Company.
Subject to certain conditions described in the mortgage loan agreement, the borrowers may prepay principal amounts outstanding under the loan facility in whole or in part, without premium or penalty, by providing advance notice of prepayment to the lenders. The borrowers are required to use certain proceeds from permitted asset sales to prepay principal amounts outstanding under the loan facility. Each Mortgaged Property has a portion of the original principal amount of the mortgage loan allocated to it. The amount of proceeds from the sale of an individual Mortgaged Property required to be applied toward prepayment of the notes (i.e., the property’s “release price”) will depend upon the principal amount of the mortgage loan allocated to it and the Debt Yield at the time of the sale as follows:
|
|
|
|
To the extent the net cash proceeds from the sale of a Mortgaged Property that are applied to repay the mortgage loan exceed the amount specified in applicable clause (ii) above with respect to such property, the excess may be applied by the Company as a credit against the release price applicable to future sales of Mortgaged Properties. To the extent that net cash proceeds from the sale of a Mortgaged Property are less than the amount specified in the applicable clause (ii) above, the Company would be required to utilize credits from previous sales or cash on hand to satisfy the release price applicable to that property. Pledged Properties other than Plaza del Sol do not have allocated loan amounts or, in general, minimum release prices; all proceeds from sales of Pledged Properties are required to be used to prepay the notes.
Voluntary prepayments made by the borrowers (including prepayments made with proceeds from asset sales and prepayments made with property cash flows following commencement of any Amortization Period) will be applied to tranches of notes (i) absent an event of default, in descending order of seniority (i.e., such prepayments will first be applied to the most senior tranches of notes) and (ii) following any event of default, in such order as the loan servicer determines in its sole discretion. As a result, the Company expects that the weighted-average interest rate spread applicable to the notes will increase during the term of the loan facility.
In the event of a default, the contract rate of interest on the notes will increase to the lesser of (i) the maximum rate allowed by law or (ii) the greater of (A) 4% above the interest rate otherwise applicable and (B) the Prime Rate (as defined in the mortgage loan) plus 1.0%. The notes contain other terms and provisions that are customary for instruments of this nature. In addition, the Company executed a certain environmental indemnity agreement and a certain guaranty agreement in favor of the lenders under which the Company agreed to indemnify the lenders for certain environmental risks and guarantee the borrowers’ obligations under the exceptions to the non-recourse provisions in the mortgage loan agreement. The mortgage loan agreement includes representations, warranties, affirmative and restrictive covenants and other provisions customary for agreements of this nature. The mortgage loan agreement also includes customary events of default, including, among others, principal and interest payment defaults and breaches of affirmative or negative covenants; the mortgage loan agreement does not contain any financial maintenance covenants. Upon the occurrence of an event of default, the lenders may avail themselves of various customary remedies under the loan agreement and other agreements executed in connection therewith or applicable law, including accelerating the loan facility and realizing on the real property collateral or pledged collateral.
Credit Agreement
In July 2018, the Company entered into a Credit Agreement (the “Revolving Credit Agreement”) with PNC Bank, National Association (“PNC”) that was amended and extended in February 2021. The Revolving Credit Agreement provides for borrowings of up to $30.0 million. The Company’s borrowings under the Revolving Credit Agreement bear interest at variable rates at the Company’s election, based on either (i) LIBOR plus a specified spread ranging from 1.30% to 1.75% depending on the Company’s Leverage Ratio (as defined in the Revolving Credit Agreement) or (ii) the Alternate Base Rate (as defined in the Revolving Credit Agreement) plus a specified spread ranging from 0.30% to 0.75% depending on the Company’s Leverage Ratio. The Company is also required to pay a facility fee on the aggregate revolving commitments at a rate per annum that ranges from 0.15% to 0.30% depending on the Company’s Leverage Ratio.
The Revolving Credit Agreement matures on the earliest to occur of (i) February 9, 2022, (ii) the date on which the External Management Agreement is terminated, (iii) the date on which DDR Asset Management, LLC or another wholly-owned subsidiary of SITE Centers ceases to be the “Service Provider” under the External Management Agreement as a result of assignment or operation of law or otherwise and (iv) the date on which the principal amount outstanding under the Company’s $900 million mortgage loan is repaid or refinanced.
The Revolving Credit Agreement contains customary affirmative and negative covenants, including a requirement to maintain tangible net worth of $400 million. Upon the occurrence of certain customary events of default, the Company’s obligations under the Revolving Credit Agreement may be accelerated and the lending commitments thereunder terminated. The Company may not borrow under the Revolving Credit Agreement, and a Default (as defined therein) occurs under the Revolving Credit Agreement, if there is a “Default” under SITE Centers’ corporate credit facility with JPMorgan Chase Bank, N.A., SITE Centers’ corporate credit facility with Wells Fargo Bank, National Association or SITE Centers’ corporate credit facility with PNC. Additionally, the Company may not borrow under the Revolving Credit Agreement if there is a “Default” under the Revolving Credit Agreement or an “Event of Default” under the Company’s mortgage loan, if the External Management Agreement is no longer in full force and effect or if the Company has delivered or received a notice of termination or a notice of default under the External Management Agreement.
The Company’s obligations under the Revolving Credit Agreement are guaranteed by SITE Centers in favor of PNC. In consideration thereof, the Company has agreed to pay to SITE Centers the following amounts: (i) an annual guaranty commitment fee
of 0.20% of the aggregate commitments under the Revolving Credit Agreement, (ii) for all times other than those referenced in clause (iii) below, when any amounts are outstanding under the Revolving Credit Agreement, an amount equal to 5.00% per annum times the average aggregate outstanding daily principal amount of such loans plus the aggregate stated average daily amount of outstanding letters of credit and (iii) in the event SITE Centers pays any amounts to PNC pursuant to SITE Centers’ guaranty and the Company fails to reimburse SITE Centers for such amount within three business days, an amount in cash equal to the amount of such paid obligations plus default interest, which will accrue from the date of such payment by SITE Centers until repaid by the Company at a rate per annum generally equal to the sum of the LIBOR rate (or other applicable benchmark rate) plus 8.75%.
Series A Preferred Stock
In connection with the Company’s separation from SITE Centers, the Company issued the RVI Preferred Shares to SITE Centers that are noncumulative and have no mandatory dividend rate. The RVI Preferred Shares rank, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company, senior in preference and priority to the Company’s common shares and any other class or series of the Company’s capital stock. Subject to the requirement that the Company distribute to its common shareholders the minimum amount required to be distributed with respect to any taxable year in order for the Company to maintain its status as a REIT and to avoid U.S. federal income taxes, the RVI Preferred Shares will be entitled to a dividend preference for all dividends declared on the Company’s capital stock at any time up to a “preference amount” equal to $190 million in the aggregate, which amount may increase by up to an additional $10 million if the aggregate gross proceeds of the Company’s asset sales subsequent to July 1, 2018 exceed approximately $2.0 billion. Notwithstanding the foregoing, the RVI Preferred Shares are entitled to receive dividends only when, as and if declared by the Company’s Board of Directors, and the Company’s ability to pay dividends is subject to any restrictions set forth in the terms of its indebtedness. Upon payment to SITE Centers of aggregate dividends on the RVI Preferred Shares equaling the maximum preference amount of $200 million, the RVI Preferred Shares are required to be redeemed by the Company for $1.00 per share.
Subject to the terms of any of the Company’s indebtedness and unless prohibited by Ohio law governing distributions to stockholders, the RVI Preferred Shares must be redeemed upon (i) the Company’s failure to maintain its status as a REIT, (ii) any failure by the Company to comply with the terms of the RVI Preferred Shares or (iii) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that the Company sells, assigns, transfers, conveys or otherwise disposes of all or substantially all of its properties or assets, in one or more related transactions, to any person or entity, or any person or entity, directly or indirectly, becomes the beneficial owner of 40% or more of the Company’s common shares, measured by voting power. The RVI Preferred Shares also contain restrictions on the Company’s ability to invest in joint ventures, acquire assets or properties, develop or redevelop real estate or make loans or advances to third parties.
The Company may redeem the RVI Preferred Shares, or any part thereof, at any time at a price payable per share calculated by dividing the number of RVI Preferred Shares outstanding on the redemption date into the difference of (x) $200 million minus (y) the aggregate amount of dividends previously distributed on the RVI Preferred Shares to be redeemed. As of July 30, 2021, no dividends have been paid on the RVI Preferred Shares.
Common Share Dividends
The Company’s 2020In December 2021, the Company declared a cash dividend of $3.27 per common share that was paid in January 2022 funded primarily with asset sale proceeds. In April 2022, the Company declared a cash dividend of $2.13 per common share that is payable on January 12, 2021, in a combination of cash andMay 10, 2022, which will be funded primarily with proceeds from the Company’s common shares. See Note 8, “Earnings Per Share,”sale of the Company’s consolidated financial statements included herein.
Distributions of Puerto Rico sourced net taxable income to Company shareholders are subject to a 10% Puerto Rico withholding tax. In 2018, the Company entered into a closing agreement with the Puerto Rico Department of Treasury which provides that the Company will be exempt from Puerto Rico income taxes so long as it qualifies as a REIT in the U.S. and distributes at least 90% of its Puerto Rico net taxable income to its shareholders every year. As such, in November 2020, the Company’s Board of Directors declared a dividend on its common shares on account of taxable income generated in Puerto Rico, which dividend was paid, subject to a 10% withholding tax, in January 2021. The amount of this dividend is expected to exceed the amount of REIT taxable income generated by the Company in 2020. Accordingly, federal income taxes were not incurred by the Company in 2020.last property, Crossroads Center.
Dividend Distributions
The Company anticipates making distributions to holders of its common shares to satisfy the requirementscurrently operates in a manner that allows it to qualify as a REIT and generally not be subject to U.S. federal income and excise tax (other than with respect to operations conducted through the Company’s taxable REIT subsidiary).tax. U.S. federal income tax law generally requires that a REIT distribute annually to holders of its capital stock at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its REIT taxable income. The Company generally intends to make distributions with respect to each taxable year in an amount at least equal to its REIT taxable income for such taxable year. The Company also anticipates making future distributions to holders of its common shares in order to
satisfy the requirements of its closing agreement with the Puerto Rico Department of Treasury in order to be exempt from Puerto Rico income taxes. Although the Company expects to declare and pay distributions on or around the end of each calendar year, the Company’s Board of Directors will evaluate its dividend policy regularly, particularly in light of the current and potential impacts of the COVID-19 pandemic.
To the extent that cash available for future distributions is less than the Company’s REIT taxable income or its taxable income generated in Puerto Rico, or if amortization requirements commence with respect to the terms of the mortgage loan, or if the Company determines it is advisable for other reasons, the Company may make a portion of its distributions in the form of common shares, and any such distribution of common shares may be taxable as a dividend to shareholders. The Company may also distribute debt or other securities in the future, which also may be taxable as a dividend to shareholders.
Any distributions the Company makes to its shareholders will be at the discretion of the Company’s Board of Directors and will depend upon, among other things, the Company’s actual and anticipated results of operations and liquidity, which will be affected by various factors, including the income from its portfolio, its operating expenses (including management fees and other obligations owing to SITE Centers), as well as gains and lossesprojected expenses and contingencies relating to the saleCompany’s anticipated wind-up. The Company may elect to surrender its REIT status in connection with the anticipated wind-up of assets, and the terms of the mortgage financing and the limitations set forthits operations in the mortgage loan agreements. Distributions will also be impacted by the pace and success of the Company’s property disposition strategy. As a result of the terms of the mortgage financing,event the Company anticipatesdetermines that the majority of distributions of sales proceeds to be made to shareholders will not occur until after the mortgage loan has been repaid or refinanced. Furthermore, subjectanticipated benefits to the Company’s ability to make distributions toCompany and its shareholders of maintaining REIT qualification do not exceed the holders of the Company’s common shares in amounts necessary to maintain its status as a REIT and to avoid payment of U.S. federal income taxes, the RVI Preferred Shares will be entitled to a dividend preference for all dividends declared on the Company’s capital stock, at any time up to the preference amount of $190 million (which amount may increase by up to an additional $10 million if and to the extent aggregate gross proceeds generated from asset sales since the time of the Company’s separation from SITE Centers exceed approximately $2.0 billion). Subsequent to the payment of dividends on the RVI Preferred Shares equaling the maximum preference amount of $200 million, the RVI Preferred Shares are required to be redeemed by the Company for an aggregate amount of $1.00 per share. Due to the dividend preference of the RVI Preferred Shares, distributions of sales proceeds to holders of common shares are unlikely to occur until after aggregate dividends have been paid on the RVI Preferred Shares in an amount equal to the preference amount. At this time, the Company cannot predict whenrelated compliance costs or if it will declare dividends to the holders of RVI Preferred Shares and when or if such dividends, if paid, will equal the preference amount or the maximum preference amount.
Winding-up and Dissolution
As discussed below under “—Dispositions,” the Company has entered into an agreement to sell the remaining nine assets in Puerto Rico. The general due diligence period has expired under this agreement and the closing of the transaction is expected to occur by the end of the third quarter of 2021.
In the event of the sale of allnature of the Company’s remaining assets, thereoperations makes compliance with REIT requirements impracticable.
Winding Up and Dissolution
There are many factors that may affect the timing and amount of additional distributions to shareholders, including, among other things, the timing and amount received from the sale or other disposition of the Company’s assets, purchase price adjustments under sale agreements,ability to collect amounts currently owed to it by third parties and the amount of current cash balances and sale proceeds utilized to establish a reserve fund to satisfy projected expenses and known and unknown claims which might arise during the winding-upanticipated winding up and dissolution process.
In the event ofconnection with the sale of allCrossroads Center, the Company’s last property, on April 12, 2022, the Company intends to adopt liquidation accounting effective May 1, 2022, which is the beginning of the fiscal month after the sale date. The liquidation basis of accounting is appropriate when the liquidation of a company appears imminent, and the net realizable value of its assets is reasonably determinable. Under this basis of accounting, assets and liabilities are stated at their net realizable value (or liquidation value) and estimated costs through the liquidation date are accrued to the extent reasonably determinable.
Following the Company’s remaining assets,receipt of preclearance from the Ohio Department of Taxation (expected in the summer of 2022), the Company will likely seekexpects to file articlesa certificate of dissolution with the Secretary of State of the State of Ohio shortly afterward.Ohio. Pursuant to Ohio law, the Company would continue to exist for a period of five years following the filing of the articlescertificate of dissolution for the purpose of
paying, satisfying and discharging any unknown or contingent claims or any debts or other obligations, collecting and distributing its assets, and doing all other acts required to liquidate and wind-up its business and affairs. Under Ohio law, if the Company makes distributions to its shareholders without making adequate provisions for payment of creditors’ claims, the Company’s shareholders could be liable to creditors to the extent of any payments due to creditors (up to the aggregate amount previously received by the shareholder from the Company). Therefore, the Company will likely establishestablished a reserve fund with a portion of the proceeds from its final asset sales in order to satisfy and discharge expenses projected to be incurred, and any unknown or contingent claims, debts or obligations which might arise, during the five-year wind-up period subsequent to the filing of the articlescertificate of dissolution. As a result, although the Company would likely distribute a significant portion of proceeds from the sales of its final assets shortly after the consummation thereof, itIt is likely that the Company wouldwill not make a final distribution of proceedsreserve funds until such expenses and contingent claims are paid, resolved or fail to materialize, which could be severalone or more years following the date on which the certificate of such final sales.dissolution is filed. It is also possiblelikely that the Company maywill make one or more interim distributions to shareholders from the reserve fund during the five-year dissolution period as specific expenses and contingent claims are satisfied, resolved or fail to materialize.
For example, contracts governing property dispositions typically allow the purchaser to true-up common area maintenance charges with the seller at the end of the year in which the disposition occurred and to make claims for breaches of representations and other provisions under the sale agreement for a period of nine to 12 months following the disposition, subject to a cap, which is typically 2% to 3% of the gross sales price. Potential liability for most representations included in the sale agreements governing the Puerto Rico portfolio disposition and the October 2021 five-property continental U.S. portfolio disposition expires on May 24, 2022 and June 28, 2022, respectively, and is capped at $15 million and $4 million, respectively. As of April 22, 2022, potential liability for breaches of representations included in the sale agreements governing other recent asset sales is approximately $2.7 million in the aggregate for a total of $21.7 million when combined with the aforementioned $19 million. The Company wouldwill also need to withholdreserve amounts from sale proceeds to pay, among other items, fees to SITE Centers (including with respect tounder the administration of the wind-down and dissolution process),New Management Agreement, professional fees (accountants and law firms), insurance premiums and potential deductibles (including with respect to a tail insurance policy for directors and officers), vendor expenses and costs to file withdrawalsresolve and dissolutions with respect tostreamline the Company’s subsidiaries. subsidiaries and corporate structure. As of March 31, 2022, the Company estimates that such wind-up costs (excluding the payment of any claims for breaches of representations under sale agreements) could approximate between $7 million and $13 million. See “Risk Factors—Risks Related to the Company’s Common Shares—Strategy—The Company MayExpects to Establish a Reserve Fund with Proceeds of Its Final Asset Sales in Order to Satisfy Claims” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.
In addition,On April 7, 2022, the Company will likely seek to delistde-listed its common shares from the New York Stock Exchange (the “NYSE”) on a voluntary basis shortly following the sale of its final assetsNYSE in an effort to reduce its operating expenses and maximize its liquidating distributions. Under the rules of the NYSE, the NYSE also has discretionary authority to delist the Company’s common shares on an involuntary basis if the Company proceeds with a plan of dissolution, termination and liquidation. In addition, the NYSE may also commence delisting proceedings against the Company if (i) the average closing priceanticipation of the Company’s common shares falls below $1.00 per share oversale of Crossroads Center. As a 30-day consecutive trading period, (ii) the Company’s average market capitalization falls below $15 million over a 30-day consecutive trading period or (iii) the Company loses its REIT qualification. If the common shares are delisted,result, shareholders may have difficulty trading their common shares onand the secondary market.Company’s Board of Directors is no longer required to be comprised of a majority of independent directors. See “Risk Factors—Risks Related to the Company’s Common Shares—If an Active Trading Market for the Company’s Common Shares Is Not Sustained, or if the Company’s Common Shares are Delisted from the NYSE, Shareholders’ Ability to Sell Shares When Desired and the Prices Obtained Will Be Adversely Affected” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Through any winding-upwinding up and dissolution, the Company will be required to continue to comply with the applicable reporting requirements of the Securities Exchange Act, of 1934 (the “Exchange Act”), even if compliance with these reporting requirements is economically burdensome. In order to curtail expenses, the Company eventually mayexpects to seek relief from the Securities and Exchange Commission (“SEC”) from the reporting requirements under the Exchange Act. The Company anticipates that, ifIf such relief is granted, it would continueshareholders will have access to file Current Reports on Form 8-K to disclose material events relating to its winding-up and dissolution, along with any other reports thatsubstantially limited public information about the SEC might require, but would discontinue filing Quarterly Reports on Form 10-Q and would not be required to file audited financial statements.Company. The Company wouldwill continue to incur professional fees prior to and in connection with such delisting and deregistration processes, which wouldwill also affect the amounts available for distribution to shareholders in connection with the winding-upwinding up of the Company’s business and affairs.
Dispositions
For the six months ended June 30, 2021,In April 2022, the Company sold five shopping centers,Crossroads Center, in separate transactions, aggregating 1.1 million square feet,Gulfport, Mississippi, for an aggregate sales price of $59.2 million and net proceeds prior to debt repayment of $56.0 million.
The Company has entered into a Purchase and Sale Agreement, dated as of June 30, 2021 (the “Puerto Rico Purchase Agreement”), by and among the Company and RVT PR Mezz Borrower 1 LLC, a wholly-owned subsidiary of the Company (collectively, the “Sellers”), and Kildare Acquisitions US, LLC (the “Purchaser”). Pursuant to the Puerto Rico Purchase Agreement, the Sellers have agreed to sell to the Purchaser all of their interests in the limited liability companies that own all of the Company’s remaining assets located in Puerto Rico (comprising approximately 3.5 million square feet of Company-owned gross leasable area) for $550$38.5 million in cash subject to adjustment for certain closing pro-rations, allocations and adjustments.resulting in The sale does not include any cash or restricted cash held by or on behalfnet proceeds of the limited liability companies at closing and the Sellers will retain the right to pursue and collect amounts from tenants relating to pre-closing periods (including amounts relating to pre-closing periods, which have been deferred and are to be repaid by tenants sometime after the closing date).approximately $37.2 million. Closing remains subject to customary conditions, including but not limited to delivery of estoppel letters from tenants, the accuracy of Sellers’ representations in all material respects and the absence of condemnation or casualty events exceeding $30 million in the aggregate. In connection with the expiry of the Purchaser’s general due diligence period, the Purchaser posted a deposit of $15 million with the escrow agent for the transaction, which deposit is nonrefunable (except in certain limited circumstances as set forth in the Puerto Rico Purchase Agreement) and will be credited to the Purchaser against the purchase price at closing. Closing of the transaction is expected to occur by the end of the third quarter of 2021.
Cash Flow Activity
The Company’s cash flow activities are summarized as follows (in thousands):
| Six Months |
| Three Months |
| ||||||||||
| Ended June 30, |
| Ended March 31, |
| ||||||||||
| 2021 |
|
| 2020 |
| 2022 |
|
| 2021 |
| ||||
Cash flow provided by operating activities | $ | 47,609 |
|
| $ | 20,210 |
| $ | 3,228 |
|
| $ | 22,451 |
|
Cash flow provided by investing activities |
| 49,948 |
|
|
| 154,399 |
| |||||||
Cash flow used for investing activities |
| (771 | ) |
|
| (3,317 | ) | |||||||
Cash flow used for financing activities |
| (144,112 | ) |
|
| (165,554 | ) |
| (69,053 | ) |
|
| (55,624 | ) |
Changes in
The Company’s cash flow compared to the prior comparable period are described as follows:
Operating Activities: Cash provided by operating activities increased $27.4 million primarily due to the following:
|
|
|
|
|
|
Investing Activities: Cash provided by investing activities decreased $104.5$19.2 million primarily due to the following:
| • | Decrease in |
| • |
|
FinancingInvesting Activities: Cash used for financinginvesting activities decreased by $21.4$2.5 million primarily due to the following:
| • | Decrease in |
Financing Activities: Cash used for financing activities increased by $13.4 million primarily due to the following:
• | Increase in dividends paid of $64.7 million and |
| • | Decrease in |
CAPITALIZATION
At June 30, 2021,March 31, 2022, the Company’s capitalization consisted of $214.5 million of mortgage debt, $190.0 million of RVI Preferred Shares and $459.0$64.6 million of market equity (market equity is defined as common shares outstanding multiplied by $21.75,$3.06, the closing price of the Company’s common shares on the NYSE at June 30, 2021), resulting in a debt to total market capitalization ratioMarch 31, 2022). In April 2022, the Board of 0.25 to 1.0, as compared to the ratio of 0.54 to 1.0 at June 30, 2020. The closing priceDirectors of the Company’s shares on the NYSE was $12.36 at June 30, 2020.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Company had aggregate outstanding mortgage indebtedness of $214.5 million at June 30, 2021, withdeclared a maturity of March 2022, subject to two one-year extension options. In addition, the Company has two long-term ground leases in which it is the lessee. The Company anticipates utilizing a portion of the net proceeds from the pending sale of its Puerto Rico assets discussed Under “—Liquidity and Capital Resources—Dispositions” above to repay the entire balance of the of the mortgage loan, as required under the mortgage agreement in the third quarter of 2021.
The Company’s interest in Crossroads Plaza shopping center in Gulfport, Mississippi is subject to a ground lease with an expiration date of November 2033. The Company has one, 25-year option remaining which would extend the term to 2058 at fair market ground rent (as determined by an independent appraiser at the time of the option’s exercise). A portion of the Company’s interest in Peach Street Marketplace shopping center in Erie Pennsylvania is subject to a ground lease with an expiration date of December 2022. The Company has extension options which would extend the term to 2096.
SITE Centers Guaranty
On July 2, 2018, SITE Centers provided an unconditional guaranty to PNC with respect to any obligations outstanding from time to time under the Company’s Revolving Credit Agreement. In connection with this arrangement, the Company has agreed to pay to SITE Centers a guaranty commitment fee of 0.20% per annum on the committed amount of the Revolving Credit Agreement and a fee equal to 5.00% per annum on any amounts drawn by the Company under the Revolving Credit Agreement. In the event SITE Centers pays any of the Company’s obligations on the Revolving Credit Agreement and the Company fails to reimburse such amount within three business days, the guaranty provides for default interest that accrues at a rate generally equal to the sum of the LIBOR rate (or other applicable benchmark rate) plus 8.75% per annum. SITE Centers continued to provide the guaranty in connection with the February 2021 extension of the Revolving Credit Agreement’s maturity date to February 9, 2022.
Other Commitments
The Company has entered into agreements with general contractors related to its shopping centers having aggregatecommitments of approximately $2.7 million at June 30, 2021. These obligations, composed principally of construction contracts for the repair of the Puerto Rico properties, are generally due within 12 to 24 months, as the related construction costs are incurred, and are expected to be financed through operating cash flow. These contracts typically can be changed or terminated without penalty.
The Company routinely enters into contracts for the maintenance of its properties. These contracts typically can be canceled upon 30 to 60 days’ notice without penalty. At June 30, 2021, the Company had purchase order obligations, typically payable within one year, aggregating approximately $1.4 million related to the maintenance of its properties and general and administrative expenses.
Hurricane Loss
In 2017, Hurricane Maria made landfall in Puerto Rico and the Company’s 12 assets in Puerto Rico, aggregating 4.4 million square feet of Company-owned GLA, were significantly impacted. As of June 30, 2021, the Company had expended approximately $126 million in connection with repairing property damage caused by the hurricane. Included in restricted cash at June 30, 2021 are the remaining property damage settlement proceeds of $30.7 million along with other related hurricane reserves required by the mortgage lender of $6.5 million. The Company estimates that it will incur between $1 million and $2 million to complete its restoration efforts subject to the mortgage lender’s satisfaction that all necessary restoration work has been completed. The Company anticipates that the repair and restoration work will be substantially complete in the third quarter of 2021, the timing of which has been delayed by the impact of the COVID-19 pandemic. The timing and schedule of additional repair work to be completed are highly dependent upon any changes in the scope of work, and the availability of building materials, supplies and skilled labor. In addition, the timing of completing the remaining repair work could be delayed by any additional stay-at-home directives or temporary closures of non-essential businesses as a result of the impacts of the COVID-19 pandemic.
ECONOMIC CONDITIONS
Portfolio Composition and Retail Environment. Though leasing prospects are heavily dependent on local conditions, uncertainty and tenant concern around the COVID-19 pandemic caused a slow-down in lease activity from March 2020 through June 30, 2021. The Company’s portfolio has a diversified tenant base, with only two tenants whose annualized rental revenue equals or exceeds 3% of the Company’s annualized revenues at June 30, 2021 (Walmart/Sam’s Club at 6.0% and PetSmart at 3.2%). Other significant tenants include TJX Companies (T.J. Maxx, Marshalls and HomeGoods) and Best Buy. All of these tenants have relatively strong financial positions, having outperformed other retail categories on a relative basis over time, and the Company believes they remain well capitalized. Historically, these tenants have provided a stable revenue base, and the Company believes that they will continue doing so going forward, given the long-term nature of these leases. Moreover, the majority of the tenants in the Company’s continental U.S. shopping centers provide day-to-day consumer necessities with a focus on value, convenience and service, which the Company believes will enable many of its tenants to succeed under a variety of economic conditions. The Company recognizes the risks posed by current economic conditions but believes that the diversity of its properties and the credit quality of its tenant base should enable it to navigate through a potentially challenging economic environment.
The shopping center portfolio’s occupancy was 89.7% and 87.2% at June 30, 2021 and 2020, respectively. The total portfolio average annualized base rent per occupied square foot was $16.26 at June 30, 2021, as compared to $16.14 at June 30, 2020.
At June 30, 2021, the Company owned nine assets on the island of Puerto Rico (including four enclosed malls) aggregating 3.5 million square feet, representing 48% of Company-owned GLA and approximately 57% of the Company’s total consolidated revenue and approximately 56% of the Company’s total consolidated revenue less operating expenses (i.e., net operating income) for the six months ended June 30, 2021. The Company believes that the tenants at its Puerto Rico properties (many of which are high-quality continental U.S. retailers, such as Walmart/Sam’s Club and the TJX Companies (T.J. Maxx and Marshalls)) typically cater to the local consumer’s desire for value, convenience and day-to-day necessities. However, new demand for space at the Puerto Rico properties has been more limited, especially with respect to big-box and national tenants as many of those tenants continue to evaluate their presence and operating plans on the Island. Limited leasing demand may continue to put pressure on leasing spreads on both new leases and renewals as the Company seeks to prioritize occupancy over rental rate growth. There is continued concern about the strength of the Puerto Rican economy, the ability of the government of Puerto Rico to meet its financial obligations and the impact of the territory’s ongoing bankruptcy and debt restructuring process on the economy of Puerto Rico, which may further adversely impact retail tenants’ interest in maintaining or expanding their operations in Puerto Rico.
The retail sector continues to be affected by increasing competition, including the impact of e-commerce. These dynamics are expected to continue to lead to tenant bankruptcies, closures and store downsizing. Some conventional department stores and national chains have announced bankruptcies, store closures and/or reduced expansion plans in recent years leading to a smaller overall number of tenants requiring large store formats. The loss of a tenant or downsizing of space can adversely affect the Company. In
addition to the impacts of increased competition, e-commerce and adverse conditions in Puerto Rico, beginning in March 2020, the retail sector in both the continental U.S. and Puerto Rico has been significantly impacted by the COVID-19 pandemic. Though the impact of the COVID-19 pandemic on tenant operations has varied by tenant category, local conditions and applicable government mandates, a significant number of the Company’s tenants have experienced a reduction in sales and foot traffic, and many tenants were forced to limit their operations or close their businesses for a period of time. As of July 30, 2021, 100% of the Company’s tenants (based on average base rents) were open for business, up from a low of approximately 34% in early April 2020 related to the impact of the COVID-19 pandemic. Tenant operations in Puerto Rico have been particularly impacted by local government mandates and operating restrictions. These restrictions were lifted in July 2021, though the COVID-19 pandemic continues to pose challenges to tenant revenues and the overall leasing environment in Puerto Rico.
The COVID-19 pandemic had a significant impactdividend on the Company’s collection of rents from April 2020 through the end of 2020. The Company’s collection rates have shown significant improvementcommon shares in the first half of 2021, relative to 2020 levels, and a substantial majority of the Company’s tenants, including cash basis tenants, are paying their monthly rent and repaying deferred rents relating to prior periods. As of July 23, 2021, the Company’s quarterly rent payment rates for assets owned as of June 30, 2021, are as follows:
|
| Second Quarter 2020 |
|
| Third Quarter 2020 |
|
| Fourth Quarter 2020 |
|
| First Quarter 2021 |
|
| Second Quarter 2021 |
|
Continental U.S. |
| 94% |
|
| 98% |
|
| 97% |
|
| 99% |
|
| 99% |
|
Puerto Rico |
| 81% |
|
| 93% |
|
| 93% |
|
| 97% |
|
| 97% |
|
The Company calculates the aggregate percentage of rents paid for assets owned as of June 30, 2021 by comparing the amount of tenant payments received as of the date presented to the amount billed to tenants during the period. The billed amount includes abated rents, rents subject to deferral arrangements and rents owing from bankrupt tenants that were in possession of the space and billed. For purposes of reporting the percentage of aggregate base rents collected for a given period, when rents subject to deferral arrangements are later paid, those payments are allocated to the period in which the rent was originally owed.
The Company has reached satisfactory resolution with the majority of tenants that still owe unpaid rents as a result of disruptions to their business related to the COVID-19 pandemic. These resolutions typically have taken the form of rent deferral arrangements and, in circumstances where tenants have agreed to extend lease terms or other material concessions, rent abatements (especially in Puerto Rico). The majority of deferred amounts are scheduled to be repaid by the end of 2021. The Company continues to evaluate its options with respect to tenants with which the Company has not reached satisfactory resolution of unpaid rents and has commenced collection actions against several tenants. As of July 23, 2021, agreed-upon rent-deferral and abatement arrangements relating to 2020 and 2021 base rents that remain unpaid for assets owned as of June 30, 2021, represented the following percentages of aggregate quarterly base rents:$45.0 million ($2.13 per common share) payable on May 10, 2022.
|
| Second Quarter 2020 |
|
| Third Quarter 2020 |
|
| Fourth Quarter 2020 |
|
| First Quarter 2021 |
|
| Second Quarter 2021 |
|
Continental U.S. |
| 2% |
|
| 0% |
|
| 1% |
|
| 0% |
|
| 0% |
|
Puerto Rico |
| 6% |
|
| 2% |
|
| 1% |
|
| 0% |
|
| 0% |
|
The Company is unable to forecast the duration of the disruption to tenant and Company operations caused by the COVID-19 pandemic or the ultimate level of collections of rents and other unpaid amounts owed by tenants that were deferred or unpaid during 2020. However, the level and pace of collections of such deferred rents and other unresolved amounts exceeded management’s expectations during the first half of 2021, especially with respect to collections from tenants previously placed on the cash basis of accounting. If new surges in contagion were to occur, or if new COVID-19 variants were to be discovered which are more infectious or resistant to vaccines, or if there are decreases in the effectiveness of such vaccines, the Company’s recent success in the collection of deferred rents and unresolved amounts could be adversely impacted and such developments could lead to new restrictions on tenant operations, nonpayment of contractual and previously deferred rents, additional tenant requests for rent relief and additional tenant closures and bankruptcies, all of which could adversely impact the Company’s results of operations in the future. Certain tenant categories remain especially vulnerable to the impacts of the COVID-19 pandemic, including movie theaters, restaurants and entertainment.
Disposition Outlook. In addition to its goal of maximizing cash flow from property operations, the Company seeks to realize value through the regular sale of assets to a variety of buyers. In recent years, the market upon which this aspect of the business plan relies has been characterized as liquid but fragmented, with a wide range of generally small, non-institutional investors. While some investors do not require debt financing, many seek to capitalize on leveraged returns using mortgage financing at interest rates well below the initial asset-level returns implied by disposition prices. In addition to small, often local buyers, the Company also plans to transact with mid-sized institutional investors, some of which are domestic and foreign publicly traded companies. Many larger domestic institutions, such as pension funds and insurance companies that were traditionally large buyers of retail real estate assets,
have generally become less active participants in retail transaction markets over the last several years. Lower participation of institutions and a generally smaller overall buyer pool has resulted in some level of pressure on asset prices, particularly for larger properties, though this impact remains highly heterogeneous and varies widely by market and specific assets.
The COVID-19 pandemic created uncertainty and delays with respect to the Company’s execution of the disposition portion of its business plan as many prospective purchasers suspended their acquisition activities during much of 2020 due to, among other factors, the uncertainty of tenant operations and the availability and terms of financing. The financing market has improved considerably in the first half of 2021 despite underwriting standards that remain tighter than pre-pandemic levels. It remains unclear, however, whether purchasers’ expectations with respect to economic returns from investments in retail real estate have been altered by the pandemic and the resulting changes to property cash flows. The Company is currently unable to quantify or predict the magnitude of the impact of the COVID-19 pandemic on the timing and pricing of disposition activity with respect to its remaining assts.
For additional information regarding risks relating to the Puerto Rico economy, the COVID-19 pandemic, the impact of e‑commerce and other relevant business uncertainties see Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
FORWARD-LOOKING STATEMENTS
MD&A should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing elsewhere in this report. Historical results and percentage relationships set forth in the Company’s consolidated financial statements, including trends that might appear, should not be taken as indicative of future operations. The Company considers portions of this information to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act, of 1934 (the “Exchange Act”), both as amended, with respect to the Company’s expectations for future periods. Forward-looking statements include, without limitation, statements related to acquisitions (including any related pro forma financial information) and other business development activities, future capital expenditures, financing sources and availability and the effects of environmental and other regulations. Although the Company believes that the expectations reflected in these forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. For this purpose, any statements contained herein that are not statements of historical fact should be deemed to be forward-looking statements. Without limiting the foregoing, the words “will,” “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates” and similar expressions are intended to identify forward-looking statements. Readers should exercise caution in interpreting and relying on forward-looking statements because such statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company’s control and that could cause actual results to differ materially from those expressed or implied in the forward-looking statements and that could materially affect the Company’s actual results, performance or achievements. For additional factors that could cause the results of the Company to differ materially from those indicated in the forward-looking statements. Seestatements, see Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The impact of the COVID-19 pandemic may also exacerbate the risks discussed therein and herein, any of which could have a material effect of the Company.2021.
Factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the following:
| • | The occurrence and outcome of litigation, including litigation with tenants and purchasers of its properties, may adversely affect amounts available for distribution to shareholders; |
• | The Company may be unable to |
| • | The Company is subject to |
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| • | Changes in accounting or other standards may adversely affect the Company’s business; |
| • | The Company’s Board of Directors, which regularly reviews the Company’s business strategy and objectives, may change its strategic |
| • | A change in the Company’s relationship with SITE Centers and SITE Centers’ ability to retain qualified personnel and adequately manage the Company; |
| • | Potential conflicts of interest with SITE Centers and the Company’s ability to replace SITE Centers as manager (and the fees to be paid to any replacement manager) in the event the |
| • | The Company and its vendors, including SITE Centers, could sustain a disruption, failure or breach of their respective networks and systems, including as a result of cyber-attacks, which could disrupt the Company’s business operations, compromise the confidentiality of sensitive information and result in fines and penalties. |
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company’s primary market risk exposure is interest rate risk. At June 30, 2021 and December 31, 2020, the Company’s outstanding indebtedness was composed of all variable-rate debt. At June 30, 2021, the Company’s carrying value of the variable-rate debt was $207.2 million and its fair value was $222.8 million. At December 31, 2020, the Company’s carrying value of the variable-rate debt was $344.5 million and its fair value was $362.7 million. If interest rates were to increase by 1.00%, or 100 basis-points, the fair value of the debt would be $222.6 million and $362.5 million at June 30, 2021 and December 31, 2020, respectively. The sensitivity to changes in interest rates of the Company’s variable-rate debt was determined using a valuation model based upon factors that measure the net present value of such obligations that arise from the hypothetical estimate as discussed above. A 100 basis-point increase in short-term market interest rates on variable-rate debt at June 30, 2021, would result in an increase in interest expense of approximately $1.1 million for the six-month period ended June 30, 2021.
The Company intends to use proceedsProceeds from asset sales to repay its indebtedness and, following the repayment of its mortgage loan,will be used for general corporate purposes, including the establishment of a reserve fund to satisfy claims and expenses related to the winding up of the business and distributions to holders of the Company’s preferred and common shareholders. To the extent the Company was to incur variable-rate indebtedness, its exposure to increases in interest rates in an inflationary period could increase. The Company does not believe, however, that increases in interest expense as a result of inflation will significantly impact the Company’s distributable cash flow.
The Company intends to continually monitor and actively manage interest costs on any variable-rate debt portfolio and may enter into swap positions or interest rate caps. Accordingly, the cost of obtaining such protection agreements in relation to the Company’s access to capital markets will continue to be evaluated.shares. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes. As of June 30, 2021,March 31, 2022, the Company had no other material exposure to market risk.
Item 4. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
The Company’s management, with the participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), conducted an evaluation, pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b), of the effectiveness of the Company’s disclosure controls and procedures. Based on their evaluation as required, the CEO and CFO have concluded that the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of June 30, 2021,March 31, 2022, to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and were effective as of June 30, 2021,March 31, 2022, to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its CEO and CFO, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
For the three months ended June 30, 2021,March 31, 2022, there were no changes in the Company’s internal control over financial reporting that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. | LEGAL PROCEEDINGS |
The Company and its subsidiaries are subject to various legal proceedings, which, taken together, are not expected to have a material adverse effect on the Company. The Company is also subject to a variety of legal actions for personal injury or property damage arising in the ordinary course of its business, most of which are covered by insurance. While the resolution of all matters cannot be predicted with certainty, management believes that the final outcome of such legal proceedings and claims will not have a material adverse effect on the Company’s liquidity, financial position or results of operations.
Item 1A. | RISK FACTORS |
None.
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ISSUER PURCHASES OF EQUITY SECURITIES |
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| Total Number of Shares Purchased(1) |
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April 1–30, 2021 |
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Item 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
Item 4. | MINE SAFETY DISCLOSURES |
Not applicable.
Item 5. | OTHER INFORMATION |
None.
Item 6.EXHIBITS
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
| Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
| The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
1 | Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on April 14, 2022. |
2 | Submitted electronically herewith. |
| Pursuant to SEC Release No. 34-4751, these exhibits are deemed to accompany this report and are not “filed” as part of this report. |
Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2021March 31, 2022 and December 31, 2020,2021, (ii) Consolidated Statements of Operations and Other Comprehensive LossIncome for the Three and Six Months Ended June 30,March 31, 2022 and 2021, and 2020, (iii) Consolidated Statements of Equity for the Three and Six Months Ended June 30,March 31, 2022 and 2021, and 2020, (iv) Consolidated Statements of Cash Flows for the SixThree Months Ended June 30,March 31, 2022 and 2021 and 2020 and (v) Notes to Condensed Consolidated Financial Statements.
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.
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| Retail Value Inc. | ||||
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| By: |
| /s/ Christa A. Vesy | ||
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| Name: |
| Christa A. Vesy |
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| Title: |
| Executive Vice President, Chief Financial Officer, Chief Accounting Officer and Treasurer (Authorized Officer) |
Date: |
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3517