Retail Value Inc. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended September 30, 2022

OR

For the transition period from to

Commission file number 1-38517

RETAIL VALUE INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (216) 755-5500

Securities registered pursuant to Section 12(b) of the Act:

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 October 27, 2022, the registrant had 21,117,150 shares of common stock, $0.10 par value per share, outstanding.

Retail Value Inc.

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED September 30, 2022

TABLE OF CONTENTS

1

Retail Value Inc.

CONSOLIDATED STATEMENT OF NET ASSETS

(Liquidation Basis)

(unaudited, in thousands)

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

2

Retail Value Inc.

CONSOLIDATED BALANCE SHEET

(Going-Concern Basis)

(unaudited, in thousands, except share amounts)

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

3

Retail Value Inc.

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS

(Liquidation Basis)

(unaudited, in thousands)

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

4

Retail Value Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Going-Concern Basis)

(unaudited, in thousands, except per share amounts)

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

5

Retail Value Inc.

CONSOLIDATED STATEMENTS OF EQUITY

(Going-Concern Basis)

(unaudited, in thousands)

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

6

Retail Value Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Going-Concern Basis)

(unaudited, in thousands)

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

7

Notes to Condensed Consolidated Financial Statements

9

10

11

13

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. (the “Company” or “RVI”) (OTC Pink Market: RVIC) 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, 2021, as well as other publicly available information.

The Company was formed in December 2017 as a wholly-owned subsidiary of SITE Centers Corp. (“SITE Centers” or the “Manager”). On July 1, 2018, the date of the Company’s spin-off from SITE Centers into a separate publicly traded company, the Company owned 48 properties and had two reportable segments: continental U.S. and Puerto Rico. As a result of the sale of the Company’s remaining Puerto Rico assets in August 2021, the Company ceased reporting financial results for the Puerto Rico segment and instead commenced reporting the financial results of the Puerto Rico segment as discontinued operations for all periods presented. On April 12, 2022, RVI completed the sale of its last real estate asset, Crossroads Center, and no longer owns an interest in any real property.

On April 7, 2022, the Company de-listed its common shares from the New York Stock Exchange (the "NYSE") in anticipation of the sale of the Company's final real estate asset and the winding up of its business. On June 30, 2022, the Company filed a certificate of dissolution with the Secretary of State of the State of Ohio. Pursuant to the Ohio Revised Code, the Company will continue to exist for a period of five years following the filing of the certificate of dissolution for the purpose of paying, satisfying and discharging any unknown or contingent claims or any debts or other obligations, collecting and distributing its assets, and doing all other acts required to liquidate and wind-up its business and affairs. In connection with the filing of the certificate of dissolution and in recognition of the substantial completion of the Company's original strategy, the Company's independent directors resigned from the Company's Board of Directors on July 1, 2022, and the Board of Directors is now comprised exclusively of management directors.

EXECUTIVE SUMMARY

The Company remains focused on maximizing the collection of its remaining accounts receivable, the payment of known and contingent liabilities (including wind-up expenses) and the distribution of available funds to the Company’s common shareholders. The dissolution and wind-up process and the amount and timing of additional distributions to shareholders entail risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount that ultimately will be distributed to shareholders, and no assurance can be given that future distributions will equal or exceed the estimate of net assets in liquidation presented in the Company's Consolidated Statement of Net Assets. See further discussion below under "Liquidity, Capital Resources and Financing Activities – Winding up and Dissolution."

Transaction Update

On April 12, 2022, the Company sold its remaining real estate investment, Crossroads Center in Gulfport, Mississippi, for a sale price of $38.5 million. Net proceeds from the transaction were approximately $37.4 million.

Manager

The Company is party to an external management agreement (the “New Management Agreement”) with SITE Centers, which governs the fees, terms and conditions pursuant to which SITE Centers serves as the Company’s manager. The Company does not have any employees.

Effective January 1, 2022, pursuant to the terms of the New Management Agreement, the Company will pay the Manager an asset management fee for services rendered in connection with corporate management of the Company in an aggregate amount of (i) $500,000 for calendar year 2022, (ii) $300,000 per annum commencing on January 1, 2023 until the end of the calendar quarter in which the Company’s shares are deregistered under the Securities Exchange Act of 1934 (the “Exchange Act”) and/or the Company’s reporting obligations under the Exchange Act are suspended or terminated, and (iii) $100,000 per annum, commencing from the calendar quarter immediately following the calendar quarter in which the Company’s shares are deregistered under the Exchange Act and/or the Company’s reporting obligations under the Exchange Act are suspended or terminated until the expiry of the term of the New Management Agreement (June 30, 2027) or the earlier termination thereof. In addition, pursuant to the New Management Agreement, the Company paid the Manager a property management fee of $88,000 on account of Crossroads Center, which was sold in April 2022. In April 2022, in accordance with the terms of the New Management Agreement, the Company paid SITE Centers a

14

$385,000 disposition fee for the sale of Crossroads Center and a $500,000 incentive payment in recognition of the successful completion of the Company’s disposition program (including the sale of Crossroads Center).

The New Management Agreement also obligates the Company to pay or reimburse the Manager for all commercially reasonable third-party costs and expenses incurred in the performance of its duties under the New Management Agreement, including, but not limited to, all fees and expenses paid to outside advisors (legal and accounting), consultants, architects, engineers and other professionals reasonably required for the performance of the Manager’s duties.

RESULTS OF OPERATIONS

Period from May 1, 2022 through September 30, 2022

As a result of the adoption of the liquidation basis accounting as of May 1, 2022, the results of operations for the current-year period are not comparable to the prior-year period. The decrease in net assets in liquidation for the period from May 1, 2022 through September 30, 2022 is primarily a result of distributions to common shareholders of $31.0 million and the payment of additional expenses associated with the wind-up of the operations partially offset by payments received that were in excess of estimated receivables or were not anticipated.

Period from January 1, 2022 through April 30, 2022

For the four months ended April 30, 2022, the Company had one operating property, Crossroads Center, which was sold in April 2022. The operations of this property account for a majority of the revenues and operating expenses reported for the four months ended April 30, 2022. The change in income as compared to the three and nine months ended September 30, 2021 is a result of the sale of all of the Company's remaining real estate assets in 2021, except for Crossroads Center. The general and administrative expenses primarily represent legal, audit, tax and compliance services and director compensation. The decrease in interest expense primarily was due to the repayment of the Company’s mortgage loan in August 2021. Debt extinguishment costs (primarily related to the non-cash write-off of unamortized deferred financing costs) were incurred in connection with the prepayment of the mortgage loan with asset sale proceeds. Additionally, included in discontinued operations for the four months ended April 30, 2022, is 2021 overage rent (for the Company’s ownership period of the asset) from a major tenant in Puerto Rico that was not required to report its sales information until the first quarter of 2022.

LIQUIDITY, CAPITAL RESOURCES AND FINANCING ACTIVITIES

The Company maintains a cash balance to satisfy projected expenses and known and unknown claims which might arise during the winding-up and dissolution process. The Company’s capital sources include unrestricted cash and future cash flow from collection of accounts receivable. See further discussion below under “Liquidity, Capital Resources and Financing Activities – Winding up and Dissolution.” The Company’s liquidity is reflected as follows (in millions):

In addition to the Liability for Estimated Wind-Up Expenses included in the Consolidated Statement of Net Assets, the Company may be subject to other expenses such as insurance deductibles and legal costs incurred in connection with the collection of the remaining accounts receivable or any litigation which may arise during the winding-up and dissolution process. These costs cannot be reasonably estimated and thus are not included as a deduction of the Net Assets in Liquidation at September 30, 2022. There is no assurance that the distributions will equal or exceed the estimate of net assets in liquidation presented above.

Common Share Dividends

In December 2021, the Company declared a cash dividend of $3.27 per common share that was paid in January 2022 funded primarily with asset sale proceeds. In April 2022, the Company declared a cash dividend of $2.13 per common share that was paid in May 2022 funded primarily with proceeds from the sale of the Company's last property, Crossroads Center. In June 2022, the Company declared a cash dividend of $1.16 per common share that was paid in July 2022 and was funded primarily with collections of accounts receivable and prior reserves for potential claims by purchasers under property sale agreements that did not materialize prior to the expiration of their general survival periods ("Survival Period Reserves"). In September 2022, the Company declared a cash dividend of $0.31 per common share that was paid on October 26, 2022 and was funded primarily with the collection of a note receivable, Survival Period Reserves and other cash on hand. From January 1, 2022, through October 26, 2022, the Company paid cash dividends totaling $6.87 per common share or $145.1 million in the aggregate.

15

Dividend Distributions

The Company currently operates in a manner that allows it to qualify as a REIT and generally not be subject to U.S. federal income and excise tax. 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. 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 liquidity, which will be affected by various factors, including its known expenses (including management fees and other obligations owing to SITE Centers), projected expenses and contingency reserves relating to the Company’s wind-up. The Company may elect to surrender its REIT status in connection with the wind-up of its operations in the event the Company determines that the anticipated benefits to the Company and its shareholders of maintaining REIT qualification do not exceed the related compliance costs or if the nature of the Company’s remaining operations makes compliance with REIT requirements impracticable.

Winding Up and Dissolution

There are many factors that will affect the timing and amount of any additional distributions to shareholders, including, among other things, the Company’s ability to collect amounts currently owed to it by third parties and the amount of current cash balances utilized to satisfy projected expenses and known and unknown claims which might arise during the Company’s winding-up and dissolution process. Accordingly, it is not possible to predict the timing or aggregate amount that ultimately will be distributed to shareholders, and no assurance can be given that future distributions will equal or exceed the estimate of net assets in liquidation presented in the Company's Consolidated Statement of Net Assets.

In connection with the sale of Crossroads Center, the Company’s last property, on April 12, 2022, the Company adopted liquidation accounting effective May 1, 2022, which was the beginning of the fiscal month after the sale date. The liquidation basis of accounting is appropriate when the liquidation of a company appears imminent, and the net realizable value of its assets is reasonably determinable. Under this basis of accounting, assets and liabilities are stated at their net realizable value (or liquidation value) and estimated costs through the liquidation date are accrued to the extent reasonably determinable.

The Company filed a certificate of dissolution with the Secretary of State of the State of Ohio on June 30, 2022. Pursuant to Ohio law, the Company will continue to exist for a period of five years following the filing of the certificate of dissolution for the purpose of paying, satisfying and discharging any unknown or contingent claims or any debts or other obligations, collecting and distributing its assets, and doing all other acts required to liquidate and wind-up its business and affairs. Under Ohio law, if the Company makes distributions to its shareholders without making adequate provisions for payment of creditors’ claims, the Company’s shareholders could be liable to creditors to the extent of any payments due to creditors (up to the aggregate amount previously received by the shareholder from the Company). Therefore, the Company retained a portion of the proceeds from its final asset sales in order to establish a reserve fund to satisfy and discharge expenses projected to be incurred, and any unknown or contingent claims, debts or obligations which might arise, during the five-year wind-up period subsequent to the filing of the certificate of dissolution. It is likely that the Company will not make a final distribution until all such expenses and contingent claims are paid, resolved or fail to materialize, which could be one or more years following the date on which the certificate of dissolution was filed. Subject to uncertainties inherent in winding up its business, it is also likely that the Company will make one or more small interim distributions to shareholders during the five-year dissolution period as specific expenses and contingent claims are satisfied, resolved or fail to materialize. The Company is unable to provide any assurances with respect to the amount of any future distributions or the timing thereof.

For example, contracts governing property dispositions typically allow the purchaser to true-up common area maintenance charges with the seller at the end of the year in which the disposition occurred and to make claims for breaches of most representations and other provisions under the sale agreement for a period of nine to 12 months following the disposition, subject to a cap, which is typically 2% to 3% of the gross sales price. As of October 27, 2022, the survival period for all of the Company's sale agreements had expired, except for the survival period applicable to the sale of the Company’s final property which is capped at approximately $0.8 million and expires in January 2023. This potential liability is not included in the Consolidated Statement of Net Assets (see table above). The Company also maintains cash balances to pay, among other items, fees to SITE Centers under the New Management Agreement, professional fees (accountants and law firms) and potential insurance deductibles (including a $1.5 million deductible applicable to any claims made with respect to a tail insurance policy for directors and officers, that is not accrued for in the Consolidated Statement of Net Assets) and vendor expenses. See “Risk Factors—Risks Related to the Company’s Strategy—The Company Expects to Establish a Reserve Fund with Proceeds of Its Final Asset Sales in Order to Satisfy Claims” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

16

On April 7, 2022, the Company de-listed its common shares from the NYSE in anticipation of the Company’s sale of Crossroads Center and the winding up of its business. As a result, shareholders may have difficulty trading their common shares and the Company’s Board of Directors is no longer required to be comprised of a majority of independent directors. On July 1, 2022, the independent members of the Company's Board of Directors resigned, and the Board of Directors is now comprised exclusively of management directors. See “Risk Factors—Risks Related to the Company’s Common Shares—If an Active Trading Market for the Company’s Common Shares Is Not Sustained, or if the Company’s Common Shares are Delisted from the NYSE, Shareholders’ Ability to Sell Shares When Desired and the Prices Obtained Will Be Adversely Affected” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Through its winding up and dissolution, the Company will be required to continue to comply with the applicable reporting requirements of the Exchange Act, even if compliance with these reporting requirements is economically burdensome. In order to curtail expenses, the Company eventually expects to seek relief from the Securities and Exchange Commission from the reporting requirements under the Exchange Act. If such relief is granted, shareholders will have access to substantially limited public information about the Company, which may further impact the trading market for the Company's common shares. The Company will continue to incur professional fees prior to and in connection with such deregistration processes, which will also affect the amounts available for distribution to shareholders in connection with the winding up of the Company’s business and affairs.

Cash Flow Activity

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

The Company’s cash flow compared to the prior comparable period are described as follows:

Operating Activities: Cash provided by operating activities decreased $57.5 million primarily due to the following:

Investing Activities: Cash provided by investing activities decreased $550.1 million primarily due to the following:

Financing Activities: Cash used for financing activities decreased by $289.6 million primarily due to the following:

CAPITALIZATION

At September 30, 2022, the Company’s capitalization consisted of $9.7 million of market equity (market equity is defined as common shares outstanding multiplied by $0.46, the last reported trading price of the Company’s common shares on the OTC Pink Market at September 30, 2022). In September 2022, the Board of Directors of the Company declared a dividend on the Company’s common shares in the aggregate amount of $6.5 million ($0.31 per common share), which was paid on October 26, 2022.

FORWARD-LOOKING STATEMENTS

MD&A should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing elsewhere in this report. Historical results and percentage relationships set forth in the Company’s 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 Exchange Act, both as amended, with respect to the Company’s expectations for future periods. Forward-looking statements include, without limitation, statements related to the wind-up of the Company's operations and the timing or amount of any future distributions to shareholders. 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

17

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, 2021.

Factors that could cause actual results, performance or achievements (including amounts available for distribution to shareholders) to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the following:

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Proceeds from the Company's final asset sales will be used for general corporate purposes, and to maintain an appropriate cash balance to satisfy claims and expenses related to the winding up of the Company's business and distributions to holders of the Company’s common shares. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes. As of September 30, 2022, the Company had no other material exposure to market risk.

Item 4. CONTROLS AND PROCEDURES

Disclosure 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 the Company’s 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 September 30, 2022, 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 September 30 2022, 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 September 30, 2022, 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.

18

PART II

OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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.

Item 1A. RISK FACTORS

None.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

19

Item 6. EXHIBITS

1. Submitted electronically herewith.

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

Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statement of Net Assets as of September 30, 2022, (ii) Consolidated Balance Sheet as of December 31, 2021, (iii) Consolidated Statement of Changes in Net Assets for the Three Months Ending September 30, 2022 and for the Period from May 1, 2022 through September 30, 2022, (iv) Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the Four Months Ended April 30, 2022 and the Three and Nine Months Ended September 30, 2021, (v) Consolidated Statements of Equity for the Four Months Ended April 30, 2022 and the Three and Nine Months Ended September 30, 2021, (vi) Consolidated Statements of Cash Flows for the Four Months Ended April 30, 2022 and the Nine Months Ended September 30, 2021 and (vii) Notes to Condensed Consolidated Financial Statements.

20

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.

21