Quarterly Report (10-q)

Date : 08/06/2019 @ 8:35PM
Source : Edgar (US Regulatory)
Stock : Retail Value Inc (RVI)
Quote : 36.0  -0.12 (-0.33%) @ 9:27PM
After Hours
Last Trade
Last $ 36.00 ◊ 0.00 (0.00%)

Quarterly Report (10-q)

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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

OR

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)                 (Z ip 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.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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

 

 

 

1

 


 

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.

 

2

 


 

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.

3

 


 

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.

4

 


 

R etail 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.

 

5

 


 

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.

 

6

 


 

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.

7

 


 

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.   

8

 


 

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.  T he 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.

9

 


 

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 R ents, Recoveries from Tenants, Ancillary Income and Lease Termina tion 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, b ad 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.

5 .

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.  

10

 


 

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):

 

 

 

 

Classification

 

June 30, 2019

 

   Operating Lease ROU Assets

 

Other Assets, Net

 

$

1,811

 

 

 

 

 

 

 

 

Operating Lease Liabilities

 

Accounts Payable and Other Liabilities

 

$

2,943

 

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

 

11

 


 

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

12

 


 

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 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. 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.

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

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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.

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 expects that its insurance for property damage and business interruption claims will include the costs to clean up, repair and rebuild the properties, as well as lost revenue.  Certain continental U.S.-based anchor tenants maintain their own property insurance on their Company-owned premises and are expected to make the required repairs to their stores.  The Company is unable to estimate the impact of potential increased costs associated with resource constraints in Puerto Rico relating to building materials, supplies and labor.  The Company believes it maintains adequate insurance coverage on each of its properties and is in active communication with the insurer with respect to the resolution of its claims.  The insurer has reserved its rights with respect to certain aspects of coverage, and it is possible

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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

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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

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annum times the average aggregate daily principal amount of loans plus the aggregate stated average daily amount of letters of credit outstanding under the Re volving 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.

1 2 .

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