Retail Value Inc. - Quarter Report: 2019 June (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 June 30, 2019

☐	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.

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 July 31, 2019, the registrant had 19,052,144 shares of common stock, $0.10 par value per share, outstanding.

Retail Value Inc.

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED June 30, 2019

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements - Unaudited
	Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	2
	Combined and Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended June 30, 2019 and 2018	3
	Combined and Consolidated Statements of Operations and Comprehensive Loss for the Six Months Ended June 30, 2019 and 2018	4
	Combined and Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2019	5
	Combined and Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	6
	Notes to Condensed Combined and Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
Item 4.	Controls and Procedures	37

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39

SIGNATURES		40

Retail Value Inc.

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share amounts)

	June 30, 2019			December 31, 2018
Assets
Land	$	549,622		$	622,827
Buildings		1,463,674			1,629,862
Fixtures and tenant improvements		159,702			172,679
		2,172,998			2,425,368
Less: Accumulated depreciation		(663,677	)		(704,401	)
		1,509,321			1,720,967
Construction in progress		15,566			26,070
Total real estate assets, net		1,524,887			1,747,037
Cash and cash equivalents		58,522			44,565
Restricted cash		93,315			66,634
Accounts receivable		25,355			31,426
Property insurance receivable		—			29,422
Other assets, net		27,853			43,560
	$	1,729,932		$	1,962,644
Liabilities and Equity
Mortgage indebtedness, net	$	752,404		$	967,569
Payable to SITE Centers		33,759			33,985
Accounts payable and other liabilities		60,100			84,832
Dividends payable		—			24,005
Total liabilities		846,263			1,110,391
Commitments and contingencies (Note 9)
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; 19,043,403 and 18,465,165 shares issued at June 30, 2019 and December 31, 2018, respectively		1,904			1,846
Additional paid-in capital		692,665			675,566
Accumulated distributions in excess of net loss		(890	)		(15,153	)
Less: Common shares in treasury at cost: 379 and 267 shares at June 30, 2019 and December 31, 2018, respectively		(10	)		(6	)
Total equity		693,669			662,253
	$	1,729,932		$	1,962,644

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

Retail Value Inc.

COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands, except per share amounts)

	Three Months
	Ended June 30,
	2019			2018
	The Company			RVI Predecessor
Revenues from operations:
Rental income	$	58,875		$	75,760
Business interruption income		2,000			3,100
Other income		10			114
		60,885			78,974
Rental operation expenses:
Operating and maintenance		10,401			12,531
Real estate taxes		7,169			9,677
Property and asset management fees		5,819			3,462
Impairment charges		7,110			15,060
Hurricane property insurance (income) loss, net		(3,814	)		187
General and administrative		1,058			4,484
Depreciation and amortization		18,378			24,072
		46,121			69,473
Other income (expense):
Interest expense		(10,846	)		(18,144	)
Debt extinguishment costs		(2,927	)		(1,970	)
Transaction costs		—			(28,240	)
Gain on disposition of real estate, net		12,946			13,096
		(827	)		(35,258	)
Income (loss) before tax expense		13,937			(25,757	)
Tax expense		(320	)		(4,082	)
Net income (loss)	$	13,617		$	(29,839	)
Comprehensive income (loss)	$	13,617		$	(29,839	)

Per share data:
Basic and diluted	$	0.72		N/A

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

Retail Value Inc.

COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands, except per share amounts)

	Six Months
	Ended June 30,
	2019			2018
	The Company			RVI Predecessor
Revenues from operations:
Rental income	$	120,445		$	149,825
Business interruption income		2,000			5,100
Other income		51			309
		122,496			155,234
Rental operation expenses:
Operating and maintenance		20,903			24,608
Real estate taxes		14,679			19,571
Property and asset management fees		11,635			6,819
Impairment charges		13,200			48,680
Hurricane property insurance (income) loss, net		(3,631	)		868
General and administrative		1,943			7,638
Depreciation and amortization		37,733			50,144
		96,462			158,328
Other expense:
Interest expense		(24,820	)		(37,584	)
Debt extinguishment costs		(17,409	)		(109,036	)
Transaction costs		(18	)		(33,325	)
Other income (expense), net		(850	)		(3	)
Gain on disposition of real estate, net		31,165			13,096
		(11,932	)		(166,852	)
Income (loss) before tax expense		14,102			(169,946	)
Tax expense		(495	)		(4,210	)
Net income (loss)	$	13,607		$	(174,156	)
Comprehensive income (loss)	$	13,607		$	(174,156	)

Per share data:
Basic and diluted	$	0.72		N/A

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

Retail Value Inc.

COMBINED AND 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
The Company
Balance as of December 31, 2018	$	1,846	$	675,566		$	(15,153	)	$	(6	)	$	662,253
Issuance of common shares		58		17,205			—			—			17,263
Repurchase of common shares		—		—			—			(3	)		(3	)
Adoption of ASC Topic 842 (Leases)		—		—			700			—			700
Dividends declared		—		—			(44	)		—			(44	)
Net loss		—		—			(10	)		—			(10	)
Balance, March 31, 2019		1,904		692,771			(14,507	)		(9	)		680,159
Issuance of common shares		—		(106	)		—			—			(106	)
Repurchase of common shares		—		—			—			(1	)		(1	)
Net income		—		—			13,617			—			13,617
Balance, June 30, 2019	$	1,904	$	692,665		$	(890	)	$	(10	)	$	693,669

	RVI Predecessor Equity
RVI Predecessor
Balance, December 31, 2017	$	1,090,464
Net transactions with SITE Centers		(27,031	)
Net loss		(144,317	)
Balance, March 31, 2018		919,116
Net transactions with SITE Centers		(199,969	)
Net loss		(29,839	)
Balance, June 30, 2018	$	689,308

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

Retail Value Inc.

COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

	Six Months Ended June 30,
	2019			2018
	The Company			RVI Predecessor
Cash flow from operating activities:
Net income (loss)	$	13,607		$	(174,156	)
Adjustments to reconcile net income (loss) to net cash flow provided by operating activities:
Depreciation and amortization		37,733			50,144
Amortization and write-off of above- and below- market leases, net		(641	)		(928	)
Amortization and write-off of debt issuance costs and fair market value of debt adjustments		10,490			14,556
Gain on disposition of real estate, net		(31,165	)		(13,096	)
Property insurance proceeds in excess of receivable		(3,972	)		—
Impairment charges		13,200			48,680
Loss on debt extinguishment		175			97,077
Interest rate hedging activities		1,152			(4,538	)
Assumption of building due to ground lease terminations		—			(2,150	)
Valuation allowance of prepaid taxes		—			3,991
Net change in accounts receivable		3,065			(4,664	)
Net change in accounts payable and other liabilities		(6,823	)		15,472
Net change in other operating assets		4,756			(1,556	)
Total adjustments		27,970			202,988
Net cash flow provided by operating activities		41,577			28,832
Cash flow from investing activities:
Real estate improvements to operating real estate		(49,395	)		(20,461	)
Proceeds from disposition of real estate		247,297			100,347
Hurricane property insurance advance proceeds		33,750			20,193
Net cash flow provided by investing activities		231,652			100,079
Cash flow from financing activities:
Repayment of Parent Company unsecured debt		—			(899,880	)
Proceeds from mortgage debt		900,000			1,350,000
Repayment of mortgage debt		(1,113,855	)		(421,344	)
Payment of debt issuance costs		(11,889	)		(32,755	)
Net transactions with SITE Centers		—			(37,864	)
Dividends paid		(6,847	)		—
Net cash flow used for financing activities		(232,591	)		(41,843	)

Net increase in cash, cash equivalents and restricted cash		40,638			87,068
Cash, cash equivalents and restricted cash, beginning of period		111,199			8,318
Cash, cash equivalents and restricted cash, end of period	$	151,837		$	95,386

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

Notes to Combined and Consolidated Financial Statements

1.	Nature of Business

On July 1, 2018, SITE Centers Corp., formerly known as DDR Corp. (“SITE Centers” or the “Manager”), completed the separation of Retail Value Inc., an Ohio corporation formed in December 2017 that owned and operated a portfolio of 48 real estate assets at the time of the separation that included 36 continental U.S. assets and 12 Puerto Rico assets (collectively, “RVI” the “RVI Predecessor” or the “Company”), into an independent public company. At June 30, 2019, RVI owned 31 properties that included 19 continental U.S. assets and 12 Puerto Rico assets comprising 12 million square feet of gross leasable area (“GLA”) and located in 12 states and Puerto Rico.

In connection with the separation from SITE Centers, on July 1, 2018, the Company and SITE Centers entered into a separation and distribution agreement (the “Separation and Distribution Agreement”) pursuant to which, among other things, SITE Centers agreed to transfer properties and certain related assets, liabilities and obligations to RVI, and to distribute 100% of the outstanding common shares of RVI to holders of record of SITE Centers’ common shares as of the close of business on June 26, 2018, the record date. On July 1, 2018, holders of SITE Centers’ common shares received one common share of RVI for every ten shares of SITE Centers’ common stock held on the record date. In connection with the 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 December 31, 2019, 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.

2.	Basis of Presentation

Principles of Consolidation

The Company

For periods after July 1, 2018, the consolidated financial statements include the results of the Company and all entities in which the Company has a controlling interest. All significant inter-company balances and transactions have been eliminated in consolidation.

RVI Predecessor

For periods prior to July 1, 2018, the accompanying historical condensed combined financial statements and related notes of the Company do not represent the statement of operations and cash flows of a legal entity, but rather a combination of entities under common control that have been “carved-out” of SITE Centers’ consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All inter-company transactions and balances have been eliminated in combination.

For periods prior to July 1, 2018, these combined financial statements reflect the revenues and direct expenses of the RVI Predecessor and include material assets and liabilities of SITE Centers that are specifically attributable to the Company. RVI Predecessor equity in these combined financial statements represents the excess of total assets over total liabilities. RVI Predecessor equity is impacted by contributions from and distributions to SITE Centers, which are the result of treasury activities and net funding provided by or distributed to SITE Centers prior to the separation from SITE Centers, as well as the allocated costs and expenses described below. The combined financial statements also include the consolidated results of certain of the Company’s wholly-owned subsidiaries, as applicable. All significant inter-company balances and transactions have been eliminated in consolidation.

For periods prior to July 1, 2018, the combined financial statements include certain direct costs historically paid by the properties but contracted through SITE Centers, including but not limited to, management fees, insurance, compensation costs and out-of-pocket expenses directly related to the management of the properties (Note 11). Further, the combined financial statements include an allocation of indirect costs and expenses incurred by SITE Centers related to the Company, primarily consisting of compensation and other general and administrative costs that have been allocated using the relative percentage of property revenue of the Company and SITE Centers’ management’s knowledge of the Company. In addition, the combined financial statements include an allocation of interest expense on SITE Centers’ unsecured debt, excluding debt that is specifically attributable to the Company; interest expense was allocated by calculating the unencumbered net assets of each property held by the Company as a percentage of SITE Centers’ total consolidated unencumbered net assets and multiplying that percentage by the interest expense on SITE Centers unsecured debt. The amounts allocated in the accompanying combined financial statements are not necessarily indicative of the actual amount of such indirect expenses that would have been recorded had the RVI Predecessor been a separate independent entity. SITE Centers believes the assumptions underlying SITE Centers’ allocation of indirect expenses are reasonable.

3.	Summary of Significant Accounting Policies

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. 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. Actual results could differ from those estimates.

Reclassifications

Certain amounts in prior periods have been reclassified in order to conform with the current period’s presentation. The Company reclassified $5.0 million and $7.6 million of contractual lease payments from Other Income to Rental Income within total revenues on its combined statement of operations for the three and six months ended June 30, 2018, respectively, in connection with the adoption of Accounting Standards Update (“ASU”) No. 2016-02—Leases, as amended (“Topic 842”), as discussed below.

Rental Income

Rental Income on the combined and consolidated statements of operations includes contractual lease payments that generally include 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, are 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, which are recognized after a tenant’s reported sales have 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 are recognized in the period the related expenses are incurred.

•

Lease termination payments, which are 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 are recognized in the period earned.

Upon adoption of Topic 842, Rental Income for the periods beginning on or after January 1, 2019, has been reduced for amounts the Company believes are not probable of being collected. Rental income is recognized on a straight-line basis over the lease term. Rental income is not recognized when collection is not reasonably assured as the customer is placed on non-accrual status and rental income is recognized as cash 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):

	Six Months
	Ended June 30,
	2019		2018
	The Company		RVI Predecessor
Accounts payable related to construction in progress	$	11.8	$	10.1
Stock dividends		17.2		—
Receivable and reduction of real estate assets, net - related to hurricane		—		6.1
Assumption of building due to ground lease termination		—		2.2

New Accounting Standard Adopted

Accounting for Leases

The Company adopted Topic 842 as of January 1, 2019, using the modified retrospective approach by applying the transition provisions at the beginning of the period of adoption. The Company elected the following practical expedients permitted under the transition guidance within the new standard:

•

The package of practical expedients, which among other things, allowed the Company to carry forward the historical lease classification;

•

Land easements, allowing the Company to carry forward the accounting treatment for land easements on existing agreements and

•

To not separate lease and non-lease components for all leases and recording the combined component based on its predominant characteristics, as rental income or expense.

The Company did not adopt the practical expedient to use hindsight in determining the lease term.

The Company made the following accounting policy elections as a lessor in connection with the adoption:

•

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).

The adoption of the standard impacted the Company’s consolidated financial statements as follows:

•

The Company had ground lease agreements in which the Company is the lessee for land beneath all or a portion of the buildings at two shopping centers (Note 5), where the Company has recorded its rights and obligations under these leases as a right-of-use (“ROU”) asset and lease liability, which is included in Other Assets and Accounts Payable and Other Liabilities, respectively, in the consolidated balance sheet. Previously, the Company accounted for these arrangements as operating leases. These leases will continue to be classified as operating leases due to the election of the package practical expedients. The Company recorded ROU assets and lease liabilities of approximately $1.9 million and $3.0 million, respectively, as of January 1, 2019. The difference between the ROU asset and lease liability was due to the straight-line rent balance that existed as of the date of application of the standard.

•

Previously, the Company included real estate taxes paid by a lessee directly to a third party in recoveries from tenants and real estate tax expense, on a gross basis. Upon adoption of the standard, the Company no longer records these amounts in revenue or expense as the standard precludes the Company from recording payments made directly by the lessee. In addition, on January 1, 2019, the Company reversed $0.6 million of real estate taxes paid by certain major tenants previously reflected in Accounts Receivable and Accounts Payable and Other Liabilities on the Company’s consolidated balance sheet as of December 31, 2018.

•

The Company recorded an adjustment for the cumulative effect due to a change in accounting principal of $0.7 million in equity related to the change in its collectability assessment of operating lease receivables under Topic 842.

•

Upon adoption of the practical expedient with regards to not separating lease and non-lease components, where applicable, the Company has prospectively recorded, on a straight-line basis, lease payments associated with fixed expense reimbursements.

•

The adoption of this standard did not materially impact the Company’s consolidated net income or consolidated cash flows.

The adoption of the new standard also resulted in various presentation changes in the Company’s consolidated statements of operations. The Company aggregated the following components of contractual lease payments into one line item referred to as Rental Income: Minimum Rents, Percentage and Overage Rents, Recoveries from Tenants, Ancillary Income and Lease Termination Fees. The prior period presentation was conformed to the current period presentation for comparability related to these revenue components. In addition, effective January 1, 2019, the Company presents bad debt as a component of Rental Income within Revenues. For prior periods, bad debt is included in Operating and Maintenance Expenses. In addition, effective January 1, 2019, the Company no longer records real estate taxes paid by major tenants directly to the applicable governmental authority. For prior periods, these amounts are included in Recoveries from Tenants and Real Estate Taxes.

New Accounting Standard to Be Adopted

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 (ASU 2016-13, Financial Instruments – Credit Losses). 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 recorded by lessors are explicitly excluded from the scope of Topic 326. The Company is in the process of evaluating the impact of this guidance.

4.	Other Assets, net

Other Assets, Net on the Company’s consolidated balance sheets consists of the following (in thousands):

	June 30, 2019			December 31, 2018
Intangible assets:
In-place leases, net	$	6,806		$	11,926
Above-market leases, net		1,163			2,001
Lease origination costs, net		1,099			1,713
Tenant relations, net		11,302			16,242
Total intangible assets, net^(A)		20,370			31,882
Operating lease ROU assets^(B)		1,811			—
Other assets:
Prepaid expenses		5,390			10,011
Deposits		141			194
Deferred charges, net		93			179
Other assets^(C)		48			1,294
Total other assets, net	$	27,853		$	43,560

Accounts payable and other liabilities:
Below-market leases, net^(A)	$	(20,893	)	$	(33,914	)

(A)	In the event a tenant terminates its lease prior to the contractual expiration, the unamortized portion of the related intangible asset or liability is adjusted to reflect the updated lease term.

(B)	Operating lease ROU assets are discussed further in Notes 1 and 5.

(C)	Included $1.2 million fair value of an interest rate cap at December 31, 2018, which was terminated in March 2019.

Leases

Lessee

The Company is engaged in the operation of shopping centers that are either owned or, with respect to certain shopping centers, operated under long-term ground leases that expire at various dates through 2033. The Company determines if an arrangement is a lease at inception.

ROU assets represent 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 arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the term of the lease. As most of the Company’s leases do not include an implicit rate, the Company used its incremental borrowing rate based on the information available at the commencement date of the standard in determining the present value of lease payments. For each lease, the Company utilized a market-based approach to estimate the incremental borrowing rate (“IBRs”), which required significant judgment. The Company estimated base IBRs based on an analysis of (i) yields on comparable companies, (ii) observable mortgage rates and (iii) unlevered property yields and discount rates. The Company applied adjustments to the base IBRs to account for full collateralization and lease term. Operating lease ROU assets also include any lease payments made. The Company has options to extend certain of the ground leases; however, these options were not considered as part of the lease term when calculating the lease liability as they were not reasonably certain to be exercised. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Operating lease ROU assets and operating lease liabilities are in the Company’s consolidated balance sheet as follows (in thousands):

Operating lease expenses, including straight-line expense, are included in Operating and Maintenance Expense for the Company’s ground leases and aggregated $0.1 million and $0.2 million for the three and six months ended June 30, 2019, respectively. Supplemental information related to leases was as follows:

	June 30, 2019
Weighted-Average Remaining Lease Term	11.7 years
Weighted-Average Discount Rate		6.6	%
Cash paid for amounts included in the measurement — operating cash flows from lease liabilities (in thousands)	$	202

As determined under FASB Accounting Standards Codification (“ASC”) 840, Leases, the scheduled future minimum rental revenues from rental properties under the terms of all non-cancelable tenant leases, assuming no new or renegotiated leases or option extensions for such premises, and the scheduled minimum rental payments under the terms of all non-cancelable operating leases, principally ground leases, in which the Company was the lessee as of December 31, 2018, were as follows (in thousands):

Year	Minimum Rental Revenues		Minimum Rental Payments
2019	$	169,109	$	405
2020		143,736		414
2021		118,947		423
2022		92,495		433
2023		65,225		217
Thereafter		195,610		2,806
	$	785,122	$	4,698

As determined under Topic 842, maturities of lease liabilities were as follows for the 12-month periods ending June 30, (in thousands):

Year	June 30,
2020	$	409
2021		419
2022		428
2023		325
2024		223
Thereafter		2,693
Total lease payments		4,497
Less imputed interest		(1,554	)
Total	$	2,943

Lessor

Space in the shopping centers is leased to tenants pursuant to agreements that provide for terms generally ranging from one month to 30 years and for rents which, in some cases, are subject to upward adjustments based on operating expense levels, sales volume or contractual increases as defined in the lease agreements.

The scheduled future minimum rental revenues from rental properties under the terms of all non-cancelable tenant leases, assuming no new or renegotiated leases or option extensions, as determined under Topic 842 for such premises for the 12-month periods ending June 30, were as follows (in thousands):

Year Ending	June 30,
2020	$	152,278
2021		129,984
2022		106,832
2023		80,752
2024		56,708
Thereafter		201,418
Total	$	727,972

6.	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% 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% 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 (Note 7).

The Company’s obligations under the Revolving Credit Agreement are guaranteed by SITE Centers in favor of PNC. In consideration thereof, on July 2, 2018, the Company entered into a guaranty fee and reimbursement letter agreement with SITE Centers pursuant to which the Company has agreed to pay to SITE Centers the following amounts: (i) an annual guaranty commitment fee of 0.20% of the aggregate commitments under the Revolving Credit Agreement, (ii) for all times other than those referenced in clause (iii) below, when any amounts are outstanding under the Revolving Credit Agreement, an amount equal to 5.00% per annum times the average aggregate outstanding daily principal amount of such loans plus the aggregate stated average daily amount of

outstanding letters of credit and (iii) in the event SITE Centers pays any amounts to PNC pursuant to SITE Centers’ guaranty (credit facility guaranty fee) and the Company fails to reimburse SITE Centers for such amount within three business days, an amount in cash equal to the amount of such paid obligations plus default interest which will accrue from the date of such payment by SITE Centers until repaid by the Company at a rate per annum equal to the sum of the LIBOR rate plus 8.50%.

At June 30, 2019, there were no amounts outstanding under the Revolving Credit Agreement.

7.	Mortgage Indebtedness

On March 11, 2019, certain wholly-owned subsidiaries of the Company entered into a mortgage loan with an initial aggregate principal amount of $900 million. Substantially all proceeds from the mortgage loan were used to refinance and prepay all amounts outstanding under the Company’s February 2018 mortgage loan in the original aggregate principal amount of $1.35 billion. The outstanding aggregate principal amount of the mortgage loan was $774.9 million at June 30, 2019. The borrowers’ obligations are evidenced by promissory notes which are secured by, among other things: (i) mortgages encumbering the borrowers’ properties located in the continental U.S. (which comprise substantially all of the Company’s properties located in the continental U.S.) and Plaza Del Sol located in Bayamon, Puerto Rico (collectively, the “Mortgaged Properties”); (ii) a pledge of the equity of the Company’s subsidiaries that own each of the Company’s properties located in Puerto Rico (collectively, the “Pledged Properties”) and a pledge of related rents and other cash flows, insurance proceeds and condemnation awards; and (iii) a pledge of any reserves and accounts of any borrower.

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. The initial weighted-average interest rate applicable to the notes is equal to one-month LIBOR plus a spread of 2.30% per annum, 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 as described below will cause the weighted-average interest rate to increase over time. At June 30, 2019, the interest rate of the Company’s mortgage loan was 4.9%.

The loan facility is structured as an interest only loan throughout the initial two-year term and any exercised extension options. As a result, so long as the borrowers maintain a minimum debt yield of 10% with respect to the Mortgaged Properties and no event of default exists, any property cash flows available following payment of debt service and funding of certain required reserve accounts (including reserves for payment of real estate taxes, insurance premiums, ground rents, tenant improvements and capital expenditures), will be available to the borrowers to pay operating expenses and for other general corporate purposes. The debt yield with respect to the Mortgages Properties was 13.6% as of June 30, 2019.

Subject to certain conditions described in the mortgage loan agreement, the borrowers may prepay principal amounts outstanding under the loan facility in whole or in part by providing (i) advance notice of prepayment to the lenders and (ii) remitting the prepayment premium described in the mortgage loan agreement. No prepayment premium is required with respect to any prepayments made after April 9, 2020. Additionally, no prepayment premium will apply to prepayments made in connection with permitted property sales. Each Mortgaged Property has a portion of the original principal amount of the mortgage loan allocated to it. The amount of proceeds from the sale of an individual Mortgaged Property required to be applied towards prepayment of the notes (i.e., the property’s “release price”), will depend upon the principal amount of the mortgage loan allocated to it and the debt yield at the time of the sale. All proceeds for the sales of Pledged Properties other than Plaza Del Sol are required to be applied towards prepayment of the notes.

Voluntary prepayments made by the borrowers will be applied to tranches of notes (i) absent an event of default, in descending order of seniority (i.e., such prepayments will first be applied to the most senior tranches of notes) and (ii) following any event of default, in such order as the loan servicer determines in its sole discretion. As a result, the Company expects that the weighted average interest rate of the notes will increase during the term of the loan facility.

In connection with the refinancing, the Company incurred $20.2 million of aggregate financing costs which included a $1.8 million debt financing fee paid to SITE Centers. This refinancing was treated as a loan modification versus a debt extinguishment pursuant to the applicable accounting guidance. As a result, only the portion of the financing costs incurred related to the new lender group was capitalized. The remaining financing costs not capitalized as a loan cost were recorded as debt extinguishment costs in the

consolidated statement of operations along with the write-off of an allocation of the related unamortized deferred financing costs aggregating $12.7 million.

8.	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 $752.4 million and $967.6 million at June 30, 2019 and December 31, 2018, respectively. The fair value of debt was $794.7 million and $1,016.1 million at June 30, 2019 and December 31, 2018, respectively.

Interest Rate Cap

In March 2018, the Company entered into an interest rate cap in connection with entering into the mortgage loan, which was terminated with the new mortgage financing (Note 7). At December 31, 2018, the notional amount of the interest rate cap was $1.0 billion. The fair value of the interest rate cap was $1.2 million at December 31, 2018, and was included in Other Assets. In March 2019, in connection with the mortgage refinancing, the Company received $0.3 million upon final settlement.

9.	Commitments and Contingencies

Hurricane Loss

In 2017, Hurricane Maria made landfall in Puerto Rico. At June 30, 2019, the Company owned 12 assets in Puerto Rico, aggregating 4.4 million square feet of Company-owned GLA. One of the 12 assets (Plaza Palma Real, consisting of approximately 0.4 million of Company-owned GLA) was severely damaged in Hurricane Maria. At June 30, 2019, three anchor tenants and a few other tenants totaling 0.3 million square feet were open for business approximating 58% of Plaza Palma Real’s Company-owned GLA. The other 11 assets sustained varying degrees of damage, consisting primarily of roof and HVAC system damage and water intrusion. Although some of the tenant spaces remain untenantable, a majority of the Company’s leased space that was open prior to the storm was open for business by mid 2018.

The Company has engaged various consultants to assist with the damage scoping assessment. The Company continues to work with its consultants to finalize the scope and schedule of work to be performed. Restoration work is underway at all of the shopping centers, including Plaza Palma Real. The Company anticipates that the repair and restoration work will be substantially complete by early 2020 and all of the interior work will be complete by the end of 2020. The timing and schedule of additional repair work to be completed are highly dependent upon any changes in the scope of work, the availability of building materials, supplies and skilled labor and the timing and amount of proceeds recovered under the Company’s insurance claims.

that the Company’s cost to repair the damages sustained may substantially exceed the amount the Company is ultimately able to recover from the insurer.

As of June 30, 2019, the estimated net book value of the property written off for damage to the Company’s Puerto Rico assets was $78.8 million. However, the Company continues to assess the impact of the hurricane on its properties, and the final net book value write-offs could vary significantly from this estimate. Any changes to this estimate will be recorded in the periods in which they are determined.

The Company’s Property Insurance Receivable was $29.4 million at December 31, 2018. The December 31, 2018 balance represented the estimated insurance recoveries related to the net book value of the property damage written off, as well as other expenses, as the Company believed it was probable that the insurance recovery, net of the deductible, would exceed the net book value of the damaged property. Hurricane Property Insurance Income on the Company’s Statement of Operations for the three and six months ended June 30, 2019 includes $4.0 million resulting from the excess payments made by the insurer over the $78.8 million of the estimated net book value written off. The Company received $33.8 million of the $83.9 million during the six months ended June 30, 2019, toward its property insurance claim.

The Company’s business interruption insurance covers lost revenue through the period of property restoration and for up to 365 days following completion of restoration. For the three months ended June 30, 2019 and June 30, 2018, rental revenues of $1.2 million and $2.8 million, respectively, and for the six months ended June 30, 2019 and June 30, 2018, rental revenues of $2.8 million and $6.6 million, respectively, were not recorded because of lost tenant revenue attributable to Hurricane Maria that has been partially defrayed by insurance proceeds. The Company will record revenue for covered business interruption in the period it determines that it is probable it will be compensated and all the applicable contingencies with the insurance company have been resolved. This income recognition criteria will likely result in business interruption insurance proceeds being recorded in a period subsequent to the period that the Company experiences lost revenue from the damaged properties. For the three months ended June 30, 2019 and June 30, 2018, the Company received insurance proceeds of approximately $2.0 million and $3.1 million, respectively, and for the six months ended June 30, 2019 and June 30, 2018, the Company received insurance proceeds of approximately $2.0 million and $5.1 million, respectively, related to business interruption claims, which is recorded on the Company’s combined and consolidated statements of operations as Business Interruption Income.

Pursuant to the terms of the Separation and Distribution Agreement in connection with the separation from SITE Centers, SITE Centers will be entitled to property damage insurance claim proceeds for unreimbursed restoration costs incurred through June 30, 2018, as well as business interruption losses for the same period. Business interruption proceeds will continue to be recorded to revenue in the period that it is determined to attribute them to post-separation claim activity and all applicable contingencies with the insurer have been resolved.

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.

10.	Impairment Charges

Impairment charges were recorded on assets based on the difference between the carrying value of the assets and the estimated fair market 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 on a Non-Recurring Basis

The valuation of impaired real estate assets and investments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each asset, as well as the income capitalization approach considering prevailing market capitalization rates, analysis of recent comparable sales transactions, actual sales negotiations and bona fide purchase offers received from third parties. 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 Company’s impairment charges on nonfinancial assets that were measured on a fair-value basis for the six months ended June 30, 2019. 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
Long-lived assets held and used
June 30, 2019			$	47.1	$	47.1	$	13.2

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 June 30, 2019		Valuation Technique	Unobservable Inputs	Range
Impairment of assets	$	47.1	Income Capitalization Approach	Market Capitalization Rate	8.1%-9.1%

11.	Transactions with SITE Centers

The following table presents fees and other amounts charged by SITE Centers (in thousands):

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	The Company		RVI Predecessor		The Company		RVI Predecessor
Management fees^(A)	$	2,999	$	3,462	$	5,995	$	6,819
Asset management fees ^(B)		2,820		—		5,640		—
Leasing commissions^(C)		673		982		1,445		982
Insurance premiums^(D)		—		1,047		—		2,084
Maintenance services and other^(E)		377		518		755		1,085
Disposition fees^(F)		1,515		1,058		2,614		1,058
Credit facility guaranty and debt refinancing fees^(G)		—		—		1,800		—
Legal fees^(H)		200		—		357		—
	$	8,584	$	7,067	$	18,606	$	12,028

(A)

Beginning on July 1, 2018, property management fees are generally calculated based on a percentage of tenant cash receipts collected during the three months immediately preceding the most recent June 30 or December 31. Prior to the spin-off, calculated pursuant to the respective management agreements.

(B)	Asset management fees are generally calculated at 0.5% per annum of the gross asset value as determined on the immediately preceding June 30 or December 31.

(C)	Leasing commissions represent fees charged for the execution of the leasing of retail space. Leasing commissions are included within Real Estate Assets on the combined and consolidated balance sheets.

(D)

For periods prior to July 1, 2018, SITE Centers contracted with authorized insurance companies for the liability and property insurance coverage for the continental U.S. properties. The Company remitted to SITE Centers insurance premiums associated with these insurance policies. Insurance premiums are included within Operating and Maintenance on the combined statements of operations.

(E)

Maintenance services represent amounts charged to the properties for the allocation of compensation and other benefits of personnel directly attributable to the management of the properties. Amounts are recorded in Operating and Maintenance Expense on the combined and consolidated statements of operations.

(F)	Disposition fees equal 1% of the gross sales price of each asset sold. Disposition fees are included within Gain on Disposition of Real Estate on the consolidated statements of operations.

(G)

The Company paid a debt financing fee equal to 0.20% of the aggregate principal amount of the new mortgage (Note 7). For periods after July 1, 2018, the credit facility guaranty fee equals 0.20% per annum of the aggregate commitments under the Revolving Credit Agreement plus an amount equal to 5.0% per

annum times the average aggregate daily principal amount of loans plus the aggregate stated average daily amount of letters of credit outstanding under the Revolving Credit Agreement (Note 6). Credit facility guaranty fees are included within Interest Expense on the consolidated statements of operations.

(H)	Legal fees charged for collection activity, negotiating and reviewing tenant leases and contracts for asset dispositions.

As of June 30, 2019 and December 31, 2018, the Company had amounts payable to SITE Centers of $33.8 million and $34.0 million, respectively. The amounts are included as Payables to SITE Centers on the consolidated balance sheets and primarily represent amounts owed to SITE Centers for restricted cash escrows held by the mortgage lender at the time of the Company’s separation from SITE Centers.

12.	Earnings Per Share

The following table provides the net income and the number of common shares used in the computations of “basic” earnings per share (“EPS”), which utilizes the weighted-average number of common shares outstanding, and “diluted” EPS (in thousands, except per share amounts):

	Three Months		Six Months
	Ended June 30,		Ended June 30,
	2019		2019
Numerators – Basic and Diluted
Net income attributable to common shareholders after allocation to participating securities	$	13,617	$	13,607
Denominators – Number of Shares
Basic and Diluted—Average shares outstanding		19,043		18,963
Income Per Share:
Basic and Diluted	$	0.72	$	0.72

Dividends

In December 2018, the Company declared a 2018 dividend on its common shares of $1.30 per share that was paid in a combination of cash and the Company’s common shares, subject to a Puerto Rico withholding tax of 10%. The aggregate amount of cash paid to shareholders was limited to 20% of the total dividend paid. In connection with the 2018 dividend, in January 2019, the Company issued 578,238 common shares, based on the volume-weighted average trading price of $29.8547 per share, and paid $6.7 million in cash, which included the Puerto Rico withholding tax.

13.	Segment Information

The Company has two reportable operating segments: continental U.S. and Puerto Rico. The table below presents information about the Company’s reportable operating segments (in thousands):

	Three Months Ended June 30, 2019
	Continental U.S.			Puerto Rico			Other			Total
The Company
Lease revenue and other property revenue	$	35,071		$	25,814					$	60,885
Rental operation expenses		(10,114	)		(7,456	)					(17,570	)
Net operating income		24,957			18,358						43,315
Impairment charges		(7,110	)								(7,110	)
Hurricane property insurance income (loss), net					3,814						3,814
Depreciation and amortization		(11,794	)		(6,584	)					(18,378	)
Unallocated expenses^(A)							$	(20,650	)		(20,650	)
Gain on disposition of real estate, net		12,946									12,946
Income before tax expense										$	13,937

	Three Months Ended June 30, 2018
	Continental U.S.			Puerto Rico			Other			Total
RVI Predecessor
Lease revenue and other property revenue	$	52,298		$	26,676					$	78,974
Rental operation expenses		(15,115	)		(7,093	)					(22,208	)
Net operating income		37,183			19,583						56,766
Impairment charges		(15,060	)								(15,060	)
Hurricane property insurance income (loss), net					(187	)					(187	)
Depreciation and amortization		(17,680	)		(6,392	)					(24,072	)
Unallocated expenses^(A)							$	(56,300	)		(56,300	)
Gain on disposition of real estate, net		13,096									13,096
Loss before tax expense										$	(25,757	)

	Six Months Ended June 30, 2019
	Continental U.S.			Puerto Rico			Other			Total
The Company
Lease revenue and other property revenue	$	72,063		$	50,433					$	122,496
Rental operation expenses		(20,967	)		(14,615	)					(35,582	)
Net operating income		51,096			35,818						86,914
Impairment charges		(13,200	)								(13,200	)
Hurricane property insurance income (loss), net					3,631						3,631
Depreciation and amortization		(24,395	)		(13,338	)					(37,733	)
Unallocated expenses^(A)							$	(56,675	)		(56,675	)
Gain on disposition of real estate, net		31,165									31,165
Income before tax expense										$	14,102

As of June 30, 2019:
Total gross real estate assets	$	1,120,461		$	1,068,103					$	2,188,564

	Six Months Ended June 30, 2018
	Continental U.S.			Puerto Rico			Other			Total
RVI Predecessor
Lease revenue and other property revenue	$	103,264		$	51,970						155,234
Rental operation expenses		(30,228	)		(13,951	)					(44,179	)
Net operating income		73,036			38,019						111,055
Impairment charges		(48,680	)								(48,680	)
Hurricane property insurance income (loss), net					(868	)					(868	)
Depreciation and amortization		(37,339	)		(12,805	)					(50,144	)
Unallocated expenses^(A)							$	(194,405	)		(194,405	)
Gain on disposition of real estate, net		13,096									13,096
Loss before tax expense										$	(169,946	)

As of June 30, 2018:
Total gross real estate assets	$	1,731,614		$	988,430					$	2,720,044

(A)	Unallocated expenses consist of Property and Asset Management Fees, General and Administrative Expenses, Interest Expense and Other Expenses as listed in the Company’s combined and consolidated statements of operations.

14.	Subsequent Events

Restricted cash of $48.5 million generated from one asset sale in June 2019 was used to repay mortgage debt in July 2019.

Item 2.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides readers with a perspective from management on the financial condition, results of operations and liquidity of Retail Value Inc. and its related consolidated real estate subsidiaries (collectively, the “Company” or “RVI”) (NYSE: RVI) and other factors that may affect the Company’s future results. The Company believes it is important to read the MD&A in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2018, as well as other publicly available information.

RVI is an Ohio company formed in December 2017 that, as of June 30, 2019, owned and operated a portfolio of 31 assets, composed of 19 continental U.S. assets and 12 assets in Puerto Rico. These properties consisted of retail shopping centers composed of 12 million square feet of Company-owned gross leasable area (“GLA”) and were located in 12 states and Puerto Rico. The Company’s continental U.S. assets comprised 59% and the properties in Puerto Rico comprised 41% of its total consolidated revenue for the six months ended June 30, 2019. The Company’s centers have a diverse tenant base that includes national retailers such as Walmart/Sam’s Club, Bed, Bath & Beyond, the TJX Companies (T.J. Maxx, Marshalls and HomeGoods), Best Buy, Gap, PetSmart, Ross Stores, Kohl’s, Dick’s Sporting Goods and Michaels. At June 30, 2019, the aggregate occupancy of the Company’s shopping center portfolio was 87.7%, and the average annualized base rent per occupied square foot was $15.76. Prior to the Company’s separation on July 1, 2018, the Company was a wholly-owned subsidiary of SITE Centers Corp., formerly known as DDR Corp. (“SITE Centers” or the “Parent Company”).

Unless otherwise expressly stated or the context otherwise requires, in the case of information as of dates or for periods prior to the Company’s separation from SITE Centers, references to the “Company” and the “RVI Predecessor” refer to the combined and consolidated entities of SITE Centers that owned the assets comprising the Company’s portfolio as of July 1, 2018, assuming that such entities owned only the assets comprising the Company’s portfolio as of July 1, 2018.

Executive Summary

In order to consummate the Company’s separation from SITE Centers, on July 1, 2018, the Company and SITE Centers entered into a separation and distribution agreement (the “Separation and Distribution Agreement”), pursuant to which, among other things, SITE Centers agreed to transfer properties and certain related assets, liabilities and obligations to RVI and to distribute 100% of the outstanding common shares of RVI to holders of record of SITE Centers’ common shares as of the close of business on June 26, 2018, the record date. On July 1, 2018, the separation date, holders of SITE Centers’ common shares received one common share of RVI for every ten shares of SITE Centers’ common stock held on the record date. In connection with the separation, SITE Centers retained 1,000 shares of RVI’s series A preferred stock (the “RVI Preferred Shares”) 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.

In March 2019, the Company entered into a mortgage loan in the aggregate principal amount of $900 million in order to refinance and prepay all amounts outstanding under its February 2018 mortgage loan, which had an original principal balance of $1.35 billion. The Company incurred costs of $20.2 million in connection with the financing, which included a $1.8 million debt financing fee paid to SITE Centers.

The Company expects to focus on realizing value in its portfolio through operations and sales of its assets. The Company primarily intends to use net asset sale proceeds first to repay mortgage debt, second to make distributions on account of the RVI Preferred Shares, up to the preference amount, and third to make distribution to holders of the Company’s common shares. In addition, pursuant to the Separation and Distribution Agreement, and subject to maintaining its status as a Real Estate Investment Trust (“REIT”), the Company has agreed to repay to SITE Centers certain cash balances held in restricted accounts on the separation date in connection with the original mortgage loan. The Company has agreed to pay these amounts ($33.8 million as of June 30, 2019) to SITE Centers as soon as reasonably possible out of its operating cash flow but in no event later than March 31, 2020.

From January 1, 2019 through June 30, 2019, the Company sold the following assets (in thousands):

Date Sold	Property Name	City, State	Total Owned GLA		Gross Sales Price
2/8/19	Millenia Plaza	Orlando, FL		412	$	56,400
2/27/19	Homestead Pavilion - TD Bank outparcel	Homestead, FL		4		4,091
3/1/19	West Allis Center - Chick-Fil-A outparcel	Milwaukee, WI		5		2,211
3/4/19	Lowe's Home Improvement	Hendersonville, TN		129		16,058
3/26/19	Midway Marketplace	St. Paul, MN		324		31,210
4/5/19	Mariner Square	Spring Hill, FL		194		17,000
5/23/19	Shoppers World of Brookfield	Brookfield, WI		203		19,450
5/31/19	Homestead Pavilion	Homestead, FL		295		62,250
6/13/19	Beaver Creek Crossings	Apex, NC		321		52,750
				1,887	$	261,420

Manager

The Company is party to 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 serves as the Company’s manager. The Company does not have any employees. In general, either the Company or SITE Centers may terminate these management agreements on December 31, 2019, or at the end of any six-month renewal period thereafter.

Pursuant to the External Management Agreement, the Company pays SITE Centers and certain of its subsidiaries a monthly asset management fee in an aggregate amount of 0.5% per annum of the gross asset value of the Company’s properties (calculated in accordance with the terms of the External Management Agreement). The External Management Agreement also provides for the reimbursement of certain expenses incurred by SITE Centers in connection with the services it provides to the Company along with the payment of transaction-based fees to SITE Centers in the event of any debt financings or change of control transactions.

Pursuant to the property management agreements, the Company pays SITE Centers and certain of its subsidiaries a monthly property management fee in an aggregate amount of 3.5% and 5.5% of the gross revenue (as calculated in accordance with the terms of the property management agreements) of the Company’s continental U.S. properties and the Puerto Rico properties, respectively, on a monthly basis. The property management agreements also provide for the payment to SITE Centers of certain leasing commissions and financing fees and a disposition fee of 1% of the gross sale price of each asset sold by the Company.

RESULTS OF OPERATIONS

Where used, references to “Comparable Portfolio Properties” reflect shopping center properties owned as of June 30, 2019.

Revenues from Operations (in thousands)

	Three Months
	Ended June 30,
	2019		2018		$ Change
	The Company		RVI Predecessor
Rental income	$	58,875	$	75,760	$	(16,885	)
Business interruption income		2,000		3,100		(1,100	)
Other income		10		114		(104	)
Total revenues	$	60,885	$	78,974	$	(18,089	)

	Six Months
	Ended June 30,
	2019		2018		$ Change
	The Company		RVI Predecessor
Rental income^(A)	$	120,445	$	149,825	$	(29,380	)
Business interruption income^(B)		2,000		5,100		(3,100	)
Other income		51		309		(258	)
Total revenues^{(C), (D)}	$	122,496	$	155,234	$	(32,738	)

(A)

Includes a reduction associated with Hurricane Maria for the Puerto Rico properties that has been partially defrayed by insurance proceeds as noted in (B) and (C) below. In addition, the Company adopted Accounting Standards Update No. 2016-02—Leases, as amended (“Topic 842”) using the modified retrospective approach as of January 1, 2019, and elected to apply the transition provisions of the standard at the beginning of the period of adoption. As the Company adopted the practical expedient with regards to not separating lease and non-lease components, all rental income earned pursuant to tenant leases, including the provision for uncollectible amounts, is reflected as one line item, “Rental Income,” in the consolidated statements of operations for the three and six months ended June 30, 2019. See further discussion of 2018 reclassification impact in Note 3, “Summary of Significant Accounting Policies,” to the Company’s combined and consolidated financial statements included herein.

The following tables summarize the key components of the 2019 rental income as compared to 2018:

	Three Months
	Ended June 30,
Contractual Lease Payments	2019		2018		$ Change
	The Company		RVI Predecessor
Base and percentage rental income	$	41,736	$	52,159	$	(10,423	)
Recoveries from tenants		14,133		18,625		(4,492	)
Lease termination fees and ancillary rental income		2,585		4,976		(2,391	)
Bad debt		421	N/A			421
Total contractual lease payments	$	58,875	$	75,760	$	(16,885	)

	Six Months
	Ended June 30,
Contractual Lease Payments	2019		2018		$ Change
	The Company		RVI Predecessor
Base and percentage rental income⁽¹⁾	$	86,340	$	104,837	$	(18,497	)
Recoveries from tenants⁽²⁾		29,081		37,345		(8,264	)
Lease termination fees and ancillary rental income		4,752		7,643		(2,891	)
Bad debt⁽³⁾		272	N/A			272
Total contractual lease payments	$	120,445	$	149,825	$	(29,380	)

(1)

The following table presents the statistics for the Company’s portfolio affecting base and percentage rental revenues:

	Shopping Center Portfolio June 30,
	2019			2018
	The Company			RVI Predecessor
Centers owned	31			48
Aggregate occupancy rate		87.7	%		89.5	%
Average annualized base rent per occupied square foot	$	15.76		$	15.30

The decrease in base and percentage rental income primarily is due to the disposition of assets as noted in (D) below. The decrease in the occupancy rate primarily was due to asset dispositions and a combination of anchor store tenant expirations and tenant bankruptcies.

(2)

Recoveries were approximately 72.3% and 73.3% of reimbursable operating expenses and real estate taxes for the six- month periods ended June 30, 2019 and 2018, respectively. The overall decrease in the amount of recoveries from tenants relates to the disposition of assets as noted in (D) below along with the impact of anchor tenant vacancies and conversion to gross leases in Puerto Rico. The recovery percentage was impacted by the adoption of Topic 842, which resulted in certain financial statement presentation changes that reduced Rental Income but had no impact on net income.

(3)

Classified in Operating and Maintenance Expense for the three and six months ended June 30, 2018.

(B)	Represents payments received from the Company’s insurance company related to its claims for business interruption losses incurred at its Puerto Rico properties associated with Hurricane Maria.

(C)

The Company did not record $1.2 million and $2.8 million of aggregate revenues for the three months ended June 30, 2019 and 2018, respectively, and $2.8 million and $6.6 million of aggregate revenues for the six months ended June 30, 2019 and 2018, respectively, because of lost tenant revenue attributable to Hurricane Maria that has been partially defrayed by the receipt of business interruption insurance proceeds as noted in (B) above. See further discussion in both “Contractual Obligations and Other Commitments” and Note 9, “Commitments and Contingencies,” to the Company’s combined and consolidated financial statements included herein.

(D)	The changes in Total Revenues are composed of the following (in millions):

	2019 vs. 2018
	$ Change
Continental U.S.	$	(31.2	)
Puerto Rico		(1.5	)
	$	(32.7	)

	2019 vs. 2018
	$ Change
Comparable Portfolio Properties	$	(5.1	)
Disposition of shopping centers		(27.6	)
	$	(32.7	)

Expenses from Operations (in thousands)

	Three Months
	Ended June 30,
	2019			2018		$ Change
	The Company			RVI Predecessor
Operating and maintenance	$	10,401		$	12,531	$	(2,130	)
Real estate taxes		7,169			9,677		(2,508	)
Property and asset management fees		5,819			3,462		2,357
Impairment charges		7,110			15,060		(7,950	)
Hurricane property insurance (income) loss, net		(3,814	)		187		(4,001	)
General and administrative		1,058			4,484		(3,426	)
Depreciation and amortization		18,378			24,072		(5,694	)
	$	46,121		$	69,473	$	(23,352	)

	Six Months
	Ended June 30,
		2019			2018		$ Change
		The Company			RVI Predecessor
Operating and maintenance^(A)		$	20,903		$	24,608	$	(3,705	)
Real estate taxes^(A)			14,679			19,571		(4,892	)
Property and asset management fees			11,635			6,819		4,816
Impairment charges^(B)			13,200			48,680		(35,480	)
Hurricane property insurance (income) loss, net^(C)			(3,631	)		868		(4,499	)
General and administrative^(D)			1,943			7,638		(5,695	)
Depreciation and amortization^(E)			37,733			50,144		(12,411	)
		$	96,462		$	158,328	$	(61,866	)

(A)	The changes in Operating and Maintenance and Real Estate Taxes are composed of the following (in millions):

	2019 vs. 2018 $ Change
	Operating and Maintenance			Real Estate Taxes
Continental U.S.	$	(5.0	)	$	(4.9	)
Puerto Rico		1.3		—
	$	(3.7	)	$	(4.9	)

	2019 vs. 2018 $ Change
	Operating and Maintenance			Real Estate Taxes
Comparable Portfolio Properties	$	(0.1	)	$	(0.9	)
Disposition of shopping centers		(3.6	)		(4.0	)
	$	(3.7	)	$	(4.9	)

The decrease in real estate taxes for the Comparable Portfolio Properties is a result of the adoption of Topic 842.

(B)

The Company recorded impairment charges in 2019 related to shopping centers marketed for sale. Changes in (i) an asset’s expected future undiscounted cash flows due to changes in market conditions, (ii) various courses of action that may occur or (iii) holding periods each could result in the recognition of additional impairment charges. Impairment charges are presented in Note 10, “Impairment Charges,” to the Company’s combined and consolidated financial statements included herein.

(C)	The Hurricane Property Insurance (Income) Loss is more fully described in “Contractual Obligations and Other Commitments” later in this section and Note 9, “Commitments and Contingencies,” to the Company’s combined and consolidated financial statements included herein.

(D)

Subsequent to the separation from SITE Centers, primarily represents legal, audit, tax and compliance services and director compensation. Prior to the separation from SITE Centers, primarily represents the allocation of indirect costs and expenses incurred by SITE Centers related to the Company’s business consisting of compensation and other general and administrative expenses that have been allocated using the property revenue of the Company.

(E)	The disposition of shopping centers accounts for $11.7 million in the reduction of depreciation expense. .

Other Income and Expenses (in thousands)

	Three Months
	Ended June 30,
	2019			2018			$ Change
	The Company			RVI Predecessor
Interest expense	$	(10,846	)	$	(18,144	)	$	7,298
Debt extinguishment costs		(2,927	)		(1,970	)		(957	)
Transaction costs		—			(28,240	)		28,240
Gain on disposition of real estate, net		12,946			13,096			(150	)
Tax expense		(320	)		(4,082	)		3,762
	$	(1,147	)	$	(39,340	)	$	38,193

	Six Months
	Ended June 30,
	2019			2018			$ Change
	The Company			RVI Predecessor
Interest expense^(A)	$	(24,820	)	$	(37,584	)	$	12,764
Debt extinguishment costs^(B)		(17,409	)		(109,036	)		91,627
Transaction costs^(C)		(18	)		(33,325	)		33,307
Other income (expense), net		(850	)		(3	)		(847	)
Gain on disposition of real estate, net^(D)		31,165			13,096			18,069
Tax expense		(495	)		(4,210	)		3,715
	$	(12,427	)	$	(171,062	)	$	158,635

(A)

At June 30, 2019, the interest rate of the Company’s mortgage loan was 4.9% per annum. The decrease in interest expense primarily was due to a change in the amount of debt outstanding, as well as the lower interest rate applicable to the Company’s new mortgage loan. In addition, interest expense in 2018 included expense allocated from SITE Centers prior to the incurrence of the Company’s original mortgage loan in February 2018.

Interest costs capitalized in conjunction with capital projects were $0.6 million and $0.9 million for the three and six months ended June 30, 2019, respectively, compared to $0.1 million for the six months ended June 30, 2018. The change in the amount of interest costs capitalized is a result of the restoration work in Puerto Rico.

(B)

Includes debt extinguishment costs of $12.7 million, which were recorded primarily in connection with the Company entering into the $900.0 million mortgage loan in March 2019. See further discussion in Note 7, “Mortgage Indebtedness,” to the Company’s combined and consolidated financial statements included herein.

(C)	Costs related to the Company’s separation from SITE Centers.

(D)	Related to the sale of seven assets and two outparcels during the six months ended June 30, 2019.

Net Income (loss) (in thousands)

	Three Months
	Ended June 30,
	2019		2018			$ Change
	The Company		RVI Predecessor
Net income (loss)	$	13,617	$	(29,839	)	$	43,456

	Six Months
	Ended June 30,
	2019		2018			$ Change
	The Company		RVI Predecessor
Net income (loss)	$	13,607	$	(174,156	)	$	187,763

The increase in net income primarily is attributable to lower impairment charges and debt extinguishment costs in 2019 partially offset by the impact of asset sales.

NON-GAAP FINANCIAL MEASURES

Funds from Operations and Operating Funds from Operations

Definition and Basis of Presentation

The Company believes that Funds from Operations, or FFO, and Operating FFO, both non-GAAP financial measures, provide additional and useful means to assess the financial performance of REITs. FFO and Operating FFO are frequently used by the real estate industry, as well as securities analysts, investors and other interested parties, to evaluate the performance of REITs. 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 excludes GAAP historical cost depreciation and amortization of real estate and real estate investments, which assume that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions, and many companies use different depreciable lives and methods. Because FFO excludes depreciation and amortization unique to real estate and gains and losses from property dispositions, it can provide a performance measure that, when compared year over year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, interest costs and acquisition, disposition and development activities. This provides a perspective of the Company’s financial performance not immediately apparent from net income determined in accordance with GAAP.

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 believes that certain charges and income recorded in its operating results are not comparable or reflective of its core operating performance. 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. As a result, the Company also computes Operating FFO and discusses it with the users of its financial statements, in addition to other measures such as net income (loss) determined in accordance with GAAP and FFO. Operating FFO is generally defined and calculated by the Company as FFO excluding certain charges and gains that management believes are not comparable and indicative of the results of the Company’s operating real estate portfolio. Such adjustments include gains/losses on the early extinguishment of debt, net hurricane-related

activity, transaction costs and other restructuring type costs. The disclosure of these charges and income is generally requested by users of the Company’s financial statements.

The adjustment for these charges and income may not be comparable to how other REITs or real estate companies calculate their results of operations, and the Company’s calculation of Operating FFO differs from NAREIT’s definition of FFO. Additionally, the Company provides no assurances that these charges and income are non-recurring. These charges and income could be reasonably expected to recur in future results of operations.

These measures of performance are used by the Company for several business purposes and by other REITs. The Company uses FFO and/or Operating FFO in part (i) as a disclosure to improve the understanding of the Company’s operating results among the investing public, (ii) as a measure of a real estate asset’s performance and (iii) to compare the Company’s performance to that of other publicly traded shopping center REITs.

For the reasons described above, management believes that FFO and Operating FFO provide the Company and investors with an important indicator of the Company’s operating performance. They provide recognized measures of performance other than GAAP net income, which may include non-cash items (often significant). Other real estate companies may calculate FFO and Operating FFO in a different manner.

The Company’s management recognizes the limitations of FFO and Operating FFO when compared to GAAP’s net income. FFO and Operating FFO do not represent amounts available for dividends, capital replacement or expansion, debt service obligations or other commitments and uncertainties. The Company’s management does not use FFO or Operating FFO as an indicator of the Company’s cash obligations and funding requirements for future commitments or redevelopment activities. Neither FFO nor Operating FFO represents cash generated from operating activities in accordance with GAAP, and neither is necessarily indicative of cash available to fund cash needs. Neither FFO nor Operating FFO should be considered an alternative to net income computed in accordance with GAAP or as an alternative to cash flow as a measure of liquidity. FFO and Operating FFO are simply used as additional indicators of the Company’s operating performance. The Company believes that to further understand its performance, FFO and Operating FFO should be compared with the Company’s reported net loss and considered in addition to cash flows determined in accordance with GAAP, as presented in its combined and consolidated financial statements. Reconciliations of these measures to their most directly comparable GAAP measure of net loss have been provided below.

Reconciliation Presentation

FFO and Operating FFO were as follows (in thousands):

	Three Months
	Ended June 30,
	2019		2018			$ Change
	The Company		RVI Predecessor
FFO	$	26,133	$	(4,202	)	$	30,335
Operating FFO		24,398		30,211			(5,813	)

	Six Months
	Ended June 30,
	2019		2018			$ Change
	The Company		RVI Predecessor
FFO	$	33,323	$	(89,204	)	$	122,527
Operating FFO		48,746		59,824			(11,078	)

The increase in FFO primarily was a result of debt extinguishment charges and transaction costs incurred in connection with the Company’s mortgage loan in 2018, partially offset by the dilutive impact from the disposition of assets. The decrease in Operating FFO primarily was due to asset sales.

The Company’s reconciliation of net income (loss) to FFO and Operating FFO is as follows (in thousands). The Company provides no assurances that these charges and income adjusted in the calculation of Operating FFO are non-recurring. These charges and income could reasonably be expected to recur in future results of operations.

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2019			2018			2019			2018
	The Company			RVI Predecessor			The Company			RVI Predecessor
Net income (loss)	$	13,617		$	(29,839	)	$	13,607		$	(174,156	)
Depreciation and amortization of real estate investments		18,352			23,673			37,681			49,365
Impairment of real estate assets		7,110			15,060			13,200			48,680
Gain on disposition of real estate		(12,946	)		(13,096	)		(31,165	)		(13,093	)
FFO		26,133			(4,202	)		33,323			(89,204	)
Hurricane activity, net^(A)		(4,662	)		(126	)		(2,854	)		2,338
Separation charges		—			1,138			—			1,138
Other expenses^(B)		2,927			33,401			18,277			145,552
Non-operating items, net		(1,735	)		34,413			15,423			149,028
Operating FFO	$	24,398		$	30,211		$	48,746		$	59,824

(A)

The hurricane activity, net is summarized as follows (in thousands):

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2019			2018			2019			2018
	The Company			RVI Predecessor			The Company			RVI Predecessor
Lost tenant revenue	$	1,152		$	2,787		$	2,777		$	6,570
Business interruption income		(2,000	)		(3,100	)		(2,000	)		(5,100	)
Property insurance proceeds in excess of receivable		(3,972	)		—			(3,972	)		—
Clean up costs and other uninsured expenses		158			187			341			868
	$	(4,662	)	$	(126	)	$	(2,854	)	$	2,338

(B)

Amounts included in other expenses as follows (in millions):

	Three Months				Six Months
	Ended June 30,				Ended June 30,
	2019		2018		2019		2018
	The Company		RVI Predecessor		The Company		RVI Predecessor
Transaction and other expenses	$	—	$	31.4	$	0.9	$	36.5
Debt extinguishment costs		2.9		2.0		17.4		109.0
	$	2.9	$	33.4	$	18.3	$	145.5

LIQUIDITY, CAPITAL RESOURCES AND FINANCING ACTIVITIES

The Company requires capital to fund its operating expenses, capital expenditures and investment activities. Absent the occurrence of an Amortization Period (as described below), the Company’s capital sources may include cash on hand, cash flow from operations, as well as availability under its Revolving Credit Agreement (as defined below).

Debt outstanding was $774.9 million and $988.6 million at June 30, 2019 and December 31, 2018, respectively. The Company’s mortgage loan generally requires interest only payments. The Company intends to utilize net asset sale proceeds to repay the principal of the mortgage loan. In July 2019, loan repayments of $48.5 million were made from the use of restricted cash. In addition, and subject to maintaining its status as a REIT, the Company has agreed to repay SITE Centers for certain cash held in restricted accounts at the time of the separation and other amounts as soon as reasonably possible out of the Company’s operating cash

flow but in no event later than March 31, 2020. The amount payable to SITE Centers was $33.8 million at June 30, 2019. While the Company currently believes it has several viable sources to obtain capital and fund its business, including capacity under the Revolving Credit Agreement, no assurance can be provided that its obligations, including the mortgage loan, will be refinanced or repaid as currently anticipated.

2019 Financing Activities

Mortgage Financing

On March 11, 2019, certain wholly-owned subsidiaries of the Company entered into a mortgage loan with an initial aggregate principal amount of $900 million. Substantially all proceeds from the mortgage loan were used to refinance and prepay all amounts outstanding under the Company’s February 2018 mortgage loan in the original aggregate principal amount of $1.35 billion. The borrowers’ obligations to pay principal, interest and other amounts under the new mortgage loan are evidenced by certain promissory notes executed by the borrowers, which are referred to collectively as the notes, which are secured by, among other things: (i) mortgages encumbering the borrowers’ properties located in the continental U.S. (which comprise substantially all of the Company’s properties located in the continental U.S.) and Plaza Del Sol located in Bayamon, Puerto Rico (collectively, the “Mortgaged Properties”); (ii) a pledge of the equity of the Company’s subsidiaries that own each of the Company’s properties located in Puerto Rico (collectively, the “Pledged Properties”) and a pledge of related rents and other cash flows, insurance proceeds and condemnation awards; and (iii) a pledge of any reserves and accounts of any borrower. Subsequent to closing, the originating lenders placed the notes into a securitization trust that issued and sold mortgage-backed securities to investors.

The loan facility will mature on March 9, 2021, subject to three one-year extensions at borrowers’ option conditioned upon, among other items, (i) an event of default shall not be continuing, (ii) in the case of the second one-year extension option, evidence that the Debt Yield (as defined and calculated in accordance with the loan agreement, but which is the ratio of net cash flow of the Mortgaged Properties to the outstanding principal amount of the loan facility) equals or exceeds 13% and (iii) in the case of the third one-year extension option, evidence that the Debt Yield equals or exceeds 14%.

The initial weighted-average interest rate applicable to the notes is equal to one-month LIBOR plus a spread of 2.30% per annum, provided that such spread is subject to an increase of 0.25% per annum in connection with any exercise of the third extension option. Borrowers are required to maintain an interest rate cap with respect to the principal amount of the notes having (i) during the initial two-year term of the loan, a LIBOR strike rate equal to 4.5% and (ii) with respect to any extension period, a LIBOR strike rate that would result in a debt service coverage ratio of 1.20x based on the Mortgaged Properties. Application of voluntary prepayments as described below will cause the weighted-average interest rate to increase over time.

The loan facility is structured as an interest only loan throughout the initial two-year term and any exercised extension options. As a result, so long as no Amortization Period (as described below) or event of default exists, any property cash flows available following payment of debt service and funding of certain required reserve accounts (including reserves for payment of real estate taxes, insurance premiums, ground rents, tenant improvements and capital expenditures), will be available to the borrowers to pay operating expenses and for other general corporate purposes. An Amortization Period will be deemed to commence in the event the borrowers fail to achieve a Debt Yield of 10.0% at the end of any fiscal quarter. The Debt Yield as of June 30, 2019, was approximately 13.6%. During the pendency of an Amortization Period, any property cash flows available following payment of debt service and the funding of certain reserve accounts (including the reserve accounts referenced above and additional reserves established for payment of approved operating expenses, SITE Centers management fees, certain public company costs, certain taxes and the minimum cash portion of required REIT distributions) shall be applied to the repayment of the notes. During an Amortization Period, cash flow from the borrowers’ operations will only be made available to the Company to pay required REIT distributions in an amount equal to the minimum portion of required REIT distributions allowed by law to be paid in cash (currently 20%), with the remainder of required REIT distributions during an Amortization Period likely to be paid in common shares of the Company.

•

if the Debt Yield is less than or equal to 14.0%, the release price is the greater of (i) 100% of the property’s net sale proceeds and (ii) 110% of its allocated loan amount; and

•

if the Debt Yield is greater than 14.0%, the release price is the greater of (i) 90% of the property’s net sale proceeds and (ii) 105% of its allocated loan amount.

To the extent the net cash proceeds from the sale of a Mortgaged Property that are applied to repay the mortgage loan exceed the amount specified in applicable clause (ii) above with respect to such property, the excess may be applied by the Company as a credit against the release price applicable to future sales of Mortgaged Properties.

Pledged Properties other than Plaza Del Sol do not have allocated loan amounts or, in general, minimum release prices; all proceeds from sales of Pledged Properties are required to be used to prepay the notes. Notwithstanding the foregoing, in order to obtain a release of all of the Pledged Properties (excluding Plaza Del Sol) in connection with a portfolio sale of all of the Pledged Properties, the loan facility requires a minimum release price equal to the greater of (i) $250 million and (ii) 100% of the net sale proceeds.

Voluntary prepayments made by the borrowers (including prepayments made with proceeds from asset sales and prepayments made with property cash flows following commencement of any Amortization Period) will be applied to tranches of notes (i) absent an event of default, in descending order of seniority (i.e., such prepayments will first be applied to the most senior tranches of notes) and (ii) following any event of default, in such order as the loan servicer determines in its sole discretion. As a result, the Company expects that the weighted-average interest rate of the notes will increase during the term of the loan facility.

In the event of a default, the contract rate of interest on the notes will increase to the lesser of (i) the maximum rate allowed by law or (ii) the greater of (A) 4% above the interest rate otherwise applicable and (B) the Prime Rate (as defined in the mortgage loan) plus 1.0%. The notes contain other terms and provisions that are customary for instruments of this nature. In addition, the Company executed a certain environmental indemnity agreement and a certain guaranty agreement in favor of the lenders under which the Company agreed to indemnify the lenders for certain environmental risks and guarantee the borrowers’ obligations under the exceptions to the non-recourse provisions in the mortgage loan agreement. The mortgage loan agreement includes representations, warranties, affirmative and restrictive covenants and other provisions customary for agreements of this nature. The mortgage loan agreement also includes customary events of default, including, among others, principal and interest payment defaults and breaches of affirmative or negative covenants; the mortgage loan agreement does not contain any financial maintenance covenants. Upon the occurrence of an event of default, the lenders may avail themselves of various customary remedies under the loan agreement and other agreements executed in connection therewith or applicable law, including accelerating the loan facility and realizing on the real property collateral or pledged collateral.

In connection with the refinancing in March 2019, the Company incurred $12.7 million of aggregate debt extinguishment costs which includes the write off of unamortized deferred financing costs. See further discussion in Note 7, “Mortgage Indebtedness” of the Company’s combined and consolidated financial statements included herein.

Credit Agreement

In July 2018, the Company entered into a Credit Agreement (the “Revolving Credit Agreement”) with PNC Bank, National Association (“PNC”). The Revolving Credit Agreement provides for borrowings of up to $30.0 million. 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% 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% 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 Facility contains customary affirmative and negative covenants, including a tangible net worth requirement. Upon the occurrence of certain customary events of default, the Company’s obligations under the Revolving Credit Agreement may be accelerated and the lending commitments thereunder terminated. The Company may not borrow under the Revolving Credit Agreement, and a Default (as defined therein) occurs under the Revolving Credit Agreement, if there is a “Default” under SITE Centers’ corporate credit facility with JPMorgan Chase Bank, N.A., SITE Centers’ corporate credit facility with Wells Fargo Bank, National Association or SITE Centers’ corporate credit facility with PNC. Additionally, the Company may not borrow under the Revolving Credit Agreement if there is a “Default” under the Revolving Credit Agreement or an “Event of Default” under

the Company’s $900 million mortgage loan, if the External Management Agreement is no longer in full force and effect or if the Company has delivered or received a notice of termination or a notice of default under the External Management Agreement.

The Company’s obligations under the Revolving Credit Agreement are guaranteed by SITE Centers in favor of PNC. In consideration thereof, the Company has agreed to pay to SITE Centers the following amounts: (i) an annual guaranty commitment fee of 0.20% of the aggregate commitments under the Revolving Credit Agreement, (ii) for all times other than those referenced in clause (iii) below, when any amounts are outstanding under the Revolving Credit Agreement, an amount equal to 5.00% per annum times the average aggregate outstanding daily principal amount of such loans plus the aggregate stated average daily amount of outstanding letters of credit and (iii) in the event SITE Centers pays any amounts to PNC pursuant to SITE Centers’ guaranty and the Company fails to reimburse SITE Centers for such amount within three business days, an amount in cash equal to the amount of such paid obligations plus default interest, which will accrue from the date of such payment by SITE Centers until repaid by the Company at a rate per annum equal to the sum of the LIBOR rate plus 8.50%.

Series A Preferred Stock

In connection with the Company’s separation from SITE Centers, the Company issued the RVI Preferred Shares to SITE Centers that are noncumulative and have no mandatory dividend rate. The RVI Preferred Shares rank, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company, senior in preference and priority to the Company’s common shares and any other class or series of the Company’s capital stock. Subject to the requirement that the Company distribute to its common shareholders the minimum amount required to be distributed with respect to any taxable year in order for the Company to maintain its status as a REIT and to avoid U.S. federal income taxes, the RVI Preferred Shares will be entitled to a dividend preference for all dividends declared on the Company’s capital stock at any time up to a “preference amount” equal to $190 million in the aggregate, which amount may increase by up to an additional $10 million if the aggregate gross proceeds of the Company’s asset sales subsequent to July 1, 2018 exceed $2.0 billion. Notwithstanding the foregoing, the RVI Preferred Shares are entitled to receive dividends only when, as and if declared by the Company’s Board of Directors and the Company’s ability to pay dividends is subject to any restrictions set forth in the terms of its indebtedness. Upon payment to SITE Centers of aggregate dividends on the RVI Preferred Shares equaling the maximum preference amount of $200 million, the RVI Preferred Shares are required to be redeemed by the Company for $1.00 per share.

Subject to the terms of any of the Company’s indebtedness and unless prohibited by Ohio law governing distributions to stockholders, the RVI Preferred Shares must be redeemed upon (i) the Company’s failure to maintain its status as a REIT, (ii) any failure by the Company to comply with the terms of the RVI Preferred Shares or (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that the Company sells, assigns, transfers, conveys or otherwise disposes of all or substantially all of its properties or assets, in one or more related transactions, to any person or entity, or any person or entity, directly or indirectly, becomes the beneficial owner of 40% or more of the Company’s common shares, measured by voting power. The RVI Preferred Shares also contain restrictions on the Company’s ability to invest in joint ventures, acquire assets or properties, develop or redevelop real estate or make loans or advances to third parties.

The Company may redeem the RVI Preferred Shares, or any part thereof, at any time at a price payable per share calculated by dividing the number of RVI Preferred Shares outstanding on the redemption date into the difference of (x) $200 million minus (y) the aggregate amount of dividends previously distributed on the RVI Preferred Shares to be redeemed. As of July 31, 2019, no dividends have been paid on the RVI Preferred Shares.

Common Shares

The Company’s dividend was paid on January 25, 2019 in a combination of cash and the Company’s common shares. See Note 12, “Earnings Per Share,” of the Company’s combined and consolidated financial statements included herein.

Dividend Distributions

The Company anticipates making distributions to holders of its common shares to satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income and excise tax (other than with respect to operations conducted through the Company’s TRS). U.S. federal income tax law generally requires that a REIT distribute annually to holders of its capital stock at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its REIT taxable income. The Company generally intends to make distributions with respect to each taxable year in an amount at least equal to its REIT taxable income for such taxable year. The Company also anticipates making future distributions to holders of its common shares in order to satisfy the requirements of its closing agreement with the Puerto Rico Department of Treasury in order to be exempt from Puerto Rico income taxes. Although the Company expects to declare and pay distributions on or around the end of each calendar year, the Company’s Board of Directors will evaluate its dividend policy regularly.

To the extent that cash available for future distributions is less than the Company’s REIT taxable income or its taxable income generated in Puerto Rico, or if amortization requirements commence with respect to the terms of the mortgage loan, or if the Company determines it is advisable for other reasons, the Company may make a portion of its distributions in the form of common shares, and any such distribution of common shares may be taxable as a dividend to shareholders. The Company may also distribute debt or other securities in the future, which also may be taxable as a dividend to shareholders.

Any distributions the Company makes to its shareholders will be at the discretion of the Company’s Board of Directors and will depend upon, among other things, the Company’s actual and anticipated results of operations and liquidity, which will be affected by various factors, including the income from its portfolio, its operating expenses (including management fees and other obligations owing to SITE Centers), repayments of restricted cash balances to SITE Centers in connection with the mortgage loan and other expenditures and the terms of the mortgage financing and the limitations set forth in the mortgage loan agreements. Distributions will also be impacted by the pace and success of the Company’s property disposition strategy. As a result of the terms of the mortgage financing, the Company anticipates that the majority of distributions of sales proceeds to be made to shareholders will not occur until after the mortgage loan has been repaid or refinanced. Furthermore, subject to the Company’s ability to make distributions to the holders of the Company’s common shares in amounts necessary to maintain its status as a REIT and to avoid payment of U.S. federal income taxes, the RVI Preferred Shares will be entitled to a dividend preference for all dividends declared on the Company’s capital stock, at any time up to the preference amount. Subsequent to the payment of dividends on the RVI Preferred Shares equaling the maximum preference amount, the RVI Preferred Shares are required to be redeemed by the Company for an aggregate amount of $1.00 per share. Due to the dividend preference of the RVI Preferred Shares, distributions of sales proceeds to holders of common shares are unlikely to occur until after aggregate dividends have been paid on the RVI Preferred Shares in an amount equal to the maximum preference amount. At this time, the Company cannot predict when or if it will declare dividends to the holders of RVI Preferred Shares and when or if such dividends, if paid, will equal the maximum preference amount.

Dispositions

For the six months ended June 30, 2019, the Company sold seven shopping centers and two outparcels aggregating 1.9 million square feet, for an aggregate sales price of $261.4 million.

Cash Flow Activity

The Company expects that its core business of leasing space to well capitalized tenants will continue to generate consistent and predictable cash flow after expenses and interest payments. As discussed above, in general, the Company intends to utilize net asset sale proceeds to: first, repay its mortgage loan and any other indebtedness (including any amounts owed to SITE Centers); second, make distributions on account of the RVI Preferred Shares up to the maximum preference amount and third, make distributions to holders of the Company’s common shares.

The Company’s cash flow activities are summarized as follows (in thousands):

	Six Months
	Ended June 30,
	2019			2018
	The Company			RVI Predecessor
Cash flow provided by operating activities	$	41,577		$	28,832
Cash flow provided by investing activities		231,652			100,079
Cash flow used for financing activities		(232,591	)		(41,843	)

Changes in cash flow compared to the prior comparable period are described as follows (in thousands):

Operating Activities: Cash provided by operating activities increased $12.7 million primarily due to reduction in Parent Company allocated expenses, partially offset by lower income related to property dispositions.

Investing Activities: Cash provided by investing activities increased $131.6 million primarily due to increase in proceeds from dispositions of real estate of $147.0 million, partially offset by an increase in real estate asset improvements of $28.9 million.

Financing Activities: Cash used for financing activities increased by $190.7 million primarily due to a $221.7 million increase in debt repayments, net of issuances and issuance costs.

CAPITALIZATION

At June 30, 2019, the Company’s capitalization consisted of $774.9 million of mortgage debt, $190.0 million of preferred shares and $662.7 million of market equity (market equity is defined as common shares outstanding multiplied by $34.80, the closing price of the Company’s common shares on the New York Stock Exchange on June 28, 2019, the last trading day of June), resulting in a debt to total market capitalization ratio of 0.48 to 1.0.

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

The Company had aggregate outstanding mortgage indebtedness of $774.9 million at June 30, 2019 with a maturity of March 2021, subject to three one-year extension options. In addition, the Company has two long-term ground leases in which it is the lessee.

In connection with the separation from SITE Centers, on July 1, 2018, the Company and SITE Centers entered into the Separation and Distribution Agreement, pursuant to which, among other things, SITE Centers transferred properties and certain related assets, liabilities and obligations to the Company and distributed 100% of the outstanding common shares to holders of record of SITE Centers’ common shares as of the close of business on June 26, 2018, the record date. In connection with the separation from SITE Centers, SITE Centers retained the RVI Preferred Shares, which have 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 the Company asset sales.

Payable to SITE Centers

Pursuant to the terms of the Separation and Distribution Agreement, the Company is obligated to repay SITE Centers for certain cash balances held in restricted cash accounts on the separation date in connection with the Company’s mortgage loan and for certain other amounts. The Company is obligated to repay these amounts to SITE Centers as soon as reasonably possible out of its operating cash flow but in no event later than March 31, 2020. At June 30, 2019, the amount of this obligation totaled $33.8 million and is included in the line item Payable to SITE Centers on the Company’s consolidated balance sheet.

SITE Centers Guaranty

On July 2, 2018, SITE Centers provided an unconditional guaranty to PNC with respect to any obligations outstanding from time to time under the Company’s Revolving Credit Agreement. In connection with this arrangement, the Company has agreed to pay to SITE Centers a guaranty commitment fee of 0.20% per annum on the committed amount of the Revolving Credit Agreement and a fee equal to 5.00% per annum on any amounts drawn by the Company under the Revolving Credit Agreement. In the event SITE Centers pays any of the Company’s obligations on the Revolving Credit Agreement and the Company fails to reimburse such amount within three business days, the guaranty provides for default interest that accrues at a rate equal to the sum of the LIBOR rate plus 8.50% per annum.

Other Commitments

The Company has entered into agreements with general contractors related to its shopping centers having aggregate commitments of approximately $19.5 million at June 30, 2019. These obligations, composed principally of construction contracts for the repair of the Puerto Rico properties, are generally due within 12 to 24 months, as the related construction costs are incurred, and are expected to be financed through operating cash flow and recoveries on the Company’s property insurance claim. These contracts typically can be changed or terminated without penalty.

The Company routinely enters into contracts for the maintenance of its properties. These contracts typically can be canceled upon 30 to 60 days’ notice without penalty. At June 30, 2019, the Company had purchase order obligations, typically payable within one year, aggregating approximately $0.7 million related to the maintenance of its properties and general and administrative expenses.

Hurricane Loss

In 2017, Hurricane Maria made landfall in Puerto Rico and the Company’s 12 assets in Puerto Rico, aggregating 4.4 million square feet of Company-owned GLA, were significantly impacted. One of the assets (Plaza Palma Real, consisting of approximately 0.4 million square feet of Company-owned GLA) was severely damaged. At June 30, 2019, three anchor tenants and a few other tenants totaling 0.3 million square feet were open for business approximating 58% of Plaza Palma Real’s Company-owned GLA. The other 11 assets sustained varying degrees of damage, consisting primarily of roof, HVAC system damage and water intrusion. Although some of the tenant spaces remain untenantable, a majority of the Company’s leased space that was open prior to the storm was open for business by mid 2018.

The Company has engaged various consultants to assist with the damage scoping assessment and restoration work. Restoration work is underway at all of the shopping centers, including Plaza Palma Real. The Company anticipates that the repair and restoration work will be substantially complete by early 2020 and all of the interior work being complete by the end of 2020. The timing and schedule of additional repair work to be completed are highly dependent upon any changes in the scope of work, the availability of building materials, supplies and skilled labor and the timing and amount of recoveries under the Company’s insurance policies.

The Company maintains insurance on its assets in Puerto Rico with policy limits of approximately $330 million for both property damage and business interruption. The Company’s insurance policies are subject to various terms and conditions, including a combined property damage and business interruption deductible of approximately $5.5 million. The Company estimates its aggregate property insurance claim, which includes costs to repair and rebuild, will approximate $183 million, of which $83.9 million had been paid through June 30, 2019, by the insurer. This estimated claim amount excludes damage to the stores of certain continental U.S.-based anchor tenants who maintain their own property insurance on their Company-owned premises and are expected to make the required repairs to their stores at their own expense. In addition, the Company estimates its business interruption claim, which includes costs to clean up and mitigate tenant losses, as well as lost revenue, estimated through June 30, 2019, to be approximately $38 million, of which $24.3 million has been paid through June 30, 2019 by the insurer. Of the total amount paid, $15.1 million was received between October 2017 and June 30, 2018 and allocated only to SITE Centers, $7.2 million was received in the third and fourth quarters of 2018 and allocated between the Company and SITE Centers based upon the period of loss to which the payments related and $2.0 million was received in the second quarter of 2019 and allocated only to the Company. These claim estimates are subject to change as the Company continues to assess the costs to repair damage. The Company’s ability to repair its properties, and the cost of such repairs, could be negatively impacted by circumstances and events beyond the Company’s control, such as access to building materials, changes in the scope of work to be performed and the timing and amount of insurance claim proceeds. Therefore, there can be no assurance that the Company’s estimates of property damage and lost rental revenue are accurate. The Company believes it maintains adequate insurance coverage on each of its properties and is working closely with the insurance carrier to obtain the maximum amount of insurance recovery provided under the policies. The insurer has reserved its rights with respect to certain aspects of coverage, and it is possible that the Company’s cost to repair the damages sustained may substantially exceed the amount the Company is ultimately able to recover from the insurer. The Company can give no assurances as to the amount of such recovery, the timing of payments or the resolution of the claims.

The Company’s business interruption insurance covers lost revenue through the period of property restoration and for up to 365 days following completion of restoration. For the three and six months ended June 30, 2019, rental revenues of $1.2 million and $2.8 million, respectively, were not recorded because of lost tenant revenue attributable to Hurricane Maria that has been partially defrayed by insurance proceeds. The Company will record revenue for covered business interruption claims in the period it determines that it is probable it will be compensated. As such, there could be a delay between the rental period and the recording of revenue. The amount of any future lost revenue depends on when properties are fully available for tenants’ re-occupancy which, in turn, is highly dependent upon the timing and progress of repairs. For the six months ending June 30, 2019, the Company received $2.0 million of insurance proceeds related to business interruption claims. The Company expects to make claims in future periods for lost revenue. However, there can be no assurance that insurance claims will be resolved favorably to the Company or in a timely manner.

See further discussion in Item 1A., “Risk Factors–Damages Sustained on Account of Hurricane Maria May Exceed Insurance Recoveries,” in the Company’s Annual Report on 10-K for the year ended December 31, 2018 and Note 9, “Commitments and Contingencies,” of the Company’s combined and consolidated financial statements included herein. Note that pursuant to the terms of the Separation and Distribution Agreement, SITE Centers will be entitled to receive property damage claim proceeds to the extent it incurred unreimbursed repair costs prior to July 1, 2018 and business interruption claim proceeds to the extent it sustained revenue losses prior to that date. Business interruption proceeds will continue to be recorded to revenue in the period that it is determined that the Company will be compensated.

INFLATION

Most of the Company’s long-term leases contain provisions designed to mitigate the adverse impact of inflation. Such provisions include clauses enabling the Company to receive additional rental income from escalation clauses that generally increase rental rates during the terms of the leases and/or percentage rentals based on tenants’ gross sales. Such escalations are determined by negotiation, increases in the consumer price index or similar inflation indices. In addition, many of the Company’s leases are for terms of less than 10 years, permitting the Company to seek increased rents at market rates upon renewal. Most of the Company’s leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing the Company’s exposure to increases in costs and operating expenses resulting from inflation.

ECONOMIC CONDITIONS

Despite recent tenant bankruptcies and increasing e-commerce distribution, the Company believes there is healthy tenant demand for quality locations within well-positioned shopping centers. Further, the Company continues to see demand from a broad range of tenants for its continental U.S. space, particularly in the off-price sector, which the Company believes is a reflection of increasingly value-oriented consumers. The RVI Portfolio has a diversified tenant base, with only four tenants whose annualized rental revenue equals or exceeds 3% of the Company’s annualized revenues at June 30, 2019 Walmart/Sam’s Club at 5.4%, Bed Bath & Beyond, which includes Bed Bath & Beyond, Cost Plus World Market and Christmas Tree Shops, at 3.5%, TJX Companies, which includes T.J. Maxx, Marshalls and HomeGoods at 3.0% and Petsmart at 3.0%. Other significant tenants include Best Buy and Ross Stores, both of which have strong credit ratings, remain well-capitalized and have outperformed other retail categories on a relative basis over time. The Company expects these tenants to continue to provide a stable revenue base, given the long-term nature of these leases. Moreover, the majority of the tenants in the Company’s shopping centers provide day-to-day consumer necessities with a focus toward value and convenience, which the Company believes will enable many of its tenants to succeed even in a challenging economic environment. Property revenues are generally derived from tenants with good credit profiles under long-term leases, with very little reliance on overage rents generated by tenant sales performance. The Company recognizes the risks posed by the economy, but believes that the general diversity and credit quality of its tenant base should enable it to successfully navigate through a potentially challenging retail environment.

The retail sector continues to be affected by increasing competition, including the impact of e-commerce. These dynamics are expected to continue to lead to store downsizing, closures and tenant bankruptcies. In some cases, the loss of a weaker tenant or downsizing of space creates a value-add opportunity such as re-leasing space to a stronger retailer. The loss of a tenant or downsizing of space can adversely affect the Company (see Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018).

The Company believes that its shopping center portfolio is generally high quality, as evidenced by the occupancy rates and in the average annualized base rent per occupied square foot. The shopping center portfolio’s occupancy was 87.7% and 89.3% at June 30, 2019 and December 31, 2018, respectively. The net decrease in the rate primarily was attributed to asset dispositions and a combination of anchor store tenant expirations and tenant bankruptcies. The total portfolio average annualized base rent per occupied square foot was $15.76 at June 30, 2019, as compared to $15.45 at December 31, 2018.

At June 30, 2019, the Company owned 12 assets on the island of Puerto Rico aggregating 4.4 million square feet, representing 37% of Company-owned GLA and approximately 41% of both the Company’s total consolidated revenue and consolidated revenue less operating expenses (i.e., net operating income) for the six months ended June 30, 2019. The Company believes that the tenants at its Puerto Rico assets (many of which are high-quality continental U.S. retailers, such as Walmart/Sam’s Club and the TJX Companies (T.J. Maxx and Marshalls)) typically cater to the local consumer’s desire for value, convenience and day-to-day necessities. Nevertheless, there is continued concern about the strength of the Puerto Rican economy, the ability of the government of Puerto Rico to meet its financial obligations and the impact of the territory’s ongoing bankruptcy and debt restructuring process on the economy of Puerto Rico. The impact of Hurricane Maria further exacerbated the concerns. See Note 9, “Commitments and Contingencies,” to the Company’s combined and consolidated financial statements included herein and Item 1A., “Risk Factors–The Company is Subject to Risks Relating to the Puerto Rico Economy and Government,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

In addition to its goal of maximizing cash flow from property operations, the Company seeks to realize profits through the regular sale of assets to a variety of buyers. The market upon which this aspect of the business plan relies is currently characterized as liquid but fragmented, with a wide range of generally small, non-institutional investors. While some investors do not require debt financing, many seek to capitalize on leveraged returns using mortgage financing at interest rates well below the initial asset-level returns implied by disposition prices. In addition to small, often local buyers, the Company also plans to transact with mid-sized institutional investors, some of which are domestic and foreign publicly traded companies. Many larger domestic institutions, such as pension funds and insurance companies that were traditionally large buyers of retail real estate assets, have generally become less active participants in retail transaction markets over the last several years. Lower participation of institutions and a generally smaller overall buyer pool has resulted in some level of pressure on asset prices, particularly for larger properties, though this impact remains highly heterogeneous and varies widely by market and specific assets. Asset prices for retail real estate in Puerto Rico remain highly uncertain due to lack of transaction activity since Hurricane Maria.

New Accounting Standards

New Accounting Standards are more fully described in Note 3, “Summary of Significant Accounting Policies,” to the Company’s combined and consolidated financial statements.

FORWARD-LOOKING STATEMENTS

MD&A should be read in conjunction with the Company’s combined and consolidated financial statements and the notes thereto appearing elsewhere in this report. Historical results and percentage relationships set forth in the Company’s combined and consolidated financial statements, including trends that might appear, should not be taken as indicative of future operations. The Company considers portions of this information 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 (the “Exchange Act”), both as amended, with respect to the Company’s expectations for future periods. Forward-looking statements include, without limitation, statements related to acquisitions (including any related pro forma financial information) and other business development activities, future capital expenditures, financing sources and availability and the effects of environmental and other regulations. Although the Company believes that the expectations reflected in these 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 statements of historical fact should be deemed to be forward-looking statements. Without limiting the foregoing, the words “will,” “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates” and similar expressions are intended to identify forward-looking statements. Readers should exercise caution in interpreting and relying on forward-looking statements because such statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company’s control and that could cause actual results to differ materially from those expressed or implied in the forward-looking statements and that could materially affect the Company’s actual results, performance or achievements. For additional factors that could cause the results of the Company to differ materially from those indicated in the forward-looking statements (see Item 1A., “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018).

Factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the following:

•

The Company may be unable to dispose of properties on favorable terms or at all, especially in markets or regions experiencing deteriorating economic conditions and properties anchored by tenants experiencing financial challenges. In addition, real estate investments can be illiquid, particularly as prospective buyers may experience increased costs of financing or difficulties obtaining financing due to local, national or global conditions;

•

The Company is subject to general risks affecting the real estate industry, including the need to enter into new leases or renew leases on favorable terms to generate rental revenues, and any economic downturn may adversely affect the ability of the Company’s tenants, or new tenants, to enter into new leases or the ability of the Company’s existing tenants to renew their leases at rates at least as favorable as their current rates;

•

The Company could be adversely affected by changes in the local markets where its properties are located, as well as by adverse changes in regional or national economic and market conditions;

•

The Company may fail to anticipate the effects on its properties of changes in consumer buying practices, including sales over the Internet and the resulting retailing practices and space needs of its tenants, or a general downturn in its tenants’ businesses, which may cause tenants to close stores or default in payment of rent;

•

The Company is subject to competition for tenants from other owners of retail properties, and its tenants are subject to competition from other retailers and methods of distribution. The Company is dependent upon the successful operations and financial condition of its tenants, in particular its major tenants. The bankruptcy of major tenants could result in a loss of significant rental income and could give rise to termination or rent abatement by other tenants under the co-tenancy clauses of their leases;

•

The Company relies on major tenants, which makes it vulnerable to changes in the business and financial condition of, or demand for its space by, such tenants;

•

The Company’s financial condition may be affected by required debt service payments, the risk of default and restrictions on its ability to incur additional debt or to enter into certain transactions under documents governing its debt obligations. In addition, it may encounter difficulties in refinancing existing debt. Borrowings under the mortgage loan or the revolving credit facility are subject to certain representations and warranties and customary events of default, including any event that has had or could reasonably be expected to have a material adverse effect on the Company’s business or financial condition;

•

Changes in interest rates could adversely affect the market price of the Company’s common shares, its performance and cash flow, and its ability to sell assets and the sales prices applicable thereto;

•

Debt and/or equity financing necessary for the Company to continue to operate its business or to refinance existing indebtedness may not be available or may not be available on favorable terms;

•

Disruptions in the financial markets could affect the Company’s ability to obtain financing or to refinance existing indebtedness on reasonable terms and have other adverse effects on the Company and the market price of the Company’s common shares;

•

The ability of the Company to pay dividends on its common shares in excess of its REIT taxable income is generally subject to its ability to first declare and pay aggregate dividends on the RVI Preferred Shares in an amount equal to the preference amount;

•

The Company is subject to complex regulations related to its status as a REIT and would be adversely affected if it failed to qualify as a REIT;

•

The Company must make distributions to shareholders to continue to qualify as a REIT, and if the Company must borrow funds to make distributions, those borrowings may not be available on favorable terms or at all;

•

The outcome of litigation, including litigation with tenants, may adversely affect the Company’s results of operations and financial condition;

•

The Company may not realize anticipated returns from its 12 real estate assets located in Puerto Rico, which carry risks in addition to those it faces with its continental U.S. properties and operations;

•

Property damage, expenses related thereto, and other business and economic consequences (including the potential loss of revenue) resulting from extreme weather conditions in locations where the Company owns properties;

•

Sufficiency and timing of any insurance recovery payments related to damages from extreme weather conditions;

•

The Company is subject to potential environmental liabilities;

•

The Company may incur losses that are uninsured or exceed policy coverage due to its liability for certain injuries to persons, property or the environment occurring on its properties;

•

The Company could incur additional expenses to comply with or respond to claims under the Americans with Disabilities Act or otherwise be adversely affected by changes in government regulations, including changes in environmental, zoning, tax and other regulations;

•

The Company’s Board of Directors, which regularly reviews the Company’s business strategy and objectives, may change its strategic plan;

•

A change in the Company’s relationship with SITE Centers and SITE Centers’ ability to retain qualified personnel and adequately manage the Company;

•

Potential conflicts of interest with SITE Centers and the Company’s ability to replace SITE Centers as manager (and the fees to be paid to any replacement manager) in the event the management agreements are terminated and

•

The Company and its vendors could sustain a disruption, failure or breach of their respective networks and systems, including as a result of cyber-attacks, which could disrupt the Company’s business operations, compromise the confidentiality of sensitive information and result in fines and penalties.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s primary market risk exposure is interest rate risk. At June 30, 2019 and December 31, 2018, the Company’s outstanding indebtedness was composed of all variable-rate debt. At June 30, 2019, the Company’s carrying value of the variable-rate debt was $752.4 million and its fair value was $794.7 million. At December 31, 2018, the Company’s carrying value of the variable-rate debt was $967.6 million and its fair value was $1,016.1 million. If interest rates were to increase by 1.00%, or 100 basis-points, the fair value of the debt would be $794.0 million and $1,014.6 million at June 30, 2019 and December 31, 2018, respectively. The sensitivity to changes in interest rates of the Company’s variable-rate debt was determined using a valuation model based upon factors that measure the net present value of such obligations that arise from the hypothetical estimate as discussed above. A 100 basis-point

increase in short-term market interest rates on variable-rate debt at June 30, 2019, would result in an increase in interest expense of approximately $3.9 million for the six-month period ended June 30, 2019.

The Company intends to use proceeds from asset sales to repay its indebtedness and, to the extent permitted by the mortgage loan, for general corporate purposes including distributions to the Company’s preferred and common shareholders. To the extent the Company was to incur variable-rate indebtedness, its exposure to increases in interest rates in an inflationary period could increase. The Company does not believe, however, that increases in interest expense as a result of inflation will significantly impact the Company’s distributable cash flow.

The Company intends to continually monitor and actively manage interest costs on any variable-rate debt portfolio and may enter into swap positions or interest rate caps. Accordingly, the cost of obtaining such protection agreements in relation to the Company’s access to capital markets will continue to be evaluated. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes. As of June 30, 2019, the Company had no other material exposure to market risk.

Item 4.

CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), conducted an evaluation, pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b), of the effectiveness of our disclosure controls and procedures. Based on their evaluation as required, the CEO and CFO have concluded that the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and were effective as of the end of such period to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its CEO and CFO, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

For the three months ended June 30, 2019, there were no changes in the Company’s internal control over financial reporting that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

Item 1A.

RISK FACTORS

None.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

	(a)		(b)		(c)		(d)
	Total Number of Shares Purchased⁽¹⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
April 1–30, 2019		15	$	31.17		—		—
May 1–31, 2019		—		—		—		—
June 1–30, 2019		—		—		—		—
Total		15	$	31.17		—		—

(1)	Consists of common shares surrendered or deemed surrendered to the Company to satisfy statutory minimum tax withholding obligations in connection with the vesting of restricted equity distributed in connection with the Company’s separation from SITE Centers.

Item 3.

DEFAULTS UPON SENIOR SECURITIES

None.

Item 4.

MINE SAFETY DISCLOSURES

Not applicable.

Item 5.

OTHER INFORMATION

None.

Item 6.

EXHIBITS

31.1		Certification of principal executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934²

31.2		Certification of principal financial officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934²

32.1		Certification of chief executive officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of this report pursuant to the Sarbanes-Oxley Act of 2002 ^1,2

32.2		Certification of chief financial officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of this report pursuant to the Sarbanes-Oxley Act of 2002^1,²

101.INS		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document²

101.SCH		XBRL Taxonomy Extension Schema Document²

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document²

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document²

101.LAB		XBRL Taxonomy Extension Label Linkbase Document²

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document²

1	Pursuant to SEC Release No. 34-4751, these exhibits are deemed to accompany this report and are not “filed” as part of this report.

2	Submitted electronically herewith.

Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018, (ii) Combined and Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018, (iii) Combined and Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2019 and 2018, (iv) Combined and Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 and (v) Notes to Condensed Combined and Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.