Retail Value Inc. (NYSE: RVI) today announced operating results for the quarter ended December 31, 2018.
We made significant progress realizing equity value for shareholders in the Companys first year. Puerto Rico repair and restoration work remains on track to be substantially complete by the end of 2019 and operations are slowly improving, commented David R. Lukes, president and chief executive officer.
Results for the Quarter
- Fourth quarter net income attributable to common shareholders was $2.9 million, or $0.15 per diluted share. Fourth quarter operating funds from operations attributable to common shareholders (Operating FFO or OFFO) was $25.0 million, or $1.36 per diluted share.
- Sold four shopping centers for an aggregate sales price of $133.7 million.
- The Continental U.S. leased rate was 92.9% as compared to 93.1% at September 30, 2018 with the decline driven by the impact of asset sales.
Key Quarterly Operating Results
The following metrics are as of December 31, 2018:
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|Continental U.S.||Puerto Rico|
|Shopping Center Count||26||12|
|Gross Leasable Area (thousands)||9,592||4,431|
|Base Rent PSF||$13.42||$20.66|
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.
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.
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 depreciable real estate property, which are presented net of taxes, if any, (ii) impairment charges on depreciable real estate property and (iii) certain non-cash items. These non-cash items principally include real property depreciation and amortization of intangibles. The Companys calculation of FFO is consistent with the definition of FFO provided by the National Association of Real Estate Investment Trusts (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.
In December 2018, NAREIT issued NAREIT Funds From Operations White Paper – 2018 Restatement (2018 FFO White Paper). The purpose of the 2018 FFO White Paper was not to change the fundamental definition of FFO but clarify existing guidance and 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 is effective starting with first quarter 2019 reporting. Although early adoption for the year ended 2018 is permitted, the Company plans to adopt any changes in its calculation in 2019 on a retrospective basis. The Company does not expect to report any changes in the calculation of FFO related to the clarification in the 2018 FFO White Paper.
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 Companys 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 Companys 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.
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 or our failure 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 Companys 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.|
|$ in thousands, except per share|
|Continental U.S.||Puerto Rico||4Q18||6M18|
|Minimum rents (2)||$||29,607||$||16,126||$||45,733||$||94,319|
|Other property revenues (3)||435||2,208||2,643||4,893|
|Business interruption income||0||2,000||2,000||4,404|
|Operating and maintenance (4)||6,487||8,047||14,534||28,193|
|Real estate taxes||7,267||1,268||8,535||17,597|
|Net operating income (5)||26,904||17,719||44,623||91,557|
|Other income (expense):|
|Asset management fees||(3,268||)||(6,537||)|
|Depreciation and amortization||(20,333||)||(42,471||)|
|General and administrative||(1,138||)||(2,147||)|
|Hurricane property loss||(211||)||(366||)|
|Debt extinguishment costs, net||(3,718||)||(6,431||)|
|Other income (expense), net||(3,035||)||(2,590||)|
Gain on disposition of real estate, net (6)
|Income before other items||2,722||9,003|
|Tax benefit (expense)||177||(151||)|
|Weighted average shares “ Basic & Diluted “ EPS||18,464||18,464|
|Earnings per common share “ Basic & Diluted||$||0.15||$||0.48|
|(1||)||Lost revenue related to hurricane||($1,849||)||($4,250||)|
|(2||)||Ground lease revenue||4,070||8,178|
|(3||)||Lease termination fees||70||81|
|Property management fees||(1,666||)||(1,589||)||(3,255||)||(6,538||)|
|Bad debt expense||(218||)||(222||)|
|(5||)||NOI from assets sold||1,142||0||1,142||5,531|
|(6||)||SITE Centers disposition fees||(1,337||)||(2,959||)|
|Retail Value Inc.|
Reconciliation: Net Income to FFO and Operating FFO
and Other Financial Information
|$ in thousands, except per share|
|Net income attributable to Common Shareholders||$||2,899||$||8,852|
|Depreciation and amortization of real estate||20,319||42,419|
|Impairment of depreciable real estate||1,970||6,390|
|Gain on disposition of depreciable real estate, net||(6,978||)||(16,813||)|
|FFO attributable to Common Shareholders||$||18,210||$||40,848|
|Hurricane property loss, net (1)||60||212|
|Debt extinguishment, transaction, other, net||6,760||9,207|
|Total non-operating items, net||6,820||9,419|
|Operating FFO attributable to Common Shareholders||$||25,030||$||50,267|
|Weighted average shares and units “ Basic & Diluted “ FFO & OFFO||18,465||18,465|
|FFO per share “ Basic & Diluted||$||0.99||$||2.21|
|Operating FFO per share “ Basic & Diluted||$||1.36||$||2.72|
|Common stock dividends declared, per share||$||1.30||$||1.30|
|Certain non-cash items:|
|Straight-line rent, net||($114||)||($13||)|
|Loan cost amortization||(1,368||)||(2,866||)|
|Non-real estate depreciation expense||(14||)||(52||)|
|Maintenance capital expenditures||300||983|
|Tenant allowances and landlord work||4,160||5,786|
|Leasing commissions (2)||573||1,491|
|(1||)||Hurricane property (income) loss:|
|Lost tenant revenue||1,849||4,250|
|Business interruption income||(2,000||)||(4,404||)|
|Clean up costs and other expenses||211||366|
|(2||)||SITE Centers lease commissions||420||1,085|
|Retail Value Inc.|
|$ in thousands|
|At Period End|
|Fixtures and tenant improvements||172,679|
|Construction in progress and land||26,070|
|Real estate, net||1,747,037|
|Receivables, net (2)||31,426|
|Property insurance receivable||29,422|
|Intangible assets, net||31,882|
|Other assets, net||11,678|
|Liabilities and Equity:|
|Payable to SITE||33,985|
|Other liabilities (3)||84,832|
|Redeemable preferred equity||190,000|
|Distributions in excess of net income||(15,153||)|
|Common shares in treasury at cost||(6||)|
|Total Liabilities and Equity||$||1,962,644|
|(1||)||Asset sale proceeds||26,969|
|(2||)||Straight-line rents receivable, net||18,757|
|(3||)||Below-market leases, net||33,914|
EVP and Chief Financial Officer