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 March 31, September 30, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to 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) (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 |
N/A | N/A | N/A |
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 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 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 April 22,October 27, 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 March 31,September 30, 2022
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION |
| ||
Item1. | Financial Statements – Unaudited |
| |
Consolidated Statement of Net Assets as of September 30, 2022 | 2 | ||
| Consolidated Balance |
| |
4 | |||
|
| ||
|
| ||
|
| ||
|
| ||
Item2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
| |
Item3. |
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Item4. |
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PART II. OTHER INFORMATION |
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Item1. |
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Item1A. |
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Item2. |
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Item3. |
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Item4. |
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Item5. |
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Item6. |
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20 | |||
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1
Retail Value Inc.
CONSOLIDATED BALANCE SHEETSSTATEMENT OF NET ASSETS
(Liquidation Basis)
(unaudited, in thousands, except share amounts) thousands)
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Assets |
|
|
|
|
|
|
|
Buildings | $ | 51,261 |
|
| $ | 51,261 |
|
Fixtures and tenant improvements |
| 8,305 |
|
|
| 8,260 |
|
|
| 59,566 |
|
|
| 59,521 |
|
Less: Accumulated depreciation |
| (36,802 | ) |
|
| (36,195 | ) |
Total real estate assets, net |
| 22,764 |
|
|
| 23,326 |
|
Cash and cash equivalents |
| 44,769 |
|
|
| 110,470 |
|
Restricted cash |
| 1,098 |
|
|
| 1,993 |
|
Accounts receivable |
| 2,364 |
|
|
| 3,891 |
|
Other assets, net |
| 4,498 |
|
|
| 4,718 |
|
| $ | 75,493 |
|
| $ | 144,398 |
|
Liabilities and Equity |
|
|
|
|
|
|
|
Accounts payable and other liabilities | $ | 6,996 |
|
| $ | 8,331 |
|
Dividends payable |
| 0 |
|
|
| 69,053 |
|
Total liabilities |
| 6,996 |
|
|
| 77,384 |
|
Commitments and contingencies (Note 1) |
|
|
|
|
|
|
|
Retail Value Inc. shareholders' equity |
|
|
|
|
|
|
|
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 |
| 740,517 |
|
|
| 740,517 |
|
Accumulated distributions in excess of net loss |
| (674,119 | ) |
|
| (675,602 | ) |
Less: Common shares in treasury at cost: 598 shares at March 31, 2022 and December 31, 2021 |
| (13 | ) |
|
| (13 | ) |
Total equity |
| 68,497 |
|
|
| 67,014 |
|
| $ | 75,493 |
|
| $ | 144,398 |
|
| September 30, 2022 |
| |
Assets |
|
| |
Cash and cash equivalents | $ | 15,983 |
|
Accounts receivable, net |
| 183 |
|
Total assets | $ | 16,166 |
|
Liabilities |
|
| |
Liability for estimated wind-up expenses | $ | 3,177 |
|
Accounts payable and other liabilities |
| 808 |
|
Dividends payable |
| 6,546 |
|
Total liabilities |
| 10,531 |
|
Commitments and contingencies (Note 1) |
|
| |
Net assets in liquidation | $ | 5,635 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Retail Value Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOMEBALANCE SHEET
(Going-Concern Basis)
(unaudited, in thousands, except per share amounts)
| Three Months |
| |||||
| Ended March 31, |
| |||||
| 2022 |
|
| 2021 |
| ||
Revenues from operations: |
|
|
|
|
|
|
|
Rental income | $ | 2,279 |
|
| $ | 18,153 |
|
Other income |
| 2 |
|
|
| 17 |
|
|
| 2,281 |
|
|
| 18,170 |
|
Rental operation expenses: |
|
|
|
|
|
|
|
Operating and maintenance |
| 288 |
|
|
| 2,384 |
|
Real estate taxes |
| 42 |
|
|
| 3,134 |
|
Property and asset management fees |
| 191 |
|
|
| 1,548 |
|
General and administrative |
| 699 |
|
|
| 865 |
|
Depreciation and amortization |
| 607 |
|
|
| 6,988 |
|
|
| 1,827 |
|
|
| 14,919 |
|
Other income (expense): |
|
|
|
|
|
|
|
Interest expense, net |
| 0 |
|
|
| (3,151 | ) |
Debt extinguishment costs |
| 0 |
|
|
| (73 | ) |
Gain on disposition of real estate, net |
| 295 |
|
|
| 148 |
|
|
| 295 |
|
|
| (3,076 | ) |
Income before tax expense |
| 749 |
|
|
| 175 |
|
Tax expense |
| (38 | ) |
|
| (66 | ) |
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 |
|
|
|
|
|
|
|
|
|
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 |
|
| December 31, 2021 |
| |
Assets |
|
| |
Buildings | $ | 51,261 |
|
Fixtures and tenant improvements |
| 8,260 |
|
|
| 59,521 |
|
Less: Accumulated depreciation |
| (36,195 | ) |
Total real estate assets, net |
| 23,326 |
|
Cash and cash equivalents |
| 110,470 |
|
Restricted cash |
| 1,993 |
|
Accounts receivable |
| 3,891 |
|
Other assets, net |
| 4,718 |
|
| $ | 144,398 |
|
Liabilities and Equity |
|
| |
Accounts payable and other liabilities | $ | 8,331 |
|
Dividends payable |
| 69,053 |
|
Total liabilities |
| 77,384 |
|
Commitments and contingencies (Note 1) |
|
| |
Retail Value Inc. shareholders' equity |
|
| |
Common shares, with par value, $0.10 stated value; 200,000,000 shares authorized; |
| 2,112 |
|
Additional paid-in capital |
| 740,517 |
|
Accumulated distributions in excess of net loss |
| (675,602 | ) |
Less: Common shares in treasury at cost: 598 shares at December 31, 2021 |
| (13 | ) |
Total equity |
| 67,014 |
|
| $ | 144,398 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Retail Value Inc.
CONSOLIDATED STATEMENTSSTATEMENT OF EQUITYCHANGES IN NET ASSETS
(Liquidation Basis)
(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, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months |
|
| Period from May 1, 2022 |
| ||
| Ended |
|
| through |
| ||
| September 30, 2022 |
|
| September 30, 2022 |
| ||
Net assets in liquidation, beginning of period | $ | 11,836 |
|
| $ | 35,636 |
|
Remeasurement of assets and liabilities |
| 345 |
|
|
| 1,041 |
|
Distributions to common shareholders |
| (6,546 | ) |
|
| (31,042 | ) |
Net assets in liquidation, end of period | $ | 5,635 |
|
| $ | 5,635 |
|
|
| 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.
4
Retail Value Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Going-Concern Basis)
(unaudited, in thousands)thousands, except per share amounts)
| Three Months |
| |||||
| Ended March 31, |
| |||||
| 2022 |
|
| 2021 |
| ||
Cash flow from operating activities: |
|
|
|
|
|
|
|
Net income | $ | 1,483 |
|
| $ | 3,209 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
| 607 |
|
|
| 13,358 |
|
Amortization and write-off of above- and below-market leases, net |
| 0 |
|
|
| (236 | ) |
Amortization and write-off of debt issuance costs |
| 0 |
|
|
| 781 |
|
Gain on disposition of real estate, net |
| (289 | ) |
|
| (121 | ) |
Impairment charges |
| 0 |
|
|
| 2,010 |
|
Net change in accounts receivable |
| 779 |
|
|
| 3,298 |
|
Net change in accounts payable and other liabilities |
| (478 | ) |
|
| (1,883 | ) |
Net change in other operating assets |
| 1,126 |
|
|
| 2,035 |
|
Total adjustments |
| 1,745 |
|
|
| 19,242 |
|
Net cash flow provided by operating activities |
| 3,228 |
|
|
| 22,451 |
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
Real estate improvements to operating real estate |
| (854 | ) |
|
| (3,378 | ) |
Proceeds from disposition of real estate |
| 83 |
|
|
| 61 |
|
Net cash flow used for investing activities |
| (771 | ) |
|
| (3,317 | ) |
Cash flow from financing activities: |
|
|
|
|
|
|
|
Repayment of mortgage debt, including repayment costs |
| 0 |
|
|
| (51,168 | ) |
Payment of credit facility costs |
| 0 |
|
|
| (75 | ) |
Dividends paid |
| (69,053 | ) |
|
| (4,381 | ) |
Net cash flow used for financing activities |
| (69,053 | ) |
|
| (55,624 | ) |
Net decrease in cash, cash equivalents and restricted cash |
| (66,596 | ) |
|
| (36,490 | ) |
Cash, cash equivalents and restricted cash, beginning of period |
| 112,463 |
|
|
| 172,788 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 45,867 |
|
| $ | 136,298 |
|
| Four Months |
|
| Three Months |
|
| Nine Months |
| |||
| Ended April 30, |
|
| Ended September 30, |
|
| Ended September 30, |
| |||
| 2022 |
|
| 2021 |
|
| 2021 |
| |||
Revenues from operations: |
|
|
|
|
|
|
|
| |||
Rental income | $ | 2,653 |
|
| $ | 14,659 |
|
| $ | 50,221 |
|
Other income |
| 2 |
|
|
| (31 | ) |
|
| 38 |
|
|
| 2,655 |
|
|
| 14,628 |
|
|
| 50,259 |
|
Rental operation expenses: |
|
|
|
|
|
|
|
| |||
Operating and maintenance |
| 384 |
|
|
| 1,922 |
|
|
| 6,485 |
|
Real estate taxes |
| 48 |
|
|
| 2,661 |
|
|
| 8,562 |
|
Property and asset management fees |
| 755 |
|
|
| 1,406 |
|
|
| 4,501 |
|
Impairment charges |
| — |
|
|
| 1,573 |
|
|
| 1,573 |
|
General and administrative |
| 829 |
|
|
| 874 |
|
|
| 2,997 |
|
Depreciation and amortization |
| 675 |
|
|
| 4,439 |
|
|
| 16,127 |
|
|
| 2,691 |
|
|
| 12,875 |
|
|
| 40,245 |
|
Other income (expense): |
|
|
|
|
|
|
|
| |||
Interest expense, net |
| — |
|
|
| (2,039 | ) |
|
| (7,897 | ) |
Debt extinguishment costs |
| — |
|
|
| (5,158 | ) |
|
| (6,307 | ) |
Gain on disposition of real estate, net |
| 16,961 |
|
|
| 37 |
|
|
| 1,882 |
|
|
| 16,961 |
|
|
| (7,160 | ) |
|
| (12,322 | ) |
Income (loss) before tax expense |
| 16,925 |
|
|
| (5,407 | ) |
|
| (2,308 | ) |
Tax expense |
| (49 | ) |
|
| (50 | ) |
|
| (193 | ) |
Income (loss) from continuing operations |
| 16,876 |
|
|
| (5,457 | ) |
|
| (2,501 | ) |
Income (loss) from discontinued operations |
| 764 |
|
|
| 26,466 |
|
|
| (42,862 | ) |
Net income (loss) | $ | 17,640 |
|
| $ | 21,009 |
|
| $ | (45,363 | ) |
Comprehensive income (loss) | $ | 17,640 |
|
| $ | 21,009 |
|
| $ | (45,363 | ) |
|
|
|
|
|
|
|
|
| |||
Basic and diluted earnings per share data: |
|
|
|
|
|
|
|
| |||
Income (loss) from continuing operations | $ | 0.80 |
|
| $ | (0.26 | ) |
| $ | (0.12 | ) |
Income (loss) from discontinued operations |
| 0.04 |
|
|
| 1.25 |
|
|
| (2.04 | ) |
Net income (loss) | $ | 0.84 |
|
| $ | 0.99 |
|
| $ | (2.16 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Retail Value Inc.
CONSOLIDATED STATEMENTS OF EQUITY
(Going-Concern Basis)
(unaudited, in thousands)
|
| Common |
|
| Additional |
|
| Accumulated Distributions |
|
| Treasury |
|
| Total |
| |||||
Balance as of December 31, 2021 |
| $ | 2,112 |
|
| $ | 740,517 |
|
| $ | (675,602 | ) |
| $ | (13 | ) |
| $ | 67,014 |
|
Dividends declared |
|
| — |
|
|
| — |
|
|
| (44,980 | ) |
|
| — |
|
|
| (44,980 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| 17,640 |
|
|
| — |
|
|
| 17,640 |
|
Balance, April 30, 2022 |
| $ | 2,112 |
|
| $ | 740,517 |
|
| $ | (702,942 | ) |
| $ | (13 | ) |
| $ | 39,674 |
|
|
| Common |
|
| Additional |
|
| Accumulated Distributions |
|
| Treasury |
|
| Total |
| |||||
Balance as of December 31, 2020 |
| $ | 1,983 |
|
| $ | 721,234 |
|
| $ | (123,428 | ) |
| $ | (3 | ) |
| $ | 599,786 |
|
Issuance of common shares related to |
|
| 127 |
|
|
| 19,314 |
|
|
| — |
|
|
| (26 | ) |
|
| 19,415 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (66,372 | ) |
|
| — |
|
|
| (66,372 | ) |
Balance, June 30, 2021 |
|
| 2,110 |
|
|
| 740,548 |
|
|
| (189,800 | ) |
|
| (29 | ) |
|
| 552,829 |
|
Issuance of common shares related to |
|
| 2 |
|
|
| (31 | ) |
|
| — |
|
|
| 16 |
|
|
| (13 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| 21,009 |
|
|
| — |
|
|
| 21,009 |
|
Balance, September 30, 2021 |
| $ | 2,112 |
|
| $ | 740,517 |
|
| $ | (168,791 | ) |
| $ | (13 | ) |
| $ | 573,825 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Retail Value Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Going-Concern Basis)
(unaudited, in thousands)
| Four Months |
|
| Nine Months |
| ||
| Ended April 30, |
|
| Ended September 30, |
| ||
| 2022 |
|
| 2021 |
| ||
Cash flow from operating activities: |
|
|
|
|
| ||
Net income (loss) | $ | 17,640 |
|
| $ | (45,363 | ) |
Adjustments to reconcile net income (loss) to net cash flow |
|
|
|
|
| ||
Depreciation and amortization |
| 675 |
|
|
| 32,630 |
|
Amortization and write-off of above- and |
| — |
|
|
| (586 | ) |
Amortization and write-off of debt issuance costs |
| — |
|
|
| 9,800 |
|
Gain on disposition of real estate, net |
| (16,965 | ) |
|
| (25,687 | ) |
Impairment charges |
| — |
|
|
| 82,633 |
|
Assumption of buildings due to ground lease terminations |
| — |
|
|
| (2,660 | ) |
Net change in accounts receivable |
| 1,862 |
|
|
| 8,061 |
|
Net change in accounts payable and other liabilities |
| (1,279 | ) |
|
| (4,722 | ) |
Net change in other operating assets |
| 1,166 |
|
|
| 6,450 |
|
Total adjustments |
| (14,541 | ) |
|
| 105,919 |
|
Net cash flow provided by operating activities |
| 3,099 |
|
|
| 60,556 |
|
Cash flow from investing activities: |
|
|
|
|
| ||
Real estate improvements to operating real estate |
| (864 | ) |
|
| (9,856 | ) |
Proceeds from disposition of real estate |
| 37,060 |
|
|
| 596,118 |
|
Net cash flow provided by investing activities |
| 36,196 |
|
|
| 586,262 |
|
Cash flow from financing activities: |
|
|
|
|
| ||
Repayment of mortgage debt, including repayment costs |
| — |
|
|
| (354,202 | ) |
Payment of credit facility costs |
| — |
|
|
| (74 | ) |
Dividends paid |
| (69,053 | ) |
|
| (4,381 | ) |
Net cash flow used for financing activities |
| (69,053 | ) |
|
| (358,657 | ) |
Net (decrease) increase in cash, cash equivalents and restricted cash |
| (29,758 | ) |
|
| 288,161 |
|
Cash, cash equivalents and restricted cash, beginning of period |
| 112,463 |
|
|
| 172,788 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 82,705 |
|
| $ | 460,949 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
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. At March 31,On April 12, 2022, RVI’s only remainingRVI completed the sale of its last real estate investment was Crossroads Centerasset and no longer owns an interest in Gulfport, Mississippi comprising 0.6 million square feetany real property.
On June 30, 2022, the Company filed a certificate of Company-owned gross leasable area (“GLA”), which was 92.1% occupied. This asset was solddissolution with the Secretary of State of the State of Ohio. Pursuant to the Ohio Revised Code, the Company will continue to exist for a period of five years following the filing of the certificate 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. In connection with the filing of the certificate of dissolution and in recognition of the substantial completion of the Company's original strategy, the Company's independent directors resigned from the Company's Board of Directors on April 12, 2022.July 1, 2022, and the Board of Directors is now comprised exclusively of management directors.
The Company, its subsidiaries and the Manager have entered into a new External Management Agreement, effective January 1, 2022 (the “New Management Agreement”), which compensatescompensated the Manager for property management, leasing services and disposition efforts for Crossroads Center (prior to its sale)sale on April 12, 2022) and compensates the Manager for corporate services in connection with the anticipated wind-up of the 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 byas 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”), including liquidation accounting discussed below, 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. Subsequent to the adoption of the liquidation basis of accounting, the Company is required to estimate all costs expected to be incurred through the end of liquidation including the estimated amount of cash the Company expects to collect on its remaining receivables. 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 months ended March 31, 2022 and 2021, 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, 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):
| 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 |
|
Cash and Cash Equivalents, Restricted Cash, Accounts Receivable and Accounts Payable and Other Liabilities
The carrying amounts reported in the Company’s consolidated balance sheetssheet for these financial instruments approximated fair value because of their short-term maturities.
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 arisingthat arose 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.
|
|
Other Assets consistsPre-Liquidation Basis of Accounting
Basis of Presentation
These financial statements were prepared by the Company in accordance with U.S. GAAP for interim financial information and the applicable rules and regulations of the following (in thousands):Securities and Exchange Commission. Accordingly, they did 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 included 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 four months ended April 30, 2022 and the three and nine months ended September 30, 2021, were not necessarily indicative of the results that were expected for the full year. These condensed
8
| 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 |
|
|
|
|
|
The Company previously sold all of its properties located
consolidated financial statements should be read in Puerto Rico, which represented a strategic shiftconjunction with the Company’s audited financial statements and notes thereto included in the Company’s geographic concentrationAnnual Report on Form 10-K for the year ended December 31, 2021.
Statements of Cash Flows and businessSupplemental Disclosure of Non-Cash Investing and Financing Information
Non-cash investing and financing activities are summarized as such,follows (in millions):
| Four Months |
|
| Nine Months |
| ||
| Ended April 30, |
|
| Ended September 30, |
| ||
| 2022 |
|
| 2021 |
| ||
Dividends declared but not paid | $ | 45.0 |
|
| $ | — |
|
Accounts payable related to construction in progress (continuing operations) |
| — |
|
|
| 0.7 |
|
Assumption of buildings due to ground lease terminations (discontinued operations) |
| — |
|
|
| 2.7 |
|
Stock dividends |
| — |
|
|
| 18.6 |
|
Post-Liquidation Basis of Accounting
Basis of Presentation
In connection with the Puerto Rico properties are reflected as discontinued operations for all periods presented. Only Interest Expense,sale of Crossroads Center, the Company’s last property, on April 12, 2022, the Company adopted the liquidation basis of accounting, in accordance with U.S. GAAP, effective May 1, 2022, which was specifically identifiablethe beginning of the fiscal month after the sale date. Accordingly, on May 1, 2022, the carrying value of the Company’s assets was adjusted to their estimated liquidation value, which represents the estimated amount of cash that the Company will collect on settlement of its assets and liabilities as it carries out the liquidation activities.
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 Puerto Rico assets, isextent reasonably determinable.
The Company accrued expenses that it expects to incur as it carries out its liquidation activities to the extent it has a reasonable basis for estimation. The Company expects to incur general and administrative expenses associated with the winding up and dissolution of the Company i.e., fees to SITE Centers under the New Management Agreement, professional fees (auditing and legal expenses), insurance premiums, vendor expenses and costs to resolve and streamline the Company’s subsidiaries and corporate structure. Actual expense incurred may differ from amounts reflected in the financial statements due to the inherent uncertainty in estimating future events. These differences could be material (Note 2). Actual costs incurred but unpaid as of September 30, 2022, are included in Accounts Payable and Other Liabilities in the computationConsolidated Statement of interest expense attributable to discontinued operations. The operating results relatedNet Assets.
As a result of the change to the liquidation basis of accounting, the Company no longer presents a Consolidated Balance Sheet, a Consolidated Statement of Operations and Comprehensive Income, a Consolidated Statement of Equity or a Consolidated Statement of Cash Flows. These statements are only presented for prior periods.
Accounts Receivable
In connection with the transition to liquidation accounting, the Company adjusted the expected amount to be collected from its accounts receivable by $0.9 million (Note 3). The estimate of collectability of outstanding receivables requires judgement and complex and extensive assumptions. The Company generally reviews its outstanding accounts receivable individually by tenant account for collectability and considers assumptions such as the terms of the underlying lease, litigation status and former business segment (i.e. continental U.S. vs. Puerto Rico segmentRico). Smaller individual balances and ancillary income accounts are generally expected to be collected at a rate of 30% and 10% of the outstanding amount, respectively. While the Company is working to maximize payment, collection of past due amounts is not guaranteed.
Distributions
The amount and timing of distributions to shareholders involve risks and uncertainties. Accordingly, it is not possible to predict the timing and aggregate amount that ultimately will be distributed to shareholders and no assurance can be given that the distributions will equal or exceed the estimate of net assets presented in the Consolidated Statement of Net Assets.
9
2. Liability for Estimated Wind-Up Expenses in Excess of Estimated Income During Liquidation
The liquidation basis of accounting requires the Company to estimate net cash flows primarily from the collection of receivables and to accrue all costs associated with winding up the remaining operations of the Company and complying with regulatory requirements (when such costs can be reasonably estimated). As the basis for such estimates, in accordance with Ohio law, the Company expects to continue to exist for a period of five years following the filing of the certificate of dissolution with the Secretary of State of the State of Ohio, which occurred on June 30, 2022 (“Liquidation Period”). The Company currently estimates that it will have enough assets to cover the expenses during the Liquidation Period. These amounts can vary significantly due to, among other things, the timing and amounts of accounts receivable collected and contingent liabilities paid and the costs associated with the winding up of the Company. Certain of these amounts are estimated and are anticipated to be paid out over the Liquidation Period.
Upon transition to the liquidation basis of accounting on May 1, 2022, the Company accrued $4.9 million of estimated general and administrative expenses expected to be incurred and paid out during the Liquidation Period (Note 3).
In addition, the Company did not record any liability for potential breach of representation claims relating to the sale agreement governing the Company's final real estate disposition. This potential liability is capped at approximately $0.8 million and has a survival period which expires in January 2023.
The decrease in net assets in liquidation for the period May 1, 2022 through September 30, 2022, was primarily due to the declaration of common share dividends to shareholders of $31.0 million and the payment of additional expenses associated with the wind down of the operations partially offset by payments received that were in excess of estimated receivables or were not anticipated.
The change in the liability for estimated costs during the Liquidation Period as of September 30, 2022, is as follows (in thousands):
| Period from May 1, 2022 |
| |
| through |
| |
| September 30, 2022 |
| |
General and administrative expenses, beginning of period | $ | 5,671 |
|
Payments |
| (2,524 | ) |
Remeasurement of wind-up expenses |
| 30 |
|
General and administrative expenses, end of period | $ | 3,177 |
|
| 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 |
|
3. Net Assets in Liquidation
The following table summarizes cash flow data relatingis a reconciliation of Total Equity as of April 30, 2022 to discontinued operations fornet assets in liquidation under the three months ended March 31, 2021liquidation basis of accounting (in thousands):
Total equity as of April 30, 2022 | $ | 39,674 |
|
Increase due to collectability of accounts receivable |
| 921 |
|
Decrease due to the write-off of prepaid expenses |
| (242 | ) |
Change in receivables and other payables, net |
| 133 |
|
Estimated wind-up expenses |
| (4,850 | ) |
Estimated value of net assets in liquidation as of May 1, 2022 | $ | 35,636 |
|
10
| 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):
| Four Months |
|
| Three Months |
|
| Nine Months |
| |||
| Ended April 30, |
|
| Ended September 30, |
|
| Ended September 30, |
| |||
| 2022 |
|
| 2021 |
|
| 2021 |
| |||
Asset management fees(A) | $ | 250 |
|
| $ | 1,620 |
|
| $ | 5,161 |
|
Incentive payment(B) |
| 500 |
|
|
| — |
|
|
| — |
|
Property management fees(C) |
| 88 |
|
|
| 2,081 |
|
|
| 6,609 |
|
Disposition fees(D) |
| 385 |
|
|
| 5,500 |
|
|
| 6,092 |
|
Leasing commissions(E) |
| 7 |
|
|
| 306 |
|
|
| 1,701 |
|
Maintenance services and other(F) |
| 7 |
|
|
| 214 |
|
|
| 866 |
|
Credit facility guaranty fees |
| — |
|
|
| 60 |
|
|
| 60 |
|
Legal fees(G) |
| 36 |
|
|
| 235 |
|
|
| 444 |
|
| $ | 1,273 |
|
| $ | 10,016 |
|
| $ | 20,933 |
|
| Three Months |
| |||||
| Ended March 31, |
| |||||
| 2022 |
|
| 2021 |
| ||
Property management fees(A) | $ | 66 |
|
| $ | 2,265 |
|
Asset management fees(B) |
| 125 |
|
|
| 1,770 |
|
Leasing commissions(C) |
| 7 |
|
|
| 778 |
|
Maintenance services and other(D) |
| 6 |
|
|
| 344 |
|
Legal fees(E) |
| 32 |
|
|
| 104 |
|
| $ | 236 |
|
| $ | 5,261 |
|
Estimated amounts payable to SITE Centers are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
On December 15, 2021, the Company and certain subsidiaries of SITE Centers entered into the New Management Agreement, which took effect on January 1, 2022 and compensatescompensated the Manager for property management and leasing services for Crossroads Center (prior to its sale on April 12, 2022) and compensates the Manager for corporate services in connection with the anticipated wind-up of the Company’s business. Pursuant to the terms of the New Management Agreement, the Company will pay the Manager an asset management fee for services rendered in connection with corporate management of the Company in an aggregate amount of (i) $500,000$500,000 for calendar year 2022, (ii) $300,000$300,000 per annum commencing on January 1, 2023 until the end 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$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 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)(June 30, 2027) 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$22,000 per month through April 2022 on account of Crossroads Center. In April 2022, in accordance with the terms of the New Management Agreement, the Company paid SITE Centers a $385,000$385,000 disposition fee for the sale of Crossroads Center and a $500,000$500,000 incentive payment in recognition of the successful completion of the Company’s disposition program (including the sale of Crossroads Center).
The New Management Agreement also obligates 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 performance of the Manager’s duties.
11
5.Other Assets
Other Assets consisted of the following (in thousands):
| December 31, 2021 |
| |
Operating lease ROU assets | $ | 1,098 |
|
Note receivable(A) |
| 3,000 |
|
Other assets: |
|
| |
Prepaid expenses |
| 511 |
|
Other assets |
| 109 |
|
Total other assets | $ | 4,718 |
|
6. 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 (discontinued operations) were as follows (in thousands):
| Four Months |
|
| Three Months |
|
| Nine Months |
| |||
| Ended April 30, |
|
| Ended September 30, |
|
| Ended September 30, |
| |||
| 2022 |
|
| 2021 |
|
| 2021 |
| |||
Revenues from operations: |
|
|
|
|
|
|
|
| |||
Rental income | $ | 851 |
|
| $ | 16,183 |
|
| $ | 63,900 |
|
Other income |
| — |
|
|
| (5 | ) |
|
| 17 |
|
|
| 851 |
|
|
| 16,178 |
|
|
| 63,917 |
|
Rental operation expenses: |
|
|
|
|
|
|
|
| |||
Operating and maintenance |
| 79 |
|
|
| 4,824 |
|
|
| 19,037 |
|
Real estate taxes |
| — |
|
|
| 686 |
|
|
| 2,808 |
|
Property and asset management fees |
| — |
|
|
| 2,295 |
|
|
| 7,269 |
|
Impairment charges |
| — |
|
|
| — |
|
|
| 81,060 |
|
Depreciation and amortization |
| — |
|
|
| 3,629 |
|
|
| 16,503 |
|
|
| 79 |
|
|
| 11,434 |
|
|
| 126,677 |
|
Other income (expense): |
|
|
|
|
|
|
|
| |||
Interest expense, net |
| — |
|
|
| (485 | ) |
|
| (2,055 | ) |
Debt extinguishment costs |
| — |
|
|
| (1,858 | ) |
|
| (1,951 | ) |
Other income, net |
| — |
|
|
| — |
|
|
| 197 |
|
Gain on disposition of real estate |
| 4 |
|
|
| 24,109 |
|
|
| 23,805 |
|
|
| 4 |
|
|
| 21,766 |
|
|
| 19,996 |
|
Income (loss) from discontinued operations before tax |
| 776 |
|
|
| 26,510 |
|
|
| (42,764 | ) |
Tax expense |
| (12 | ) |
|
| (44 | ) |
|
| (98 | ) |
Income (loss) from discontinued operations | $ | 764 |
|
| $ | 26,466 |
|
| $ | (42,862 | ) |
There were no non-cash items for the four months ended April 30, 2022. The following table summarizes cash flow data relating to discontinued operations for the nine months ended September 30, 2021 (in thousands):
12 7.Earnings Per Share
|
|
The following table provides the net income 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):
| Four Months |
|
| Three Months |
|
| Nine Months |
| |||
| Ended April 30, |
|
| Ended September 30, |
|
| Ended September 30, |
| |||
| 2022 |
|
| 2021 |
|
| 2021 |
| |||
Numerators – Basic and Diluted |
|
|
|
|
|
|
|
| |||
Net income (loss) attributable to common shareholders | $ | 16,876 |
|
| $ | (5,457 | ) |
| $ | (2,501 | ) |
Net income (loss) attributable to common shareholders |
| 764 |
|
|
| 26,466 |
|
|
| (42,862 | ) |
Total | $ | 17,640 |
|
| $ | 21,009 |
|
| $ | (45,363 | ) |
|
|
|
|
|
|
|
|
| |||
Denominators – Number of Shares |
|
|
|
|
|
|
|
| |||
Basic and Diluted—Average shares outstanding |
| 21,117 |
|
|
| 21,117 |
|
|
| 21,043 |
|
|
|
|
|
|
|
|
|
| |||
Basic and Diluted Earnings Per Share: |
|
|
|
|
|
|
|
| |||
Income (loss) from continuing operations | $ | 0.80 |
|
| $ | (0.26 | ) |
| $ | (0.12 | ) |
Income (loss) from discontinued operations |
| 0.04 |
|
|
| 1.25 |
|
|
| (2.04 | ) |
Total | $ | 0.84 |
|
| $ | 0.99 |
|
| $ | (2.16 | ) |
Dividends
| Three Months |
| |||||
| Ended March 31, |
| |||||
| 2022 |
|
| 2021 |
| ||
Numerators – Basic and Diluted |
|
|
|
|
|
|
|
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 |
| 21,117 |
|
|
| 20,916 |
|
|
|
|
|
|
|
|
|
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 December 2021, theThe Board of Directors of the Company declared cash dividends per common share as follows:
Declaration Date | Paid Date |
| Amount |
|
| Aggregate |
| ||
September 2022 | October 2022 |
| $ | 0.31 |
|
| $ | 6.5 |
|
June 2022 | July 2022 |
|
| 1.16 |
|
|
| 24.5 |
|
April 2022 | May 2022 |
|
| 2.13 |
|
|
| 45.0 |
|
December 2021 | January 2022 |
|
| 3.27 |
|
|
| 69.1 |
|
Total |
|
| $ | 6.87 |
|
| $ | 145.1 |
|
8. Subsequent Events
On October 26, 2022, the Company paid a cash dividend of $3.27 per common share that was paid in January 2022.
|
|
On April 12, 2022, the Company sold Crossroads Center in Gulfport, Mississippi for $38.5 million. In connection with the sale, in April 2022, the Board of Directors of the Company authorized an incentive payment of $0.5 million to the Manager in accordance with the terms of the New Management Agreement (Note 4). In addition, on April 12, 2022, the Board of Directors of the Company declared a cash dividend of $2.13 per common share, which the Company will pay on May 10, 2022.13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results OF OPERATIONS
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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(the “Company” or “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, 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.”
The Company was formed in December 2017 as a wholly-owned subsidiary of 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 had two reportable segments: continental U.S. and Puerto 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 segment and instead reportscommenced reporting the financial results of the Puerto Rico segment as discontinued operations for all periods presented. At March 31,On April 12, 2022, RVI’s only remainingRVI completed the sale of its last real estate investment wasasset, Crossroads Center, and no longer owns an interest in Gulfport, Mississippi comprising 0.6 million square feetany real property.
On April 7, 2022, the Company de-listed its common shares from the New York Stock Exchange (the "NYSE") in anticipation of Company-owned gross leasable area (“GLA”) which was 92.1% occupied. Thisthe sale of the Company's final real estate asset was soldand the winding up of its business. On June 30, 2022, the Company filed a certificate of dissolution with the Secretary of State of the State of Ohio. Pursuant to the Ohio Revised Code, the Company will continue to exist for a period of five years following the filing of the certificate 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. In connection with the filing of the certificate of dissolution and in recognition of the substantial completion of the Company's original strategy, the Company's independent directors resigned from the Company's Board of Directors on April 12, 2022.July 1, 2022, and the Board of Directors is now comprised exclusively of management directors.
EXECUTIVE SUMMARY
The Company remains focused on maximizing the collection of its remaining accounts receivable, the proceedspayment of which are expected to be used forknown and contingent liabilities (including wind-up expensesexpenses) and distributionsthe distribution of available funds to the Company’s common shareholders. The dissolution and wind-up process and the amount and timing of additional distributions to shareholders entail risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount that ultimately will be distributed to shareholders, and no assurance can be given that future distributions will equal or exceed the estimate of net assets in liquidation presented in the Company's Consolidated Statement of Net Assets. See further discussion below under “Liquidity,"Liquidity, Capital Resources and Financing Activities – Winding up and DissolutionDissolution.".”
Transaction Update
InOn April 12, 2022, the Company sold its remaining real estate investment, Crossroads Center in Gulfport, Mississippi, for a sale price of $38.5 million. Net proceeds from the transaction were approximately $37.2$37.4 million.
Manager
The Company is party to an external management agreement (the “New Management Agreement”) with SITE Centers, which governs the fees, terms and conditions pursuant to which SITE Centers serves as the Company’s manager. The Company does not have any employees.
Effective January 1, 2022, pursuant to the terms of the New Management Agreement, the Company will pay the Manager an asset management fee for services rendered in connection with corporate management of the Company in an aggregate amount of (i) $500,000 for calendar year 2022, (ii) $300,000 per annum commencing on January 1, 2023 until the end 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 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)(June 30, 2027) 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$88,000 on account of Crossroads Center.Center, which was sold in April 2022. In April 2022, in accordance with the terms of the New Management Agreement, the Company paid SITE Centers a $385,000
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$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 New Management Agreement also obligates 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 performance of the Manager’s duties.
RESULTS OF OPERATIONS
Period from May 1, 2022 through September 30, 2022
As a result of the adoption of the liquidation basis accounting as of May 1, 2022, the results of operations for the current-year period are not comparable to the prior-year period. The decrease in net assets in liquidation for the period from May 1, 2022 through September 30, 2022 is primarily a result of distributions to common shareholders of $31.0 million and the payment of additional expenses associated with the wind-up of the operations partially offset by payments received that were in excess of estimated receivables or were not anticipated.
Period from January 1, 2022 through April 30, 2022
For the threefour months ended March 31,April 30, 2022, the Company had one operating property, Crossroads Center, which was sold in April 2022. The operations of this property account for substantially alla majority of the revenues and operating expenses reported for the threefour months ended March 31,April 30, 2022. The change in income as compared to the three and nine months ended March 31,September 30, 2021 is a result of the sale of
all of the Company's remaining real estate assets in 2021.2021, except for Crossroads Center. The general and administrative expenses primarily represent legal, audit, tax and compliance services and director compensation. The decrease in interest expense primarily was due to the repayment of the Company’s mortgage loan in August 2021. Debt extinguishment costs (primarily related to the non-cash write-off of unamortized deferred financing costs) were incurred in connection with the prepayment of the mortgage loan with asset sale proceeds. Additionally, included in discontinued operations for the threefour months ended March 31,April 30, 2022, is 2021 overage rent (for the Company’s ownership period of the asset) from a major tenant in Puerto Rico that was not required to report theits sales information until the first quarter of 2022.
LIQUIDITY, CAPITAL RESOURCES AND FINANCING ACTIVITIES
The Company maintains and administers a reserve fundcash balance to satisfy projected expenses and known and unknown claims which might arise during the anticipated winding upwinding-up and dissolution process. The Company’s capital sources include unrestricted cash on the balance sheet related to retained asset sale proceeds and future cash flow from collection of accounts receivable. See further discussion below under “Liquidity, Capital Resources and Financing Activities – Winding up and Dissolution.” The Company’s liquidity is reflected as follows (in millions):
Unrestricted cash available at March 31, 2022 | $ | 44.8 |
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April 2022: net proceeds from sale of Crossroads Center |
| 37.2 |
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April 2022: declaration of RVI common share dividend ($2.13 per share) |
| (45.0 | ) |
Pro forma cash available at March 31, 2022 |
| 37.0 |
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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 |
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Net assets in liquidation at September 30, 2022 | $ | 5.6 |
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Less: Potential liability under purchase and sale agreement (disclosed below) |
| (0.8 | ) |
Pro forma net assets in liquidation at September 30, 2022 | $ | 4.8 |
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In addition to the Liability for Estimated Wind-Up Expenses included in the Consolidated Statement of Net Assets, the Company may be subject to other expenses such as insurance deductibles and legal costs incurred in connection with the collection of the remaining accounts receivable or any litigation which may arise during the winding-up and dissolution process. These costs cannot be reasonably estimated and thus are not included as a deduction of the Net Assets in Liquidation at September 30, 2022. There is no assurance that the distributions will equal or exceed the estimate of net assets in liquidation presented above.
Common Share Dividends
In 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 onwas paid in May 10, 2022 which will be funded primarily with proceeds from the sale of the Company's last property, Crossroads Center. In June 2022, the Company declared a cash dividend of $1.16 per common share that was paid in July 2022 and was funded primarily with collections of accounts receivable and prior reserves for potential claims by purchasers under property sale agreements that did not materialize prior to the expiration of their general survival periods ("Survival Period Reserves"). In September 2022, the Company declared a cash dividend of $0.31 per common share that was paid on October 26, 2022 and was funded primarily with the collection of a note receivable, Survival Period Reserves and other cash on hand. From January 1, 2022, through October 26, 2022, the Company paid cash dividends totaling $6.87 per common share or $145.1 million in the aggregate.
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Dividend Distributions
The Company currently 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. 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. 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 its known expenses (including management fees and other obligations owing to SITE Centers) and, projected expenses and contingenciescontingency reserves relating to the Company’s anticipated wind-up. The Company may elect to surrender its REIT status in connection with the anticipated wind-up of its operations in the event the Company determines that the anticipated benefits to the Company and its shareholders of maintaining REIT qualification do not exceed the related compliance costs or if the nature of the Company’s remaining operations makes compliance with REIT requirements impracticable.
Winding Up and Dissolution
There are many factors that maywill affect the timing and amount of any additional distributions to shareholders, including, among other things, the Company’s ability to collect amounts currently owed to it by third parties and the amount of current cash balances and sale proceeds utilized to satisfy projected expenses and known and unknown claims which might arise during the anticipated winding upCompany’s winding-up and dissolution process. Accordingly, it is not possible to predict the timing or aggregate amount that ultimately will be distributed to shareholders, and no assurance can be given that future distributions will equal or exceed the estimate of net assets in liquidation presented in the Company's Consolidated Statement of Net Assets.
In connection with the sale of Crossroads Center, the Company’s last property, on April 12, 2022, the Company intends to adoptadopted liquidation accounting effective May 1, 2022, which iswas 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 receipt of preclearance from the Ohio Department of Taxation (expected in the summer of 2022), theThe Company expects to filefiled a certificate of dissolution with the Secretary of State of the State of Ohio.Ohio on June 30, 2022. Pursuant to Ohio law, the Company wouldwill continue to exist for a period of five years following the filing of the certificate 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 established a reserve fund withretained a portion of the proceeds from its final asset sales in order to establish a reserve fund 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 certificate of dissolution. It is likely that the Company will not make a final distribution of reserve funds until all such expenses and contingent claims are paid, resolved or fail to materialize, which could be one or more years following the date on which the certificate of dissolution iswas filed. ItSubject to uncertainties inherent in winding up its business, it is also likely that the Company will make one or more small 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. The Company is unable to provide any assurances with respect to the amount of any future distributions or the timing thereof.
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 most 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. PotentialAs of October 27, 2022, the survival period for all of the Company's sale agreements had expired, except for the survival period applicable to the sale of the Company’s final property which is capped at approximately $0.8 million and expires in January 2023. This potential liability for most representationsis not 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. AsConsolidated Statement 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.Net Assets (see table above). The Company will also need to reserve amountsmaintains cash balances to pay, among other items, fees to SITE Centers under the New Management Agreement, professional fees (accountants and law firms), insurance premiums and potential insurance deductibles (including a $1.5 million deductible applicable to any claims made with respect to a tail insurance policy for directors and officers),officers, that is not accrued for in the Consolidated Statement of Net Assets) and vendor expenses and costs to resolve and streamline the Company’s 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.expenses. See “Risk Factors—Risks Related to the Company’s Strategy—The Company Expects 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, 2021.
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On April 7, 2022, the Company de-listed its common shares from the NYSE in anticipation of the Company’s sale of Crossroads Center.Center and the winding up of its business. As a result, shareholders may have difficulty trading their common shares and the Company’s Board of Directors is no longer required to be comprised of a majority of independent directors. On July 1, 2022, the independent members of the Company's Board of Directors resigned, and the Board of Directors is now comprised exclusively of management 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, 2021.
Through anyits winding up and dissolution, the Company will be required to continue to comply with the applicable reporting requirements of the Exchange Act, even if compliance with these reporting requirements is economically burdensome. In order to curtail expenses, the Company eventually expects to seek relief from the Securities and Exchange Commission from the reporting requirements under the Exchange Act. If such relief is granted, shareholders will have access to substantially limited public information about the Company.Company, which may further impact the trading market for the Company's common shares. The Company will continue to incur professional fees prior to and in connection with such deregistration processes, which will also affect the amounts available for distribution to shareholders in connection with the winding up of the Company’s business and affairs.
Dispositions
In April 2022, the Company sold Crossroads Center, in Gulfport, Mississippi, for $38.5 million in cash resulting in net proceeds of approximately $37.2 million.
Cash Flow Activity
The Company’s cash flow activities are summarized as follows (in thousands):
| Three Months |
| Four Months |
| Nine Months |
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| Ended March 31, |
| Ended April 30, |
| Ended September 30, |
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| 2022 |
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| 2021 |
| 2022 |
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| 2021 |
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Cash flow provided by operating activities | $ | 3,228 |
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| $ | 22,451 |
| $ | 3,099 |
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| $ | 60,556 |
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Cash flow used for investing activities |
| (771 | ) |
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| (3,317 | ) | |||||||
Cash flow provided by investing activities |
| 36,196 |
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| 586,262 |
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Cash flow used for financing activities |
| (69,053 | ) |
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| (55,624 | ) |
| (69,053 | ) |
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| (358,657 | ) |
The Company’s cash flow compared to the prior comparable period are described as follows:
Operating Activities: Cash provided by operating activities decreased $19.2$57.5 million primarily due to the following:
• Decrease in operating income due to asset sales, partially offset by • Reduction of interest payments.
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Investing Activities: Cash used forprovided by investing activities decreased $2.5$550.1 million primarily due to the following:
• Decrease in proceeds from disposition of real estate of $559.1 million, partially offset by • Decrease in payments for real estate improvements of $9.0 million.
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Financing Activities: Cash used for financing activities increaseddecreased by $13.4$289.6 million primarily due to the following:
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CAPITALIZATION
At March 31,September 30, 2022, the Company’s capitalization consisted of $64.6$9.7 million of market equity (market equity is defined as common shares outstanding multiplied by $3.06,$0.46, the closinglast reported trading price of the Company’s common shares on the NYSEOTC Pink Market at March 31,September 30, 2022). In AprilSeptember 2022, the Board of Directors of the Company declared a dividend on the Company’s common shares in the aggregate amount of $45.0$6.5 million ($2.130.31 per common share) payable, which was paid on May 10,October 26, 2022.
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 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 availabilitythe wind-up of the Company's operations and the effectstiming or amount of environmental and other regulations.any future distributions to shareholders. 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
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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, see Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Factors that could cause actual results, performance or achievements (including amounts available for distribution to shareholders) to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the following:
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Proceeds from the Company's final asset sales will be used for general corporate purposes, including the establishment of a reserve fundand to maintain an appropriate cash balance to satisfy claims and expenses related to the winding up of the Company's business and distributions to holders of the Company’s common shares. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes. As of March 31, September 30, 2022, the Company had no other material exposure to market risk.
Item 4. CONTROLS AND PROCEDURES
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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 March 31,September 30, 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 March 31,September 30 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 March 31,September 30, 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.
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PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
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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. |
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None.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. |
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None.
Item 3. DEFAULTS UPON SENIOR SECURITIES None. |
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None.
Item 4. MINE SAFETY DISCLOSURES
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Not applicable.
Item 5. OTHER INFORMATION None. 19 Item 6. EXHIBITS
1. Submitted electronically herewith. 2. 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 20
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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