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Retail Value Inc. Reports First Quarter 2019 Operating Results

BEACHWOOD, Ohio--(BUSINESS WIRE)--

Retail Value Inc. (RVI) today announced operating results for the quarter ended March 31, 2019.

Results for the Quarter

  • First quarter net loss attributable to common shareholders was $10 thousand, or $0.00 per diluted share. First quarter operating funds from operations attributable to common shareholders (“Operating FFO” or “OFFO”) was $24.3 million, or $1.29 per diluted share.
  • Sold three shopping centers and two outparcels for an aggregate sales price of $110.0 million.
  • Refinanced previous $1.35 billion mortgage loan with a new $900 million mortgage loan. The new loan facility provides a lower interest rate, an extended maturity date, a lower allocation of loan principal to the Company’s continental U.S. assets as a result of the mortgage on one Puerto Rico property and a lower debt yield requirement with respect to the Company’s ability to maintain control of excess cash flow from its properties. RVI paid $1.8 million refinancing fee to SITE Centers in connection with new loan.
  • The Continental U.S. leased rate was 92.2% as compared to 92.9% at December 31, 2018 with the decline driven by the impact of asset sales.
  • The Puerto Rico leased rate was 85.3% as compared to 87.0% at December 31, 2018, the decline primarily was due to the expiration of a JC Penney lease at Plaza Palma Real.

Key Quarterly Operating Results

The following metrics are as of March 31, 2019:

   
Continental U.S. Puerto Rico
Shopping Center Count 23 12
Gross Leasable Area (thousands) 8,717 4,428
Base Rent PSF $13.55 $20.59
Leased Rate 92.2% 85.3%
Commenced Rate 91.1% 83.1%
NOI (millions) $24.7 $15.9
 

Financial Statement Presentation Change

On January 1, 2019, the Company adopted the accounting framework for leases, ASU No. 2016-02, Leases (“Topic 842”). The following is a summary of the presentation changes within the 2019 Consolidated Statement of Operations required by the adoption of the new standard:

  • All income related to tenant leases is reflected in a single “Rental income” line item.
  • The impact of bad debt is now a component of the single Rental income line item and is no longer a component of Operating and Maintenance expenses. This change is reflected in 2019 reporting periods but was not made to 2018 historical results.
  • Real estate taxes paid by certain major tenants directly to the taxing authority are no longer reflected in Rental Income and Real estate tax expense. This change is reflected in 2019 reporting periods but was not made to 2018 historical results.

The Company’s Net income, Net operating income and Operating FFO were not impacted by these presentation changes.

About RVI

RVI is an independent publicly traded company trading under the ticker symbol “RVI” on the New York Stock Exchange. RVI holds assets in the continental U.S. and Puerto Rico and is managed by one or more subsidiaries of SITE Centers Corp. RVI focuses on realizing value in its business through operations and sales of its assets. Additional information about RVI is available at www.retailvalueinc.com.

Non-GAAP Measures

Funds from Operations (“FFO”) is a supplemental non-GAAP financial measure used as a standard in the real estate industry and is a widely accepted measure of real estate investment trust (“REIT”) performance. Management believes that both FFO and Operating FFO provide additional indicators of the financial performance of a REIT. 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.

In December 2018, the National Association of Real Estate Investment Trusts (“NAREIT”) issued NAREIT Funds From Operations White Paper - 2018 Restatement (“the 2018 FFO White Paper”). The purpose of the 2018 FFO White Paper was not to change the fundamental definition of FFO but to clarify existing guidance and to consolidate into a single document, alerts and policy bulletins issued by NAREIT since the last FFO white paper was issued in 2002. The 2018 FFO White Paper was effective starting with first quarter 2019 reporting. The Company did not report any changes in the calculation of FFO in 2019 related to the clarification in the 2018 FFO White Paper.

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 calculates Operating FFO by excluding certain non-operating charges and income. 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. Other real estate companies may calculate FFO and Operating FFO in a different manner.

The Company also uses net operating income (“NOI”), a non-GAAP financial measure, as a supplemental performance measure. NOI is calculated as property revenues less property-related expenses. The Company believes NOI provides useful information to investors regarding the Company’s financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level and, when compared across periods, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition and disposition activity on an unleveraged basis.

FFO, Operating FFO and NOI do not represent cash generated from operating activities in accordance with GAAP, are not necessarily indicative of cash available to fund cash needs and should not be considered as alternatives to net income computed in accordance with GAAP as indicators of the Company’s operating performance or as alternatives to cash flow as a measure of liquidity. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in this release and the accompanying financial supplement.

Safe Harbor

RVI considers portions of the information in this press release 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, both as amended, with respect to the Company's expectation for future periods. Although the Company believes that the expectations reflected in such 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 historical fact may be deemed to be forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including, among other factors, the ability to execute our strategy as an independent, publicly traded company. Other risks and uncertainties that could cause our results to differ materially from those indicated by such forward-looking statements include our ability to sell assets on commercially reasonable terms; our ability to complete dispositions of assets under contract; the success of our asset sale strategy; property damage, expenses related thereto and other business and economic consequences (including the potential loss of rental revenues) resulting from extreme weather conditions in locations where we own properties, and the ability to estimate accurately the amounts thereof; sufficiency and timing of any insurance recovery payments related to damages from extreme weather conditions; local conditions such as supply of space or a reduction in demand for real estate in the area; competition from other available space; dependence on rental income from real property; the loss of, significant downsizing of or bankruptcy of a major tenant and the impact of any such event on rental income from other tenants at our properties; our ability to secure equity or debt financing on commercially acceptable terms or at all; our ability to enter into definitive agreements with regard to our financing arrangements and our ability to satisfy conditions to the completion of these arrangements; unforeseen changes to the Puerto Rican economy and government; the ability to secure and maintain management services provided to us, including pursuant to our external management agreement with one or more subsidiaries of SITE Centers; and our ability to maintain our REIT status. For additional factors that could cause the results of the Company to differ materially from those indicated in the forward-looking statements, please refer to “Risk Factors” included in the Company’s report on Form 10-K for the year ended December 31, 2018. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

       
Retail Value Inc.

Income Statement

 
$ in thousands, except per share
1Q19 1Q19 Total
Continental U.S. Puerto Rico 1Q19
 
Revenues (1):
Rental income (2) $36,970 $24,600 $61,570
Other property revenues 22 19 41
Business interruption income 0 0 0
36,992 24,619 61,611
Expenses:
Operating and maintenance (3) 5,950 7,548 13,498
Real estate taxes 6,312 1,198 7,510
12,262 8,746 21,008
 
Net operating income (4) 24,730 15,873 40,603
 
Other income (expense):
Asset management fees (2,820)
Interest expense (13,974)
Depreciation and amortization (19,355)
General and administrative (885)
Impairment charges (6,090)
Hurricane property loss (183)
Debt extinguishment costs, net (14,482)
Transaction costs (18)
Other expense, net (850)
Gain on disposition of real estate, net (5) 18,219
Income before other items 165
 
Tax expense (175)
Net loss ($10)
 
Weighted average shares – Basic & Diluted – EPS 18,882
 
Earnings per common share – Basic & Diluted $0.00
 
Revenue items:
(1) Lost revenue related to hurricane ($1,625)
 
(2) Minimum rents 25,301 14,070 39,371
Ground lease minimum rents 1,940 1,872 3,812
Percentage rent 263 1,157 1,420
Recoveries 9,342 5,607 14,949
Lease termination fees 0 0 0
Ancillary rental income 261 1,906 2,167
Bad debt (137) (12) (149)
 
(3) Operating expenses:
Property management fees (1,409) (1,587) (2,996)
 
(4) NOI from assets sold 1,256 0 1,256
 
(5) SITE Centers disposition fees (1,100)
 
   
Retail Value Inc.

Reconciliation: Net Income to FFO and Operating FFO

and Other Financial Information

 
$ in thousands, except per share

 

1Q19
 
Net income attributable to Common Shareholders ($10)
Depreciation and amortization of real estate 19,329
Impairment of real estate 6,090
Gain on disposition of real estate, net (18,219)
FFO attributable to Common Shareholders $7,190
 
Hurricane property loss, net (1) 1,808
Debt extinguishment, transaction, other, net 15,350
Total non-operating items, net 17,158
Operating FFO attributable to Common Shareholders $24,348
 
Weighted average shares and units – Basic & Diluted – FFO & OFFO 18,882
 
FFO per share – Basic & Diluted $0.38
Operating FFO per share – Basic & Diluted $1.29
Common stock dividends declared, per share N/A
 
Certain non-cash items:
Straight-line rent (211)
Straight-line fixed CAM 161
Loan cost amortization (1,302)
Non-real estate depreciation expense (26)
 
Capital expenditures:
Maintenance capital expenditures 24
Tenant allowances and landlord work 2,401
Leasing commissions (2) 904
Hurricane restorations 21,687
 
(1) Hurricane property (income) loss:
Lost tenant revenue 1,625
Business interruption income 0
Clean up costs and other expenses 183
1,808
 
(2) SITE Centers lease commissions 772
 
     

Retail Value Inc.

Balance Sheet

 
$ in thousands
At Period End
1Q19 4Q18
 
Assets:
Land $588,801 $622,827
Buildings 1,554,766 1,629,862
Fixtures and tenant improvements 172,192 172,679
2,315,759 2,425,368
Depreciation (705,058) (704,401)
1,610,701 1,720,967
Construction in progress and land 45,411 26,070
Real estate, net 1,656,112 1,747,037
 
Cash 37,560 44,565
Restricted cash (1) 71,556 66,634
Receivables and straight-line (2) 28,546 31,426
Property insurance receivable 15,953 29,422
Intangible assets, net (3) 24,339 31,882
Other assets, net 9,078 11,678
Total Assets 1,843,144 1,962,644
 
Liabilities and Equity:
Secured debt 873,663 967,569
 
Payable to SITE 34,070 33,985
Dividends payable 0 24,005
Other liabilities (4) 65,252 84,832
Total Liabilities 972,985 1,110,391
 
Redeemable preferred equity 190,000 190,000
 
Common shares 1,904 1,846
Paid-in capital 692,771 675,566
Distributions in excess of net income (14,507) (15,153)
Common shares in treasury at cost (9) (6)
Total Equity 680,159 662,253
 
Total Liabilities and Equity $1,843,144 $1,962,644
 
(1) Asset sale proceeds 30,452 26,969
Other escrows 41,104 39,665
 
(2) Straight-line rents receivable 19,235 18,757
 
(3) Operating lease right of use assets (related to adoption of Topic 842) 1,859 0
 
(4) Operating lease liabilities (related to adoption of Topic 842) 2,995 0
Below-market leases, net 21,502 33,914
 

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