Retail Value Inc. Reports Third Quarter 2019 Operating Results

BEACHWOOD, Ohio--()--Retail Value Inc. (NYSE: RVI) today announced operating results for the quarter ended September 30, 2019.

Results for the Quarter

  • Third quarter net income attributable to common shareholders was $72.3 million, or $3.79 per diluted share as compared to net income of $6.0 million, or $0.32 per share, in the year ago-period. The year-over-year increase in net income is primarily attributable to the hurricane insurance settlement.
  • Third quarter operating funds from operations attributable to common shareholders (“Operating FFO” or “OFFO”) was $23.1 million, or $1.21 per diluted share, compared to $25.2 million, or $1.37 per diluted share, in the year ago-period. The year-over-year decrease in OFFO is primarily attributable to the impact of asset sales.
  • Sold two shopping centers for an aggregate sales price of $54.6 million.
  • Settled insurance claim from damage incurred on the 12 Puerto Rico assets from Hurricane Maria; received an incremental $70.5 million related to the property insurance claims and $7.0 million related to the business interruption claim of which $5.7 million was recorded as income. Including these final payments, SITE Centers and RVI received total insurance payments amounting to $185.8 million. Management expects to use proceeds from the settlement to complete all necessary remaining hurricane-related repairs.
  • Payment of $17.0 million of the $34 million payable to SITE Centers Corp.
  • The Continental U.S. leased rate was 91.4% as compared to 92.2% at June 30, 2019 due to lease expirations and tenant bankruptcies.
  • The Puerto Rico leased rate was 83.8% as compared to 84.6% at June 30, 2019 due to lease terminations and tenant bankruptcies.

Key Quarterly Operating Results

The following metrics are as of September 30, 2019:

 

 

Continental U.S.

 

Puerto Rico

Shopping Center Count

 

17

 

12

Gross Leasable Area (thousands)

 

7,202

 

4,431

Base Rent PSF

 

$13.63

 

$19.94

Leased Rate

 

91.4%

 

83.8%

Commenced Rate

 

91.2%

 

82.3%

NOI (millions)

 

$19.8

 

$21.6

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 the Company’s most recent reports on Form 10-K and Form 10-Q. 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

 

 

 

 

 

 

 

 

 

3Q19

 

3Q19

 

Total

 

Total

 

 

Continental U.S.

 

Puerto Rico

 

3Q19

 

9M19

 

 

 

 

 

 

 

 

 

 

Revenues (1):

 

 

 

 

 

 

 

 

Rental income (2)

$29,816

 

$24,475

 

$54,291

 

$174,736

 

Other property revenues

41

 

853

 

894

 

945

 

Business interruption income

0

 

5,675

 

5,675

 

7,675

 

 

29,857

 

31,003

 

60,860

 

183,356

 

Expenses:

 

 

 

 

 

 

 

 

Operating and maintenance (3)

4,456

 

8,038

 

12,495

 

39,393

 

Real estate taxes

5,571

 

1,329

 

6,900

 

21,579

 

 

10,027

 

9,367

 

19,395

 

60,972

 

 

 

 

 

 

 

 

 

 

Net operating income (4)

19,830

 

21,636

 

41,465

 

122,384

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Asset management fees

 

 

 

 

(2,428)

 

(8,068)

 

Interest expense

 

 

 

 

(9,381)

 

(34,201)

 

Depreciation and amortization

 

 

 

 

(17,676)

 

(55,409)

 

General and administrative

 

 

 

 

(1,111)

 

(3,054)

 

Impairment charges

 

 

 

 

(19,790)

 

(32,990)

 

Hurricane property insurance income, net

 

 

 

 

72,602

 

76,233

 

Debt extinguishment costs, net

 

 

 

 

(1,949)

 

(19,358)

 

Transaction costs

 

 

 

 

(19)

 

(37)

 

Other expense, net

 

 

 

 

0

 

(850)

 

Gain on disposition of real estate, net (5)

 

 

 

 

10,483

 

41,648

 

Income before other items

 

 

 

 

72,196

 

86,298

 

 

 

 

 

 

 

 

 

 

Tax expense

 

 

 

 

72

 

(423)

 

Net income

 

 

 

 

$72,268

 

$85,875

 

 

 

 

 

 

 

 

 

 

Weighted average shares – Basic & Diluted – EPS

 

 

 

 

19,052

 

18,993

 

 

 

 

 

 

 

 

 

 

Earnings per common share – Basic & Diluted

 

 

 

 

$3.79

 

$4.52

 

 

 

 

 

 

 

 

 

 

Revenue items:

 

 

 

 

 

 

 

(1)

Lost revenue related to hurricane

$0

 

($169)

 

($169)

 

($2,946)

 

 

 

 

 

 

 

 

 

(2)

Minimum rents

20,423

 

13,876

 

34,299

 

110,978

 

Ground lease minimum rents

1,379

 

1,791

 

3,170

 

10,313

 

Percentage and overage rent

234

 

191

 

425

 

2,942

 

Recoveries

7,854

 

5,715

 

13,569

 

42,650

 

Lease termination fees

33

 

830

 

863

 

940

 

Ancillary and other rental income

268

 

1,928

 

2,196

 

6,871

 

Bad debt

(375)

 

144

 

(231)

 

42

 

 

 

 

 

 

 

 

 

(3)

Operating expenses:

 

 

 

 

 

 

 

 

Property management fees

(1,227)

 

(1,449)

 

(2,676)

 

(8,671)

 

 

 

 

 

 

 

 

 

(4)

NOI from assets sold

 

 

 

 

(90)

 

8,522

 

 

 

 

 

 

 

 

 

(5)

SITE Centers disposition fees

 

 

 

 

546

 

3,160

Retail Value Inc.

Reconciliation: Net Income to FFO and Operating FFO and Other Financial Information

 

in thousands, except per share

 

 

 

 

 

3Q19

 

9M19

 

 

 

 

 

 

Net income attributable to Common Shareholders

$72,268

 

$85,875

 

Depreciation and amortization of real estate

17,650

 

55,331

 

Impairment of real estate

19,790

 

32,990

 

Gain on disposition of real estate, net

(10,483)

 

(41,648)

 

FFO attributable to Common Shareholders

$99,225

 

$132,548

 

 

 

 

 

 

Hurricane activity, net (1)

(78,108)

 

(80,962)

 

Debt extinguishment, transaction, other, net

1,968

 

20,245

 

Total non-operating items, net

(76,140)

 

(60,717)

 

Operating FFO attributable to Common Shareholders

$23,085

 

$71,831

 

 

 

 

 

 

Weighted average shares and units – Basic & Diluted – FFO & OFFO

19,052

 

18,993

 

 

 

 

 

 

FFO per share – Basic & Diluted

$5.20

 

$6.98

 

Operating FFO per share – Basic & Diluted

$1.21

 

$3.78

 

Common stock dividends declared, per share

N/A

 

N/A

 

 

 

 

 

 

Certain non-cash items:

 

 

 

 

Straight-line rent

(665)

 

(1,114)

 

Straight-line fixed CAM

145

 

446

 

Loan cost amortization

(1,097)

 

(3,694)

 

Non-real estate depreciation expense

(26)

 

(78)

 

 

 

 

 

 

Capital expenditures:

 

 

 

 

Maintenance capital expenditures

414

 

721

 

Tenant allowances and landlord work

2,850

 

7,969

 

Leasing commissions - SITE Centers

366

 

1,811

 

Leasing commissions - external

290

 

671

 

Hurricane restorations

11,709

 

52,152

 

 

 

 

 

(1)

Hurricane activity, net:

 

 

 

 

Lost tenant revenue

169

 

2,946

 

Hurricane property insurance income, net

(72,602)

 

(76,233)

 

Business interruption income

(5,675)

 

(7,675)

 

 

(78,108)

 

(80,962)

Retail Value Inc.

Balance Sheet

$ in thousands

 

 

 

 

 

At Period End

 

 

3Q19

 

4Q18

 

 

 

 

 

 

Assets:

 

 

 

 

Land

$539,069

 

$622,827

 

Buildings

1,407,000

 

1,629,862

 

Fixtures and tenant improvements

152,496

 

172,679

 

 

2,098,565

 

2,425,368

 

Depreciation

(662,728)

 

(704,401)

 

 

1,435,837

 

1,720,967

 

Construction in progress and land

26,961

 

26,070

 

Real estate, net

1,462,798

 

1,747,037

 

 

 

 

 

 

Cash

71,322

 

44,565

 

Restricted cash (1)

99,152

 

66,634

 

Receivables and straight-line (2)

24,247

 

31,426

 

Property insurance receivable

0

 

29,422

 

Intangible assets, net (3)

20,841

 

31,882

 

Other assets, net

7,702

 

11,678

 

Total Assets

1,686,062

 

1,962,644

 

 

 

 

 

 

Liabilities and Equity:

 

 

 

 

Secured debt

654,723

 

967,569

 

 

 

 

 

 

Payable to SITE

16,668

 

33,985

 

Dividends payable

0

 

24,005

 

Other liabilities (4)

58,437

 

84,832

 

Total Liabilities

729,828

 

1,110,391

 

 

 

 

 

 

Redeemable preferred equity

190,000

 

190,000

 

 

 

 

 

 

Common shares

1,905

 

1,846

 

Paid-in capital

692,966

 

675,566

 

Distributions in excess of net income

71,378

 

(15,153)

 

Common shares in treasury at cost

(15)

 

(6)

 

Total Equity

766,234

 

662,253

 

 

 

 

 

 

Total Liabilities and Equity

$1,686,062

 

$1,962,644

 

 

 

 

 

(1)

Asset sale proceeds

0

 

26,969

 

Other escrows

99,152

 

39,665

 

 

 

 

 

(2)

Straight-line rents receivable

15,879

 

18,757

 

 

 

 

 

(3)

Operating lease right of use assets (related to adoption of Topic 842)

1,763

 

0

 

 

 

 

 

(4)

Operating lease liabilities (related to adoption of Topic 842)

2,890

 

0

 

Below-market leases, net

20,465

 

33,914

 

Contacts

Matthew Ostrower, EVP and Chief Financial Officer
216-755-5500

Release Summary

Retail Value Inc. Reports Third Quarter 2019 Operating Results

Contacts

Matthew Ostrower, EVP and Chief Financial Officer
216-755-5500