Company Quick10K Filing
Retail Value
Price37.29 EPS5
Shares19 P/E8
MCap710 P/FCF10
Net Debt-170 EBIT123
TEV540 TEV/EBIT4
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-05
10-Q 2020-06-30 Filed 2020-08-05
10-Q 2020-03-31 Filed 2020-05-01
10-K 2019-12-31 Filed 2020-03-02
10-Q 2019-09-30 Filed 2019-11-05
10-Q 2019-06-30 Filed 2019-08-06
10-Q 2019-03-31 Filed 2019-05-08
10-K 2018-12-31 Filed 2019-03-05
10-Q 2018-09-30 Filed 2018-11-05
10-Q 2018-06-30 Filed 2018-08-10
8-K 2020-11-05
8-K 2020-09-14
8-K 2020-08-05
8-K 2020-05-13
8-K 2020-05-01
8-K 2020-03-02
8-K 2020-01-31
8-K 2019-11-05
8-K 2019-11-04
8-K 2019-08-06
8-K 2019-05-10
8-K 2019-05-07
8-K 2019-03-29
8-K 2019-03-11
8-K 2019-03-05
8-K 2018-11-05
8-K 2018-06-28

RVI 10Q Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6.Exhibits
EX-10.1 rvi-ex101_326.htm
EX-31.1 rvi-ex311_9.htm
EX-31.2 rvi-ex312_7.htm
EX-32.1 rvi-ex321_6.htm
EX-32.2 rvi-ex322_8.htm

Retail Value Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
2.31.81.40.90.50.02016201720182020
Assets, Equity
0.10.10.0-0.0-0.1-0.12016201720182020
Rev, G Profit, Net Income
0.20.10.0-0.0-0.1-0.22016201720182020
Ops, Inv, Fin

rvi-10q_20200930.htm
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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, 2020

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

 

 

 

 

 

Non-accelerated filer

 

☐  

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

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, the registrant had 19,829,264 shares of common stock, $0.10 par value per share, outstanding.

 


 

Retail Value Inc.

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED September 30, 2020

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements – Unaudited

 

 

Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

2

 

Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three Months Ended September 30, 2020 and 2019

3

 

Consolidated Statements of Operations and Comprehensive (Loss) Income for the Nine Months Ended September 30, 2020 and 2019

4

 

Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2020 and 2019

5

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

32

Item 4.

Controls and Procedures

32

 

 

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3.

Defaults Upon Senior Securities

34

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

 

 

 

SIGNATURES

36

 

 

 

1

 

 


 

Retail Value Inc.

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share amounts)  

 

 

September 30, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

Land

$

414,653

 

 

$

522,393

 

Buildings

 

1,085,202

 

 

 

1,380,984

 

Fixtures and tenant improvements

 

133,852

 

 

 

152,426

 

 

 

1,633,707

 

 

 

2,055,803

 

Less: Accumulated depreciation

 

(604,085

)

 

 

(670,509

)

 

 

1,029,622

 

 

 

1,385,294

 

Construction in progress

 

4,811

 

 

 

2,017

 

Total real estate assets, net

 

1,034,433

 

 

 

1,387,311

 

Cash and cash equivalents

 

115,254

 

 

 

71,047

 

Restricted cash

 

140,548

 

 

 

112,246

 

Accounts receivable

 

27,527

 

 

 

25,195

 

Other assets, net

 

21,131

 

 

 

30,888

 

 

$

1,338,893

 

 

$

1,626,687

 

Liabilities and Equity

 

 

 

 

 

 

 

Mortgage indebtedness, net

$

477,087

 

 

$

655,833

 

Payable to SITE Centers

 

770

 

 

 

105

 

Accounts payable and other liabilities

 

38,653

 

 

 

53,789

 

Dividends payable

 

 

 

 

39,057

 

Total liabilities

 

516,510

 

 

 

748,784

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

Redeemable preferred equity

 

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

 

Additional paid-in capital

 

721,318

 

 

 

692,871

 

Accumulated distributions in excess of net loss

 

(90,915

)

 

 

(6,857

)

Less: Common shares in treasury at cost: 234 and 454 shares September 30, 2020 and

   December 31, 2019, respectively

 

(3

)

 

 

(16

)

Total equity

 

632,383

 

 

 

687,903

 

 

$

1,338,893

 

 

$

1,626,687

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2

 


 

Retail Value Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(unaudited, in thousands, except per share amounts)

 

 

Three Months

 

 

Ended September 30,

 

 

2020

 

 

2019

 

Revenues from operations:

 

 

 

 

 

 

 

Rental income

$

39,964

 

 

$

54,291

 

Business interruption income

 

 

 

 

5,675

 

Other income

 

52

 

 

 

894

 

 

 

40,016

 

 

 

60,860

 

Rental operation expenses:

 

 

 

 

 

 

 

Operating and maintenance

 

9,571

 

 

 

9,819

 

Real estate taxes

 

5,318

 

 

 

6,900

 

Property and asset management fees

 

4,410

 

 

 

5,104

 

Impairment charges

 

77,795

 

 

 

19,790

 

Hurricane property insurance income, net

 

 

 

 

(72,602

)

General and administrative

 

860

 

 

 

1,111

 

Depreciation and amortization

 

13,797

 

 

 

17,676

 

 

 

111,751

 

 

 

(12,202

)

Other income (expense):

 

 

 

 

 

 

 

Interest expense, net

 

(5,175

)

 

 

(9,381

)

Debt extinguishment costs

 

(440

)

 

 

(1,949

)

Other income (expense), net

 

107

 

 

 

(19

)

Gain on disposition of real estate, net

 

8,324

 

 

 

10,483

 

 

 

2,816

 

 

 

(866

)

(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

 

 

 

 

 

 

 

 

 

Per share data:

 

 

 

 

 

 

 

Basic and diluted

$

(3.48

)

 

$

3.79

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

 


 

Retail Value Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(unaudited, in thousands, except per share amounts)

 

 

Nine Months

 

 

Ended September 30,

 

 

2020

 

 

2019

 

Revenues from operations:

 

 

 

 

 

 

 

Rental income

$

129,593

 

 

$

174,736

 

Business interruption income

 

 

 

 

7,675

 

Other income

 

84

 

 

 

945

 

 

 

129,677

 

 

 

183,356

 

Rental operation expenses:

 

 

 

 

 

 

 

Operating and maintenance

 

30,260

 

 

 

30,722

 

Real estate taxes

 

16,520

 

 

 

21,579

 

Property and asset management fees

 

14,176

 

 

 

16,739

 

Impairment charges

 

104,615

 

 

 

32,990

 

Hurricane property insurance income, net

 

 

 

 

(76,233

)

General and administrative

 

2,861

 

 

 

3,054

 

Depreciation and amortization

 

44,478

 

 

 

55,409

 

 

 

212,910

 

 

 

84,260

 

Other income (expense):

 

 

 

 

 

 

 

Interest expense, net

 

(18,127

)

 

 

(34,201

)

Debt extinguishment costs

 

(4,417

)

 

 

(19,358

)

Other income (expense), net

 

441

 

 

 

(887

)

Gain on disposition of real estate, net

 

21,956

 

 

 

41,648

 

 

 

(147

)

 

 

(12,798

)

(Loss) income before tax expense

 

(83,380

)

 

 

86,298

 

Tax expense

 

(678

)

 

 

(423

)

Net (loss) income

$

(84,058

)

 

$

85,875

 

Comprehensive (loss) income

$

(84,058

)

 

$

85,875

 

 

 

 

 

 

 

 

 

Per share data:

 

 

 

 

 

 

 

Basic and diluted

$

(4.25

)

 

$

4.52

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

 


 

Retail Value Inc.

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited, in thousands)

 

 

 

Common

Shares

 

 

Additional

Paid-in

Capital

 

 

Accumulated Distributions

in Excess of

Net Loss

 

 

Treasury

Stock at

Cost

 

 

Total

 

Balance as of December 31, 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

 

 

 

 

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

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

 


 

Retail Value Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

Nine Months

 

 

Ended September 30,

 

 

2020

 

 

2019

 

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:

 

 

 

 

 

 

 

Depreciation and amortization

 

44,478

 

 

 

55,409

 

Amortization and write-off of above- and below-market

   leases, net

 

(870

)

 

 

(938

)

Amortization and write-off of debt issuance costs and fair

   market value of debt adjustments

 

6,736

 

 

 

13,376

 

Gain on disposition of real estate, net

 

(21,956

)

 

 

(41,648

)

Property insurance proceeds in excess of receivable

 

 

 

 

(74,489

)

Impairment charges

 

104,615

 

 

 

32,990

 

Loss on debt extinguishment

 

 

 

 

235

 

Interest rate hedging activities

 

 

 

 

1,152

 

Assumption of building due to ground lease termination

 

 

 

 

(830

)

Net change in accounts receivable

 

(5,765

)

 

 

3,575

 

Net change in accounts payable and other liabilities

 

(6,353

)

 

 

(6,053

)

Net change in other operating assets

 

3,211

 

 

 

2,799

 

Total adjustments

 

124,096

 

 

 

(14,422

)

Net cash flow provided by operating activities

 

40,038

 

 

 

71,453

 

Cash flow from investing activities:

 

 

 

 

 

 

 

Real estate improvements to operating real estate

 

(17,642

)

 

 

(65,147

)

Proceeds from disposition of real estate

 

246,479

 

 

 

298,958

 

Hurricane property insurance proceeds

 

 

 

 

104,267

 

Net repayments to SITE Centers

 

 

 

 

(17,000

)

Net cash flow provided by investing activities

 

228,837

 

 

 

321,078

 

Cash flow from financing activities:

 

 

 

 

 

 

 

Proceeds from mortgage debt

 

 

 

 

900,000

 

Repayment of mortgage debt, including repayment costs

 

(185,408

)

 

 

(1,214,514

)

Payment of debt issuance costs

 

 

 

 

(11,895

)

Dividends paid

 

(10,958

)

 

 

(6,847

)

Net cash flow used for financing activities

 

(196,366

)

 

 

(333,256

)

 

 

 

 

 

 

 

 

Net increase in cash, cash equivalents and restricted cash

 

72,509

 

 

 

59,275

 

Cash, cash equivalents and restricted cash, beginning of period

 

183,293

 

 

 

111,199

 

Cash, cash equivalents and restricted cash, end of period

$

255,802

 

 

$

170,474

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

 


 

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 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.  As of September 30, 2020, RVI owned 23 properties that included 11 continental U.S. assets and 12 Puerto Rico assets (including three enclosed malls) comprising 9.0 million square feet of gross leasable area (“GLA”) and located in 9 states and Puerto Rico.  These properties serve as direct or indirect collateral for a mortgage loan which, as of September 30, 2020, had an aggregate principal balance of $488.9 million. 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.

In connection with RVI’s separation from SITE Centers, 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 depending on the amount of aggregate gross proceeds generated by RVI asset sales.

On July 1, 2018, the Company and SITE Centers also entered into an external management agreement (the “External Management Agreement”) which, together with various property management agreements, governs the fees, terms and conditions pursuant to which SITE Centers manages RVI and its properties.  SITE Centers provides RVI with day-to-day management, subject to supervision and certain discretionary limits and authorities granted by the RVI Board of Directors.  The Company does not have any employees.  In general, either SITE Centers or RVI may terminate the management agreements on June 30, 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 (“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-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 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 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, 2020 and 2019, 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.

7

 


 

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

 

 

Ended September 30,

 

 

2020

 

 

2019

 

Accounts payable related to construction in progress

$

3.2

 

 

$

10.9

 

Stock dividends

 

28.1

 

 

 

17.2

 

Note receivable related to disposition of shopping center

 

3.0

 

 

 

 

Assumption of building due to ground lease termination

 

 

 

 

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 April 2020, the FASB issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the impact of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession 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 related 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.  

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, 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.  The Company will remove the

8

 


 

cash basis designation and resume recording rental income from such tenants during the period earned at such time it believes collection from the tenants is probable based upon a demonstrated payment history or recapitalization event.

During the three and nine months ended September 30, 2020, tenants on 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.  

2.

Other Assets, net

Other Assets, net consists of the following (in thousands):

 

September 30, 2020

 

 

December 31, 2019

 

Intangible assets:

 

 

 

 

 

 

 

In-place leases, net

$

3,437

 

 

$

5,882

 

Above-market leases, net

 

488

 

 

 

908

 

Lease origination costs, net

 

525

 

 

 

949

 

Tenant relationships, net

 

4,029

 

 

 

10,120

 

Total intangible assets, net(A)

 

8,479

 

 

 

17,859

 

Operating lease ROU assets

 

1,562

 

 

 

1,714

 

Notes receivable(B)

 

3,000

 

 

 

Other assets:

 

 

 

 

 

 

 

Prepaid expenses

 

7,818

 

 

 

11,023

 

Other assets

 

272

 

 

 

292

 

Total other assets, net

$

21,131

 

 

$

30,888

 

 

 

 

 

 

 

 

 

Below-market leases, net (other liabilities)

$

14,129

 

 

$

20,042

 

 

(A)

The Company recorded amortization expense related to its intangibles, excluding above- and below-market leases, of $0.7 million and $1.2 million for the three months ended September 30, 2020 and 2019, respectively, and $2.3 million and $4.0 million for the nine months ended September 30, 2020 and 2019, respectively.

 

(B)

Receivable from buyer in connection with the sale of the Riverdale Village shopping center in September 2020.  Maturity date is the earlier of September 2022 (subject to buyer’s option to exercise a six-month extension in certain circumstances) and the satisfaction of certain property leasing conditions.

3.

Indebtedness

Mortgage Indebtedness

The Company has a mortgage loan, which had an 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 three 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.

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.  

9

 


 

Credit Agreement

The Company maintains a Credit Agreement (the “Revolving Credit Agreement”) with PNC Bank, National Association, as lender and administrative agent (“PNC”).  The Revolving Credit Agreement provides for borrowings of up to $30.0 million.  Borrowings under the Revolving Credit Agreement may be used by the Company for general corporate purposes and working capital.  The Company’s borrowings under the Revolving Credit Agreement bear interest at variable rates at the Company’s election, based on either (i) LIBOR plus a specified spread ranging from 1.05% to 1.50% per annum depending on the Company’s Leverage Ratio (as defined in the Revolving Credit Agreement) or (ii) the Alternate Base Rate (as defined in the Revolving Credit Agreement) plus a specified spread ranging from 0.05% 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, there were no amounts outstanding under the Revolving Credit Agreement.

4.

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 was $477.1 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 million at September 30, 2020 and December 31, 2019, respectively.  

5.

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 at September 30, 2020.

The remaining unutilized property damage settlement proceeds of $35.0 million along with other related reserves required by the mortgage lender of $6.5 million 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.  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.

10

 


 

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.  

6.

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 one analysis that compared the sum of estimated future undiscounted cash flows to the assets carrying value.  These impairments primarily were triggered by indicative bids received and changes in market assumptions due to the disposition process.  

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, 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.  The table also indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in millions).

 

 

Fair Value Measurements

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Total Impairment Charges

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-lived assets held and used

 

$

 

 

$

 

 

$

407.2

 

 

$

407.2

 

 

$

104.6

 

 

 

The following table presents quantitative information about the significant unobservable inputs used by the Company to determine the fair value of non-recurring items (in millions):

 

 

Quantitative Information about Level 3 Fair Value Measurements

 

Description

 

Fair Value at

September 30, 2020

 

 

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%

 

 

 

 

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