SITE Centers Corp. - Quarter Report: 2023 March (Form 10-Q)
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 March 31, 2023
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 1-11690
SITE Centers Corp.
(Exact name of registrant as specified in its charter)
Ohio |
|
34-1723097 |
(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 |
|
SITC |
|
New York Stock Exchange |
|
|
|
|
|
Depositary Shares, each representing 1/20 of a share of 6.375% Class A Cumulative Redeemable Preferred Shares without Par Value |
|
SITC PRA |
|
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 |
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☒ |
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Accelerated filer |
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☐ |
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|
|
|
|||
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
☐ |
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|
|
|
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 April 26, 2023 the registrant had 209,258,120 shares of common stock, $0.10 par value per share, outstanding.
SITE Centers Corp.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED March 31, 2023
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION |
||
Item 1. |
Financial Statements – Unaudited |
|
|
Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 |
3 |
|
Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 |
4 |
|
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2023 and 2022 |
5 |
|
Consolidated Statements of Equity for the Three Months Ended March 31, 2023 and 2022 |
6 |
|
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 |
7 |
|
8 |
|
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
15 |
Item 3. |
29 |
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Item 4. |
30 |
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PART II. OTHER INFORMATION |
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Item 1. |
31 |
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Item 1A. |
31 |
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Item 2. |
31 |
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Item 3. |
31 |
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Item 4. |
31 |
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Item 5. |
31 |
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Item 6. |
32 |
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33 |
||
2
SITE Centers Corp.
CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands, except share amounts)
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Assets |
|
|
|
|
|
||
Land |
$ |
1,073,726 |
|
|
$ |
1,066,852 |
|
Buildings |
|
3,755,415 |
|
|
|
3,733,805 |
|
Fixtures and tenant improvements |
|
592,009 |
|
|
|
576,036 |
|
|
|
5,421,150 |
|
|
|
5,376,693 |
|
Less: Accumulated depreciation |
|
(1,696,184 |
) |
|
|
(1,652,899 |
) |
|
|
3,724,966 |
|
|
|
3,723,794 |
|
Construction in progress and land |
|
57,276 |
|
|
|
56,466 |
|
Total real estate assets, net |
|
3,782,242 |
|
|
|
3,780,260 |
|
Investments in and advances to joint ventures, net |
|
45,577 |
|
|
|
44,608 |
|
Cash and cash equivalents |
|
25,034 |
|
|
|
20,254 |
|
Restricted cash |
|
425 |
|
|
|
960 |
|
Accounts receivable |
|
59,857 |
|
|
|
63,926 |
|
Other assets, net |
|
140,050 |
|
|
|
135,009 |
|
|
$ |
4,053,185 |
|
|
$ |
4,045,017 |
|
Liabilities and Equity |
|
|
|
|
|
||
Unsecured indebtedness: |
|
|
|
|
|
||
Senior notes, net |
$ |
1,454,462 |
|
|
$ |
1,453,923 |
|
Term loan, net |
|
198,605 |
|
|
|
198,521 |
|
Revolving credit facility |
|
75,000 |
|
|
|
— |
|
|
|
1,728,067 |
|
|
|
1,652,444 |
|
Mortgage indebtedness, net |
|
54,201 |
|
|
|
54,577 |
|
Total indebtedness |
|
1,782,268 |
|
|
|
1,707,021 |
|
Accounts payable and other liabilities |
|
195,825 |
|
|
|
214,985 |
|
Dividends payable |
|
30,081 |
|
|
|
30,389 |
|
Total liabilities |
|
2,008,174 |
|
|
|
1,952,395 |
|
|
|
|
|
|
|||
SITE Centers Equity |
|
|
|
|
|
||
Class A—6.375% cumulative redeemable preferred shares, par value, $500 liquidation value; |
|
175,000 |
|
|
|
175,000 |
|
Common shares, with par value, $0.10 stated value; 300,000,000 shares authorized; 214,372,008 and |
|
21,437 |
|
|
|
21,437 |
|
Additional paid-in capital |
|
5,966,089 |
|
|
|
5,974,216 |
|
Accumulated distributions in excess of net income |
|
(4,061,167 |
) |
|
|
(4,046,370 |
) |
Deferred compensation obligation |
|
5,055 |
|
|
|
5,025 |
|
Accumulated other comprehensive income |
|
5,838 |
|
|
|
9,038 |
|
Less: Common shares in treasury at cost: 5,386,964 and 3,787,279 shares at March 31, 2023 and |
|
(73,035 |
) |
|
|
(51,518 |
) |
Total SITE Centers shareholders' equity |
|
2,039,217 |
|
|
|
2,086,828 |
|
Non-controlling interests |
|
5,794 |
|
|
|
5,794 |
|
Total equity |
|
2,045,011 |
|
|
|
2,092,622 |
|
|
$ |
4,053,185 |
|
|
$ |
4,045,017 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
SITE Centers Corp.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share amounts)
|
Three Months |
|
|||||
|
Ended March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Revenues from operations: |
|
|
|
|
|
||
Rental income |
$ |
135,872 |
|
|
$ |
129,884 |
|
Fee and other income |
|
2,820 |
|
|
|
4,436 |
|
|
|
138,692 |
|
|
|
134,320 |
|
Rental operation expenses: |
|
|
|
|
|
||
Operating and maintenance |
|
23,166 |
|
|
|
21,936 |
|
Real estate taxes |
|
20,053 |
|
|
|
20,183 |
|
General and administrative |
|
10,645 |
|
|
|
12,251 |
|
Depreciation and amortization |
|
54,016 |
|
|
|
50,364 |
|
|
|
107,880 |
|
|
|
104,734 |
|
Other income (expense): |
|
|
|
|
|
||
Interest expense |
|
(19,923 |
) |
|
|
(18,258 |
) |
Other income (expense), net |
|
(687 |
) |
|
|
(504 |
) |
|
|
(20,610 |
) |
|
|
(18,762 |
) |
Income before earnings from equity method investments and other items |
|
10,202 |
|
|
|
10,824 |
|
Equity in net income of joint ventures |
|
1,359 |
|
|
|
169 |
|
Gain on sale and change in control of interests |
|
3,749 |
|
|
|
3,356 |
|
Gain (loss) on disposition of real estate, net |
|
205 |
|
|
|
(142 |
) |
Income before tax expense |
|
15,515 |
|
|
|
14,207 |
|
Tax expense of taxable REIT subsidiaries and state franchise and income taxes |
|
(213 |
) |
|
|
(252 |
) |
Net income |
$ |
15,302 |
|
|
$ |
13,955 |
|
Income attributable to non-controlling interests, net |
|
(18 |
) |
|
|
(18 |
) |
Net income attributable to SITE Centers |
$ |
15,284 |
|
|
$ |
13,937 |
|
Preferred dividends |
|
(2,789 |
) |
|
|
(2,789 |
) |
Net income attributable to common shareholders |
$ |
12,495 |
|
|
$ |
11,148 |
|
|
|
|
|
|
|
||
Per share data: |
|
|
|
|
|
||
Basic |
$ |
0.06 |
|
|
$ |
0.05 |
|
Diluted |
$ |
0.06 |
|
|
$ |
0.05 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
SITE Centers Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in thousands)
|
Three Months |
|
|||||
|
Ended March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Net income |
$ |
15,302 |
|
|
$ |
13,955 |
|
Other comprehensive income: |
|
|
|
|
|
||
Change in fair value of interest-rate contracts |
|
(3,200 |
) |
|
|
— |
|
Total other comprehensive income |
|
(3,200 |
) |
|
|
— |
|
Comprehensive income |
$ |
12,102 |
|
|
$ |
13,955 |
|
Comprehensive income attributable to non-controlling interests |
|
(18 |
) |
|
|
(18 |
) |
Total comprehensive income attributable to SITE Centers |
$ |
12,084 |
|
|
$ |
13,937 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
SITE Centers Corp.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in thousands)
|
SITE Centers Equity |
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Preferred Shares |
|
|
Common |
|
|
Additional |
|
|
Accumulated Distributions |
|
|
Deferred |
|
|
Accumulated Other Comprehensive Income |
|
|
Treasury |
|
|
Non- |
|
|
Total |
|
|||||||||
Balance, December 31, 2022 |
$ |
175,000 |
|
|
$ |
21,437 |
|
|
$ |
5,974,216 |
|
|
$ |
(4,046,370 |
) |
|
$ |
5,025 |
|
|
$ |
9,038 |
|
|
$ |
(51,518 |
) |
|
$ |
5,794 |
|
|
$ |
2,092,622 |
|
Issuance of common shares |
|
— |
|
|
|
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
Repurchase of common |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(26,611 |
) |
|
|
— |
|
|
|
(26,611 |
) |
Stock-based compensation, net |
|
— |
|
|
|
— |
|
|
|
(8,133 |
) |
|
|
— |
|
|
|
30 |
|
|
|
— |
|
|
|
5,094 |
|
|
|
— |
|
|
|
(3,009 |
) |
Distributions to non-controlling |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(18 |
) |
|
|
(18 |
) |
Dividends declared-common shares |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(27,292 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(27,292 |
) |
Dividends declared-preferred shares |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,789 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,789 |
) |
Comprehensive income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15,284 |
|
|
|
— |
|
|
|
(3,200 |
) |
|
|
— |
|
|
|
18 |
|
|
|
12,102 |
|
Balance, March 31, 2023 |
$ |
175,000 |
|
|
$ |
21,437 |
|
|
$ |
5,966,089 |
|
|
$ |
(4,061,167 |
) |
|
$ |
5,055 |
|
|
$ |
5,838 |
|
|
$ |
(73,035 |
) |
|
$ |
5,794 |
|
|
$ |
2,045,011 |
|
|
SITE Centers Equity |
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Preferred Shares |
|
|
Common |
|
|
Additional |
|
|
Accumulated Distributions |
|
|
Deferred Compensation Obligation |
|
|
Treasury |
|
|
Non- |
|
|
Total |
|
||||||||
Balance, December 31, 2021 |
$ |
175,000 |
|
|
$ |
21,129 |
|
|
$ |
5,934,166 |
|
|
$ |
(4,092,783 |
) |
|
$ |
4,695 |
|
|
$ |
(5,349 |
) |
|
$ |
5,794 |
|
|
$ |
2,042,652 |
|
Issuance of common shares |
|
— |
|
|
|
65 |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
69 |
|
Issuance of common shares for |
|
— |
|
|
|
223 |
|
|
|
33,558 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
33,781 |
|
|
Stock-based compensation, net |
|
— |
|
|
|
— |
|
|
|
996 |
|
|
|
— |
|
|
|
(24 |
) |
|
|
(4,599 |
) |
|
|
— |
|
|
|
(3,627 |
) |
Distributions to non-controlling |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(18 |
) |
|
|
(18 |
) |
Dividends declared-common shares |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(27,905 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(27,905 |
) |
Dividends declared-preferred shares |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,789 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,789 |
) |
Comprehensive income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,937 |
|
|
|
— |
|
|
|
— |
|
|
|
18 |
|
|
|
13,955 |
|
Balance, March 31, 2022 |
$ |
175,000 |
|
|
$ |
21,417 |
|
|
$ |
5,968,724 |
|
|
$ |
(4,109,540 |
) |
|
$ |
4,671 |
|
|
$ |
(9,948 |
) |
|
$ |
5,794 |
|
|
$ |
2,056,118 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
SITE Centers Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
|
Three Months |
|
|||||
|
Ended March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Cash flow from operating activities: |
|
|
|
|
|
||
Net income |
$ |
15,302 |
|
|
$ |
13,955 |
|
Adjustments to reconcile net income to net cash flow provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
54,016 |
|
|
|
50,364 |
|
Stock-based compensation |
|
1,760 |
|
|
|
1,823 |
|
Amortization and write-off of debt issuance costs and fair market value of debt adjustments |
|
1,111 |
|
|
|
1,145 |
|
Equity in net income of joint ventures |
|
(1,359 |
) |
|
|
(169 |
) |
Operating cash distributions from joint ventures |
|
— |
|
|
|
883 |
|
Gain on sale and change in control of interests |
|
(3,749 |
) |
|
|
(3,356 |
) |
(Gain) loss on disposition of real estate, net |
|
(205 |
) |
|
|
142 |
|
Net change in accounts receivable |
|
4,819 |
|
|
|
6,815 |
|
Net change in accounts payable and accrued expenses |
|
(16,205 |
) |
|
|
(14,257 |
) |
Net change in other operating assets and liabilities |
|
(13,323 |
) |
|
|
(7,324 |
) |
Total adjustments |
|
26,865 |
|
|
|
36,066 |
|
Net cash flow provided by operating activities |
|
42,167 |
|
|
|
50,021 |
|
Cash flow from investing activities: |
|
|
|
|
|
||
Real estate acquired, net of liabilities and cash assumed |
|
(26,503 |
) |
|
|
(133,463 |
) |
Real estate developed and improvements to operating real estate |
|
(27,990 |
) |
|
|
(24,725 |
) |
Proceeds from disposition of joint venture interests |
|
3,405 |
|
|
|
— |
|
Proceeds from disposition of real estate |
|
— |
|
|
|
156 |
|
Equity contributions to joint ventures |
|
(56 |
) |
|
|
(55 |
) |
Repayment of joint venture advance, net |
|
318 |
|
|
|
— |
|
Distributions from unconsolidated joint ventures |
|
— |
|
|
|
3,583 |
|
Net cash flow used for investing activities |
|
(50,826 |
) |
|
|
(154,504 |
) |
Cash flow from financing activities: |
|
|
|
|
|
||
Proceeds from revolving credit facility, net |
|
75,000 |
|
|
|
115,000 |
|
Repayment of mortgage debt |
|
(314 |
) |
|
|
(34,696 |
) |
Proceeds from issuance of common shares, net of offering expenses |
|
— |
|
|
|
33,781 |
|
Repurchase of common shares in conjunction with equity award plans and dividend reinvestment plan |
|
(4,800 |
) |
|
|
(5,415 |
) |
Repurchase of common shares |
|
(26,611 |
) |
|
|
— |
|
Distributions to non-controlling interests and redeemable operating partnership units |
|
(18 |
) |
|
|
(17 |
) |
Dividends paid |
|
(30,353 |
) |
|
|
(28,208 |
) |
Net cash flow provided by financing activities |
|
12,904 |
|
|
|
80,445 |
|
|
|
|
|
|
|
||
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
4,245 |
|
|
|
(24,038 |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
21,214 |
|
|
|
43,252 |
|
Cash, cash equivalents and restricted cash, end of period |
$ |
25,459 |
|
|
$ |
19,214 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Notes to Condensed Consolidated Financial Statements
Nature of Business
SITE Centers Corp. and its related consolidated real estate subsidiaries (collectively, the “Company” or “SITE Centers”) and unconsolidated joint ventures are primarily engaged in the business of owning, leasing, acquiring, redeveloping, developing and managing shopping centers. Unless otherwise provided, references herein to the Company or SITE Centers include SITE Centers Corp. and its wholly-owned subsidiaries. The Company’s tenant base includes a mixture of national and regional retail chains and local tenants. Consequently, the Company’s credit risk is primarily concentrated in the retail industry.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles (“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.
Unaudited Interim Financial Statements
These financial statements have been prepared by the Company in accordance with GAAP for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results of the periods presented. The results of operations for the three months ended March 31, 2023 and 2022, are not necessarily indicative of the results that may be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Principles of Consolidation
The consolidated financial statements include the results of the Company and all entities in which the Company has a controlling interest or has been determined to be the primary beneficiary of a variable interest entity. All significant inter-company balances and transactions have been eliminated in consolidation. Investments in real estate joint ventures in which the Company has the ability to exercise significant influence, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or loss) of these joint ventures is included in consolidated net income (loss).
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):
|
Three Months |
|
|||||
|
Ended March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Consolidation of the net assets of previously unconsolidated joint ventures |
$ |
— |
|
|
$ |
42.8 |
|
Net assets acquired from an unconsolidated joint venture |
— |
|
|
|
8.5 |
|
|
Dividends declared, but not paid |
|
30.1 |
|
|
|
30.7 |
|
Accounts payable related to construction in progress |
|
10.3 |
|
|
10.5 |
|
|
Fee and Other Income
Fee and Other Income on the consolidated statements of operations includes revenue from contracts with customers, which is primarily from the Company's unconsolidated joint ventures (Note 2).
8
At March 31, 2023 and December 31, 2022, the Company had ownership interests in various unconsolidated joint ventures that had investments in 15 and 18 shopping center properties, respectively. Condensed combined financial information of the Company’s unconsolidated joint venture investments is as follows (in thousands):
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Condensed Combined Balance Sheets |
|
|
|
|
|
||
Land |
$ |
199,882 |
|
|
$ |
212,326 |
|
Buildings |
|
607,130 |
|
|
|
643,334 |
|
Fixtures and tenant improvements |
|
67,358 |
|
|
|
70,636 |
|
|
|
874,370 |
|
|
|
926,296 |
|
Less: Accumulated depreciation |
|
(204,892 |
) |
|
|
(220,642 |
) |
|
|
669,478 |
|
|
|
705,654 |
|
Construction in progress and land |
|
501 |
|
|
|
1,965 |
|
Real estate, net |
|
669,979 |
|
|
|
707,619 |
|
Cash and restricted cash |
|
63,112 |
|
|
|
44,809 |
|
Receivables, net |
|
10,750 |
|
|
|
11,671 |
|
Other assets, net |
|
33,305 |
|
|
|
36,272 |
|
|
$ |
777,146 |
|
|
$ |
800,371 |
|
|
|
|
|
|
|
||
Mortgage debt |
$ |
509,168 |
|
|
$ |
535,093 |
|
Notes and accrued interest payable to the Company |
|
2,827 |
|
|
|
2,972 |
|
Other liabilities |
|
40,392 |
|
|
|
41,588 |
|
|
|
552,387 |
|
|
|
579,653 |
|
Accumulated equity |
|
224,759 |
|
|
|
220,718 |
|
|
$ |
777,146 |
|
|
$ |
800,371 |
|
|
|
|
|
|
|
||
Company's share of accumulated equity |
$ |
43,437 |
|
|
$ |
42,644 |
|
Basis differentials |
|
(442 |
) |
|
|
(707 |
) |
Deferred development fees, net of portion related to the Company's interest |
|
(245 |
) |
|
|
(301 |
) |
Amounts payable to the Company |
|
2,827 |
|
|
|
2,972 |
|
Investments in and Advances to Joint Ventures, net |
$ |
45,577 |
|
|
$ |
44,608 |
|
|
Three Months |
|
|||||
|
Ended March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Condensed Combined Statements of Operations |
|
|
|
|
|
||
Revenues from operations |
$ |
24,690 |
|
|
$ |
41,649 |
|
Expenses from operations: |
|
|
|
|
|
||
Operating expenses |
|
6,564 |
|
|
|
11,523 |
|
Impairment charges |
|
— |
|
|
|
5,200 |
|
Depreciation and amortization |
|
9,062 |
|
|
|
14,345 |
|
Interest expense |
|
7,041 |
|
|
|
9,289 |
|
Other expense, net |
|
2,560 |
|
|
|
2,572 |
|
|
|
25,227 |
|
|
|
42,929 |
|
Loss before gain on disposition of real estate |
|
(537 |
) |
|
|
(1,280 |
) |
Gain (loss) on disposition of real estate, net |
|
5,304 |
|
|
|
(98 |
) |
Net income (loss) attributable to unconsolidated joint ventures |
$ |
4,767 |
|
|
$ |
(1,378 |
) |
Company's share of equity in net income of joint ventures |
$ |
950 |
|
|
$ |
30 |
|
Basis differential adjustments(A) |
|
409 |
|
|
|
139 |
|
Equity in net income of joint ventures |
$ |
1,359 |
|
|
$ |
169 |
|
9
Revenues earned by the Company related to all of the Company’s unconsolidated joint ventures are as follows (in millions):
|
Three Months |
|
|||||
|
Ended March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Revenue from contracts: |
|
|
|
|
|
||
Asset and property management fees |
$ |
1.5 |
|
|
$ |
2.3 |
|
Leasing commissions and development fees |
|
0.1 |
|
|
|
0.4 |
|
|
|
1.6 |
|
|
|
2.7 |
|
Other |
|
0.2 |
|
|
|
0.4 |
|
|
$ |
1.8 |
|
|
$ |
3.1 |
|
Disposition of Shopping Centers
During the three months ended March 31, 2023, the DDRM Joint Venture sold three shopping centers for an aggregate sales price of $40.2 million. The proceeds were used to repay mortgage indebtedness of the joint venture and for general corporate purposes of the joint venture.
Disposition of Joint Venture Interests
In 2021, one of the Company’s unconsolidated joint ventures sold its sole asset, a parcel of undeveloped land. The transaction had contingent proceeds based upon finalization of the tax returns and dissolution of the partnership. In the first quarter of 2023, the contingencies were resolved and the Company recorded a Gain on Sale and Change in Control of Interests of $3.7 million.
During the three months ended March 31, 2023, the Company acquired the following shopping centers (in millions):
Asset |
|
Location |
|
Date |
|
Purchase |
|
|
Parker Keystone |
|
Denver, Colorado |
|
January 2023 |
|
$ |
11.0 |
|
Foxtail Center |
|
Baltimore, Maryland |
|
January 2023 |
|
|
15.1 |
|
The fair value of the acquisitions above was allocated as follows (in thousands):
|
|
|
|
Weighted-Average |
|
Land |
$ |
6,860 |
|
|
N/A |
Buildings |
|
17,188 |
|
|
(A) |
Tenant improvements |
|
574 |
|
|
(A) |
In-place leases (including lease origination costs and fair market value of leases) |
|
2,548 |
|
|
6.6 |
|
|
27,170 |
|
|
|
Less: Below-market leases |
|
(600 |
) |
|
10.5 |
Less: Other liabilities assumed |
|
(67 |
) |
|
N/A |
Net assets acquired |
$ |
26,503 |
|
|
|
The total consideration for these assets was paid in cash. Included in the Company’s consolidated statements of operations for the three months ended March 31, 2023, was $0.6 million in total revenues from the date of acquisition through March 31, 2023, for the properties acquired in 2023.
10
Other assets and intangibles consist of the following (in thousands):
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Intangible assets: |
|
|
|
|
|
||
In-place leases, net |
$ |
59,018 |
|
|
$ |
61,918 |
|
Above-market leases, net |
|
5,755 |
|
|
|
6,206 |
|
Lease origination costs, net |
|
7,915 |
|
|
|
8,093 |
|
Tenant relationships, net |
|
10,849 |
|
|
|
11,531 |
|
Total intangible assets, net(A) |
|
83,537 |
|
|
|
87,748 |
|
Operating lease ROU assets |
|
17,914 |
|
|
|
18,197 |
|
Other assets: |
|
|
|
|
|
||
Prepaid expenses |
|
19,280 |
|
|
|
6,721 |
|
Swap receivable |
|
5,400 |
|
|
|
8,138 |
|
Other assets |
|
3,704 |
|
|
|
3,491 |
|
Deposits |
|
3,239 |
|
|
|
3,188 |
|
Deferred charges, net |
|
6,976 |
|
|
|
7,526 |
|
Total other assets, net |
$ |
140,050 |
|
|
$ |
135,009 |
|
|
|
|
|
|
|
||
Below-market leases, net (other liabilities) |
$ |
58,734 |
|
|
$ |
59,825 |
|
As of March 31, 2023, the Company’s Revolving Credit Facility (as defined below) had outstanding borrowings of $75.0 million with a weighted-average interest rate of 5.7%. In March 2023, the Company entered into a 5.0% interest rate cap with respect to the variable rate (the Secured Overnight Financing Rate or "SOFR") component applicable to borrowings up to $100 million under the Revolving Credit Facility, of which $75.0 million was designated as an effective hedge. The interest rate cap is in effect beginning April 2023 and will expire in April 2024.
The Company maintains a revolving credit facility with a syndicate of financial institutions and JPMorgan Chase Bank, N.A., as administrative agent (the “Revolving Credit Facility”). The Revolving Credit Facility provides for borrowings of up to $950 million if certain borrowing conditions are satisfied, and an accordion feature for expansion of availability up to $1.45 billion, provided that new lenders agree to the existing terms of the facility or existing lenders increase their commitment level and subject to other customary conditions precedent. The Revolving Credit Facility maturity date is June 2026 subject to two six-month options to extend the maturity to June 2027 upon the Company’s request (subject to satisfaction of certain conditions).
The Company’s borrowings under the Revolving Credit Facility bear interest at variable rates at the Company’s election, based on either (i) the SOFR rate plus a 10 basis-point spread adjustment plus an applicable margin (0.85% at March 31, 2023) or (ii) the alternative base rate plus an applicable margin (0% at March 31, 2023). The Revolving Credit Facility also provides for an annual facility fee, which was 20 basis points on the entire facility at March 31, 2023. The applicable margins and facility fee vary depending on the Company’s long-term senior unsecured debt ratings from Moody’s Investors Service, Inc., S&P Global Ratings and Fitch Investor Services, Inc. (or their respective successors). The Revolving Credit Facility also features a sustainability-linked pricing component whereby the applicable interest rate margin can be adjusted by one or two basis points if the Company meets certain sustainability performance targets. The Company is required to comply with certain covenants under the Revolving Credit Facility relating to total outstanding indebtedness, secured indebtedness, value of unencumbered real estate assets and fixed charge coverage. The Company was in compliance with these financial covenants at March 31, 2023.
The following methods and assumptions were used by the Company in estimating fair value disclosures of financial instruments:
Measurement of Fair Value
At March 31, 2023, the Company used a pay-fixed interest rate swap to manage some of its exposure to changes in benchmark-interest rates. The estimated fair value was determined using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates
11
(forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contract, are incorporated in the fair value to account for potential non-performance risk, including the Company’s own non-performance risk and the respective counterparty’s non-performance risk. The Company determined that the significant inputs used to value its derivative fell within Level 2 of the fair value hierarchy.
Items Measured on Fair Value on a Recurring Basis
The Company maintains an interest rate swap agreement (included in Other Assets) measured at fair value on a recurring basis as of March 31, 2023. The following table presents information about the Company’s financial assets and liabilities and indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in millions):
|
|
|
|
|
Fair Value Measurements |
|
|
|
|
|||||||
Assets (Liabilities): |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative Financial Instruments |
|
$ |
— |
|
|
$ |
5.1 |
|
|
$ |
— |
|
|
$ |
5.1 |
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative Financial Instruments |
|
$ |
— |
|
|
$ |
8.1 |
|
|
$ |
— |
|
|
$ |
8.1 |
|
Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, 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 following methods and assumptions were used by the Company in estimating fair value disclosures of debt. The fair market value of senior notes is determined using a pricing model to approximate the trading price of the Company’s public debt. The fair market value for all other 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. The Company’s senior notes and all other debt are classified as Level 2 and Level 3, respectively, 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.
Carrying values that are different from estimated fair values are summarized as follows (in thousands):
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
Senior Notes |
$ |
1,454,462 |
|
|
$ |
1,397,839 |
|
|
$ |
1,453,923 |
|
|
$ |
1,378,485 |
|
Revolving Credit Facility and term loan |
|
273,605 |
|
|
|
275,000 |
|
|
|
198,521 |
|
|
|
200,000 |
|
Mortgage Indebtedness |
|
54,201 |
|
|
|
52,379 |
|
|
|
54,577 |
|
|
|
51,936 |
|
|
$ |
1,782,268 |
|
|
$ |
1,725,218 |
|
|
$ |
1,707,021 |
|
|
$ |
1,630,421 |
|
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and, from time to time, through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the values of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. To accomplish this objective, the Company generally uses swaps and caps as part of its interest rate risk management strategy. The swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
12
As of March 31, 2023, the Company had one effective swap with a notional amount of $200.0 million, expiring in June 2027, which converts the variable-rate SOFR component of the interest rate applicable to its term loan to a fixed rate of 2.75%.
The effective portion of changes in the fair value of derivatives designated, and that qualify, as cash flow hedges is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings, into interest expense, in the period that the hedged forecasted transaction affects earnings. All components of the swap were included in the assessment of hedge effectiveness. The Company expects to reflect within the next 12 months, a decrease to interest expense (and a corresponding increase to earnings) of approximately $3.7 million.
The Company is exposed to credit risk in the event of non-performance by the counterparty to the swap if the derivative position has a positive balance. The Company believes it mitigates its credit risk by entering into swaps with major financial institutions. The Company continually monitors and actively manages interest costs on its variable-rate debt portfolio and may enter into additional interest rate swap positions or other derivative interest rate instruments based on market conditions. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes.
Credit Risk-Related Contingent Features
The Company has an agreement with the swap counterparty that contains a provision whereby if the Company defaults on certain of its indebtedness, the Company could also be declared in default on the swap, resulting in an acceleration of payment under the swap.
Common Share Dividend
The Company declared a quarterly cash dividend of $0.13 per common share for both the first quarter of 2023 and the first quarter of 2022.
Common Shares Repurchased
In the first quarter of 2023, the Company repurchased 1.5 million of its common shares in open market transactions at an aggregate cost of $20.0 million, or $13.43 per share.
The changes in Accumulated Other Comprehensive Income by component are as follows (in thousands):
Balance, December 31, 2022 |
$ |
9,038 |
|
Change in cash flow hedges |
|
(2,269 |
) |
Amounts reclassified from accumulated other comprehensive income |
|
(931 |
) |
Balance, March 31, 2023 (A) |
$ |
5,838 |
|
(A) Includes derivative financial instruments entered into by the Company on its term loan (Note 6) and an unconsolidated joint venture.
13
The following table provides a reconciliation of 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 without regard to dilutive potential common shares, and “diluted” EPS, which includes all such shares (in thousands, except per share amounts).
|
Three Months |
|
|||||
|
Ended March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Numerators – Basic and Diluted |
|
|
|
|
|
||
Net income |
$ |
15,302 |
|
|
$ |
13,955 |
|
Income attributable to non-controlling interests |
|
(18 |
) |
|
|
(18 |
) |
Preferred dividends |
|
(2,789 |
) |
|
|
(2,789 |
) |
Earnings attributable to unvested shares and OP units |
|
(107 |
) |
|
|
(126 |
) |
Net income attributable to common shareholders after |
$ |
12,388 |
|
|
$ |
11,022 |
|
Denominators – Number of Shares |
|
|
|
|
|
||
Basic—Average shares outstanding |
|
209,971 |
|
|
|
212,103 |
|
Assumed conversion of dilutive securities: |
|
|
|
|
|
||
PRSUs |
|
436 |
|
|
|
1,100 |
|
Diluted—Average shares outstanding |
|
210,407 |
|
|
|
213,203 |
|
Earnings Per Share: |
|
|
|
|
|
||
Basic |
$ |
0.06 |
|
|
$ |
0.05 |
|
Diluted |
$ |
0.06 |
|
|
$ |
0.05 |
|
For the three months ended March 31, 2023, Performance Restricted Stock Units (“PRSUs”) issued to certain executives in March 2021 were considered in the computation of diluted EPS and the PRSUs issued in March 2023 and March 2022 were not considered in computing diluted EPS because they were antidilutive. For the three months ended March 31, 2022, PRSUs issued to certain executives in March 2022, 2021 and 2020 were considered in the computation of diluted EPS. In March 2023, the Company issued 559,559 common shares in settlement of PRSUs granted in 2020.
In April 2023, the Company acquired Barrett Corners in Atlanta, Georgia for $15.6 million.
14
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 SITE Centers Corp. and its related consolidated real estate subsidiaries (collectively, the “Company” or “SITE Centers”) 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, 2022, as well as other publicly available information.
EXECUTIVE SUMMARY
The Company is a self-administered and self-managed Real Estate Investment Trust (“REIT”) in the business of owning, leasing, acquiring, redeveloping, developing and managing shopping centers. As of March 31, 2023, the Company’s portfolio consisted of 120 shopping centers (including 15 shopping centers owned through unconsolidated joint ventures). At March 31, 2023, the Company owned approximately 26.6 million square feet of gross leasable area (“GLA”) through all its properties (wholly-owned and joint venture).
The following provides an overview of the Company’s key financial metrics (see Non-GAAP Financial Measures described later in this section) (in thousands, except per share amounts):
|
Three Months |
|
|||||
|
Ended March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Net income attributable to common shareholders |
$ |
12,495 |
|
|
$ |
11,148 |
|
FFO attributable to common shareholders |
$ |
61,899 |
|
|
$ |
61,226 |
|
Operating FFO attributable to common shareholders |
$ |
62,728 |
|
|
$ |
61,558 |
|
Earnings per share – Diluted |
$ |
0.06 |
|
|
$ |
0.05 |
|
For the three months ended March 31, 2023, the increase in net income attributable to common shareholders, as compared to the prior-year period, primarily was the result of base rent growth at existing assets, the net impact of property acquisitions and lower general and administrative expenses partially offset by higher depreciation expense, lower fee income from joint ventures and higher interest expense.
Company Activity
The growth opportunities within the Company’s core property operations include rental rate increases, continued lease-up of the portfolio, and the adaptation of existing site plans and square footage to generate higher blended rental rates and operating cash flows. Additional growth opportunities include external acquisitions and tactical redevelopment. Management intends to use retained cash flow, proceeds from the sale of lower growth assets and proceeds from equity offerings and debt financings to fund capital expenditures relating to new leasing activity, acquisitions, including opportunistic investments, and tactical redevelopment activity. In recent years, the Company’s acquisition activities have largely focused on unanchored, convenience retail properties that offer enhanced prospects for cash flow growth through rent increases and lower capital expenditure requirements.
Transactional and investment highlights for the Company through April 26, 2023, include the following:
Company Operational Highlights
First quarter 2023 operational highlights include the following:
15
RESULTS OF OPERATIONS
Consolidated shopping center properties owned as of January 1, 2022, are referred to herein as the “Comparable Portfolio Properties.”
Revenues from Operations (in thousands)
|
Three Months |
|
|
|
|
||||||
|
Ended March 31, |
|
|
|
|
||||||
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|||
Rental income(A) |
$ |
135,872 |
|
|
$ |
129,884 |
|
|
$ |
5,988 |
|
Fee and other income(B) |
|
2,820 |
|
|
|
4,436 |
|
|
|
(1,616 |
) |
Total revenues |
$ |
138,692 |
|
|
$ |
134,320 |
|
|
$ |
4,372 |
|
|
|
Three Months |
|
|
|
|
||||||
|
|
Ended March 31, |
|
|
|
|
||||||
Contractual Lease Payments |
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|||
Base and percentage rental income(1) |
|
$ |
98,454 |
|
|
$ |
94,224 |
|
|
$ |
4,230 |
|
Recoveries from tenants(2) |
|
|
35,316 |
|
|
|
32,833 |
|
|
|
2,483 |
|
Uncollectible revenue(3) |
|
|
233 |
|
|
|
1,108 |
|
|
|
(875 |
) |
Lease termination fees, ancillary and other rental income |
|
|
1,869 |
|
|
|
1,719 |
|
|
|
150 |
|
Total contractual lease payments |
|
$ |
135,872 |
|
|
$ |
129,884 |
|
|
$ |
5,988 |
|
|
|
Increase (Decrease) |
|
|
Acquisition of shopping centers |
|
$ |
4.9 |
|
Comparable Portfolio Properties |
|
|
3.3 |
|
Disposition of shopping centers |
|
|
(3.7 |
) |
Straight-line rents |
|
|
(0.3 |
) |
Total |
|
$ |
4.2 |
|
16
At March 31, 2023 and 2022, the Company owned 105 and 92 wholly-owned properties, respectively, with an aggregate occupancy rate of 92.9% and 90.2%, respectively, and average annualized base rent per occupied square foot of $19.71 and $18.74, respectively.
Expenses from Operations (in thousands)
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Three Months |
|
|
|
|
||||||
|
Ended March 31, |
|
|
|
|
||||||
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|||
Operating and maintenance(A) |
$ |
23,166 |
|
|
$ |
21,936 |
|
|
$ |
1,230 |
|
Real estate taxes(A) |
|
20,053 |
|
|
|
20,183 |
|
|
|
(130 |
) |
General and administrative(B) |
|
10,645 |
|
|
|
12,251 |
|
|
|
(1,606 |
) |
Depreciation and amortization(A) |
|
54,016 |
|
|
|
50,364 |
|
|
|
3,652 |
|
|
$ |
107,880 |
|
|
$ |
104,734 |
|
|
$ |
3,146 |
|
|
|
Operating |
|
|
Real Estate |
|
|
Depreciation |
|
|||
Acquisition of shopping centers |
|
$ |
1.1 |
|
|
$ |
0.9 |
|
|
$ |
3.5 |
|
Comparable Portfolio Properties |
|
|
0.9 |
|
|
|
— |
|
|
|
2.5 |
|
Disposition of shopping centers |
|
|
(0.8 |
) |
|
|
(1.0 |
) |
|
|
(2.3 |
) |
|
|
$ |
1.2 |
|
|
$ |
(0.1 |
) |
|
$ |
3.7 |
|
The increase in depreciation for the Comparable Portfolio Properties was primarily the result of the change in useful life of several assets.
Other Income and Expenses (in thousands)
|
Three Months |
|
|
|
|
||||||
|
Ended March 31, |
|
|
|
|
||||||
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|||
Interest expense(A) |
$ |
(19,923 |
) |
|
$ |
(18,258 |
) |
|
$ |
(1,665 |
) |
Other expense, net |
|
(687 |
) |
|
|
(504 |
) |
|
|
(183 |
) |
|
$ |
(20,610 |
) |
|
$ |
(18,762 |
) |
|
$ |
(1,848 |
) |
17
|
|
Three Months |
|
|||||
|
|
Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Weighted-average debt outstanding (in billions) |
|
$ |
1.8 |
|
|
$ |
1.7 |
|
Weighted-average interest rate |
|
|
4.3 |
% |
|
|
4.0 |
% |
The Company’s overall balance sheet strategy is to continue to maintain substantial liquidity, prudent leverage levels and lengthy average debt maturities. The weighted-average interest rate (based on contractual rates and excluding fair market value of adjustments and debt issuance costs) was 4.2% and 3.8% at March 31, 2023 and 2022, respectively. At March 31, 2023, the weighted-average maturity (without extensions) was 2.9 years. Interest costs capitalized in conjunction with redevelopment projects were $0.3 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively.
Other Items (in thousands)
|
Three Months |
|
|
|
|
||||||
|
Ended March 31, |
|
|
|
|
||||||
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|||
Equity in net income of joint ventures(A) |
$ |
1,359 |
|
|
$ |
169 |
|
|
$ |
1,190 |
|
Gain on sale and change in control of interests(B) |
|
3,749 |
|
|
|
3,356 |
|
|
|
393 |
|
Gain (loss) on disposition of real estate, net |
|
205 |
|
|
|
(142 |
) |
|
|
347 |
|
Tax expense of taxable REIT subsidiaries and state franchise and |
|
(213 |
) |
|
|
(252 |
) |
|
|
39 |
|
Income attributable to non-controlling interests, net |
|
(18 |
) |
|
|
(18 |
) |
|
|
— |
|
Net Income (in thousands)
|
Three Months |
|
|
|
|
||||||
|
Ended March 31, |
|
|
|
|
||||||
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|||
Net income attributable to SITE Centers |
$ |
15,284 |
|
|
$ |
13,937 |
|
|
$ |
1,347 |
|
The increase in net income attributable to SITE Centers, as compared to the prior-year period, was primarily attributable to base rent growth at existing assets, the net impact of property acquisitions and lower general and administrative expenses, partially offset by higher depreciation expense, lower fee income from joint ventures and higher interest expense.
NON-GAAP FINANCIAL MEASURES
Funds from Operations and Operating Funds from Operations
Definition and Basis of Presentation
The Company believes that Funds from Operations (“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.
18
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) preferred share dividends, (ii) gains and losses from disposition of real estate property and related investments, which are presented net of taxes, (iii) impairment charges on real estate property and related investments, (iv) gains and losses from changes in control and (v) certain non-cash items. These non-cash items principally include real property depreciation and amortization of intangibles, equity income (loss) from joint ventures and equity income (loss) from non-controlling interests and adding the Company’s proportionate share of FFO from its unconsolidated joint ventures and non-controlling interests, determined on a consistent basis. The Company’s calculation of FFO is consistent with the definition of FFO provided by the National Association of Real Estate Investment Trusts ("NAREIT").
The Company believes that certain charges, income and gains 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, income and gains 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, income and gains that management believes are not comparable and indicative of the results of the Company’s operating real estate portfolio. Such adjustments include write-off of preferred share original issuance costs, gains/losses on the early extinguishment of debt, certain transaction fee income, transaction costs and other restructuring type costs. The disclosure of these adjustments is regularly requested by users of the Company’s financial statements.
The adjustment for these charges, income and gains 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, income and gains are non-recurring. These charges, income and gains 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 company’s performance, (iii) to influence acquisition, disposition and capital investment strategies and (iv) 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.
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. Management does not use FFO or Operating FFO as an indicator of the Company’s cash obligations and funding requirements for future commitments, acquisitions or development 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 income (loss) and considered in addition to cash flows determined in accordance with GAAP, as presented in its consolidated financial statements. Reconciliations of these measures to their most directly comparable GAAP measure of net income (loss) have been provided below.
19
Reconciliation Presentation
FFO and Operating FFO attributable to common shareholders were as follows (in thousands):
|
Three Months |
|
|
|
|
||||||
|
Ended March 31, |
|
|
|
|
||||||
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|||
FFO attributable to common shareholders |
$ |
61,899 |
|
|
$ |
61,226 |
|
|
$ |
673 |
|
Operating FFO attributable to common shareholders |
|
62,728 |
|
|
|
61,558 |
|
|
|
1,170 |
|
The increase in FFO for the three months ended March 31, 2023, as compared to the prior-year period, was primarily attributable to higher operating results driven by base rent growth at existing assets, the net impact of property acquisitions and lower general and administrative expenses, partially offset by lower management fees from joint ventures and higher interest expense. The change in Operating FFO primarily was due to the same drivers impacting FFO.
The Company’s reconciliation of net income attributable to common shareholders computed in accordance with GAAP to FFO attributable to common shareholders and Operating FFO attributable to common shareholders is as follows (in thousands). The Company provides no assurances that these charges and gains are non-recurring. These charges and gains could reasonably be expected to recur in future results of operations:
|
Three Months |
|
|||||
|
Ended March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Net income attributable to common shareholders |
$ |
12,495 |
|
|
$ |
11,148 |
|
Depreciation and amortization of real estate investments |
|
52,717 |
|
|
|
49,128 |
|
Equity in net income of joint ventures |
|
(1,359 |
) |
|
|
(169 |
) |
Joint ventures' FFO(A) |
|
1,982 |
|
|
|
4,315 |
|
Non-controlling interests (OP Units) |
|
18 |
|
|
|
18 |
|
Gain on sale and change in control of interests |
|
(3,749 |
) |
|
|
(3,356 |
) |
(Gain) loss on disposition of real estate, net |
|
(205 |
) |
|
|
142 |
|
FFO attributable to common shareholders |
|
61,899 |
|
|
|
61,226 |
|
Transaction, debt extinguishment and other (at SITE's share) |
|
829 |
|
|
|
332 |
|
Non-operating items, net |
|
829 |
|
|
|
332 |
|
Operating FFO attributable to common shareholders |
$ |
62,728 |
|
|
$ |
61,558 |
|
Joint ventures’ FFO and Operating FFO are summarized as follows (in thousands):
|
Three Months |
|
|||||
|
Ended March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Net income (loss) attributable to unconsolidated |
$ |
4,767 |
|
|
$ |
(1,378 |
) |
Depreciation and amortization of real estate investments |
|
9,062 |
|
|
|
14,345 |
|
Impairment of real estate |
|
— |
|
|
|
5,200 |
|
(Gain) loss on disposition of real estate, net |
|
(5,304 |
) |
|
|
98 |
|
FFO |
$ |
8,525 |
|
|
$ |
18,265 |
|
FFO at SITE Centers' ownership interests |
$ |
1,982 |
|
|
$ |
4,315 |
|
Operating FFO at SITE Centers' ownership interests |
$ |
2,148 |
|
|
$ |
4,315 |
|
Net Operating Income and Same Store Net Operating Income
Definition and Basis of Presentation
The Company uses Net Operating Income (“NOI”), which is a non-GAAP financial measure, as a supplemental performance measure. NOI is calculated as property revenues less property-related expenses. The Company believes NOI provides useful information to investors regarding the Company’s financial condition and results of operations because it reflects only those income
20
and expense items that are incurred at the property level and, when compared across periods, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition and disposition activity on an unleveraged basis.
The Company also presents NOI information on a same store basis, or Same Store Net Operating Income (“SSNOI”). The Company defines SSNOI as property revenues less property-related expenses, which exclude straight-line rental income (including reimbursements) and expenses, lease termination income, management fee expense, fair market value of leases and expense recovery adjustments. SSNOI includes assets owned in comparable periods (15 months for quarter comparisons). In addition, SSNOI excludes all non-property and corporate level revenue and expenses. Other real estate companies may calculate NOI and SSNOI in a different manner. The Company believes SSNOI at its effective ownership interest provides investors with additional information regarding the operating performances of comparable assets because it excludes certain non-cash and non-comparable items as noted above. SSNOI is frequently used by the real estate industry, as well as securities analysts, investors and other interested parties, to evaluate the performance of REITs.
SSNOI is not, and is not intended to be, a presentation in accordance with GAAP. SSNOI information has its limitations as it excludes any capital expenditures associated with the re-leasing of tenant space or as needed to operate the assets. SSNOI does not represent amounts available for dividends, capital replacement or expansion, debt service obligations or other commitments and uncertainties. Management does not use SSNOI as an indicator of the Company’s cash obligations and funding requirements for future commitments, acquisitions or development activities. SSNOI does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. SSNOI should not be considered as an alternative to net income (computed in accordance with GAAP) or as an alternative to cash flow as a measure of liquidity. A reconciliation of NOI and SSNOI to their most directly comparable GAAP measure of net income (loss) is provided below.
Reconciliation Presentation
The Company’s reconciliation of net income computed in accordance with GAAP to NOI and SSNOI for the Company at 100% and at its effective ownership interest of the assets is as follows (in thousands):
|
For the Year Ended March 31, |
|
|||||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
At 100% |
|
|
At the Company's Interest |
|
||||||||||
Net income attributable to SITE Centers |
$ |
15,284 |
|
|
$ |
13,937 |
|
|
$ |
15,284 |
|
|
$ |
13,937 |
|
Fee income |
|
(1,859 |
) |
|
|
(3,261 |
) |
|
|
(1,859 |
) |
|
|
(3,261 |
) |
Interest expense |
|
19,923 |
|
|
|
18,258 |
|
|
|
19,923 |
|
|
|
18,258 |
|
Depreciation and amortization |
|
54,016 |
|
|
|
50,364 |
|
|
|
54,016 |
|
|
|
50,364 |
|
General and administrative |
|
10,645 |
|
|
|
12,251 |
|
|
|
10,645 |
|
|
|
12,251 |
|
Other expense (income), net |
|
687 |
|
|
|
504 |
|
|
|
687 |
|
|
|
504 |
|
Equity in net income of joint ventures |
|
(1,359 |
) |
|
|
(169 |
) |
|
|
(1,359 |
) |
|
|
(169 |
) |
Tax expense |
|
213 |
|
|
|
252 |
|
|
|
213 |
|
|
|
252 |
|
Gain on sale and change in control of interests |
|
(3,749 |
) |
|
|
(3,356 |
) |
|
|
(3,749 |
) |
|
|
(3,356 |
) |
(Gain) loss on disposition of real estate, net |
|
(205 |
) |
|
|
142 |
|
|
|
(205 |
) |
|
|
142 |
|
Income from non-controlling interests |
|
18 |
|
|
|
18 |
|
|
|
18 |
|
|
|
18 |
|
Consolidated NOI |
$ |
93,614 |
|
|
$ |
88,940 |
|
|
$ |
93,614 |
|
|
$ |
88,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income from unconsolidated joint ventures |
$ |
4,767 |
|
|
$ |
(1,378 |
) |
|
$ |
1,004 |
|
|
$ |
26 |
|
Interest expense |
|
7,041 |
|
|
|
9,289 |
|
|
|
1,587 |
|
|
|
2,088 |
|
Depreciation and amortization |
|
9,062 |
|
|
|
14,345 |
|
|
|
2,091 |
|
|
|
3,179 |
|
Impairment charges |
|
— |
|
|
|
5,200 |
|
|
|
— |
|
|
|
1,040 |
|
Other expense (income), net |
|
2,560 |
|
|
|
2,572 |
|
|
|
574 |
|
|
|
597 |
|
(Gain) loss on disposition of real estate, net |
|
(5,304 |
) |
|
|
98 |
|
|
|
(1,062 |
) |
|
|
66 |
|
Unconsolidated NOI |
$ |
18,126 |
|
|
$ |
30,126 |
|
|
$ |
4,194 |
|
|
$ |
6,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Consolidated + Unconsolidated NOI |
|
|
|
|
|
|
$ |
97,808 |
|
|
$ |
95,936 |
|
||
Less: Non-Same Store NOI adjustments |
|
|
|
|
|
|
|
(5,210 |
) |
|
|
(7,048 |
) |
||
Total SSNOI including redevelopment |
|
|
|
|
|
|
$ |
92,598 |
|
|
$ |
88,888 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||||
SSNOI % Change including redevelopment |
|
|
|
|
|
|
|
4.2 |
% |
|
|
|
|||
The SSNOI increase for the three months ended March 31, 2023, as compared to the prior-year period, primarily related to increases in rents and recoveries attributable to sequential increases in occupancy for same-store assets.
21
LIQUIDITY, CAPITAL RESOURCES AND FINANCING ACTIVITIES
The Company periodically evaluates opportunities to issue and sell additional debt or equity securities, obtain credit facilities from lenders or repurchase or refinance long-term debt as part of its overall strategy to further strengthen its financial position. The Company remains committed to monitoring liquidity and the duration of its indebtedness and to maintaining prudent leverage levels in an effort to manage its overall risk profile.
The Company’s consolidated and unconsolidated debt obligations generally require monthly or semi-annual payments of principal and/or interest over the term of the obligation. While the Company currently believes it has several viable sources to obtain capital and fund its business, including capacity under its Revolving Credit Facility, no assurance can be provided that these obligations will be refinanced or repaid as currently anticipated. Any new debt financings may also entail higher rates of interest than the indebtedness being refinanced, which could have an adverse effect on the Company’s operations.
The Company has historically accessed capital sources through both the public and private markets. Acquisitions and redevelopments are generally financed through cash provided from operating activities, the Revolving Credit Facility, mortgages assumed, secured debt, unsecured debt, common and preferred equity offerings, joint venture capital and asset sales. Total consolidated debt outstanding was $1.8 billion at March 31, 2023, compared to $1.7 billion at December 31, 2022.
At March 31, 2023, the Company had an unrestricted cash balance of $25.0 million and availability under its Revolving Credit Facility of $875.0 million (subject to satisfaction of applicable borrowing conditions). The Company has $87.2 million aggregate principal amount of senior notes maturing in May 2023. In 2024, the Company has $65.6 million aggregate principal amount of senior notes and $27.8 million of consolidated mortgage debt maturing. The Company's unconsolidated joint ventures have $17.0 million and $88.9 million in mortgage debt at the Company's share maturing in 2023 and 2024, respectively. As of March 31, 2023, the Company anticipates that it has approximately $20 million to be incurred on its pipeline of identified redevelopment projects. The Company declared a common share dividend of $0.13 per share in the three months ended March 31, 2023. The Company believes it has sufficient liquidity to operate its business at this time. In March 2023, the Company entered into a 5.0% interest rate cap with respect to the variable rate (the Secured Overnight Financing Rate or "SOFR") component applicable to borrowings up to $100 million under the Company's Revolving Credit Facility, which interest rate cap is in effect for one year beginning April 2023. At March 31, 2023, the Company had $75.0 million drawn on the Revolving Credit Facility.
Revolving Credit Facility
The Company maintains an unsecured Revolving Credit Facility with a syndicate of financial institutions and JPMorgan Chase Bank, N.A., as administrative agent that provides for borrowings of up to $950 million, which limit may be increased to $1.45 billion provided that existing or new lenders agree to provide incremental commitments and subject to other conditions precedent. The Revolving Credit Facility matures in June 2026 subject to two six-month options to extend the maturity to June 2027 at the Company's option (subject to the satisfaction of certain conditions). The Company’s borrowings under the Revolving Credit Facility bear interest at variable rates at the Company’s election, based on either (i) the SOFR rate plus a 10-basis point credit spread adjustment plus an applicable margin (0.85% at March 31, 2023) or (ii) the alternative base rate plus an applicable margin (0% at March 31, 2023). The Revolving Credit Facility also provides for an annual facility fee, which was 20 basis points on the entire facility at March 31, 2023. The applicable margins and facility fee vary depending on the Company’s long-term senior unsecured debt ratings from Moody’s, S&P Global Ratings (“S&P”) and Fitch (or their respective successors). The Revolving Credit Facility also features a sustainability-linked pricing component whereby the applicable interest-rate margin can be adjusted by one or two basis points if the Company meets certain sustainability performance targets.
The Revolving Credit Facility, the Company's $200.0 million term loan facility and the indentures under which the Company’s senior and subordinated unsecured indebtedness are, or may be, issued contain certain financial and operating covenants including, among other things, leverage ratios and debt service coverage and fixed-charge coverage ratios, as well as limitations on the Company’s ability to incur secured and unsecured indebtedness, sell all or substantially all of the Company’s assets and engage in certain mergers and acquisitions. The Revolving Credit Facility, the term loan and the indentures also contain customary default provisions including the failure to make timely payments of principal and interest payable thereunder, the failure to comply with the Company’s financial and operating covenants and the failure of the Company or its majority-owned subsidiaries (i.e., entities in which the Company has a greater than 50% interest) to pay, when due, certain indebtedness in excess of certain thresholds beyond applicable grace and cure periods. In the event the Company’s lenders or note holders declare a default, as defined in the applicable agreements governing the debt, the Company may be unable to obtain further funding, and/or an acceleration of any outstanding borrowings may occur. As of March 31, 2023, the Company was in compliance with all of its financial covenants in the agreements governing its debt. Although the Company believes it will continue to operate in compliance with these covenants, if the Company were to violate these covenants, the Company may be subject to higher finance costs and fees or accelerated maturities.
22
Consolidated Indebtedness – as of March 31, 2023
As discussed above, the Company is committed to maintaining prudent leverage levels and may utilize proceeds from the sale of properties or other investments or equity offerings to repay additional debt. These sources of funds could be affected by various risks and uncertainties. No assurance can be provided that the Company’s debt obligations will be refinanced or repaid as currently anticipated. See Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
The Company continually evaluates its debt maturities and, based on management’s assessment, believes it has viable financing and refinancing alternatives. The Company has sought to manage its debt maturities through executing a strategy to extend debt duration, increase liquidity, maintain prudent leverage levels and improve the Company’s credit profile with a focus of lowering the Company's balance sheet risk and cost of capital.
Unconsolidated Joint Ventures’ Mortgage Indebtedness – as of March 31, 2023
The outstanding indebtedness of the Company’s unconsolidated joint ventures at March 31, 2023, which matures in the subsequent 13-month period (i.e., through April 30, 2024), is as follows (in millions):
|
Outstanding |
|
|
At SITE Centers' Share |
|
||
DDR Domestic Retail Fund I(A) |
$ |
84.2 |
|
|
$ |
16.8 |
|
Dividend Trust Portfolio(B) |
|
364.3 |
|
|
|
72.9 |
|
Total debt maturities through April 30, 2024 |
$ |
448.5 |
|
|
$ |
89.7 |
|
No assurance can be provided that these obligations will be refinanced or repaid as currently anticipated. Any future deterioration in property-level revenues may cause one or more of these joint ventures to be unable to refinance maturing obligations or satisfy applicable covenants, financial tests or debt service requirements or loan maturity extension conditions in the future, thereby allowing the mortgage lender to assume control of property cash flows, limit distributions of cash to joint venture members, declare a default, increase the interest rate or accelerate the loan’s maturity. In addition, rising interest rates may adversely impact the ability of the Company's joint ventures to sell assets at attractive prices in order to repay indebtedness.
Cash Flow Activity
The Company’s cash flow activities are summarized as follows (in thousands):
|
Three Months |
|
|||||
|
Ended March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Cash flow provided by operating activities |
$ |
42,167 |
|
|
$ |
50,021 |
|
Cash flow used for investing activities |
|
(50,826 |
) |
|
|
(154,504 |
) |
Cash flow provided by financing activities |
|
12,904 |
|
|
|
80,445 |
|
Changes in cash flow for the three months ended March 31, 2023, compared to the prior comparable period, are as follows:
Operating Activities: Cash provided by operating activities decreased $7.9 million primarily due to the following:
Investing Activities: Cash used for investing activities decreased $103.7 million primarily due to the following:
Financing Activities: Cash provided by financing activities decreased $67.5 million primarily due to the following:
23
Dividend Distribution
The Company declared common and preferred cash dividends of $30.1 million and $30.7 million for the three months ended March 31, 2023 and 2022, respectively. The Company intends to distribute at least 100% of ordinary taxable income in the form of common and preferred dividends with respect to the year ending December 31, 2023 in order to maintain compliance with REIT requirements and in order to not incur federal income taxes (excluding federal income taxes applicable to its taxable REIT subsidiary activities).
The Company declared a quarterly cash dividend of $0.13 per common share for the first quarter of 2023. The Board of Directors of the Company intends to monitor the Company’s dividend policy in order to maintain sufficient liquidity for operations and in order to maximize the Company’s free cash flow while still adhering to REIT payout requirements.
SITE Centers’ Equity
In December 2022, the Company’s Board of Directors authorized a common share repurchase program. Under the terms of the program, the Company is authorized to repurchase up to a maximum value of $100 million of its common shares. In the first quarter of 2023, the Company repurchased 1.5 million of its common shares in open market transactions at an aggregate cost of $20.0 million, or $13.43 per share. Through March 31, 2023, the Company had repurchased under this program 2.0 million of its common shares in open market transactions at an aggregate cost of $26.6 million.
SOURCES AND USES OF CAPITAL
Strategic Transaction Activity
The Company remains committed to maintaining sufficient liquidity, managing debt duration and maintaining prudent leverage levels in an effort to manage its overall risk profile. Equity offerings, debt financings, asset sales and cash flow from operations continue to represent a potential source of proceeds to be used to achieve these objectives.
Acquisitions
In the first quarter of 2023, the Company acquired Parker Keystone (Denver, Colorado) for $11.0 million and Foxtail Center (Baltimore, Maryland) for $15.1 million. In April 2023, the Company acquired Barrett Corners (Atlanta, Georgia) for $15.6 million.
Dispositions
In the first quarter of 2023, the DDRM Joint Venture sold three unconsolidated shopping centers generating proceeds totaling $40.2 million. The proceeds from these sales were used to repay mortgage indebtedness of the joint venture and for general corporate purposes of the joint venture.
Changes in investment strategies for assets may impact the Company’s hold-period assumptions for those properties. The disposition of certain assets could result in a loss or impairment recorded in future periods. The Company evaluates all potential sale opportunities taking into account the long-term growth prospects of the assets, the use of proceeds and the impact to the Company’s balance sheet, in addition to the impact on operating results.
Equity Transactions
In the first quarter of 2023, the Company repurchased 1.5 million of its common shares in open market transactions at an aggregate cost of $20.0 million, or $13.43 per share with the remaining proceeds from the sale of wholly-owned properties in the fourth quarter of 2022 and proceeds from the sale of joint venture properties.
24
Redevelopment Pipeline
One component of the Company’s long-term strategic plan will be the evaluation of additional tactical redevelopment potential within the portfolio, particularly as it relates to the efficient use of the underlying real estate, which includes to expand, improve and re-tenant various properties. The Company generally expects to commence construction on redevelopment projects only after substantial tenant leasing has occurred. At March 31, 2023, the Company had approximately $57 million in construction in progress in various active consolidated redevelopments and other projects and anticipates that it has approximately $20 million yet to be incurred on its pipeline of identified redevelopment projects. At March 31, 2023, the Company’s shopping center expansions, outparcel developments, construction of first-generation space and repurposing projects, were as follows (in thousands):
Location |
|
Estimated |
|
Estimated |
|
|
Cost Incurred at |
|
||
West Bay Plaza - Phase II (Cleveland, Ohio) |
|
4Q23 |
|
$ |
7,941 |
|
|
$ |
6,672 |
|
Carolina Pavilion (Charlotte, North Carolina) |
|
4Q23 |
|
|
2,339 |
|
|
|
2,123 |
|
Shoppers World (Boston, Massachusetts) |
|
4Q23 |
|
|
4,967 |
|
|
|
4,471 |
|
Nassau Park Pavilion (Trenton, New Jersey) |
|
1Q24 |
|
|
7,635 |
|
|
|
4,237 |
|
University Hills (Denver, Colorado) |
|
2Q24 |
|
|
5,972 |
|
|
|
4,894 |
|
Shoppers World (Boston, Massachusetts) |
|
2Q24 |
|
|
1,884 |
|
|
|
552 |
|
Tanasbourne Town Center (Portland, Oregon) |
|
4Q25 |
|
|
13,769 |
|
|
|
1,972 |
|
Perimeter Pointe (Atlanta, Georgia) |
|
TBD |
|
|
— |
|
|
|
1,407 |
|
Total |
|
|
|
$ |
44,507 |
|
|
$ |
26,328 |
|
CAPITALIZATION
At March 31, 2023, the Company’s capitalization consisted of $1.8 billion of debt, $175.0 million of preferred shares and $2.6 billion of market equity (calculated as the sum of common shares and OP Units outstanding multiplied by $12.28, the closing price of the Company’s common shares on the New York Stock Exchange at March 31, 2023). At March 31, 2023, after giving effect to the swap of the variable-rate component of the term loan's interest rate to a fixed rate, the Company’s total debt consisted of $1.7 billion of fixed-rate debt and $75.0 million of variable rate debt.
Management’s strategy is to maintain access to the capital resources necessary to manage the Company’s balance sheet and to repay upcoming maturities. Accordingly, the Company may seek to obtain funds through additional debt or equity financings and/or joint venture capital in a manner consistent with its intention to operate with a prudent debt capitalization policy and to reduce the Company’s cost of capital by maintaining an investment grade rating with Moody’s, S&P and Fitch. A security rating is not a recommendation to buy, sell or hold securities, as it may be subject to revision or withdrawal at any time by the rating organization. Each rating should be evaluated independently of any other rating. The Company may not be able to obtain financing on favorable terms, or at all, which may negatively affect future ratings.
The Revolving Credit Facility, term loan and the indentures under which the Company’s senior and subordinated unsecured indebtedness is, or may be, issued contain certain financial and operating covenants, including, among other things, debt service coverage and fixed charge coverage ratios, as well as limitations on the Company’s ability to incur secured and unsecured indebtedness, sell all or substantially all of the Company’s assets, engage in certain mergers and acquisitions and make distribution to its shareholders. Although the Company intends to operate in compliance with these covenants, if the Company were to violate these covenants, the Company may be subject to higher finance costs and fees or accelerated maturities. In addition, the Revolving Credit Facility, term loan and the Company’s indentures permit the acceleration of maturity in the event certain other debt of the Company is in default or has been accelerated. Foreclosure on mortgaged properties or an inability to refinance existing indebtedness would have a negative impact on the Company’s financial condition and results of operations.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
As of March 31, 2023, the Company has $87.2 million aggregate principal amount of senior notes maturing in May 2023. In 2024, the Company has $65.6 million aggregate principal amount of senior notes and $27.8 million of consolidated mortgage debt maturing. The Company expects to fund future maturities from utilization of its Revolving Credit Facility, proceeds from asset sales and other investments, cash flow from operations and/or additional debt or equity financings. No assurance can be provided that these obligations will be repaid as currently anticipated or refinanced.
25
Other Guaranties
In conjunction with the redevelopment of shopping centers, the Company had entered into commitments with general contractors aggregating approximately $23.5 million for its consolidated properties at March 31, 2023, which includes the assets in the redevelopment pipeline. These obligations, composed principally of construction contracts, 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, asset sales or borrowings under the Revolving Credit Facility. 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 March 31, 2023, the Company had purchase order obligations, typically payable within one year, aggregating approximately $7.4 million related to the maintenance of its properties and general and administrative expenses.
ECONOMIC CONDITIONS
Despite growing economic uncertainty, the Company continues to experience retailer demand for quality real estate locations within well-positioned shopping centers. The Company executed new leases and renewals aggregating approximately 0.5 million square feet of space on a pro rata basis for the three months ended March 31, 2023. The Company believes these strong leasing results and tenant demand are attributable to the concentration of the Company’s portfolio in suburban, high household income communities, pandemic-induced work-from-home trends, limited new construction and tenants’ increasing use of physical store locations to improve the speed and efficiency of merchandise distribution.
The Company benefits from a diversified tenant base, with only one tenant whose annualized rental revenue equals or exceeds 3% of the Company’s annualized consolidated revenues plus the Company’s proportionate share of unconsolidated joint venture revenues (TJX Companies at 5.9%). Other significant national tenants generally have relatively strong financial positions, have outperformed other retail categories over time and the Company believes remain well-capitalized. Historically these national tenants have provided a stable revenue base, and the Company believes that they will continue to provide a stable revenue base going forward, given the long-term nature of these leases. The majority of the tenants in the Company’s shopping centers provide day-to-day consumer necessities with a focus on value and convenience, versus discretionary items, which the Company believes will enable many of its tenants to outperform under a variety of economic conditions. The Company recognizes the risks posed by current economic conditions but believes the position of its portfolio and the general diversity and credit quality of its tenant base should enable it to successfully navigate through a potentially challenging economic environment. The Company has relatively little reliance on overage or percentage rents generated by tenant sales performance.
The Company believes that its shopping center portfolio is well positioned, as evidenced by its recent leasing activity, historical property income growth and consistent growth in average annualized base rent per occupied square foot. Historical occupancy has generally ranged from 89% to 94% over the last 10 years. At March 31, 2023 and December 31, 2022, the shopping center portfolio occupancy, on a pro rata basis, was 92.8% and 92.4%, respectively, and the total portfolio average annualized base rent per occupied square foot, on a pro rata basis, was $19.65 and $19.52, respectively. The Company’s portfolio was impacted by tenant bankruptcies and closures in 2020, primarily due to the impact of the COVID-19 pandemic, and the Company expects to expend capital in coming periods in connection with recently executed leases to backfill these closures. Although the per square foot cost of leasing capital expenditures has been predominantly consistent with the Company’s historical trends, the high volume of the Company’s recent leasing activity will cause aggregate leasing capital expenditure levels to be elevated. The weighted-average cost of tenant improvements and lease commissions estimated to be incurred over the expected lease term for new leases executed during the three months ended March 31, 2023 and 2022, on a pro rata basis, was $5.67 and $7.47 per rentable square foot, respectively. The Company generally does not expend a significant amount of capital on lease renewals.
Although disruptions to the Company's business stemming from the COVID-19 pandemic have subsided, inflation, higher interest rates, reduced consumer spending, labor shortages, supply chain disruptions and the volatility of global capital markets pose increasing risks to the U.S. economy and the Company's tenants. In addition to these macroeconomic challenges, the retail sector has been affected by changing consumer behaviors following the COVID-19 pandemic, including the competitive nature of the retail business and the competition for the share of the consumer wallet. The Company routinely monitors the credit profiles of its tenants and analyzes the possible impact of any potential tenant credit issues on the financial statements of the Company and its unconsolidated joint ventures. In some cases, changing conditions have resulted in weaker retailers and retail categories losing market share and declaring bankruptcy and/or closing stores. However, other retailers, specifically those in the value and convenience category, continue to express interest in launching new concepts and expanding their store fleets within the suburban, high household income communities in which the Company's properties are located. As a result, the Company believes that its prospects to backfill any spaces vacated by bankrupt or non-renewing tenants are generally good, though such re-tenanting efforts would likely require additional capital expenditures and the opportunities to lease any vacant theater spaces may be more limited. However, there can be no assurance that vacancy resulting from increasingly uncertain economic conditions will not adversely affect the Company's operating results (see Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022).
26
Inflation, rising interest rates and regional bank concerns have also impacted, in certain cases, real estate owners' ability to acquire and sell assets and raise equity and debt financing. Although the Company has relatively small amounts of consolidated indebtedness maturing in 2023 and 2024, debt capital markets could adversely impact the Company’s ability to refinance maturities and the interest rates applicable thereto. To the extent that the interest rate environment does not moderate prior to the time of these refinancings, the Company’s interest expense levels would be adversely affected.
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 Securities Exchange Act of 1934, 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, 2022.
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:
27
28
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s primary market risk exposure is interest rate risk. At March 31, 2023, the Company’s debt, excluding unconsolidated joint venture debt and adjusted to reflect the swap of the variable rate (SOFR) component of interest rate applicable to the Company's $200.0 million term loan to a fixed rate of 2.75%, is summarized as follows:
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||||||||||
|
Amount |
|
|
Weighted- |
|
|
Weighted- |
|
|
Percentage |
|
|
Amount |
|
|
Weighted- |
|
|
Weighted- |
|
|
Percentage |
|
||||||||
Fixed-Rate Debt |
$ |
1,707.3 |
|
|
|
2.8 |
|
|
|
4.1 |
% |
|
|
95.8 |
% |
|
$ |
1,707.0 |
|
|
|
3.1 |
|
|
|
4.1 |
% |
|
|
100.0 |
% |
Variable-Rate Debt |
$ |
75.0 |
|
|
|
3.2 |
|
|
|
5.7 |
% |
|
|
4.2 |
% |
|
$ |
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.0 |
% |
The Company’s unconsolidated joint ventures’ indebtedness at its carrying value is summarized as follows:
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||||||||||
|
Joint |
|
|
Company's |
|
|
Weighted- |
|
|
Weighted- |
|
|
Joint |
|
|
Company's |
|
|
Weighted- |
|
|
Weighted- |
|
||||||||
Fixed-Rate Debt |
$ |
363.7 |
|
|
$ |
72.7 |
|
|
|
1.0 |
|
|
|
4.8 |
% |
|
$ |
363.5 |
|
|
$ |
72.7 |
|
|
|
1.3 |
|
|
|
4.8 |
% |
Variable-Rate Debt |
$ |
145.5 |
|
|
$ |
32.7 |
|
|
|
1.0 |
|
|
|
5.1 |
% |
|
$ |
171.6 |
|
|
$ |
37.9 |
|
|
|
1.1 |
|
|
|
5.4 |
% |
The Company intends to use retained cash flow, proceeds from asset sales, equity and debt financing and variable-rate indebtedness available under its Revolving Credit Facility to repay indebtedness and fund capital expenditures at the Company’s shopping centers. Thus, to the extent the Company incurs additional variable-rate indebtedness or needs to refinance existing fixed-rate indebtedness in a rising interest rate environment, its exposure to increases in interest rates in an inflationary period could increase.
29
The interest rate risk on a portion of the Company’s variable-rate debt has been mitigated through the use of an interest rate swap agreement with major financial institutions. At March 31, 2023, the variable (SOFR) component of the interest rate applicable to the Company's $200.0 million consolidated term loan facility was swapped to a fixed rate. The Company is exposed to credit risk in the event of nonperformance by the counterparties to the swaps. The Company believes it mitigates its credit risk by entering into swaps with major financial institutions.
The carrying value of the Company’s fixed-rate debt is adjusted to include the $200.0 million of variable-rate debt that was swapped to a fixed rate at March 31, 2023. An estimate of the effect of a 100 basis-point increase at March 31, 2023 and December 31, 2022, is summarized as follows (in millions):
|
March 31, 2023 |
|
|
|
December 31, 2022 |
|
|
||||||||||||||||||
|
Carrying |
|
|
Fair |
|
|
100 Basis-Point |
|
|
|
Carrying |
|
|
Fair |
|
|
100 Basis-Point |
|
|
||||||
Company's fixed-rate debt |
$ |
1,707.3 |
|
|
$ |
1,645.1 |
|
(A) |
$ |
1,603.3 |
|
(B) |
|
$ |
1,707.0 |
|
|
$ |
1,622.2 |
|
(A) |
$ |
1,577.7 |
|
(B) |
Company's proportionate share of |
$ |
72.7 |
|
|
$ |
71.0 |
|
|
$ |
70.3 |
|
|
|
$ |
72.7 |
|
|
$ |
70.5 |
|
|
$ |
69.6 |
|
|
The sensitivity to changes in interest rates of the Company’s fixed-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 at March 31, 2023, would result in an increase in interest expense of approximately $0.2 million relating to the Company's variable rate debt outstanding for the three months ended March 31, 2023. This exposure to interest rate risk was mitigated by the implementation of a 5.0% interest rate cap with respect to the variable (SOFR) component applicable to borrowings up to $100 million under the Company's Revolving Credit Facility effective in April 2023. The estimated increase in interest expense does not give effect to possible changes in the daily balance of the Company’s outstanding variable-rate debt. A 100 basis-point increase in short-term market interest rates on variable-rate debt at March 31, 2023, would not result in any change in interest expense for the Company or its joint ventures. All of the variable-rate debt outstanding at the unconsolidated joint ventures is subject to hedging agreements.
The Company and its joint ventures intend to continually monitor and actively manage interest costs on their variable-rate debt portfolio and may enter into swap positions based on market fluctuations. In addition, the Company believes it has the ability to obtain funds through additional equity and/or debt offerings and joint venture capital. Accordingly, the cost of obtaining such protection agreements versus 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 March 31, 2023, 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 Securities Exchange Act of 1934 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 Securities 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 Securities 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 Securities 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.
During the three months ended March 31, 2023, 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.
30
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
ISSUER PURCHASES OF EQUITY SECURITIES
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(a) |
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(b) |
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(c) |
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(d) |
|
||||
|
Total |
|
|
Average |
|
|
Total Number |
|
|
Maximum Number |
|
||||
January 1–31, 2023 |
|
134 |
|
|
$ |
13.66 |
|
|
|
— |
|
|
$ |
— |
|
February 1–28, 2023 |
|
1,145,147 |
|
|
|
13.39 |
|
|
|
1,068,666 |
|
|
|
— |
|
March 1–31, 2023 |
|
706,239 |
|
|
|
13.41 |
|
|
|
420,410 |
|
|
|
— |
|
Total |
|
1,851,520 |
|
|
$ |
13.40 |
|
|
|
1,489,076 |
|
|
$ |
73.4 |
|
On December 20, 2022, the Company announced that its Board of Directors authorized a common share repurchase program. Under the terms of the program, the Company is authorized to repurchase up to a maximum value of $100 million of its common shares. In the first quarter of 2023, the Company repurchased 1.5 million of its common shares in open market transactions at an aggregate cost of $20.0 million, or $13.43 per share, under this program. From December 20, 2022 through March 31, 2023, the Company had repurchased 2.0 million of its common shares in the aggregate at a cost of $26.6 million under the program.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
None.
31
Item 6. EXHIBITS
31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document1 |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document1 |
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|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document1 |
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|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document1 |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document1 |
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|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document1 |
|
|
|
104 |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 has been formatted in Inline XBRL and included in Exhibit 101. |
Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, (ii) Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022, (iii) Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2023 and 2022, (iv) Consolidated Statements of Equity for the Three Months Ended March 31, 2023 and 2022, (v) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 and (vi) Notes to Condensed Consolidated Financial Statements.
32
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.
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SITE CENTERS CORP. |
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|||
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By: |
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/s/ Christa A. Vesy |
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Name: |
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Christa A. Vesy |
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Title: |
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Executive Vice President (Principal Accounting Officer) |
Date: April 27, 2023 |
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33