| Summary of Significant Accounting Policies | 1. Summary of Significant Accounting Policies Nature of Business Retail Value Inc. and its related consolidated real estate subsidiaries (which were merged out of existence in connection with the sale of RVI’s real estate assets) (collectively, the “Company” or “RVI”) were formed in December 2017 as a wholly-owned subsidiary of SITE Centers Corp. ("SITE Centers" or the "Manager”). On July 1, 2018, the date of its separation from SITE Centers into a separate publicly traded company, the Company owned and operated a portfolio of 48 retail shopping centers, comprised of 36 continental U.S. assets and 12 Puerto Rico assets. On April 12, 2022, RVI completed the sale of its last real estate asset and no longer owns an interest in any real property. On June 30, 2022, the Company filed a certificate of dissolution with the Secretary of State of the State of Ohio. Pursuant to the Ohio Revised Code, the Company will continue to exist for a period of five years following the filing of the certificate of dissolution for the purpose of paying, satisfying and discharging any unknown or contingent claims or any debts or other obligations, collecting and distributing its assets, and doing all other acts required to liquidate and wind-up its business and affairs. In connection with the filing of the certificate of dissolution and in recognition of the substantial completion of the Company's original strategy, the Company's independent directors resigned from the Company's Board of Directors on July 1, 2022, and the Board of Directors is now comprised exclusively of management directors. The Company, its subsidiaries and the Manager entered into a new External Management Agreement, effective January 1, 2022 (the “New Management Agreement”), which compensated the Manager for property management, leasing services and disposition efforts for Crossroads Center (prior to its sale on April 12, 2022) and compensates the Manager for corporate services in connection with the wind-up of the Company’s business. SITE Centers provides RVI with day-to-day management, as the Company does not have any employees. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”), including liquidation accounting discussed below, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the year. Subsequent to the adoption of the liq uidation basis of accounting, the Company is required to estimate all costs expected to be incurred through the end of liquidation, including the estimated amount of cash the Company expects to collect on its remaining receivables. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains cash deposits with major financial institutions, which from time to time may exceed federally insured limits. The Company periodically assesses the financial condition of these institutions and believes that the risk of loss is minimal. Income Taxes Through December 31, 2022, the Company had made an election to qualify, and believed it had operated so as to qualify, as a Real Estate Investment Trust (“REIT”) for federal income tax purposes. Accordingly, the Company generally should not be subject to federal income tax, provided that it makes distributions to its shareholders equal to at least 90 % of its REIT taxable income as defined under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), and satisfied certain other requirements. Effective January 1, 2023, the Company elected to surrender its REIT status in connection with the ongoing wind-up of its operations and in recognition that the nature of the Company’s remaining operations makes future compliance with REIT requirements impracticable. In the normal course of business, the Company, or one or more of its subsidiaries, is subject to examination by federal, state, commonwealth and local tax jurisdictions in which it operates where applicable. For the year ended December 31, 2022, the Company recognized no material adjustments regarding its tax accounting treatment for uncertain tax provisions. As of December 31, 2022, the tax years that remain subject to examination by the major tax jurisdictions under applicable statutes of limitations are the year 2019 and forward. Legal Matters The Company is subject to a variety of legal actions for personal injury with respect to its former properties, most of which are covered by insurance. While the resolution of 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. Post-Liquidation Basis of Accounting Basis of Presentation In connection with the sale of Crossroads Center, the Company’s last property, on April 12, 2022, the Company adopted the liquidation basis of accounting, in accordance with U.S. GAAP, effective May 1, 2022, which was the beginning of the fiscal month after the sale date. Accordingly, on May 1, 2022, the carrying value of the Company’s assets was adjusted to their estimated liquidation value, which represents the estimated amount of cash that the Company will collect on settlement of its assets and liabilities as it carries out the liquidation activities. The liquidation basis of accounting is appropriate when the liquidation of a company appears imminent, and the net realizable value of its assets is reasonably determinable. Under this basis of accounting, assets and liabilities are stated at their net realizable value (or liquidation value) and estimated costs through the liquidation date are accrued to the extent reasonably determinable. The Company accrued expenses that it expects to incur as it carries out its liquidation activities to the extent it has a reasonable basis for estimation. The Company expects to incur general and administrative expenses associated with the winding up and dissolution of the Company (i.e., fees to SITE Centers under the New Management Agreement, professional fees (auditing and legal expenses), insurance premiums, vendor expenses and costs to resolve and streamline the Company’s subsidiaries and corporate structure.) Actual expense incurred may differ from amounts reflected in the financial statements due to the inherent uncertainty in estimating future events. These differences could be material (Note 3). Actual costs incurred but unpaid as of December 31, 2022, are included in Accounts Payable and Other Liabilities in the Consolidated Statement of Net Assets. Other changes in estimates of receivables or liabilities are recorded as Remeasurement of Assets and Liabilities in the Consolidated Statement of Changes in Net Assets. As a result of the change to the liquidation basis of accounting, the Company no longer presents a Consolidated Balance Sheet, a Consolidated Statement of Operations and Comprehensive Income, a Consolidated Statement of Equity or a Consolidated Statement of Cash Flows. These statements are only presented for prior periods. Accounts Receivable In connection with the transition to the liquidation basis of accounting, the Company adjusted the expected amount to be collected from its accounts receivable by $ 0.9 million (Note 4). Accounts receivable are presented at their expected collectable amount. The estimate of collectability of outstanding receivables requires judgment and complex and extensive assumptions. T he Company reviews its outstanding accounts receivable individually by tenant account for collectability and considers assumptions such as the terms of the underlying lease, litigation status and former business segment (i.e., continental U.S. vs. Puerto Rico). Smaller individual balances and ancillary income accounts are generally expected to be collected at a rate of 30 % and 10 % of the outstanding amount, respecti vely. While the Company is working to maximize payment, collection of past due amounts is not guaranteed. Distributions The amount and timing of distributions to shareholders involve risks and uncertainties. Accordingly, it is not possible to predict the timing and aggregate amount that will ultimately be distributed to shareholders and no assurance can be given that the distributions will equal or exceed the estimate of net assets presented in the Consolidated Statement of Net Assets. Pre-Liquidation Basis of Accounting Principles of Consolidation The consolidated financial statements include the results of the Company and all entities in which the Company had a controlling interest. All significant intercompany balances and transactions have been eliminated in consolidation. Accounts Receivable The Company made estimates of the collectability of its accounts receivable related to base rents, including straight-line rentals, expense reimbursements and other revenue or income. Rental income was reduced for amounts the Company believed were not probable of being collected. The Company analyzed tenant credit worthiness, as well as current economic trends and tenant-specific sector trends when evaluating the probability of collection of accounts receivable. In evaluating tenant credit worthiness, the Company’s assessment may include a review of payment history, tenant sales performance and financial position. For larger national tenants, the Company also evaluated projected liquidity, as well as the tenant’s access to capital and the overall health of the particular sector. In addition, with respect to tenants in bankruptcy, the Company made estimates of the expected recovery of pre-petition and post-petition claims in assessing the probability of collection of the related receivable. The time to resolve these claims may have exceeded one year. These estimates have a direct impact on the Company’s earnings because once the amount is considered not probable of being collected, earnings are reduced by a corresponding amount until the receivable is collected. Accounts receivable exclude estimated amounts not probable of being collected, including contract disputes, of $ 0.6 million at December 31, 2021. Disposition of Real Estate Sales of nonfinancial assets, such as real estate, are recognized when control of the asset transfers to the buyer, which occurs when the buyer has the ability to direct the use of or obtain substantially all of the remaining benefits from the asset. This generally occurs when the transaction closes and consideration is exchanged for control of the asset. A discontinued operation includes only the disposal of a component of an entity and represents a strategic shift of the Company’s geographical concentration and business. The disposition of all of the Company’s Puerto Rico properties qualified for discontinued operations presentation. The sale of individual continental U.S. properties did not qualify for discontinued operations presentation, and thus, the results of the continental U.S. properties remain in Income from Continuing Operations, and any associated gains or losses from the disposition are included in Gain on Disposition of Real Estate. Revenue Recognition For the real estate industry, leasing transactions are not within the scope of the standard. A majority of the Company’s tenant-related revenue was recognized pursuant to lease agreement and is governed by the leasing guidance. Rental Income Rental Income on the consolidated statements of operations includes contractual lease payments that generally consist of the following: • Fixed-lease payments, which include fixed payments associated with expense reimbursements from tenants for common area maintenance, taxes and insurance from tenants in shopping centers and were recognized on a straight-line basis over the non-cancelable term of the lease, which generally ranges from one month to 30 years, and include the effects of applicable rent steps and abatements. • Variable lease payments, which include percentage and overage income, recognized after a tenant’s reported sales exceeded the applicable sales breakpoint set forth in the applicable lease. • Variable lease payments associated with expense reimbursements from tenants for common area maintenance, taxes, insurance and other property operating expenses, based upon the tenant’s lease provisions, which were recognized in the period the related expenses were incurred. • Lease termination payments, which were recognized upon the effective termination of a tenant’s lease when the Company has no further obligations under the lease. • Ancillary and other property-related rental payments, primarily composed of leasing vacant space to temporary tenants, kiosk income, and parking income which were recognized in the period earned. For those tenants where the Company was unable to assert that collection of amounts due over the lease term is probable, the Company has categorized these tenants on the cash basis of accounting. As a result, no rental income was recognized from such tenants once they were placed on the cash basis of accounting until payments are received. 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):
Four Months
Ended April 30, For the Year Ended December 31,
2022 2021 2020
Dividend declared, but not paid $ 45.0 $ 69.1 $ 23.0
Stock dividends — 18.6 28.1
Note receivable related to disposition of shopping center — — 3.0
Assumption of buildings due to ground lease terminations — 2.7 —
Accounts payable related to construction in progress — — 0.1
Accounts payable related to construction in progress — — 2.8 Real Estate Real estate assets are stated at cost less accumulated depreciation. Depreciation and amortization is recorded on a straight-line basis over the estimated useful lives of the real estate assets as follows:
Buildings Useful lives, ranging from 20 to 31.5 years
Building improvements and fixtures Useful lives, ranging from 3 to 20 years
Tenant improvements Shorter of economic life or lease terms Useful lives of depreciable real estate assets were assessed periodically and account for any revisions, which are not material for the periods presented. Expenditures for maintenance and repairs were charged to operations as incurred. Significant expenditures that improve or extend the life of the asset were capitalized. Real Estate Impairment Assessment Individual real estate assets and intangibles were reviewed for potential impairment indicators whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment indicators are primarily related to changes in estimated hold periods and significant decreases in projected cash flows including estimated fair value; however, other impairment indicators could occur. An asset is considered impaired when the undiscounted future cash flows are not sufficient to recover the asset’s carrying value. The determination of anticipated undiscounted cash flows is inherently subjective, requiring significant estimates made by management, and considers the most likely expected course of action at the balance sheet date based on current plans, intended holding periods and available market information. Aggregate impairment charges, including those classified within discontinued operations, related to real estate assets were $ 82.6 million and $ 115.5 million for the years ended December 31, 2021 and 2020, respectively (Note 8). Interest and Real Estate Taxes Interest paid on the Company’s mortgage indebtedness for the years ended December 31, 2021 and 2020, aggregated $ 8.8 million and $ 20.6 million, respectively. Interest and real estate taxes incurred relating to the construction, expansion or redevelopment of shopping centers were capitalized and depreciated over the estimated useful life of the building. The Company ceased the capitalization of these costs when construction activities were substantially completed and the property was available for occupancy by tenants. The Company ceased the capitalization of interest when the mortgage loan was repaid in full. If the Company suspended substantially all activities related to development of a qualifying asset, the Company ceased capitalization of interest and taxes until activities were resumed. In connection with the sale of the Company’s remaining Puerto Rico properties in the third quarter of 2021, the Company fully repaid the entire balance of its mortgage loan. Accordingly, the lender released all remaining collateral and restricted cash balances. The Company had no mortgage debt outstanding at December 31, 2021. Treasury Shares The Company’s share repurchases were reflected as treasury shares utilizing the cost method of accounting and are presented as a reduction to consolidated shareholders’ equity. Leases The lessor accounting policies include the following: • To include operating lease liabilities in the asset group and include the associated operating lease payments in the undiscounted cash flows when considering recoverability of a long-lived asset group and • To exclude from lease payments taxes assessed by a governmental authority that are both imposed on and concurrent with lease revenue-producing activity and collected by the lessor from the lessee (i.e., sales tax). ROU assets represented the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments that arose from the lease. Operating lease ROU assets and liabilities were recognized at the commencement date based on the present value of lease payments over the term of the lease. Lease expense for lease payments were recognized on a straight-line basis over the lease term. Fair Value Hierarchy The standard Fair Value Measurements specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). The following summarizes the fair value hierarchy:
Level 1 Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 Quoted prices for identical assets and liabilities in markets that are inactive, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly, such as interest rates and yield curves that are observable at commonly quoted intervals and
Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. |
