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 September 30, 20202021
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 |
Common Shares, Par Value $0.10 Per Share | RVI | New York Stock Exchange |
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 November 2, 2020,October 29, 2021, the registrant had 19,829,26421,117,150 shares of common stock, $0.10 par value per share, outstanding.
Retail Value Inc.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED September 30, 20202021
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION |
| |
Item 1. | Financial Statements – Unaudited |
|
| Consolidated Balance Sheets as of September 30, | 2 |
| 3 | |
| 4 | |
| 5 | |
| Consolidated Statements of Cash Flows for the Nine Months Ended September 30, | 6 |
| 7 | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. |
| |
Item 4. |
| |
|
|
|
PART II. OTHER INFORMATION |
| |
Item 1. |
| |
Item 1A. |
| |
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)
| September 30, 2020 |
|
| December 31, 2019 |
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land | $ | 414,653 |
|
| $ | 522,393 |
| $ | 10,442 |
|
| $ | 106,708 |
|
Buildings |
| 1,085,202 |
|
|
| 1,380,984 |
|
| 99,141 |
|
|
| 421,401 |
|
Fixtures and tenant improvements |
| 133,852 |
|
|
| 152,426 |
|
| 22,755 |
|
|
| 68,795 |
|
|
| 1,633,707 |
|
|
| 2,055,803 |
|
| 132,338 |
|
|
| 596,904 |
|
Less: Accumulated depreciation |
| (604,085 | ) |
|
| (670,509 | ) |
| (67,377 | ) |
|
| (253,565 | ) |
|
| 1,029,622 |
|
|
| 1,385,294 |
|
| 64,961 |
|
|
| 343,339 |
|
Construction in progress |
| 4,811 |
|
|
| 2,017 |
|
| 2,341 |
|
|
| 321 |
|
Total real estate assets, net |
| 1,034,433 |
|
|
| 1,387,311 |
|
| 67,302 |
|
|
| 343,660 |
|
Cash and cash equivalents |
| 115,254 |
|
|
| 71,047 |
|
| 460,949 |
|
|
| 56,849 |
|
Restricted cash |
| 140,548 |
|
|
| 112,246 |
|
| 0 |
|
|
| 115,939 |
|
Accounts receivable |
| 27,527 |
|
|
| 25,195 |
|
| 7,960 |
|
|
| 15,007 |
|
Other assets, net |
| 21,131 |
|
|
| 30,888 |
|
| 9,063 |
|
|
| 15,219 |
|
Assets related to discontinued operations |
| 0 |
|
|
| 649,202 |
| |||||||
Real estate assets and other assets held for sale |
| 240,682 |
|
|
| 0 |
| |||||||
| $ | 1,338,893 |
|
| $ | 1,626,687 |
| $ | 785,956 |
|
| $ | 1,195,876 |
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage indebtedness, net | $ | 477,087 |
|
| $ | 655,833 |
| $ | 0 |
|
| $ | 258,795 |
|
Payable to SITE Centers |
| 770 |
|
|
| 105 |
| |||||||
Accounts payable and other liabilities |
| 38,653 |
|
|
| 53,789 |
|
| 17,433 |
|
|
| 25,848 |
|
Dividends payable |
| 0 |
|
|
| 39,057 |
|
| 0 |
|
|
| 23,002 |
|
Liabilities related to discontinued operations |
| 0 |
|
|
| 98,445 |
| |||||||
Liabilities held for sale |
| 4,698 |
|
|
| 0 |
| |||||||
Total liabilities |
| 516,510 |
|
|
| 748,784 |
|
| 22,131 |
|
|
| 406,090 |
|
Commitments and contingencies (Note 5) |
|
|
|
|
|
|
| |||||||
Commitments and contingencies (Note 6) |
|
|
|
|
|
|
| |||||||
Redeemable preferred equity |
| 190,000 |
|
|
| 190,000 |
|
| 190,000 |
|
|
| 190,000 |
|
Retail Value Inc. shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares, with par value, $0.10 stated value; 200,000,000 shares authorized; 19,829,498 and 19,052,592 shares issued at September 30, 2020 and December 31, 2019, respectively |
| 1,983 |
|
|
| 1,905 |
| |||||||
Common shares, with par value, $0.10 stated value; 200,000,000 shares authorized; 21,117,748 and 19,829,498 shares issued at September 30, 2021 and December 31, 2020, respectively |
| 2,112 |
|
|
| 1,983 |
| |||||||
Additional paid-in capital |
| 721,318 |
|
|
| 692,871 |
|
| 740,517 |
|
|
| 721,234 |
|
Accumulated distributions in excess of net loss |
| (90,915 | ) |
|
| (6,857 | ) |
| (168,791 | ) |
|
| (123,428 | ) |
Less: Common shares in treasury at cost: 234 and 454 shares September 30, 2020 and December 31, 2019, respectively |
| (3 | ) |
|
| (16 | ) | |||||||
Less: Common shares in treasury at cost: 598 and 234 shares at September 30, 2021 and December 31, 2020, respectively |
| (13 | ) |
|
| (3 | ) | |||||||
Total equity |
| 632,383 |
|
|
| 687,903 |
|
| 573,825 |
|
|
| 599,786 |
|
| $ | 1,338,893 |
|
| $ | 1,626,687 |
| $ | 785,956 |
|
| $ | 1,195,876 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Retail Value Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) INCOME
(unaudited, in thousands, except per share amounts)
| Three Months |
| Three Months |
| ||||||||||
| Ended September 30, |
| Ended September 30, |
| ||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Revenues from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income | $ | 39,964 |
|
| $ | 54,291 |
| $ | 14,659 |
|
| $ | 19,366 |
|
Business interruption income |
| 0 |
|
|
| 5,675 |
| |||||||
Other income |
| 52 |
|
|
| 894 |
| |||||||
Other income (expense), net |
| (31 | ) |
|
| 33 |
| |||||||
|
| 40,016 |
|
|
| 60,860 |
|
| 14,628 |
|
|
| 19,399 |
|
Rental operation expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and maintenance |
| 9,571 |
|
|
| 9,819 |
|
| 1,922 |
|
|
| 2,403 |
|
Real estate taxes |
| 5,318 |
|
|
| 6,900 |
|
| 2,661 |
|
|
| 4,091 |
|
Property and asset management fees |
| 4,410 |
|
|
| 5,104 |
|
| 1,406 |
|
|
| 1,847 |
|
Impairment charges |
| 77,795 |
|
|
| 19,790 |
|
| 1,573 |
|
|
| 16,640 |
|
Hurricane property insurance income, net |
| 0 |
|
|
| (72,602 | ) | |||||||
General and administrative |
| 860 |
|
|
| 1,111 |
|
| 874 |
|
|
| 860 |
|
Depreciation and amortization |
| 13,797 |
|
|
| 17,676 |
|
| 4,439 |
|
|
| 6,538 |
|
|
| 111,751 |
|
|
| (12,202 | ) |
| 12,875 |
|
|
| 32,379 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
| (5,175 | ) |
|
| (9,381 | ) |
| (2,039 | ) |
|
| (4,109 | ) |
Debt extinguishment costs |
| (440 | ) |
|
| (1,949 | ) |
| (5,158 | ) |
|
| (440 | ) |
Other income (expense), net |
| 107 |
|
|
| (19 | ) | |||||||
Gain on disposition of real estate, net |
| 8,324 |
|
|
| 10,483 |
|
| 37 |
|
|
| 8,324 |
|
|
| 2,816 |
|
|
| (866 | ) |
| (7,160 | ) |
|
| 3,775 |
|
(Loss) income before tax expense |
| (68,919 | ) |
|
| 72,196 |
| |||||||
Tax (expense) benefit |
| (86 | ) |
|
| 72 |
| |||||||
Net (loss) income | $ | (69,005 | ) |
| $ | 72,268 |
| |||||||
Comprehensive (loss) income | $ | (69,005 | ) |
| $ | 72,268 |
| |||||||
Loss before tax expense |
| (5,407 | ) |
|
| (9,205 | ) | |||||||
Tax expense |
| (50 | ) |
|
| (59 | ) | |||||||
Loss from continuing operations |
| (5,457 | ) |
|
| (9,264 | ) | |||||||
Income (loss) from discontinued operations |
| 26,466 |
|
|
| (59,741 | ) | |||||||
Net income (loss) | $ | 21,009 |
|
| $ | (69,005 | ) | |||||||
Comprehensive income (loss) | $ | 21,009 |
|
| $ | (69,005 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
| |||||||
Basic and diluted | $ | (3.48 | ) |
| $ | 3.79 |
| |||||||
Basic and diluted earnings per share data: |
|
|
|
|
|
|
| |||||||
Loss from continuing operations | $ | (0.26 | ) |
| $ | (0.47 | ) | |||||||
Income (loss) from discontinued operations |
| 1.25 |
|
|
| (3.01 | ) | |||||||
Net income (loss) | $ | 0.99 |
|
| $ | (3.48 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Retail Value Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOMELOSS
(unaudited, in thousands, except per share amounts)
| Nine Months |
| Nine Months |
| ||||||||||
| Ended September 30, |
| Ended September 30, |
| ||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Revenues from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income | $ | 129,593 |
|
| $ | 174,736 |
| $ | 50,221 |
|
| $ | 63,374 |
|
Business interruption income |
| 0 |
|
|
| 7,675 |
| |||||||
Other income |
| 84 |
|
|
| 945 |
|
| 38 |
|
|
| 31 |
|
|
| 129,677 |
|
|
| 183,356 |
|
| 50,259 |
|
|
| 63,405 |
|
Rental operation expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and maintenance |
| 30,260 |
|
|
| 30,722 |
|
| 6,485 |
|
|
| 8,947 |
|
Real estate taxes |
| 16,520 |
|
|
| 21,579 |
|
| 8,562 |
|
|
| 12,878 |
|
Property and asset management fees |
| 14,176 |
|
|
| 16,739 |
|
| 4,501 |
|
|
| 6,682 |
|
Impairment charges |
| 104,615 |
|
|
| 32,990 |
|
| 1,573 |
|
|
| 43,460 |
|
Hurricane property insurance income, net |
| 0 |
|
|
| (76,233 | ) | |||||||
General and administrative |
| 2,861 |
|
|
| 3,054 |
|
| 2,997 |
|
|
| 2,861 |
|
Depreciation and amortization |
| 44,478 |
|
|
| 55,409 |
|
| 16,127 |
|
|
| 22,729 |
|
|
| 212,910 |
|
|
| 84,260 |
|
| 40,245 |
|
|
| 97,557 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
| (18,127 | ) |
|
| (34,201 | ) |
| (7,897 | ) |
|
| (14,797 | ) |
Debt extinguishment costs |
| (4,417 | ) |
|
| (19,358 | ) |
| (6,307 | ) |
|
| (4,417 | ) |
Other income (expense), net |
| 441 |
|
|
| (887 | ) | |||||||
Gain on disposition of real estate, net |
| 21,956 |
|
|
| 41,648 |
|
| 1,882 |
|
|
| 21,956 |
|
|
| (147 | ) |
|
| (12,798 | ) |
| (12,322 | ) |
|
| 2,742 |
|
(Loss) income before tax expense |
| (83,380 | ) |
|
| 86,298 |
| |||||||
Loss before tax expense |
| (2,308 | ) |
|
| (31,410 | ) | |||||||
Tax expense |
| (678 | ) |
|
| (423 | ) |
| (193 | ) |
|
| (184 | ) |
Net (loss) income | $ | (84,058 | ) |
| $ | 85,875 |
| |||||||
Comprehensive (loss) income | $ | (84,058 | ) |
| $ | 85,875 |
| |||||||
Loss from continuing operations |
| (2,501 | ) |
|
| (31,594 | ) | |||||||
Loss from discontinued operations |
| (42,862 | ) |
|
| (52,464 | ) | |||||||
Net loss | $ | (45,363 | ) |
| $ | (84,058 | ) | |||||||
Comprehensive loss | $ | (45,363 | ) |
| $ | (84,058 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
| |||||||
Basic and diluted | $ | (4.25 | ) |
| $ | 4.52 |
| |||||||
Basic and diluted earnings per share data: |
|
|
|
|
|
|
| |||||||
Loss from continuing operations | $ | (0.12 | ) |
| $ | (1.60 | ) | |||||||
Loss from discontinued operations |
| (2.04 | ) |
|
| (2.65 | ) | |||||||
Net loss | $ | (2.16 | ) |
| $ | (4.25 | ) |
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 |
|
| 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 |
| ||||||||||||||||||||
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 |
|
| 77 |
|
|
| 28,022 |
|
|
| — |
|
|
| — |
|
|
| 28,099 |
|
|
| 127 |
|
|
| 19,314 |
|
|
| — |
|
|
| (26 | ) |
|
| 19,415 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (15,053 | ) |
|
| — |
|
|
| (15,053 | ) |
|
| — |
|
|
| — |
|
|
| (66,372 | ) |
|
| — |
|
|
| (66,372 | ) |
Balance, June 30, 2020 |
|
| 1,982 |
|
|
| 720,893 |
|
|
| (21,910 | ) |
|
| (16 | ) |
|
| 700,949 |
| ||||||||||||||||||||
Balance, June 30, 2021 |
|
| 2,110 |
|
|
| 740,548 |
|
|
| (189,800 | ) |
|
| (29 | ) |
|
| 552,829 |
| ||||||||||||||||||||
Issuance of common shares related to stock dividend and stock plan |
|
| 1 |
|
|
| 425 |
|
|
| — |
|
|
| 13 |
|
|
| 439 |
|
|
| 2 |
|
|
| (31 | ) |
|
| — |
|
|
| 16 |
|
|
| (13 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| (69,005 | ) |
|
| — |
|
|
| (69,005 | ) | ||||||||||||||||||||
Balance, September 30, 2020 |
| $ | 1,983 |
|
| $ | 721,318 |
|
| $ | (90,915 | ) |
| $ | (3 | ) |
| $ | 632,383 |
| ||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| 21,009 |
|
|
| — |
|
|
| 21,009 |
| ||||||||||||||||||||
Balance, September 30, 2021 |
| $ | 2,112 |
|
| $ | 740,517 |
|
| $ | (168,791 | ) |
| $ | (13 | ) |
| $ | 573,825 |
|
|
| Common Shares |
|
| Additional Paid-in Capital |
|
| Accumulated Distributions in Excess of Net Loss |
|
| Treasury Stock at Cost |
|
| Total |
| |||||
Balance as of December 31, 2018 |
| $ | 1,846 |
|
| $ | 675,566 |
|
| $ | (15,153 | ) |
| $ | (6 | ) |
| $ | 662,253 |
|
Issuance of common shares related to stock dividend and stock plan |
|
| 58 |
|
|
| 17,099 |
|
|
| — |
|
|
| — |
|
|
| 17,157 |
|
Repurchase of common shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| (4 | ) |
Adoption of ASC Topic 842 (Leases) |
|
| — |
|
|
| — |
|
|
| 700 |
|
|
| — |
|
|
| 700 |
|
Dividends declared |
|
| — |
|
|
| — |
|
|
| (44 | ) |
|
| — |
|
|
| (44 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| 13,607 |
|
|
| — |
|
|
| 13,607 |
|
Balance, June 30, 2019 |
|
| 1,904 |
|
|
| 692,665 |
|
|
| (890 | ) |
|
| (10 | ) |
|
| 693,669 |
|
Issuance of common shares related to stock dividend and stock plan |
|
| 1 |
|
|
| 301 |
|
|
| — |
|
|
| 10 |
|
|
| 312 |
|
Repurchase of common shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15 | ) |
|
| (15 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| 72,268 |
|
|
| — |
|
|
| 72,268 |
|
Balance, September 30, 2019 |
| $ | 1,905 |
|
| $ | 692,966 |
|
| $ | 71,378 |
|
| $ | (15 | ) |
| $ | 766,234 |
|
|
| 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 and stock plan |
|
| 77 |
|
|
| 28,022 |
|
|
| — |
|
|
| — |
|
|
| 28,099 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (15,053 | ) |
|
| — |
|
|
| (15,053 | ) |
Balance, June 30, 2020 |
|
| 1,982 |
|
|
| 720,893 |
|
|
| (21,910 | ) |
|
| (16 | ) |
|
| 700,949 |
|
Issuance of common shares related to stock dividend and stock plan |
|
| 1 |
|
|
| 425 |
|
|
| — |
|
|
| 13 |
|
|
| 439 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (69,005 | ) |
|
| — |
|
|
| (69,005 | ) |
Balance, September 30, 2020 |
| $ | 1,983 |
|
| $ | 721,318 |
|
| $ | (90,915 | ) |
| $ | (3 | ) |
| $ | 632,383 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Retail Value Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
| Nine Months |
| Nine Months |
| ||||||||||
| Ended September 30, |
| Ended September 30, |
| ||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Cash flow from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income | $ | (84,058 | ) |
| $ | 85,875 |
| |||||||
Adjustments to reconcile net (loss) income to net cash flow provided by operating activities: |
|
|
|
|
|
|
| |||||||
Net loss | $ | (45,363 | ) |
| $ | (84,058 | ) | |||||||
Adjustments to reconcile net loss to net cash flow provided by operating activities: |
|
|
|
|
|
|
| |||||||
Depreciation and amortization |
| 44,478 |
|
|
| 55,409 |
|
| 32,630 |
|
|
| 44,478 |
|
Amortization and write-off of above- and below-market leases, net |
| (870 | ) |
|
| (938 | ) |
| (586 | ) |
|
| (870 | ) |
Amortization and write-off of debt issuance costs and fair market value of debt adjustments |
| 6,736 |
|
|
| 13,376 |
| |||||||
Amortization and write-off of debt issuance costs |
| 9,800 |
|
|
| 6,736 |
| |||||||
Gain on disposition of real estate, net |
| (21,956 | ) |
|
| (41,648 | ) |
| (25,687 | ) |
|
| (21,956 | ) |
Property insurance proceeds in excess of receivable |
| 0 |
|
|
| (74,489 | ) | |||||||
Impairment charges |
| 104,615 |
|
|
| 32,990 |
|
| 82,633 |
|
|
| 104,615 |
|
Loss on debt extinguishment |
| 0 |
|
|
| 235 |
| |||||||
Interest rate hedging activities |
| 0 |
|
|
| 1,152 |
| |||||||
Assumption of building due to ground lease termination |
| 0 |
|
|
| (830 | ) | |||||||
Assumption of buildings due to ground lease terminations |
| (2,660 | ) |
|
| 0 |
| |||||||
Net change in accounts receivable |
| (5,765 | ) |
|
| 3,575 |
|
| 8,061 |
|
|
| (5,765 | ) |
Net change in accounts payable and other liabilities |
| (6,353 | ) |
|
| (6,053 | ) |
| (4,722 | ) |
|
| (6,353 | ) |
Net change in other operating assets |
| 3,211 |
|
|
| 2,799 |
|
| 6,450 |
|
|
| 3,211 |
|
Total adjustments |
| 124,096 |
|
|
| (14,422 | ) |
| 105,919 |
|
|
| 124,096 |
|
Net cash flow provided by operating activities |
| 40,038 |
|
|
| 71,453 |
|
| 60,556 |
|
|
| 40,038 |
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate improvements to operating real estate |
| (17,642 | ) |
|
| (65,147 | ) |
| (9,856 | ) |
|
| (17,642 | ) |
Proceeds from disposition of real estate |
| 246,479 |
|
|
| 298,958 |
|
| 596,118 |
|
|
| 246,479 |
|
Hurricane property insurance proceeds |
| 0 |
|
|
| 104,267 |
| |||||||
Net repayments to SITE Centers |
| 0 |
|
|
| (17,000 | ) | |||||||
Net cash flow provided by investing activities |
| 228,837 |
|
|
| 321,078 |
|
| 586,262 |
|
|
| 228,837 |
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from mortgage debt |
| 0 |
|
|
| 900,000 |
| |||||||
Repayment of mortgage debt, including repayment costs |
| (185,408 | ) |
|
| (1,214,514 | ) |
| (354,202 | ) |
|
| (185,408 | ) |
Payment of debt issuance costs |
| 0 |
|
|
| (11,895 | ) |
| (74 | ) |
|
| 0 |
|
Dividends paid |
| (10,958 | ) |
|
| (6,847 | ) |
| (4,381 | ) |
|
| (10,958 | ) |
Net cash flow used for financing activities |
| (196,366 | ) |
|
| (333,256 | ) |
| (358,657 | ) |
|
| (196,366 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash, cash equivalents and restricted cash |
| 72,509 |
|
|
| 59,275 |
|
| 288,161 |
|
|
| 72,509 |
|
Cash, cash equivalents and restricted cash, beginning of period |
| 183,293 |
|
|
| 111,199 |
|
| 172,788 |
|
|
| 183,293 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 255,802 |
|
| $ | 170,474 |
| $ | 460,949 |
|
| $ | 255,802 |
|
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”) on July 1, 2018. AsThe Company focuses on realizing value in its business through operations and sales of its assets. At September 30, 2020,2021, RVI owned 23 properties that included 118 retail shopping centers, all of which were located in the continental U.S. assets and 12 Puerto Rico assets (including 3 enclosed malls) comprising 9.03.8 million square feet of Company-owned gross leasable area (“GLA”) and located in 8 states. The Company sold 2 assets in Puerto Rico in the second quarter of 2021 and the remaining 9 states andassets in Puerto Rico in the third quarter of 2021. As such, the Company no longer has an operating segment in Puerto Rico. These properties serve as direct or indirect collateral for aA portion of the approximate $539 million in net proceeds received from the sale of Puerto Rico assets in the third quarter of 2021 was used to fully repay the outstanding balance of the Company’s mortgage loan which, asof September 30, 2020, had an aggregate principal balance of $488.9$214.5 million. In On October 2020, a $69.7 million repayment on1, 2021, the mortgage loan was made from the use of restricted cash related to an asset sale consummated in September 2020.Company sold 5 continental U.S. assets, leaving 3 remaining assets.
In connection with RVI’sthe separation from SITE Centers, SITE Centers retained 1,000 shares of RVI’s seriesSeries A preferred stock (the “RVI Preferred Shares”) 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. In October 2021, the Board of Directors of the Company authorized and the Company paid a dividend on the RVI Preferred Shares in the aggregate amount of $190.0 million.
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 June 30,December 31, 2021, or at the end of any six-month renewal period thereafter. 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.
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 increased uncertainties surrounding the severity and duration of the COVID-19COVID‑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 nine months ended September 30, 20202021 and 2019,2020, 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, 2019.2020.
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):
| Nine Months |
| Nine Months |
| ||||||||||
| Ended September 30, |
| Ended September 30, |
| ||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Accounts payable related to construction in progress | $ | 3.2 |
|
| $ | 10.9 |
| |||||||
Accounts payable related to construction in progress (continuing operations) | $ | 0.7 |
|
| $ | 0.2 |
| |||||||
Accounts payable related to construction in progress (discontinued operations) |
| 0 |
|
|
| 3.0 |
| |||||||
Assumption of buildings due to ground lease terminations (discontinued operations) |
| 2.7 |
|
|
| 0 |
| |||||||
Stock dividends |
| 28.1 |
|
|
| 17.2 |
|
| 18.6 |
|
|
| 28.1 |
|
Note receivable related to disposition of shopping center |
| 3.0 |
|
|
| 0 |
|
| 0 |
|
|
| 3.0 |
|
Assumption of building due to ground lease termination |
| 0 |
|
|
| 0.8 |
|
New Accounting Standards
Accounting for Credit Losses
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued an amendment on measurement of credit losses on financial assets held by a reporting entity at each reporting date (Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses, “Topic 326”). The guidance requires the use of a new current expected credit loss ("CECL") model in estimating allowances for doubtful accounts with respect to accounts receivable, straight-line rents receivable and notes receivable. The CECL model requires that the Company estimate its lifetime expected credit loss with respect to these receivables and record allowances that, when deducted from the balance of the receivables, represent the estimated net amounts expected to be collected. This guidance is effective for fiscal years, and for interim reporting periods within those fiscal years, beginning after December 15, 2019. In November 2018, the FASB issued ASU 2018-19 to clarify that operating lease receivables, including straight-line rent receivables, recorded by lessors are explicitly excluded from the scope of Topic 326. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
Impact of the COVID-19 Pandemic on Revenue and Receivables
In AprilBeginning in March 2020, the FASB issued a question-and-answer document (the “Lease Modification Q&A”) focused onretail sector within the application of lease accounting guidance to lease concessions provided as a result ofcontinental U.S. and Puerto Rico was significantly impacted by the COVID-19 pandemic. Though the impact of the COVID-19 pandemic. Under existingpandemic on tenant operations varied by tenant category, local conditions and applicable government mandates, a significant number of the Company’s tenants 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, primarily in 2020. The COVID‑19 pandemic also 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 agreed to terms on rent-deferral arrangements (and, in a small number of cases, rent abatements) and other lease guidance,modifications with a significant number of such tenants. As of September 30, 2021, $0.6 million remains outstanding under these deferral arrangements for tenants that are not accounted for on the cash basis.
During the three and nine months ended September 30, 2021, the Company would haverecorded net uncollectible revenue that resulted in rental income of $1.4 million and $4.5 million, respectively, primarily due to determine,net revenue related to prior periods (including rent deferrals) from tenants on a lease by leasethe cash basis if a lease concessionof accounting. The aggregate amount of uncollectible revenue reported during the quarter primarily was the result of a new arrangement reached with the tenant (treated with the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A clarifies that entities may elect to not evaluate whether lease-related relief that lessors provide to mitigate the economic effects of the COVID-19 pandemic on lessees is a lease modification under Topic 842, Leases. Instead, an entity that elects not to evaluate whether a concession directly relateddue to the impact of the COVID-19 pandemic is a modification can then elect whether to apply the modification guidance (i.e. assume the relief was always contemplated by the contract or assume the relief was not contemplated by the contract). Both lessees and lessors may make this election. The Company has elected not to apply lease modification accounting to lease amendments in which the total amount of rent due under the lease is substantially the same and there has been no increase in the lease term. A majority of the Company’s concession amendments within this category provide for the deferral of rental payments to a later date within the remaining lease term. In addition, if abatements are granted as part of a lease amendment, the Company has generally elected to not treat the abatements as variable rent and instead will record the concession’s impact over the tenant’s remaining lease term on a straight-line basis. Modifications to leases that involve an increase in the lease term have been treated as a lease modification. pandemic.
The Company had net contractual tenant accounts receivable of $10.0 million at September 30, 2020. As of October 31, 2020, unpaid tenant rents subject to agreed deferral, abatement or lease modification arrangements represented approximately 13% of aggregate base rents for the second quarter of 2020 and approximately 5% of aggregate base rents for the third quarter of 2020. The Company calculates the aggregate percentage of rents paid by comparing the amount of tenant payments received as of the date presented to the amount billed to tenants during the period, which billed amount includes abated rents, rents subject to deferral arrangements and rents owing from bankrupt tenants with respect to leases which have not yet been rejected. 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 and all existing accounts receivable relating to these tenants have been reserved in full, including straight-line rental income.received. The Company will remove the
cash basis designation and resume recording rental income from such tenants during the period earnedon 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.
DuringIncome Taxes
The total net tax basis of the assets for federal income tax purposes at September 30, 2021 was approximately $467.1 million, of which $362.2 million related to assets held for sale. Of the three and nine months ended September 30, 2020, tenants onremaining assets owned as October 1, 2021, 2 are owned by the cash basis of accounting and other related reserves, resulted in a reduction of rental income of $4.8 million and $11.1 million, respectively. These amounts also include reductions in contractual rental payments due from tenants as compared to pre-modification payments due to the impact of lease modifications, with a partial increase in straight-line rent to offset a portion of the impact on net income. The aggregate amount of uncollectible revenue reported during the quarter primarily was due to the impact of the COVID-19 pandemic. Company’s taxable REIT subsidiary.
2. | Other Assets and Intangibles, net |
Other Assets and Intangibles, net consists of the following (in thousands):
| September 30, 2020 |
|
| December 31, 2019 |
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
Intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-place leases, net | $ | 3,437 |
|
| $ | 5,882 |
| $ | 1,687 |
|
| $ | 3,244 |
|
Above-market leases, net |
| 488 |
|
|
| 908 |
|
| 0 |
|
|
| 410 |
|
Lease origination costs, net |
| 525 |
|
|
| 949 |
|
| 194 |
|
|
| 487 |
|
Tenant relationships, net |
| 4,029 |
|
|
| 10,120 |
|
| 1,402 |
|
|
| 3,802 |
|
Total intangible assets, net(A) |
| 8,479 |
|
|
| 17,859 |
|
| 3,283 |
|
|
| 7,943 |
|
Operating lease ROU assets |
| 1,562 |
|
|
| 1,714 |
|
| 1,108 |
|
|
| 1,509 |
|
Notes receivable(B) |
| 3,000 |
|
| 0 |
|
| 3,000 |
|
|
| 3,000 |
| |
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses |
| 7,818 |
|
|
| 11,023 |
|
| 1,472 |
|
|
| 2,567 |
|
Other assets |
| 272 |
|
|
| 292 |
|
| 200 |
|
|
| 200 |
|
Total other assets, net | $ | 21,131 |
|
| $ | 30,888 |
| $ | 9,063 |
|
| $ | 15,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below-market leases, net (other liabilities) | $ | 14,129 |
|
| $ | 20,042 |
| $ | 6,876 |
|
| $ | 10,064 |
|
| (A) | The Company recorded amortization expense, including those classified within discontinued operations, related to its intangibles, excluding above- and below-market leases, of |
| (B) |
|
3. | Discontinued Operations and Assets Held for Sale |
Discontinued Operations
In the third quarter of 2021, the Company sold all of its interests in the limited liability companies that owned all of the Company’s remaining assets located in Puerto Rico (comprising approximately 3.5 million square feet of Company-owned GLA) for a gross sales price of $550.0 million. The sale also included all of the Company’s interests in a consolidated joint venture that owned an undeveloped parcel of land adjacent to Plaza Isabela. Net proceeds received at closing were approximately $539.0 million.
At July 1, 2018, the date of the Company’s spin-off from SITE Centers into a separate publicly traded company, the Company had 12 assets in Puerto Rico and had 2 reportable segments: continental U.S. and Puerto Rico. The Company sold 1 asset in Puerto Rico in December 2020, 2 assets in the second quarter of 2021, and the remaining 9 assets in the third quarter of 2021. As a result, the sale of all the assets in Puerto Rico represents a strategic shift in the Company’s geographic concentration and business and as such, the Puerto Rico assets 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 following table presents the assets and liabilities associated with the Puerto Rico segment as follows (in thousands):
| December 31, 2020 |
| |
Assets |
|
|
|
Land | $ | 290,991 |
|
Buildings |
| 610,485 |
|
Fixtures and tenant improvements |
| 65,540 |
|
|
| 967,016 |
|
Less: Accumulated depreciation |
| (340,126 | ) |
|
| 626,890 |
|
Construction in progress |
| 1,194 |
|
Total real estate assets, net |
| 628,084 |
|
Accounts receivable |
| 10,295 |
|
Other assets, net |
| 10,823 |
|
Assets related to discontinued operations | $ | 649,202 |
|
|
|
|
|
Liabilities |
|
|
|
Mortgage indebtedness, net | $ | 85,690 |
|
Accounts payable and other liabilities |
| 12,755 |
|
Liabilities related to discontinued operations | $ | 98,445 |
|
The operating results related to the Puerto Rico segment were as follows (in thousands):
| Three Months |
|
| Nine Months |
| ||||||||||
| Ended September 30, |
|
| Ended September 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revenues from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income | $ | 16,183 |
|
| $ | 20,598 |
|
| $ | 63,900 |
|
| $ | 66,219 |
|
Other income |
| (5 | ) |
|
| 19 |
|
|
| 17 |
|
|
| 53 |
|
|
| 16,178 |
|
|
| 20,617 |
|
|
| 63,917 |
|
|
| 66,272 |
|
Rental operation expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and maintenance |
| 4,824 |
|
|
| 7,168 |
|
|
| 19,037 |
|
|
| 21,313 |
|
Real estate taxes |
| 686 |
|
|
| 1,227 |
|
|
| 2,808 |
|
|
| 3,642 |
|
Property and asset management fees |
| 2,295 |
|
|
| 2,563 |
|
|
| 7,269 |
|
|
| 7,494 |
|
Impairment charges |
| 0 |
|
|
| 61,155 |
|
|
| 81,060 |
|
|
| 61,155 |
|
Depreciation and amortization |
| 3,629 |
|
|
| 7,259 |
|
|
| 16,503 |
|
|
| 21,749 |
|
|
| 11,434 |
|
|
| 79,372 |
|
|
| 126,677 |
|
|
| 115,353 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
| (485 | ) |
|
| (1,066 | ) |
|
| (2,055 | ) |
|
| (3,330 | ) |
Debt extinguishment costs |
| (1,858 | ) |
|
| 0 |
|
|
| (1,951 | ) |
|
| 0 |
|
Other income, net |
| 0 |
|
|
| 107 |
|
|
| 197 |
|
|
| 441 |
|
Gain on disposition of real estate |
| 24,109 |
|
|
| 0 |
|
|
| 23,805 |
|
|
| 0 |
|
|
| 21,766 |
|
|
| (959 | ) |
|
| 19,996 |
|
|
| (2,889 | ) |
Income (loss) from discontinued operations before tax expense |
| 26,510 |
|
|
| (59,714 | ) |
|
| (42,764 | ) |
|
| (51,970 | ) |
Tax expense |
| (44 | ) |
|
| (27 | ) |
|
| (98 | ) |
|
| (494 | ) |
Income (loss) from discontinued operations | $ | 26,466 |
|
| $ | (59,741 | ) |
| $ | (42,862 | ) |
| $ | (52,464 | ) |
The following table summarizes cash flow data related to discontinued operations for the nine months ending September 30, 2021 and 2020 (in thousands):
|
| Nine Months |
| |||||
|
| Ended September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Depreciation and amortization |
| $ | 16,503 |
|
| $ | 21,749 |
|
Amortization and write-off of above- and below-market leases, net |
|
| 210 |
|
|
| 237 |
|
Impairment charges |
|
| 81,060 |
|
|
| 61,155 |
|
Assumption of buildings due to ground lease terminations |
|
| 2,660 |
|
|
| 0 |
|
Real estate improvements to operating real estate |
|
| 7,112 |
|
|
| 14,163 |
|
Assets Held For Sale
As of September 30, 2021, the Company had 5 assets (Great Northern Plazas, Maple Grove Crossing, Peach Street Marketplace, Seabrook Commons and Wrangleboro Consumer Square) classified as held for sale. These assets were sold on October 1, 2021, for a gross sales price of $264.0 million. The Company classifies properties as held for sale when executed contract contingencies have been satisfied, which signifies that the parties are fully obligated to consummate the sale transaction. The net sale proceeds were approximately $242.4 million (Note 11).
The following table presents the assets and liabilities associated with the assets held for sale (in thousands):
| September 30, 2021 |
| |
Assets |
|
|
|
Land | $ | 87,245 |
|
Buildings |
| 275,661 |
|
Fixtures and tenant improvements |
| 30,102 |
|
|
| 393,008 |
|
Less: Accumulated depreciation |
| (157,940 | ) |
|
| 235,068 |
|
Construction in progress |
| 104 |
|
Total real estate assets, net |
| 235,172 |
|
Straight-line rents, net |
| 1,806 |
|
Intangible assets, net |
| 2,031 |
|
Operating lease ROU asset |
| 239 |
|
Other assets |
| 1,434 |
|
Assets associated with real estate assets held for sale | $ | 240,682 |
|
|
|
|
|
Liabilities |
|
|
|
Below-market leases, net | $ | 1,172 |
|
Other liabilities |
| 3,526 |
|
Liabilities associated with real estate assets held for sale | $ | 4,698 |
|
4. | Indebtedness |
Mortgage Indebtedness
In connection with the sale of the Company’s remaining Puerto Rico assets in the third quarter of 2021, the Company fully repaid the entire balance of its mortgage loan of $214.5 million. Accordingly, the lender released all remaining collateral and restricted cash balances. The Company has ahad 0 mortgage loan, which had andebt outstanding aggregate principal amount of $488.9 million at September 30, 2020 and which is secured, directly and indirectly, by all of its properties. In October 2020, a $69.7 million repayment on the mortgage loan was made from the use of restricted cash related to an asset sale consummated in September 2020 (Note 10). The loan facility will mature on March 9, 2021, subject to 3 one-year extensions at borrowers’ option based on certain conditions of the agreement. At September 30, 2020, the interest rate of the Company’s mortgage loan was 3.4% per annum. The interest rate on the mortgage loan is equal to the one-month LIBOR plus a spread of 3.26% per annum as of September 30, 2020, 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.2021.
As of September 30, 2020, the Company was in compliance with all provisions of the loan agreements, and the Company believes that it would have qualified to exercise the loan’s initial extension option in the event the extension option had been exercisable at September 30, 2020. The Company expects to be in compliance with all provisions of the loan agreements on the initial extension date. As of the date of issuance of these interim consolidated financial statements, in the event that amounts remain outstanding on the loan’s maturity date, management’s intent is to exercise the initial extension option upon maturity.
Credit Agreement
The Company maintainsmaintained a Credit Agreement (the “Revolving Credit Agreement”) with PNC Bank, National Association, as lender and administrative agent (“PNC”). The Revolving Credit Agreement provides that provided for borrowings of up to $30.0 million. BorrowingsIn February 2021, the scheduled facility termination date under the Revolving Credit Agreement may be used bywas extended to February 2022. In the Company for general corporate purposes and working capital. Thethird quarter of 2021, as a result of the repayment of the Company’s borrowingsmortgage loan discussed above, the commitments of the lenders under the Revolving Credit Agreement bear interest at variable rates atwere terminated in accordance with the Company’s election, based on either (i) LIBOR plus a specified spread ranging from 1.05% to 1.50% per annum depending onterms of the Company’s Leverage Ratio (as defined inagreement. At the Revolving Credit Agreement) or (ii)time of the Alternate Base Rate (as defined in the Revolving Credit Agreement) plus a specified spread ranging from 0.05% to 0.50% 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 to occur of (i) March 9, 2021, (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 September 30, 2020,facility’s termination, there were 0 amounts outstanding under the Revolving Credit Agreement.
| Financial Instruments and Fair Value Measurements |
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 $477.1$344.5 million and $655.8 million at September 30, 2020 and December 31, 2019, respectively.The fair value of debt was $487.9 million and $682.2$362.7 million at September 30, 2020 and December 31, 2019, respectively.2020.
| Commitments and Contingencies |
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 these Puerto Rico assets atAs of September 30, 2020.2021, the Company no longer had any interests in the assets in Puerto Rico.
The remaining unutilized property damage settlement proceeds of $35.0 million along with other related reserves required by the mortgage lenderinsurance claim escrows of $6.5$37.2 million, arepreviously reflected in the Company’s consolidated balance sheetsheets as Restricted Cash, and will be disbursedwere released to the Company in accordancethe third quarter of 2021 in connection with the termsfull repayment of the Company’s mortgage financing upon the lender’s satisfaction that all necessary restoration work has been completed. The Company recorded revenue for covered business interruption in the period it determined it was probable it would be compensated and all the applicable contingencies with the insurance company had been resolved. The Company recorded insurance proceeds received as Business Interruption Income on the Company’s consolidated statements of operations.loan.
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 |
The Company recorded impairment charges of $77.8 million and $19.8 million for the three months ended September 30, 2020 and 2019, respectively, and $104.6 million and $33.0 million for the nine months ended September 30, 2020 and 2019, respectively. Impairment charges were recorded on assets based on the difference between the carrying value of the assets and the estimated fair market value after the assets failed a step onestep-one analysis that compared the sum of estimated future undiscounted cash flows to the assetsassets’ carrying value. TheseIn the third quarter of 2021, impairment charges recorded on 3 assets were triggered as the assets were classified as held for sale at September 30, 2021 (Note 3). In the second quarter of 2021, the impairment charges recorded on 4 assets were triggered by a change in the hold period assumptions for the Puerto Rico portfolio. The impairments recorded in the first quarter of 2021 and 2020 primarily were triggered by indicative bids received and changes in market assumptions due to the disposition process.process, as well as changes in projected cash flows. The following table summarizes the impairment charges during the three and nine months ended September 30, 2021 and 2020 (in millions):
| Three Months |
|
| Nine Months |
| ||||||||||
| Ended September 30, |
|
| Ended September 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Puerto Rico Assets | $ | 0 |
|
| $ | 61.2 |
|
| $ | 81.1 |
|
| $ | 61.2 |
|
Continental U.S. Assets |
| 0 |
|
|
| 16.6 |
|
|
| 0 |
|
|
| 43.4 |
|
Assets held for sale (Continental U.S.) |
| 1.6 |
|
|
| 0 |
|
|
| 1.6 |
|
|
| 0 |
|
Total impairment charges | $ | 1.6 |
|
| $ | 77.8 |
|
| $ | 82.7 |
|
| $ | 104.6 |
|
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 nine months ended September 30, 2020.2021. 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 |
|
| Fair Value Measurements |
| ||||||||||||||||||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Total Impairment Charges |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Total Impairment Charges |
| ||||||||||
September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Long-lived assets held and used |
| $ | 0 |
|
| $ | 0 |
|
| $ | 407.2 |
|
| $ | 407.2 |
|
| $ | 104.6 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 324.5 |
|
| $ | 324.5 |
|
| $ | 81.1 |
|
Assets held for sale |
|
| 0 |
|
|
| 0 |
|
|
| 142.9 |
|
|
| 142.9 |
|
|
| 1.6 |
|
The following table presents quantitative information about the significant unobservable inputs used by the Company to determine the fair value of non-recurring itemsfor the nine months ended September 30, 2021 (in millions):
|
| Quantitative Information about Level 3 Fair Value Measurements |
|
| Quantitative Information about Level 3 Fair Value Measurements | ||||||||||||||||||||
Description |
| Fair Value at September 30, 2020 |
|
| Valuation Technique |
| Unobservable Inputs |
| Range |
| Weighted Average |
|
| Fair Value at September 30, 2021 |
|
| Valuation Technique |
| Unobservable Inputs |
| Range |
| Weighted Average | ||
Long-lived assets held and used |
| $ | 185.5 |
|
| Income Capitalization Approach |
| Market Capitalization Rate |
| 9.8%-12.3% |
| 10.0% |
|
| $ | 324.5 |
|
| Indicative Bid (A) |
| Indicative Bid(A) |
| N/A |
| N/A |
|
|
| 137.2 |
|
| Indicative Bid(A) |
| Indicative Bid(A) |
| N/A |
| N/A |
| ||||||||||||
|
|
| 84.5 |
|
| Discounted Cash Flow |
| Discount Rate |
| 12.4%-15.7% |
| 12.6% |
| ||||||||||||
|
|
|
|
|
|
|
| Terminal Capitalization Rate |
| 10.5%-11.0% |
| 10.5% |
| ||||||||||||
Assets held for sale |
| 142.9 |
|
| Indicative Bid (A) |
| Indicative Bid (A) |
| N/A |
| N/A |
(A) | Fair value measurements based upon indicative bids were developed by third-party sources (including offers and comparable sales values), subject to SITE Centers’ corroboration for reasonableness. The Company does not have access to certain unobservable inputs used by these third parties to determine these estimated values. |
| Transactions with SITE Centers |
The following table presents fees and other amounts charged by SITE Centers (in thousands):
| Three Months |
|
| Nine Months |
| Three Months |
|
| Nine Months |
| ||||||||||||||||||||
| Ended September 30, |
|
| Ended September 30, |
| Ended September 30, |
|
| Ended September 30, |
| ||||||||||||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Property management fees(A) | $ | 2,408 |
|
| $ | 2,676 |
|
| $ | 7,526 |
|
| $ | 8,671 |
| $ | 2,081 |
|
| $ | 2,408 |
|
| $ | 6,609 |
|
| $ | 7,526 |
|
Asset management fees(B) |
| 2,002 |
|
|
| 2,428 |
|
|
| 6,650 |
|
|
| 8,068 |
|
| 1,620 |
|
|
| 2,002 |
|
|
| 5,161 |
|
|
| 6,650 |
|
Leasing commissions(C) |
| 288 |
|
|
| 366 |
|
|
| 1,992 |
|
|
| 1,811 |
|
| 306 |
|
|
| 288 |
|
|
| 1,701 |
|
|
| 1,992 |
|
Maintenance services and other(D) |
| 339 |
|
|
| 360 |
|
|
| 1,021 |
|
|
| 1,115 |
|
| 214 |
|
|
| 339 |
|
|
| 866 |
|
|
| 1,021 |
|
Disposition fees(E) |
| 856 |
|
|
| 546 |
|
|
| 2,622 |
|
|
| 3,160 |
|
| 5,500 |
|
|
| 856 |
|
|
| 6,092 |
|
|
| 2,622 |
|
Credit facility guaranty and debt refinancing fees(F) |
| 60 |
|
|
| 60 |
|
|
| 60 |
|
|
| 1,860 |
| |||||||||||||||
Credit facility guaranty fees |
| 60 |
|
|
| 60 |
|
|
| 60 |
|
|
| 60 |
| |||||||||||||||
Legal fees |
| 88 |
|
|
| 221 |
|
|
| 273 |
|
|
| 578 |
|
| 235 |
|
|
| 88 |
|
|
| 444 |
|
|
| 273 |
|
| $ | 6,041 |
|
| $ | 6,657 |
|
| $ | 20,144 |
|
| $ | 25,263 |
| $ | 10,016 |
|
| $ | 6,041 |
|
| $ | 20,933 |
|
| $ | 20,144 |
|
(A) | Property management fees are generally calculated based on a percentage of tenant cash receipts collected during the three months immediately preceding the most recent June 30 or December |
(B) | Asset management fees are generally calculated at 0.5% per annum of the gross asset value as determined on the immediately preceding June 30 or December 31. |
(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) | Disposition fees equal 1% of the gross sales price of each asset sold. Disposition fees are included within Gain on Disposition of Real Estate on the consolidated statements of operations. |
(F) |
|
| Legal fees charged for collection activity, negotiating and reviewing tenant leases and contracts for asset dispositions. |
Amounts payable to SITE Centers at September 30, 2021 were $0.1 million.
In AprilOctober 2020, the Company entered into an agreementAmended and Restated Agreement (the “Agreement”) with an affiliate of SITE Centers in order to address the impact of the COVID-19 pandemic on the level of effort required to manage the portfolio and the property management fees beginning on July 1, 2020 through December 31, 2020.for the six-month period ending June 30, 2021. Pursuant to the terms of the Company’s existing property management agreements with SITE Centers, the property management fees are determined on each July 1 and January 1 based on gross property revenues received during the three-month period immediately preceding such determination date. PropertyIn order to offset the impact of reduced property collections during the second quarter of 2020 were adversely impacted bythree-month period preceding January 1, 2021 on the COVID-19 pandemic and resulted in aggregate monthly management fees calculated in accordance with the existing property management agreements of $435,702 forfee applicable to the lastfirst six months of 2020 as compared to aggregate monthly management fees of $789,126 paid during 20192021, the Agreement provided that beginning on account of the same properties owned byJanuary 1, 2021, the Company and its subsidiaries as of April 1, 2020. The Agreement provides that during the six-month period that began on July 1, 2020, the Company willwas to pay JDN Development Company (an affiliate of SITE Centers) a monthly supplementalfee of $353,424 thereby causingin an amount equal to (i) the sum of theaverage monthly property management fees payable for the remaining six months of 2020 and the monthly supplemental fee to equal the amount of monthly fees paid during 2019 on account ofwith respect to the same properties owned by the Company and its subsidiaries as of AprilOctober 1, 2020.
In October 2020 (which amount was $737,377) minus (ii) the Company entered into an Amended and Restated Agreement in order to address the impact of the COVID-19 pandemic on the level ofmonthly property management fees beginningfee determined on January 1, 2021 for the first six months of 2021 in accordance with the existing property management agreements (which amount was $634,848). This arrangement was only in effect through June 30, 2021. For additional information, see Item 5. Other Information in Part II2021 and was similar to the prior arrangement between the parties governing the payment of this Quarterly Report on Form 10-Q.a monthly supplemental fee with respect to the last six months of 2020.
| Earnings Per Share |
The following table provides the net income (loss) 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):
| Three Months |
|
| Nine Months |
| Three Months |
|
| Nine Months |
| ||||||||||||||||||||
| Ended September 30, |
|
| Ended September 30, |
| Ended September 30, |
|
| Ended September 30, |
| ||||||||||||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Numerators – Basic and Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common shareholders after allocation to participating securities | $ | (69,005 | ) |
| $ | 72,268 |
|
| $ | (84,058 | ) |
| $ | 85,875 |
| |||||||||||||||
Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Loss from continuing operations attributable to common shareholders after allocation to participating securities | $ | (5,457 | ) |
| $ | (9,264 | ) |
| $ | (2,501 | ) |
| $ | (31,594 | ) | |||||||||||||||
Discontinued Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Income (loss) from discontinued operations after allocation to participating securities |
| 26,466 |
|
|
| (59,741 | ) |
|
| (42,862 | ) |
|
| (52,464 | ) | |||||||||||||||
Total | $ | 21,009 |
|
| $ | (69,005 | ) |
| $ | (45,363 | ) |
| $ | (84,058 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Denominators – Number of Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted—Average shares outstanding |
| 19,829 |
|
|
| 19,052 |
|
|
| 19,798 |
|
|
| 18,993 |
|
| 21,117 |
|
|
| 19,829 |
|
|
| 21,043 |
|
|
| 19,798 |
|
(Loss) Income Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Basic and Diluted | $ | (3.48 | ) |
| $ | 3.79 |
|
| $ | (4.25 | ) |
| $ | 4.52 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Basic and Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Loss from continuing operations | $ | (0.26 | ) |
| $ | (0.47 | ) |
| $ | (0.12 | ) |
| $ | (1.60 | ) | |||||||||||||||
Income (loss) from discontinued operations |
| 1.25 |
|
|
| (3.01 | ) |
|
| (2.04 | ) |
|
| (2.65 | ) | |||||||||||||||
Total | $ | 0.99 |
|
| $ | (3.48 | ) |
| $ | (2.16 | ) |
| $ | (4.25 | ) |
Dividends
In November 2019,2020, the Company declared a dividend on its common shares of $2.05$1.16 per share that was paid in January 20202021 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 20%10% of the total dividend paid. In connection with the 20192020 dividend, in January 2020,2021, the Company issued 763,8841,253,988 common shares, based on the volume-weighted average trading price of $36.7839$14.8492 per share, and paid $11.0$4.4 million in cash, which included the Puerto Rico withholding tax.
| Segment Information |
ThePrior to the third quarter of 2021, the Company hashad 2 reportable operating segments: continental U.S. and Puerto Rico. The table below presents information aboutAs a result of the Company’s reportable operating segments (in thousands):
| Three Months Ended September 30, 2020 |
| |||||||||||||
| Continental U.S. |
|
| Puerto Rico |
|
| Other |
|
| Total |
| ||||
Lease revenue and other property revenue | $ | 19,399 |
|
| $ | 20,617 |
|
|
|
|
|
| $ | 40,016 |
|
Rental operation expenses |
| (6,494 | ) |
|
| (8,395 | ) |
|
|
|
|
|
| (14,889 | ) |
Net operating income |
| 12,905 |
|
|
| 12,222 |
|
|
|
|
|
|
| 25,127 |
|
Property and asset management fees |
| (1,847 | ) |
|
| (2,563 | ) |
|
|
|
|
|
| (4,410 | ) |
Impairment charges |
| (16,640 | ) |
|
| (61,155 | ) |
|
|
|
|
|
| (77,795 | ) |
Depreciation and amortization |
| (6,538 | ) |
|
| (7,259 | ) |
|
|
|
|
|
| (13,797 | ) |
Unallocated expenses(A) |
|
|
|
|
|
|
|
| $ | (6,368 | ) |
|
| (6,368 | ) |
Gain on disposition of real estate, net |
| 8,324 |
|
|
|
|
|
|
|
|
|
|
| 8,324 |
|
Loss before tax expense |
|
|
|
|
|
|
|
|
|
|
|
| $ | (68,919 | ) |
| Three Months Ended September 30, 2019 |
| |||||||||||||
| Continental U.S. |
|
| Puerto Rico |
|
| Other |
|
| Total |
| ||||
Lease revenue and other property revenue | $ | 29,857 |
|
| $ | 31,003 |
|
|
|
|
|
| $ | 60,860 |
|
Rental operation expenses |
| (8,801 | ) |
|
| (7,918 | ) |
|
|
|
|
|
| (16,719 | ) |
Net operating income |
| 21,056 |
|
|
| 23,085 |
|
|
|
|
|
|
| 44,141 |
|
Property and asset management fees |
| (2,650 | ) |
|
| (2,454 | ) |
|
|
|
|
|
| (5,104 | ) |
Impairment charges |
| (15,310 | ) |
|
| (4,480 | ) |
|
|
|
|
|
| (19,790 | ) |
Hurricane property insurance income, net |
|
|
|
|
| 72,602 |
|
|
|
|
|
|
| 72,602 |
|
Depreciation and amortization |
| (10,282 | ) |
|
| (7,394 | ) |
|
|
|
|
|
| (17,676 | ) |
Unallocated expenses(A) |
|
|
|
|
|
|
|
| $ | (12,460 | ) |
|
| (12,460 | ) |
Gain on disposition of real estate, net |
| 10,483 |
|
|
|
|
|
|
|
|
|
|
| 10,483 |
|
Income before tax expense |
|
|
|
|
|
|
|
|
|
|
|
| $ | 72,196 |
|
| Nine Months Ended September 30, 2020 |
| |||||||||||||
| Continental U.S. |
|
| Puerto Rico |
|
| Other |
|
| Total |
| ||||
Lease revenue and other property revenue | $ | 63,405 |
|
| $ | 66,272 |
|
|
|
|
|
| $ | 129,677 |
|
Rental operation expenses |
| (21,825 | ) |
|
| (24,955 | ) |
|
|
|
|
|
| (46,780 | ) |
Net operating income |
| 41,580 |
|
|
| 41,317 |
|
|
|
|
|
|
| 82,897 |
|
Property and asset management fees |
| (6,682 | ) |
|
| (7,494 | ) |
|
|
|
|
|
| (14,176 | ) |
Impairment charges |
| (43,460 | ) |
|
| (61,155 | ) |
|
|
|
|
|
| (104,615 | ) |
Depreciation and amortization |
| (22,729 | ) |
|
| (21,749 | ) |
|
|
|
|
|
| (44,478 | ) |
Unallocated expenses(A) |
|
|
|
|
|
|
|
| $ | (24,964 | ) |
|
| (24,964 | ) |
Gain on disposition of real estate, net |
| 21,956 |
|
|
|
|
|
|
|
|
|
|
| 21,956 |
|
Loss before tax expense |
|
|
|
|
|
|
|
|
|
|
|
| $ | (83,380 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross real estate assets | $ | 608,133 |
|
| $ | 1,030,385 |
|
|
|
|
|
| $ | 1,638,518 |
|
| Nine Months Ended September 30, 2019 |
| |||||||||||||
| Continental U.S. |
|
| Puerto Rico |
|
| Other |
|
| Total |
| ||||
Lease revenue and other property revenue | $ | 101,920 |
|
| $ | 81,436 |
|
|
|
|
|
| $ | 183,356 |
|
Rental operation expenses |
| (29,768 | ) |
|
| (22,533 | ) |
|
|
|
|
|
| (52,301 | ) |
Net operating income |
| 72,152 |
|
|
| 58,903 |
|
|
|
|
|
|
| 131,055 |
|
Property and asset management fees |
| (9,100 | ) |
|
| (7,639 | ) |
|
|
|
|
|
| (16,739 | ) |
Impairment charges |
| (28,510 | ) |
|
| (4,480 | ) |
|
|
|
|
|
| (32,990 | ) |
Hurricane property insurance income |
|
|
|
|
| 76,233 |
|
|
|
|
|
|
| 76,233 |
|
Depreciation and amortization |
| (34,676 | ) |
|
| (20,733 | ) |
|
|
|
|
|
| (55,409 | ) |
Unallocated expenses(A) |
|
|
|
|
|
|
|
| $ | (57,500 | ) |
|
| (57,500 | ) |
Gain on disposition of real estate, net |
| 41,648 |
|
|
|
|
|
|
|
|
|
|
| 41,648 |
|
Income before tax expense |
|
|
|
|
|
|
|
|
|
|
|
| $ | 86,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross real estate assets | $ | 1,049,465 |
|
| $ | 1,076,061 |
|
|
|
|
|
| $ | 2,125,526 |
|
|
|
| Subsequent Events |
RestrictedOn October 1, 2021, the Company sold all of its interests in Great Northern Plazas (North Olmsted, Ohio), Maple Grove Crossing (Maple Grove, Minnesota), Peach Street Marketplace (Erie, Pennsylvania), Seabrook Commons (Seabrook, New Hampshire) and Wrangleboro Consumer Square (Mays Landing, New Jersey) for $264.0 million in cash. Net proceeds received at closing were approximately $242.4 million excluding $4.4 million of escrows established at closing, which may be released to the Company in the event certain leasing activity is completed within 180 days of closing. The Company expects to record a gain of approximately $10 million in the fourth quarter of 2021 in connection with the sale of these assets, which includes the $4.4 million in escrows as completion of the leasing activity within 180 days is considered probable.
On October 1, 2021, the Board of Directors of the Company authorized a dividend on the RVI Preferred Shares in the aggregate amount of $190.0 million, which the Company paid on October 6, 2021.
On October 1, 2021, the Board of Directors of the Company declared a cash dividend of $69.7 million substantially generated from$22.04 per common share, which the asset sold in September 2020 (Riverdale Village)Company paid on October 28, 2021. This dividend was usednot subject to repay mortgage debt in October 2020.
the Puerto Rico withholding tax of 10%.
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) 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, 2019,2020, as well as other publicly available information.
RVI is an Ohio company formed in December 2017 that, as of September 30, 2020,2021, owned and operated a portfolio of 23eight assets, composedall of 11which were located in the continental U.S. assets and 12 assets in Puerto Rico.United States. These properties consisted of retail shopping centers (including three enclosed malls) composed of 9.0aggregating 3.8 million square feet of Company-owned gross leasable area (“GLA”) and were located in nine states and Puerto Rico. The Company’s continental U.S. properties and Puerto Rico properties each comprised approximately 50% of its total consolidated revenue for the nine months ended September 30, 2020.eight states. At September 30, 2020,2021, the aggregate occupancy of the Company’s shopping center portfolio was 86.8%88.3%, and the average annualized base rent per occupied square foot was $16.21. $13.43. The Company sold nine assets in Puerto Rico in the third quarter of 2021. On October 1, 2021, the Company sold five continental U.S. assets aggregating 2.6 million square feet of Company-owned GLA, leaving three remaining assets.
In connection with asset sales consummated during the third quarter of 2021, the Company repaid the entire outstanding balance on its mortgage loan. As a result of the repayment of the Company’s mortgage loan, the commitments of the lenders under the Revolving Credit Agreement (as defined below) were terminated during the third quarter of 2021 in accordance with the terms of the agreement.
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 if the aggregate gross proceeds of the Company’s asset sales subsequent to July 1, 2018 exceed approximately $2.055 billion (the “RVI Preferred Shares”). In October 2021, the Board of Directors of the Company authorized and the Company paid a dividend on the RVI Preferred Shares in the aggregate amount of $190.0 million.
EXECUTIVE SUMMARY
The Company expects tocontinues its focus on realizing value in its portfolio through operations and sales of its assets. The Company primarily intends to use nethas generated gross asset sale proceeds firstsince its spin-off in July 2018 of $1,818.5 million. Net asset sale proceeds generated through October 1, 2021 were used to repay the Company’s mortgage debt, second to make distributions on account of the RVI Preferred Shares, up to the preference amount, and third toloan, as well as make distributions to holders of the RVI Preferred Shares and the Company’s common shares. See discussion below under “—Liquidity, Capital Resources and Financing Activities.”
From January 1, 20202021 through September 30, 2020,October 29, 2021, the Company sold the following assets (in thousands):
Date Sold |
| Property Name |
| City, State |
| Total Owned GLA |
|
| Gross Sales Price |
| ||
1/15/20 |
| Newnan Crossing (excluding Lowe's parcel) |
| Newnan, GA |
|
| 92 |
|
| $ | 11,600 |
|
2/19/20 |
| Hamilton Commons |
| Mays Landing, NJ |
|
| 403 |
|
|
| 60,000 |
|
2/26/20 |
| Tucson Spectrum |
| Tucson, AZ |
|
| 717 |
|
|
| 84,000 |
|
6/30/20 |
| Big Oaks Crossing |
| Tupelo, MS |
|
| 348 |
|
|
| 21,000 |
|
7/27/20 |
| Newnan Crossing - Lowe's |
| Newnan, GA |
|
| 130 |
|
|
| 15,550 |
|
9/24/20 |
| Riverdale Village |
| Coon Rapids, MN |
|
| 788 |
|
|
| 70,000 |
|
|
|
|
|
|
|
| 2,478 |
|
| $ | 262,150 |
|
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 |
|
8/27/21 |
| Puerto Rico Portfolio (9 assets) |
| Puerto Rico |
|
| 3,538 |
|
|
| 550,000 |
|
10/1/21 |
| Continental U.S. Portfolio (5 assets) |
| Various |
|
| 2,623 |
|
|
| 264,000 |
|
|
|
|
|
|
|
| 7,303 |
|
| $ | 873,200 |
|
Transaction Update
In the third quarter of 2021, the Company sold all of its interests in its nine remaining assets in Puerto Rico (the “Puerto Rico Disposition”) comprising approximately 3.5 million square feet of GLA for a gross sales price of $550.0 million. The sale also included all of the Company’s interests in a consolidated joint venture that owned an undeveloped parcel of land adjacent to Plaza Isabela. The gain recognized on the Puerto Rico Disposition was $24.1 million. Net proceeds received at closing were approximately $539.0 million, of which $214.5 million was used to fully repay the outstanding balance of the Company’s mortgage loan. Accordingly, all restricted cash previously controlled by the lender was released to the Company.
In addition, in October 2021, certain wholly-owned subsidiaries of the Company sold five assets in the continental U.S., including Great Northern Plazas (North Olmsted, Ohio), Maple Grove Crossing (Maple Grove, Minnesota), Peach Street Marketplace (Erie, Pennsylvania), Seabrook Commons (Seabrook, New Hampshire) and Wrangleboro Consumer Square (Mays Landing, New
Jersey) for a gross sale price of $264.0 million. The Company expects to record a gain of approximately $10 million in the fourth quarter of 2021 in connection with the sale of these assets.
COVID-19
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 October 31, 2020, approximately 97% ofa result, the Company’s tenants, based on average base rents, were open for business, up from a low of approximately 34% in early April 2020. The COVID-19 pandemic had a relatively minimalsignificant impact on the Company’s collection of rents from April 2020 through the end of 2020. The Company provided rent deferral arrangements (and, in a small number of cases, rent abatements) to a significant number of tenants. A majority of the amounts due from tenants on account of these deferral arrangements has been repaid.
Results for the first quarterthree and nine months ended September 30, 2021, included $1.4 million and $4.5 million, respectively, of 2020, but it hadnet revenue related to prior periods (including deferred rents), which was collected in the current period primarily from cash basis tenants.
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, decreases in the effectiveness of such vaccines and any implementation of additional restrictions on tenant business as a significant impact on collection of second and third quarter rents. The ultimate impact of the pandemic and secondary social and economic effects on the Company's results of operations, financial position, liquidity and capital resources remains unclear and cannot be reasonably forecasted at this time. result thereof. For a further discussion on the impact of the COVID-19COVID‑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 Part II of this Quarterly Report.the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Manager
The Company is party to an external management agreement (the “External Management Agreement”) with SITE Centers, Corp. (“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 June 30,December 31, 2021 or at the end of any six-month renewal period thereafter.
Pursuant to the External Management Agreement, the Company pays SITE Centers and certain of its subsidiaries a monthly asset management fee in an aggregate amount of 0.5% per annum of the gross asset value of the Company’s properties (calculated(determined on the immediately preceding June 30 or December 31 and calculated in accordance with the terms of the External Management Agreement). The External Management Agreement also provides 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% of the average gross monthly property revenue collected during the most recent second or fourth quarter in respect ofto 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 secondfirst half of 2020,2021, the Company has agreed to pay an affiliate of SITE Centers a supplemental monthly fee during the six-month period ending December 31, 2020June 30, 2021 (see Note 78, “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.
In October 2020, the Company entered into an Amended and Restated Agreement in order to address the impact of the COVID-19 pandemic on the level of property management fees beginning on January 1, 2021 through June 30, 2021. For additional information, see Item 5. Other Information in Part II of this Quarterly Report on Form 10-Q.
2020 RESULTS OF OPERATIONS
Where used, references to “Comparable Portfolio Properties” reflect shopping center properties owned as of September 30, 2020.2021 and also excluded held for sale assets as of September 30, 2021.
Revenues from Operations (in thousands)
| Three Months |
|
|
|
|
| Three Months |
|
|
|
|
| ||||||||||
| Ended September 30, |
|
|
|
|
| Ended September 30, |
|
|
|
|
| ||||||||||
| 2020 |
|
| 2019 |
|
| $ Change |
| 2021 |
|
| 2020 |
|
| $ Change |
| ||||||
Rental income(A) | $ | 39,964 |
|
| $ | 54,291 |
|
| $ | (14,327 | ) | $ | 14,659 |
|
| $ | 19,366 |
|
| $ | (4,707 | ) |
Business interruption income |
| — |
|
|
| 5,675 |
|
|
| (5,675 | ) | |||||||||||
Other income |
| 52 |
|
|
| 894 |
|
|
| (842 | ) |
| (31 | ) |
|
| 33 |
|
|
| (64 | ) |
Total revenues | $ | 40,016 |
|
| $ | 60,860 |
|
| $ | (20,844 | ) | $ | 14,628 |
|
| $ | 19,399 |
|
| $ | (4,771 | ) |
| Nine Months |
|
|
|
|
| Nine Months |
|
|
|
|
| ||||||||||
| Ended September 30, |
|
|
|
|
| Ended September 30, |
|
|
|
|
| ||||||||||
| 2020 |
|
| 2019 |
|
| $ Change |
| 2021 |
|
| 2020 |
|
| $ Change |
| ||||||
Rental income(A) | $ | 129,593 |
|
| $ | 174,736 |
|
| $ | (45,143 | ) | $ | 50,221 |
|
| $ | 63,374 |
|
| $ | (13,153 | ) |
Business interruption income |
| — |
|
|
| 7,675 |
|
|
| (7,675 | ) | |||||||||||
Other income |
| 84 |
|
|
| 945 |
|
|
| (861 | ) |
| 38 |
|
|
| 31 |
|
|
| 7 |
|
Total revenues (B)(C) | $ | 129,677 |
|
| $ | 183,356 |
|
| $ | (53,679 | ) | |||||||||||
Total revenues (B) | $ | 50,259 |
|
| $ | 63,405 |
|
| $ | (13,146 | ) |
(A) | The following |
|
| Three Months |
|
|
|
|
|
| Three Months |
|
|
|
|
| ||||||||||
|
| Ended September 30, |
|
|
|
|
|
| Ended September 30, |
|
|
|
|
| ||||||||||
Contractual Lease Payments |
| 2020 |
|
| 2019 |
|
| $ Change |
|
| 2021 |
|
| 2020 |
|
| $ Change |
| ||||||
Base and percentage rental income |
| $ | 32,914 |
|
| $ | 37,894 |
|
| $ | (4,980 | ) |
| $ | 10,676 |
|
| $ | 16,024 |
|
| $ | (5,348 | ) |
Recoveries from tenants |
|
| 11,395 |
|
|
| 13,569 |
|
|
| (2,174 | ) |
|
| 3,671 |
|
|
| 5,402 |
|
|
| (1,731 | ) |
Uncollectible revenue |
|
| (6,141 | ) |
|
| (231 | ) |
|
| (5,910 | ) |
|
| 29 |
|
|
| (2,229 | ) |
|
| 2,258 |
|
Lease termination fees and ancillary rental income |
|
| 1,796 |
|
|
| 3,059 |
|
|
| (1,263 | ) | ||||||||||||
Ancillary rental income |
|
| 222 |
|
|
| 169 |
|
|
| 53 |
| ||||||||||||
Lease termination fees |
|
| 61 |
|
|
| — |
|
|
| 61 |
| ||||||||||||
Total contractual lease payments |
| $ | 39,964 |
|
| $ | 54,291 |
|
| $ | (14,327 | ) |
| $ | 14,659 |
|
| $ | 19,366 |
|
| $ | (4,707 | ) |
|
| Nine Months |
|
|
|
|
|
| Nine Months |
|
|
|
|
| ||||||||||
|
| Ended September 30, |
|
|
|
|
|
| Ended September 30, |
|
|
|
|
| ||||||||||
Contractual Lease Payments |
| 2020 |
|
| 2019 |
|
| $ Change |
|
| 2021 |
|
| 2020 |
|
| $ Change |
| ||||||
Base and percentage rental income(1) |
| $ | 102,025 |
|
| $ | 124,233 |
|
| $ | (22,208 | ) |
| $ | 34,347 |
|
| $ | 50,531 |
|
| $ | (16,184 | ) |
Recoveries from tenants(2) |
|
| 36,111 |
|
|
| 42,650 |
|
|
| (6,539 | ) |
|
| 12,050 |
|
|
| 17,981 |
|
|
| (5,931 | ) |
Uncollectible revenue(3) |
|
| (13,819 | ) |
|
| 42 |
|
|
| (13,861 | ) |
|
| 3,173 |
|
|
| (6,279 | ) |
|
| 9,452 |
|
Lease termination fees and ancillary rental income |
|
| 5,276 |
|
|
| 7,811 |
|
|
| (2,535 | ) | ||||||||||||
Ancillary rental income |
|
| 504 |
|
|
| 641 |
|
|
| (137 | ) | ||||||||||||
Lease termination fees |
|
| 147 |
|
|
| 500 |
|
|
| (353 | ) | ||||||||||||
Total contractual lease payments |
| $ | 129,593 |
|
| $ | 174,736 |
|
| $ | (45,143 | ) |
| $ | 50,221 |
|
| $ | 63,374 |
|
| $ | (13,153 | ) |
| (1) | The following tables |
| Shopping Center Portfolio September 30, |
| Shopping Center Portfolio September 30, |
| ||||||||||
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
| ||||
Centers owned | 23 |
|
| 29 |
| 8 |
|
| 23 |
| ||||
Aggregate occupancy rate |
| 86.8 | % |
|
| 87.8 | % |
| 88.3 | % |
|
| 87.4 | % |
Average annualized base rent per occupied square foot | $ | 16.21 |
|
| $ | 15.71 |
| $ | 13.43 |
|
| $ | 16.21 |
|
| Continental U.S. September 30, |
|
| Puerto Rico September 30, |
| Continental U.S. September 30, |
|
| Puerto Rico September 30, |
| ||||||||||||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Centers owned | 11 |
|
| 17 |
|
| 12 |
|
| 12 |
| 8 |
|
| 11 |
|
|
| — |
|
| 12 |
| |||||||
Aggregate occupancy rate |
| 89.8 | % |
|
| 91.2 | % |
|
| 83.7 | % |
|
| 82.1 | % |
| 88.3 | % |
|
| 89.8 | % |
|
| — |
|
|
| 85.0 | % |
Average annualized base rent per occupied square foot | $ | 13.31 |
|
| $ | 13.63 |
|
| $ | 19.72 |
|
| $ | 19.94 |
| $ | 13.43 |
|
| $ | 13.31 |
|
| $ | — |
|
| $ | 19.72 |
|
For the nine months ended September 30, 2020,2021, the property dispositions was the primary decrease in base and percentage rental income. Included in base and percentage rental income was a charge of $1.3 million to straight-line revenue related to reversals associated with credit risk tenants primarily triggered by the impacts of the COVID-19 pandemic. This amount was partly offset by the recognition of additional straight-line rent due to the impact of lease modification accounting.property dispositions. The decrease in the continental U.S. occupancy rate 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 new net leasing activity in excess of bankruptcies and expirations.
| (2) | Recoveries from Comparable Portfolio Properties were approximately |
| (3) | Primarily relates to the impact of the COVID-19 pandemic on rent collections, including the impact of lease modification |
September 30, 2021, the net amount reported was income primarily due to rental income paid in 2021 from tenants on the cash basis of |
(B) |
|
Expenses from Operations (in thousands)
| Three Months |
|
|
|
|
| |||||
| Ended September 30, |
|
|
|
|
| |||||
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
Operating and maintenance | $ | 1,922 |
|
| $ | 2,403 |
|
| $ | (481 | ) |
Real estate taxes |
| 2,661 |
|
|
| 4,091 |
|
|
| (1,430 | ) |
Property and asset management fees |
| 1,406 |
|
|
| 1,847 |
|
|
| (441 | ) |
Impairment charges |
| 1,573 |
|
|
| 16,640 |
|
|
| (15,067 | ) |
General and administrative |
| 874 |
|
|
| 860 |
|
|
| 14 |
|
Depreciation and amortization |
| 4,439 |
|
|
| 6,538 |
|
|
| (2,099 | ) |
| $ | 12,875 |
|
| $ | 32,379 |
|
| $ | (19,504 | ) |
| Nine Months |
|
|
|
|
| |||||
| Ended September 30, |
|
|
|
|
| |||||
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
Operating and maintenance(A) | $ | 6,485 |
|
| $ | 8,947 |
|
| $ | (2,462 | ) |
Real estate taxes(B) |
| 8,562 |
|
|
| 12,878 |
|
|
| (4,316 | ) |
Property and asset management fees |
| 4,501 |
|
|
| 6,682 |
|
|
| (2,181 | ) |
Impairment charges(C) |
| 1,573 |
|
|
| 43,460 |
|
|
| (41,887 | ) |
General and administrative(D) |
| 2,997 |
|
|
| 2,861 |
|
|
| 136 |
|
Depreciation and amortization(E) |
| 16,127 |
|
|
| 22,729 |
|
|
| (6,602 | ) |
| $ | 40,245 |
|
| $ | 97,557 |
|
| $ | (57,312 | ) |
(A) | Continental U.S. assets sold prior to September 30, |
(B) | Continental U.S. assets sold prior to |
(C) | The |
|
| 2020 vs. 2019 |
| |
|
| $ Change |
| |
Continental U.S. |
| $ | (38.5 | ) |
Puerto Rico |
|
| (15.2 | ) |
|
| $ | (53.7 | ) |
|
| 2020 vs. 2019 |
| |
|
| $ Change |
| |
Comparable Portfolio Properties |
| $ | (22.8 | ) |
Disposition of shopping centers |
|
| (30.9 | ) |
|
| $ | (53.7 | ) |
Expenses from Operations (in thousands)
| Three Months |
|
|
|
|
| |||||
| Ended September 30, |
|
|
|
|
| |||||
| 2020 |
|
| 2019 |
|
| $ Change |
| |||
Operating and maintenance | $ | 9,571 |
|
| $ | 9,819 |
|
| $ | (248 | ) |
Real estate taxes |
| 5,318 |
|
|
| 6,900 |
|
|
| (1,582 | ) |
Property and asset management fees |
| 4,410 |
|
|
| 5,104 |
|
|
| (694 | ) |
Impairment charges |
| 77,795 |
|
|
| 19,790 |
|
|
| 58,005 |
|
Hurricane property insurance income, net |
| — |
|
|
| (72,602 | ) |
|
| 72,602 |
|
General and administrative |
| 860 |
|
|
| 1,111 |
|
|
| (251 | ) |
Depreciation and amortization |
| 13,797 |
|
|
| 17,676 |
|
|
| (3,879 | ) |
| $ | 111,751 |
|
| $ | (12,202 | ) |
| $ | 123,953 |
|
| Nine Months |
|
|
|
|
| |||||
| Ended September 30, |
|
|
|
|
| |||||
| 2020 |
|
| 2019 |
|
| $ Change |
| |||
Operating and maintenance(A) | $ | 30,260 |
|
| $ | 30,722 |
|
| $ | (462 | ) |
Real estate taxes(A) |
| 16,520 |
|
|
| 21,579 |
|
|
| (5,059 | ) |
Property and asset management fees |
| 14,176 |
|
|
| 16,739 |
|
|
| (2,563 | ) |
Impairment charges(B) |
| 104,615 |
|
|
| 32,990 |
|
|
| 71,625 |
|
Hurricane property insurance income, net |
| — |
|
|
| (76,233 | ) |
|
| 76,233 |
|
General and administrative(C) |
| 2,861 |
|
|
| 3,054 |
|
|
| (193 | ) |
Depreciation and amortization(D) |
| 44,478 |
|
|
| 55,409 |
|
|
| (10,931 | ) |
| $ | 212,910 |
|
| $ | 84,260 |
|
| $ | 128,650 |
|
|
|
|
| 2020 vs. 2019 $ Change |
| |||||
|
| Operating and Maintenance |
|
| Real Estate Taxes |
| ||
Continental U.S. |
| $ | (3.0 | ) |
| $ | (5.0 | ) |
Puerto Rico |
|
| 2.5 |
|
|
| (0.1 | ) |
|
| $ | (0.5 | ) |
| $ | (5.1 | ) |
|
| 2020 vs. 2019 $ Change |
| |||||
|
| Operating and Maintenance |
|
| Real Estate Taxes |
| ||
Comparable Portfolio Properties |
| $ | 2.8 |
|
| $ | (0.4 | ) |
Disposition of shopping centers |
|
| (3.3 | ) |
|
| (4.7 | ) |
|
| $ | (0.5 | ) |
| $ | (5.1 | ) |
The increase in Operating and Maintenance for the Comparable Portfolio Properties was primarily a result of increased property insurance premiums in Puerto Rico.
|
|
| Primarily represents legal, audit, tax and compliance services and director compensation. |
|
|
Other Income and Expenses (in thousands)
| Three Months |
|
|
|
|
| Three Months |
|
|
|
|
| ||||||||||
| Ended September 30, |
|
|
|
|
| Ended September 30, |
|
|
|
|
| ||||||||||
| 2020 |
|
| 2019 |
|
| $ Change |
| 2021 |
|
| 2020 |
|
| $ Change |
| ||||||
Interest expense, net | $ | (5,175 | ) |
| $ | (9,381 | ) |
| $ | 4,206 |
| $ | (2,039 | ) |
| $ | (4,109 | ) |
| $ | 2,070 |
|
Debt extinguishment costs |
| (440 | ) |
|
| (1,949 | ) |
|
| 1,509 |
|
| (5,158 | ) |
|
| (440 | ) |
|
| (4,718 | ) |
Other income (expense), net |
| 107 |
|
|
| (19 | ) |
|
| 126 |
| |||||||||||
Gain on disposition of real estate, net |
| 8,324 |
|
|
| 10,483 |
|
|
| (2,159 | ) |
| 37 |
|
|
| 8,324 |
|
|
| (8,287 | ) |
Tax expense |
| (86 | ) |
|
| 72 |
|
|
| (158 | ) |
| (50 | ) |
|
| (59 | ) |
|
| 9 |
|
Income (loss) from discontinued operations |
| 26,466 |
|
|
| (59,741 | ) |
|
| 86,207 |
| |||||||||||
| $ | 2,730 |
|
| $ | (794 | ) |
| $ | 3,524 |
| $ | 19,256 |
|
| $ | (56,025 | ) |
| $ | 75,281 |
|
| Nine Months |
|
|
|
|
| Nine Months |
|
|
|
|
| ||||||||||
| Ended September 30, |
|
|
|
|
| Ended September 30, |
|
|
|
|
| ||||||||||
| 2020 |
|
| 2019 |
|
| $ Change |
| 2021 |
|
| 2020 |
|
| $ Change |
| ||||||
Interest expense, net(A) | $ | (18,127 | ) |
| $ | (34,201 | ) |
| $ | 16,074 |
| $ | (7,897 | ) |
| $ | (14,797 | ) |
| $ | 6,900 |
|
Debt extinguishment costs(B) |
| (4,417 | ) |
|
| (19,358 | ) |
|
| 14,941 |
|
| (6,307 | ) |
|
| (4,417 | ) |
|
| (1,890 | ) |
Other income (expense), net |
| 441 |
|
|
| (887 | ) |
|
| 1,328 |
| |||||||||||
Gain on disposition of real estate, net(C) |
| 21,956 |
|
|
| 41,648 |
|
|
| (19,692 | ) |
| 1,882 |
|
|
| 21,956 |
|
|
| (20,074 | ) |
Tax expense |
| (678 | ) |
|
| (423 | ) |
|
| (255 | ) |
| (193 | ) |
|
| (184 | ) |
|
| (9 | ) |
Loss from discontinued operations(D) |
| (42,862 | ) |
|
| (52,464 | ) |
|
| 9,602 |
| |||||||||||
| $ | (825 | ) |
| $ | (13,221 | ) |
| $ | 12,396 |
| $ | (55,377 | ) |
| $ | (49,906 | ) |
| $ | (5,471 | ) |
(A) | At September 30, 2020, |
Interest costs capitalized in conjunction with capital projects were $0.2 million and $1.0 million for the three and nine months ended September 30, 2019, primarily related to restoration work in Puerto Rico.
(B) | Debt extinguishment costs |
(C) | Related to the sale of |
(D) | Related to the sale of the Puerto Rico segment presented in Note 3, “Discontinued Operations and Assets Held for Sale,” to the Company’s consolidated financial statements included herein. Includes impairment charges in 2021 and 2020 of $81.1 million and $61.2 million, respectively. |
Net Income (Loss) Income (in thousands)
| Three Months |
|
|
|
|
| |||||
| Ended September 30, |
|
|
|
|
| |||||
| 2020 |
|
| 2019 |
|
| $ Change |
| |||
Net (loss) income | $ | (69,005 | ) |
| $ | 72,268 |
|
| $ | (141,273 | ) |
| Three Months |
|
|
|
|
| |||||
| Ended September 30, |
|
|
|
|
| |||||
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
Net income (loss) | $ | 21,009 |
|
| $ | (69,005 | ) |
| $ | 90,014 |
|
| Nine Months |
|
|
|
|
| |||||
| Ended September 30, |
|
|
|
|
| |||||
| 2020 |
|
| 2019 |
|
| $ Change |
| |||
Net (loss) income | $ | (84,058 | ) |
| $ | 85,875 |
|
| $ | (169,933 | ) |
| Nine Months |
|
|
|
|
| |||||
| Ended September 30, |
|
|
|
|
| |||||
| 2021 |
|
| 2020 |
|
| $ Change |
| |||
Net loss | $ | (45,363 | ) |
| $ | (84,058 | ) |
| $ | 38,695 |
|
The increasedecrease in net loss primarily was attributable to a reduction of impairment charges and interest expense compared to the impactcomparable period in 2020, an increase in gain on disposition of the COVID-19 pandemic on operating resultsreal estate in 2021 and the sale of assets,rental income paid in 2021 by cash basis tenants, which related to amounts (including deferred rent) originally owed in 2020, partially offset by the 2019 hurricane insurance income recorded combined with a decrease in debt extinguishment costs related to the debt refinancing in 2019.impact from disposition of assets.
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 REITs.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 perspective of the Company’s financial performance not immediately apparent from net income determined in accordance with GAAP.
FFO is generally defined and calculated by the Company as net income (loss) (computed 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 consistent 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 performance of the core operating real estate portfolio. As a result, the Company also computes Operating FFO and discusses it with 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 indicative of the results 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.
Reconciliation Presentation
FFO and Operating FFO were as follows (in thousands):
| Three Months |
|
|
|
|
| Three Months |
|
|
|
|
| ||||||||||
| Ended September 30, |
|
|
|
|
| Ended September 30, |
|
|
|
|
| ||||||||||
| 2020 |
|
| 2019 |
|
| $ Change |
| 2021 |
|
| 2020 |
|
| $ Change |
| ||||||
FFO | $ | 14,246 |
|
| $ | 99,225 |
|
| $ | (84,979 | ) | $ | 6,493 |
|
| $ | 14,246 |
|
| $ | (7,753 | ) |
Operating FFO |
| 14,579 |
|
|
| 23,085 |
|
|
| (8,506 | ) |
| 13,509 |
|
|
| 14,579 |
|
|
| (1,070 | ) |
| Nine Months |
|
|
|
|
| Nine Months |
|
|
|
|
| ||||||||||
| Ended September 30, |
|
|
|
|
| Ended September 30, |
|
|
|
|
| ||||||||||
| 2020 |
|
| 2019 |
|
| $ Change |
| 2021 |
|
| 2020 |
|
| $ Change |
| ||||||
FFO | $ | 43,028 |
|
| $ | 132,548 |
|
| $ | (89,520 | ) | $ | 44,168 |
|
| $ | 43,028 |
|
| $ | 1,140 |
|
Operating FFO |
| 47,004 |
|
|
| 71,831 |
|
|
| (24,827 | ) |
| 52,229 |
|
|
| 47,004 |
|
|
| 5,225 |
|
The decreaseincrease in FFO primarily was due to the dilutivedecrease in interest expense, as well as rental income paid in 2021 by cash basis tenants which related to amounts (including deferred rent) originally owed in 2020 partially offset by the impact from the disposition of assets and the impact of the COVID-19 pandemic on operating results, partially offset by the recording of income from the hurricane activity and debt extinguishment charges incurred in 2019 in connection with the refinancing of the Company’s mortgage loan and reduced interest expense.assets. The decreasechange in Operating FFO primarily was due to asset sales and the impactsame factors impacting FFO (except for the exclusion of the COVID-19 pandemic on operating results partially offset by lower LIBOR rates.debt extinguishments costs).
The Company’s reconciliation of net (loss) incomeloss 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 |
|
| Nine Months |
| ||||||||||
| Ended September 30, |
|
| Ended September 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net (loss) income | $ | (69,005 | ) |
| $ | 72,268 |
|
| $ | (84,058 | ) |
| $ | 85,875 |
|
Depreciation and amortization of real estate investments |
| 13,780 |
|
|
| 17,650 |
|
|
| 44,427 |
|
|
| 55,331 |
|
Impairment of real estate assets |
| 77,795 |
|
|
| 19,790 |
|
|
| 104,615 |
|
|
| 32,990 |
|
Gain on disposition of real estate |
| (8,324 | ) |
|
| (10,483 | ) |
|
| (21,956 | ) |
|
| (41,648 | ) |
FFO |
| 14,246 |
|
|
| 99,225 |
|
|
| 43,028 |
|
|
| 132,548 |
|
Hurricane activity, net(A) |
| — |
|
|
| (78,108 | ) |
|
| — |
|
|
| (80,962 | ) |
Other expenses(B) |
| 333 |
|
|
| 1,968 |
|
|
| 3,976 |
|
|
| 20,245 |
|
Non-operating items, net |
| 333 |
|
|
| (76,140 | ) |
|
| 3,976 |
|
|
| (60,717 | ) |
Operating FFO | $ | 14,579 |
|
| $ | 23,085 |
|
| $ | 47,004 |
|
| $ | 71,831 |
|
|
|
| Three Months |
|
| Nine Months |
| ||
| Ended September 30, |
|
| Ended September 30, |
| ||
| 2019 |
|
| 2019 |
| ||
Lost tenant revenue | $ | 169 |
|
| $ | 2,946 |
|
Business interruption income |
| (5,675 | ) |
|
| (7,675 | ) |
Hurricane property insurance income, net |
| (72,602 | ) |
|
| (76,233 | ) |
| $ | (78,108 | ) |
| $ | (80,962 | ) |
|
|
| Three Months |
|
| Nine Months |
| ||||||||||
| Ended September 30, |
|
| Ended September 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Transaction and other expenses, net | $ | (0.1 | ) |
| $ | — |
|
| $ | (0.4 | ) |
| $ | 0.9 |
|
Debt extinguishment costs | 0.4 |
|
|
| 2.0 |
|
|
| 4.4 |
|
|
| 19.4 |
| |
| $ | 0.3 |
|
| $ | 2.0 |
|
| $ | 4.0 |
|
| $ | 20.3 |
|
| Three Months |
|
| Nine Months |
| ||||||||||
| Ended September 30, |
|
| Ended September 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net income (loss) | $ | 21,009 |
|
| $ | (69,005 | ) |
| $ | (45,363 | ) |
| $ | (84,058 | ) |
Depreciation and amortization of real estate investments |
| 8,057 |
|
|
| 13,780 |
|
|
| 32,585 |
|
|
| 44,427 |
|
Impairment of real estate assets |
| 1,573 |
|
|
| 77,795 |
|
|
| 82,633 |
|
|
| 104,615 |
|
Gain on disposition of real estate |
| (24,146 | ) |
|
| (8,324 | ) |
|
| (25,687 | ) |
|
| (21,956 | ) |
FFO |
| 6,493 |
|
|
| 14,246 |
|
|
| 44,168 |
|
|
| 43,028 |
|
Debt extinguishment and other expenses |
| 7,016 |
|
|
| 333 |
|
|
| 8,061 |
|
|
| 3,976 |
|
Operating FFO | $ | 13,509 |
|
| $ | 14,579 |
|
| $ | 52,229 |
|
| $ | 47,004 |
|
LIQUIDITY, CAPITAL RESOURCES AND FINANCING ACTIVITIES
The Company requires capital to fund its operating expenses and capital expenditures and investment activities. Absent the occurrence of an Amortization Period (as described below), theexpenditures. The Company’s capital sources may include cash flow from operations as well as availability under its Revolving Credit Agreement (as defined below).
and asset sales. Although the Company has experienced a reduction in timely collections of rents in the second and third quarters of 2020rent 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 collections and transaction market activity during the first nine months of 2021, and believes that it has sufficient liquidity and capital resources to operate its business for at least the next twelve months. At September 30, 2020, the Company had an unrestricted cash balance of $115.3 million, restricted cash on deposit with its mortgage lender of $140.5 million and $30.0 million of availability under its Revolving Credit Agreement (subject to satisfaction of applicable borrowing conditions). Debt outstanding was $488.9 million at September 30, 2020. In October 2020, a loan repayment of $69.7 million was made on the mortgage loan from the use of restricted cash related to an asset sale consummated in September 2020. The Company’s mortgage loan generally requires interest-only payments subject to maintenance of a minimum debt yield and has an initial maturity date of March 2021 with three one-year extensions at the Company’s option based on satisfaction of certain conditions. Subject to the uncertain impact of the COVID-19 pandemic on capital and transactions markets, the Company expects to utilize net asset sale proceeds to repay the principal of the mortgage loan and may utilize one or more of the loan’s existing extension options. No assurance can be provided that obligations outstanding under the mortgage loan will be repaid, extended or refinancedliquidity is reflected as currently anticipated. follows (in millions):
| September 30, 2021 |
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Cash available | $ | 460.9 |
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October liquidity transactions: |
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Net proceeds from the sale of five continental U.S. assets on October 1, 2021 |
| 242.4 |
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Payment of RVI Preferred Share dividend |
| (190.0 | ) |
Payment of RVI common share dividend ($22.04 per share) |
| (465.4 | ) |
| $ | 47.9 |
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Apart from capital expenditures deemed advisable in connection with the maintenance and leasing of itsthe remaining 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 2020.2021 related to its three remaining assets.
Mortgage Indebtedness
On March 11, 2019, certain wholly-owned subsidiaries of the Company entered into a mortgage loan with an initial aggregate principal amount of $900 million. The borrowers’ obligations to pay principal, interest and other amounts under the new 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. Subsequent to closing, the originating lenders placed the notes into a securitization trust that issued and sold mortgage-backed securities to investors.Revolving Credit Agreement
As of SeptemberJune 30, 2020,2021, the aggregate principal amount of the Company’s mortgage loan was $488.9 million. In October 2020, a $69.7$214.5 million repayment on the mortgage loan was made from the use of restricted cash related to an asset sale consummated in September 2020. The loan facility will mature on March 9, 2021, subject to three 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, 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, evidence that the Debt Yield equals or exceeds 14%. The Company expects to be in compliance with all provisions of the loan facility through March 9, 2021 and management’s current intent is to exercise the facility’s initial extension option in the event that the amounts remain outstanding on that date.
As of September 30, 2020, the weighted-average interest rate applicable to the notes was equal to one-month LIBOR plus a spread of 3.26% 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% and (ii) with respect to any extension period, a LIBOR strike rate that would result in a debt service coverage ratio of 1.20x based on the Mortgaged Properties. Application of voluntary prepayments as described below will cause the weighted-average interest rate spread to increase over time. At September 30, 2020, the interest rate applicable to the mortgage loan was 3.4%.
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 September 30, 2020, was 12.2%. 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% with respect to calendar year 2020), 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 by providing (i) advance notice of prepayment to the lenders and (ii) remitting the prepayment premium described in the mortgage loan agreement. No prepayment premium is required with respect to any prepayments made after April 9, 2020. Additionally, no prepayment premium will apply to prepayments made in4.5% per annum. In connection with permitted property sales. 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 prepaymentthe Company’s remaining Puerto Rico assets in August 2021, the Company fully repaid the entire outstanding balance of the notes (i.e., the property’s “release price”) will depend upon the Debt Yield at the time of the sale as follows:
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To the extent the net cash proceeds from the sale of a Mortgaged Property that are applied to repay the mortgage loan exceedand the amount specified in applicable clause (ii) above with respect to such property, the excess may be applied by thelender released all remaining collateral balances.
The Company as a credit against the release price applicable to future sales of Mortgaged Properties.
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. Notwithstanding the foregoing, in order to obtain a release of all of the Pledged Properties (excluding Plaza del Sol) in connection with a portfolio sale of all of the Pledged Properties, the loan facility requires a minimum release price equal to the greater of (i) $250 million and (ii) 100% of the net sale proceeds.
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 intohad a Credit Agreement (the(as amended, the “Revolving Credit Agreement”) with PNC Bank, National Association (“PNC”). The Revolving Credit Agreement provides that provided 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 plusmillion and had a specified spread ranging from 1.05% to 1.50% 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 0.05% to 0.50% 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 occurscheduled termination date of (i) MarchFebruary 9, 2021, (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 $500 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 $900 million 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.
2022. The Company’s obligations under the Revolving Credit Agreement arewere 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%August 2021, as a result of the aggregaterepayment of the Company’s mortgage loan, the commitments of the lenders under the Revolving Credit Agreement (ii) for all times other than those referencedwere terminated in clause (iii) below, when anyaccordance with the terms of the agreement. At the time of the facility’s termination, there were no 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 equal to the sum of the LIBOR rate plus 8.50%. Agreement.
Series A Preferred Stock
In connection with the Company’s separation from SITE Centers in July 2018, the Company issued the RVI Preferred Shares to SITE Centers, thatwhich 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, theThe RVI Preferred Shares will beare 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 $2.0approximately $2.055 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 In October 2021, the termsBoard of anyDirectors of the Company’s indebtednessCompany authorized 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 atpaid 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 distributeddividend on the RVI Preferred Shares to be redeemed. Asin the aggregate amount of November 2, 2020, no dividends have been paid on$190.0 million. Aggregate gross proceeds of the RVI Preferred Shares.Company’s asset sales from July 1, 2018 through October 29, 2021 were $1,818.5 million.
Common Share Dividends
The Board of Directors of the Company declared a cash dividend of $22.04 per common share, which the Company paid on October 28, 2021. The Company’s 20182020 dividend was paid on January 25, 2019 and the Company’s 2019 dividend was paid on January 8, 2020, in each case12, 2021, in a combination of cash and the Company’s common shares. See Note 8,9, “Earnings Per Share,” 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 late 2018 and 2019November 2020, the Company’s Board of Directors declared a dividend on its common share dividends, subject to a 10% withholding tax,shares on account of taxable income generated in Puerto Rico, which dividend was paid, subject to a 10% withholding tax, in those years.January 2021. The amountOctober 2021 common share dividend was on account of each dividend is expected to exceed the amount of REITtransactional activity and not taxable income generated in Puerto Rico and, therefore, it was not subject to the Puerto Rico withholding tax of 10%. No federal income taxes were incurred by the Company in the applicable year. Accordingly, federal income taxes were not2020 or are expected to be incurred by the REIT.in 2021.
Dividend Distributions
The Company anticipates making distributions to holders of its common shares to satisfy the requirements 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). 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.
Although the Company anticipates maintaining its REIT qualification for the 2021 taxable year, it may elect to surrender its REIT status for future taxable years in connection with the anticipated wind-down 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 infeasible.
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), projected expenses and contingencies relating to the termsCompany’s anticipated wind-down, as well as gains and losses relating to the sale of the mortgage financing and the limitations set forth in the mortgage loan agreements.its remaining assets. Distributions will also be impacted by the pace and success of the Company’s property disposition strategy. As a resultsale of the terms of the mortgage financing, the Company anticipates 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.Company’s remaining properties. Furthermore, subject to the Company’s ability to make distributions to 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 beare entitled to a dividendremaining preference for all dividends declared onamount of $10 million in the event gross sale proceeds generated from asset sales since the time of the Company’s capital stock, at any time up to the preference amount.separation from SITE Centers exceed approximately $2.055 billion. Subsequent to the payment of aggregate dividends on the RVI Preferred Shares equaling the maximum preference amount oftotaling $200 million, the RVI Preferred Shares are required to be redeemed by the Company for an$1.00 per share.
Winding-up and Dissolution
As the Company works to complete the sale of its three remaining assets, 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 disposition of the remaining assets, purchase price adjustments under sale agreements, 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 anticipated winding-up and dissolution process.
In the event the Company is able to sell its remaining assets, the Company will likely seek to file articles of dissolution with the Secretary of State of the State of Ohio shortly afterward. Pursuant to Ohio law, the Company would continue to exist for a period of five years following the filing of the articles 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 establish 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 period subsequent to the filing of the articles of dissolution. It is likely that the Company would not make a final distribution of reserve funds until such expenses and contingent claims are paid, resolved or fail to materialize, which could be several years following the date of such final sales. It is also possible that the Company may 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 and the five-property continental U.S. portfolio expires on May 24, 2022 and June 28, 2022, respectively, and is capped at $15 million and $4 million, respectively. As of October 29, 2021, potential liability for breaches of representations on the other recent asset sales is approximately $2.2 million in the aggregate. The Company will also need to reserve amounts from sale proceeds to pay, among other items, fees to SITE Centers (including with respect to the administration of the wind-down and dissolution process), 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 resolve and streamline the Company’s subsidiaries and corporate structure. The Company estimates that after all assets are sold, such wind‑down 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 Strategy—The Company May 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.
In addition, the Company will likely seek to delist its shares from the New York Stock Exchange (the “NYSE”) on a voluntary basis either before or shortly after the sale of its final assets 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 price of the Company’s common shares falls below $1.00 per share. Due toshare over a 30 consecutive-day trading period, (ii) the dividend preference ofCompany’s average market capitalization falls below $15 million over a 30 consecutive-day trading period or (iii) the RVI Preferred Shares, distributions of sales proceeds to holders ofCompany loses or terminates its REIT qualification. If the common shares are unlikely to occur until after aggregate dividendsdelisted, shareholders may have been paiddifficulty trading their common shares on the RVI Preferred Shares in an amount equalsecondary market. Delisting would also eliminate the requirement that the Company’s Board of Directors be comprised of a majority of independent directors. See “Risk Factors—Risks Related to the maximum preference amount. At this time,Company’s Common Shares—If an Active Trading Market for the Company’s Common Shares Is Not Sustained, 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.
Through any winding-up and dissolution, the Company cannot predict whenwill 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 may seek relief from the Securities and Exchange Commission (“SEC”) from the reporting requirements under the Exchange Act. The Company anticipates that, if such relief is granted, it would continue to file Current Reports on Form 8-K to disclose material events relating to its winding-up and dissolution, along with any other reports that the SEC might require, but would discontinue filing Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K and would not be required to file audited financial statements. The Company would continue to incur professional fees in connection with such delisting and deregistration processes, which would also affect the amounts available for distribution to shareholders in connection with the winding-up of the Company’s business and affairs.
Dispositions
In August 2021, the Company sold all of its interests in the limited liability companies that owned all of the Company’s remaining nine assets located in Puerto Rico (comprising approximately 3.5 million square feet of Company-owned GLA) for a gross sales price of $550.0 million. The sale also included all of the Company’s interests in a consolidated joint venture that owned an undeveloped parcel of land adjacent to Plaza Isabela. Net proceeds received at closing were approximately $539.0 million of which $214.5 million was used to fully repay the outstanding balance of the Company’s mortgage loan. The sale did not include any cash or if it will declare dividendsrestricted cash held by or on behalf of the limited liability companies at closing and the Company retained the right to pursue and collect amounts from tenants relating to pre-closing periods (including amounts relating to pre-closing periods that were deferred and are to be repaid by tenants sometime after the closing date). The gain recorded on the Puerto Rico Disposition was $24.1 million.
On October 1, 2021, the Company also sold all of its interests in Great Northern Plazas (North Olmsted, Ohio), Maple Grove Crossing (Maple Grove, Minnesota), Peach Street Marketplace (Erie, Pennsylvania), Seabrook Commons (Seabrook, New Hampshire) and Wrangleboro Consumer Square (Mays Landing, New Jersey) in one transaction for $264.0 million. The Company retained the right to pursue and collect amounts from tenants relating to pre-closing periods (including amounts relating to pre-closing periods that were deferred and are to be repaid by tenants sometime after the closing date). Net proceeds received at closing were approximately $242.4 million, excluding $4.4 million of escrows established at closing which may be released to the holdersCompany in the event certain leasing activity is completed within 180 days of RVI Preferred Shares and when or if such dividends, if paid, will equalclosing. The Company expects to record a gain of approximately $10 million in the maximum preference amount. fourth quarter of 2021 in connection with the sale of these assets.
Dispositions
ForIn addition to the two portfolio transactions discussed above, for the nine months ended September 30, 2020,2021, the Company sold five shopping centers, in separate transactions, aggregating 2.51.1 million square feet, for an aggregate gross sales price of $262.2$59.2 million.
The Company has entered into an agreement to sell Green Ridge Square, located in Grand Rapids, Michigan, for $23.3 million in cash, subject to adjustment for certain closing pro-rations, allocations, credits, closing costs and net proceeds priorescrows. The general due diligence period has expired under the sale agreement and the closing of the transaction is expected to debt repaymentoccur by the end of $246.5 million. the fourth quarter of 2021. Closing remains subject to customary conditions, including, but not limited to, delivery of estoppel letters from tenants, the accuracy of the Company’s representations in all material respects and the absence of material casualty or condemnation events.
Cash Flow Activity
The Company’s cash flow activities are summarized as follows (in thousands):
| Nine Months |
| Nine Months |
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| Ended September 30, |
| Ended September 30, |
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| 2020 |
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| 2019 |
| 2021 |
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| 2020 |
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Cash flow provided by operating activities | $ | 40,038 |
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| $ | 71,453 |
| $ | 60,556 |
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| $ | 40,038 |
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Cash flow provided by investing activities |
| 228,837 |
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| 321,078 |
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| 586,262 |
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| 228,837 |
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Cash flow used for financing activities |
| (196,366 | ) |
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| (333,256 | ) |
| (358,657 | ) |
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| (196,366 | ) |
Changes in cash flow compared to the prior comparable period are described as follows:
Operating Activities: Cash provided by operating activities decreased $31.4increased $20.5 million primarily due to the following:
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Investing Activities: Cash provided by investing activities decreased $92.2increased $357.4 million primarily due to the following:
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| • | Decrease in payments for real estate improvements of |
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Financing Activities: Cash used for financing activities decreasedincreased by $136.9$162.3 million primarily due to the following:
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CAPITALIZATION
At September 30, 2020,2021, the Company’s capitalization consisted of $488.9 million of mortgage debt, $190.0 million of RVI Preferred Shares and $249.3$556.0 million of market equity (market equity is defined as common shares outstanding multiplied by $12.57,$26.33, the closing price of the Company’s common shares on the New York Stock ExchangeNYSE at September 30, 2020), resulting in a debt to total market capitalization ratio2021). In October 2021, the Board of 0.53 to 1.0, as compared to the ratio of 0.43 to 1.0 at September 30, 2019. The closing priceDirectors of the Company’s sharesCompany authorized and the Company paid a dividend on the New York Stock Exchange was $37.04 at September 30, 2019.RVI Preferred Shares in the aggregate amount of $190.0 million and a dividend on the Company’s common shares in the aggregate amount of $465.4 million ($22.04 per common share).
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
TheIn connection with asset sales in the third quarter of 2021, the Company had aggregate outstandingrepaid the entire balance of its mortgage indebtednessloan. As of $488.9 million at September 30, 2020 with a maturity of MarchNovember 3, 2021, subject to three one-year extension options. In addition, the Company has twoone long-term ground leaseslease in which it is the lessee. lessee (Crossroads Plaza shopping center in Gulfport, Mississippi) with an expiration date of November 2033. The ground lease includes one, 25-year option to extend the lease term upon its expiration at fair market ground rent (as determined by an independent appraiser at the time of the option’s exercise).
In October 2020,connection with the sale of one asset, the Company agreed to complete certain repairs for approximately $0.9 million that are anticipated to be completed by December 31, 2021.
ECONOMIC CONDITIONS
Disposition Outlook. In addition to its goal of maximizing cash flow from property operations, the Company will seek to realize value through the sale of its remaining assets.
As of November 3, 2021, the Company owns interests in three remaining assets: Green Ridge Square located in Grand Rapids, Michigan; Crossroads Center located in Gulfport, Mississippi and Willowbrook Plaza located in Houston, Texas. As discussed above under “—Liquidity, Capital Resources and Financing Activities—Dispositions,” the Company is under contract to sell Green Ridge Square for a $69.7gross sale price of $23.3 million repayment onand closing is expected to occur by the mortgage loan was made fromend of the usefourth quarter of restricted cash related2021. The Company is actively working to an asset sale consummated in September 2020.
SITE Centers Guaranty
On July 2, 2018, SITE Centers provided an unconditional guaranty to PNCsell Willowbrook Plaza, though no buyer has completed its due diligence investigation with respect to any obligations outstanding from time to timethat property as of November 3, 2021. As discussed above under “Contractual Obligations and Other Commitments,” the Company’s Revolving Credit Agreement. In connection with this arrangement,interest in Crossroads Center is subject to a ground lease which has an expiration date of November 2033 and one, 25-year renewal option. The Company is exploring the Company has agreed to pay to SITE Centers a guaranty commitment feefeasibility of 0.20% per annum on the committed amountnegotiating an early extension or restructuring of the Revolving Credit Agreement and aground lease term with the owner of the fee equalinterest prior to 5.00% per annum on any amounts drawn bycommencing efforts to market the Company’s interest in the property for sale. The Company underis
currently unable to predict the Revolving Credit Agreement. Intiming, pricing or success applicable to the event SITE Centers pays anysales of Willowbrook Plaza or Crossroads Center, particularly in light of the limited duration 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 defaultground lease interest that accrues at a rate equal to the sum of the LIBOR rate plus 8.50% per annum.
Other Commitments
The Company has entered into agreements with general contractors related to its shopping centers having aggregatecommitments of approximately $2.5 million at September 30, 2020. 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 September 30, 2020, the Company had purchase order obligations, typically payable within one year, aggregating approximately $0.8 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. In August 2019, the Company reached a settlement with its insurer with respect to the Company’s claims related to the hurricane. The property damage settlement proceeds are reflected in the Company’s consolidated balance sheet 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.
As of September 30, 2020, the Company had expended approximately $123 million in connection with repairing property damage caused by the hurricane. Included in restricted cash at September 30, 2020 are the remaining property damage settlement proceeds of $35.0 million along with other related hurricane reserves required by the mortgage lender of $6.5 million aggregating $41.5 million. The Company estimates that it will incur between $7 million and $10 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 mid-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, 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.
INFLATION
Most of the Company’s long-term leases contain provisions designed to mitigate the adverse impact of inflation. Such provisions include clauses enabling the Company to receive additional rental income from escalation clauses that generally increase rental rates during the terms of the leases and/or percentage rentals based on tenants’ gross sales. Such escalations are determined by negotiation, increases in the consumer price index or similar inflation indices. In addition, many of the Company’s leases are for terms of less than 10 years, permitting the Company to seek increased rents at market rates upon renewal. Most of the Company’s leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing the Company’s exposure to increases in costs and operating expenses resulting from inflation.
ECONOMIC CONDITIONSCrossroads Center.
Portfolio Composition and Retail Environment. Though leasing prospects are heavily dependent on local conditions, in general, the Company saw continued demand from tenants for its continental U.S. space during January and February of 2020 before uncertainty and tenant concern around the COVID-19 pandemic caused a slow-down in lease activity beginning in March which continued throughout the second and third quarters of 2020. The Company’s portfolio has a diversified tenant base, with only three tenants whose annualized rental revenue equals or exceeds 3% of the Company’s annualized revenues at September 30, 2020 (Walmart/Sam’s Club at 6.0%; Bed Bath & Beyond, which includes Bed Bath & Beyond and Christmas Tree Shops, at 3.2% and PetSmart at 3.2%). Other significant tenants include TJX Companies (T.J. Maxx, Marshalls and HomeGoods) and Best Buy. These tenants have relatively strong financial positions, have outperformed other retail categories on a relative basis over time and the Company believes remain well capitalized. Historically, these tenants have provided a stable revenue base, and the Company believes that they will continue to provide a stable revenue base going forward, given the long-term nature of these leases. base. Moreover, the majority of the tenants in the Company’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 86.8% and 87.8% at September 30, 2020 and 2019, respectively. The net decrease in the rate primarily was attributed to the sale of assets having higher occupancy rates and the impact of tenant expirations and bankruptcies. The total portfolio average annualized base rent per occupied square foot was $16.21 at September 30, 2020, as compared to $15.71 at September 30, 2019.
At September 30, 2020, the Company owned 12 assets on the island of Puerto Rico (including three enclosed malls) aggregating 4.4 million square feet, representing 49% of Company-owned GLA and approximately 50% of both the Company’s total consolidated revenue and the Company’s total consolidated revenue less operating expenses (i.e., net operating income) for the nine months ended September 30, 2020. The Company believes that the tenants at its Puerto Rico assets (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. Nevertheless, 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. The impact of Hurricane Maria in Puerto Rico further exacerbated these concerns. See Item 1A. “Risk Factors– Geographic Concentration of the Company’s Properties Makes It Vulnerable to Natural Disasters, Extreme Weather Conditions and Climate Change. An Uninsured Loss or a Loss That Exceeds the Limits of the Company’s Insurance Policies Could Subject the Company to a Loss of Capital and Revenue” in the Company’s Annual Report on 10-K for the year ended December 31, 2019.
The retail sector continues to be affected by increasing competition, including the impact of e-commerce.competition. 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. See Item 1A. “Risk Factors – The Economic Performance and Value of the Company’s Shopping Centers Depend on Many Factors, Each of Which Could Have an Adverse Impact on the Company’s Cash Flows and Operating Results” in the Company’s Annual Report on 10-K for the year ended December 31, 2019.
In addition to the impacts of increased competition e-commerce and adverse conditions in Puerto Rico,e-commerce, beginning in March 2020, the retail sector has beenwas 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 October 31, 2020, approximately 97% of the Company’s tenants (based on average base rents) were open for business, up from a low of approximately 34% in early April. In Puerto Rico, the local government ordered
malls and nonessential businesses at outdoor shopping centers to close from mid-March until early June 2020. Puerto Rico did not re-open to international travelers until mid-July 2020 and government mandated closures of gyms and movie theatres remained in place until mid-September 2020. Malls and shopping centers were also ordered to close on Sundays from late July through early September 2020. Although malls and shopping centers remain open as of October 31, 2020, most tenants remain subject to significant occupancy and operating restrictions which are expected to continue to adversely impact their revenues, and bars and certain entertainment-related businesses remain closed. In addition, nightly curfews remain in place and the local government has indicated a willingness to further tighten restrictions to the extent necessary to respond to the evolving pandemic.
The COVID-19 pandemic had a relatively minimal impact on the Company’s collection of rents for the first quarter of 2020, but it had a significant impact on collection of second and third quarter rents. As of October 31, 2020, the Company’s tenants had paid approximately 72% of aggregate base rents for the second quarter and 86% of aggregate base rents for the third quarter. In addition, as of October 31, 2020, the Company’s tenants had paid approximately 84% of aggregate base rents for the month of October. The Company calculates the aggregate percentage of rents paid by comparing the amount of tenant payments received as of the date presented to the amount billed to tenants during the period, which billed amount includes abated rents, rents subject to deferral arrangements and rents owing from bankrupt tenants with respect to leases which have not yet been rejected. The Company has engaged in discussionsreached satisfactory resolution with the majority of its larger tenants that failed to satisfy all orpay rents as a portionresult of disruptions to their rent obligations duringbusiness related to the second and third quarters of 2020 and has agreed to terms with a number of such tenants.COVID-19 pandemic. These arrangements have generally takenresolutions typically took the form of rent deferralsdeferral arrangements and, in circumstances where tenants have agreed to extend lease terms or make other material concessions, rent abatements (especially in Puerto Rico). As of October 31, 2020, agreed upon rent-deferral and abatement arrangements that remain unpaid represented approximately 13% of second quarter aggregate base rents and approximately 5% of third quarter aggregate base rents (with theabatements. The majority of such deferred rents expected to beamounts have been repaid by year-end 2021). For purposesas 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 owing. September 30, 2021.The Company continues to evaluate its options with respect to tenants with whom the Company has not reached satisfactory resolution of unpaid rents and has commenced collection actions against several tenants.
While theThe Company is unable to forecast the resolution of unpaid second and third quarter rents, outstanding tenant relief requests, the level of rent collections in subsequent periods or the duration of the disruption to tenant and Company operations caused by the COVID-19 pandemic. Although the level and pace of tenant collections exceeded management’s expectations during the first nine months of 2021, the pandemic continues to pose risks to the Company expects that its resultsand tenant operations. If new surges in contagion occur, or if new COVID-19 variants are discovered which are more infectious or resistant to vaccines, or if there are decreases in the effectiveness of operations will continue toCOVID-19 vaccines, the Company’s recent success in the collection of deferred rents and unresolved amounts could be adversely impacted by the pandemic and its impact on the economy. Additionally, new surges in COVID-19 contagion maysuch developments could lead to new restrictions on tenant operations, nonpayment of contractual and previously deferred rents, additional tenant requests for rent relief, new restrictions on tenant operations and additional tenant closures and bankruptcies, all of which may furthercould adversely impact the Company’s results of operations and ability to sell its remaining assets in the future. Certain tenant categories may beremain especially vulnerable to the impacts of the COVID-19 pandemic, including movie theaters, restaurants fitness and entertainment.
Disposition Outlook. In addition to its goal of maximizing cash flow from property operations, the Company seeks to realize profits 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. Asset prices for retail real estate in Puerto Rico remain highly uncertain due to lack of transaction activity since Hurricane Maria.
The COVID-19 pandemic has created uncertainty with respect to the timing and ability of the Company to execute the disposition portion of its business plan. Beginning in March 2020, many prospective purchasers have delayed or suspended their acquisition activities due to, among other factors, the uncertainty of tenant operations and the availability and terms of financing. Purchasers’ expectations with respect to economic returns from future investments in retail real estate may also be impacted by uncertainties caused by the COVID-19 pandemic and resulting changes in consumer behavior. Although the Company believes that the COVID-19 pandemic will continue to have an adverse effect on the timing and pricing of disposition activity, the Company is currently unable to predict the magnitude of such impact.
For additional information regarding risks relating to the COVID-19 pandemic, and other relevant business uncertainties see Item 1A. Risk Factors in Part II of this Quarterlythe Company’s Annual Report on Form 10-Q.
New Accounting Standards
New Accounting Standards are more fully described in Note 1, “Nature of Business and Financial Statement Presentation,” to10-K for the Company’s consolidated financial statements.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. See Item 1A. Risk Factors in the Company’s Annual Report on 10-K for the year ended December 31, 2019 and of this Quarterly Report on Form 10-Q.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 ofon the Company.
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 Company may be unable to dispose of its remaining properties on favorable terms or at all, especially (i) in markets or regions experiencing deteriorating economic conditions, (ii) with respect to properties anchored by tenants experiencing financial challenges, |
| • | The Company is subject to general risks affecting the real estate industry, including the need to enter into new leases or renew leases on favorable terms to generate rental revenues, and any economic downturn may adversely affect the ability of the Company’s tenants, or new tenants, to enter into new leases or the ability of the Company’s existing tenants to renew their leases at rates at least as favorable as their current rates; |
| • | The Company could be adversely affected by changes in the local markets where its properties are located, as well as by adverse changes in regional or national economic and market conditions; |
| • | The Company may fail to anticipate the effects on its properties of changes in consumer buying practices, including sales over the internet and the resulting retailing practices and space needs of its tenants, or a general downturn in its tenants’ businesses, which may cause tenants to close stores or default in payment of rent; |
| • | The Company is subject to competition for tenants from other owners of retail properties, and its tenants are subject to competition from other retailers and methods of distribution. The Company is dependent upon the successful operations and financial condition of its tenants, in particular its major tenants. The bankruptcy of major tenants could result in a loss of significant rental income and could give rise to termination or rent abatement by other tenants under the co-tenancy clauses of their leases; |
| • | The Company relies on major tenants, which makes it vulnerable to changes in the business and financial condition of, or demand for its space by, such tenants; |
| • | The |
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| • | The Company must make distributions to shareholders to continue to qualify as a REIT, and if the Company must borrow funds to make distributions, those borrowings may not be available on favorable terms or at all; |
| • | The outcome of litigation, including litigation with tenants, may adversely affect the Company’s results of operations and financial condition; |
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| • | Property damage, expenses related thereto, and other business and economic consequences (including the potential loss of revenue) resulting from natural disasters and extreme weather conditions in locations where the Company owns properties; |
| • | Sufficiency and timing of any insurance recovery payments related to damages from extreme weather conditions; |
| • | The Company and its tenants could be negatively affected by the impacts of pandemics and other public health crises, including the COVID-19 pandemic; |
| • | The Company is subject to potential environmental liabilities; |
| • | The Company may incur losses that are uninsured or exceed policy coverage due to its liability for certain injuries to persons, property or the environment occurring on its properties; |
| • | The Company could incur additional expenses to comply with or respond to claims under the Americans with Disabilities Act or otherwise be adversely affected by changes in government regulations, including changes in environmental, zoning, tax and other regulations; |
| • | 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 management agreements are terminated and |
| • | 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 |
In the third quarter of 2021, the Company utilized proceeds from asset sales to repay all of its outstanding indebtedness. The Company’s primary market risk exposure iswas interest rate risk. At September 30, 2020 and December 31, 2019,2020, the Company’s outstanding indebtedness was composed of all variable-rate debt. At September 30, 2020, the Company’sdebt with a carrying value of the variable-rate debt was $477.1$344.5 million and its fair value was $487.9 million. At December 31, 2019, the Company’s carrying value of the variable-rate debt was $655.8 million and its fair value was $682.2 million. If interest rates were to increase by 1.00%, or 100 basis-points, the fair value of the debt would be $487.7 million and $681.9 million at September 30, 2020 and December 31, 2019, 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 September 30, 2020, would result in an increase in interest expense of approximately $3.7 million for the nine-month period ended September 30, 2020.$362.7 million.
The Company intends to useremaining proceeds from asset sales to repay its indebtedness and, to the extent permitted by the mortgage loan,will be used for general corporate purposes, including distributions to holders of the Company’s preferredcommon shares and, common shareholders. Toin 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 impactevent aggregate gross proceeds from the Company’s distributable cash flow.
The Company intendsasset sales subsequent 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,July 1, 2018 exceed approximately $2.055 billion, the cost of obtaining such protection agreements in relation to the Company’s access to capital markets will continue to be evaluated. RVI Preferred Shares. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes. As of September 30, 2020,2021, 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 September 30, 2020,2021, 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 September 30, 2020,2021, 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 September 30, 2020,2021, 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 |
Reference is made to Part 1, Item 1A. “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The risk factor set forth below updates, and should be read together with, such risk factors. Furthermore, the impact of COVID-19 may also exacerbate the risks discussed therein, any of which could have a material effect on the Company.
The COVID-19 Pandemic Has Had, and Will Likely Continue to Have, a Significant Impact on the Company and its Tenants’ Businesses.
The Company’s business and the businesses of its tenants have been, and are likely to continue to be, significantly impacted by the COVID-19 pandemic and the public perception of and reaction to the related risks. Beginning in March 2020, the COVID-19 pandemic resulted in the closure of many tenant businesses and substantially reduced foot traffic at open tenant businesses as a result of social-distancing restrictions. Beginning in April 2020, a significant number of tenants failed to pay some or all of their monthly rent obligations and the Company received a substantial number of tenant requests for rent relief and claims for abatement. In many cases, the Company has agreed to defer unpaid tenant rent obligations, although it remains uncertain whether these rents will ultimately be paid in accordance with the terms of the deferral arrangements. Social distancing measures, local regulations and the public’s concern regarding health risks posed by the pandemic continue to adversely impact many tenants’ sales and operations and their ability to finance their businesses and satisfy their obligations, including rent owed to the Company. Although rent collection levels improved in the third quarter of 2020 relative to the second quarter, third quarter rent collection levels remain well below historical averages and future collections may be negatively impacted by new surges in COVID-19 contagion and any implementation of additional restrictions on tenant businesses as a result thereof. The resumption of normalized business activity levels remains uncertain and may be adversely impacted by state and local government restrictions, disruptions in inventory supply chains from local and international suppliers, staffing challengesand the public’s perception of continued health risks relating to the COVID-19 pandemic and related treatments and vaccines. Furthermore, in certain instances, the impact of COVID-19 and concerns of local resurgences in contagion have caused prospective tenants to abandon or delay new store growth plans or choose to lease fewer spaces, which has led to a decline in leasing volumes relative to historical levels and may ultimately result in diminished demand for space and lower rents for the Company’s properties. Such events may also increase the risk of delays in completing tenant build-outs, delivering space to new tenants and achieving rent commencement dates with respect to recently executed leases. Additionally, the impacts of the COVID-19 pandemic have contributed to an increase in retail businesses filing for bankruptcy protection and may accelerate consumers’ adoption of e-commerce within certain retail categories as an alternative to shopping at physical store locations. The Company may not be able to recover any amounts from insurance carriers in order to mitigate the impact of lost tenant revenues. The Company’s periodic assessment of tenants’ ability to pay outstanding obligations, including rent obligations deferred because of the COVID-19 pandemic, may also result in reductions to rental revenue on account of previously accrued rents.
Moreover, the COVID-19 pandemic has significantly limited the ability of the employees of the Company’s manager to access the manager’s offices and properties, which could adversely impact the manager’s ability to manage the Company’s properties and complete other operating and administrative functions that are important to the Company’s business. Efforts by the employees of the Company’s manager to work remotely could also expose the Company to additional risks, such as increased cybersecurity risk.
In addition to the impacts and uncertainties listed above, the COVID-19 pandemic has resulted in other real estate companies and investment funds curtailing or abandoning planned acquisition or development activity, which in turn has adversely impacted the Company’s ability to market its remaining properties for sale and the level of pricing and demand for such properties by potential buyers. Pricing for larger properties and properties comprised of a significant number of tenants deemed “non-essential” by local COVID-19 related ordinances has become especially challenged. A decrease in the expected level of pricing for the Company’s assets could result in the recognition of impairment charges. Furthermore, the COVID-19 pandemic has negatively affected commercial mortgage-backed financing markets for retail real estate assets similar to those owned by the Company, which, in turn, has negativelyNone.
affected the Company’s ability, and the ability of potential buyers of the Company’s real estate assets, to obtain necessary financing on favorable terms, or at all.
Any of the foregoing risks, or related risks that the Company is unable to predict due to changing circumstances relating to the impacts of the COVID-19 pandemic, could have a material adverse effect on the Company’s business, results of operations and financial condition.
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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| Average Price Paid per Share |
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| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
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| Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
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July 1–31, 2020 |
| 234 |
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| $ | 12.78 |
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August 1–31, 2020 |
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September 1–30, 2020 |
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Total |
| 234 |
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| $ | 12.78 |
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ISSUER PURCHASES OF EQUITY SECURITIES |
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| Total Number of Shares Purchased(1) |
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| Average Price Paid per Share |
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| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
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| Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
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July 1–31, 2021 |
| 598 |
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| $ | 22.30 |
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August 1–31, 2021 |
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September 1–30, 2021 |
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Total |
| 598 |
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| $ | 22.30 |
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(1) | Consists of common shares surrendered or deemed surrendered to the Company to satisfy statutory minimum tax withholding obligations in connection with the issuance and vesting of |
Item 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
Item 4. | MINE SAFETY DISCLOSURES |
Not applicable.
Item 5. | OTHER INFORMATION |
On October 30, 2020, the Company entered into an Amended and Restated Agreement (the “Agreement”) with JDN Development Company, an affiliate of SITE Centers, in order to address the continuing impact of the COVID-19 pandemic on the level of property management fees payable to affiliates of SITE Centers (collectively, the “Manager”) beginning on January 1, 2021. Pursuant to the terms of the existing property management agreements between affiliates of the Company and the Manager, the property management fee is determined on each January 1 and July 1 based on gross revenues received at the Company’s properties during the three-month period immediately preceding such determination date. In order to offset the impact of reduced property collections during the three-month period preceding January 1, 2021 on the property management fee applicable to the first six months of 2021, the Agreement provides that beginning on January 1, 2021, the Company will pay JDN Development Company a monthly supplemental fee 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 2021 in accordance with the existing property management agreements. This arrangement is similar to the existing arrangement between the parties governing the payment of a monthly supplemental fee with respect to the last six months of 2020. The foregoing description of the Agreement is qualified in its entirety by reference to Exhibit 10.1 to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.None.
Item 6.EXHIBITS
10.1 |
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10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
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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 September 30, |
1 | Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on August 31, 2021. |
2 | Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on October 6, 2021. |
3 | 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 September 30, 20202021 and December 31, 2019,2020, (ii) Consolidated Statements of Operations and Other Comprehensive Income (Loss) Income for the Three and Nine Months Ended September 30, 20202021 and 2019,2020, (iii) Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 20202021 and 2019,2020, (iv) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 20202021 and 20192020 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: November |
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