SITE Centers Corp. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. SITE Centers is a REIT that owns, develops, leases, and manages shopping centers. At quarter-end, its portfolio comprised 132 centers, including 33 held through unconsolidated joint ventures, with approximately 30.8 million square feet of GLA.
Financial and operating performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $140.7 million | $135.5 million | $275.0 million | $263.6 million |
| Net income attributable to common shareholders | $57.6 million | $13.8 million | $68.7 million | $24.6 million |
| Diluted EPS | $0.27 | $0.06 | $0.32 | $0.12 |
| FFO attributable to common shareholders | $65.9 million | $60.5 million | $127.1 million | $110.0 million |
| Operating FFO attributable to common shareholders | $66.5 million | $65.3 million | $128.0 million | $120.6 million |
Q2 revenue growth reflected higher rental income, partly offset by lower fee and other income. Six-month rental income increased $20.0 million, principally from acquisitions and comparable-property growth. Net income rose sharply, but included a $42.0 million Q2 gain on sale of joint-venture interests; six-month gains on sale and change in control totaled $45.3 million. These gains are not representative of recurring property operations. Same-store NOI increased 0.1% for the six months, including redevelopment, under the company’s non-GAAP definition.
At June 30, portfolio occupancy was 90.9%, versus 89.7% a year earlier; average annualized base rent per occupied square foot was $18.86, versus $18.39. In the first half, the company completed approximately 358 leases covering 2.6 million square feet; new-lease and renewal spreads were 23.7% and 5.1%, respectively. The company reported $2.3 million of net prior-period rental income, primarily from cash-basis tenants and reserve adjustments.
Cash flow, debt, and liquidity
- First-half operating cash flow was $132.1 million, down from $144.8 million. Investing cash use was $289.0 million, mainly reflecting $298.0 million of real estate acquisitions; financing provided $154.8 million.
- Cash, cash equivalents, and restricted cash totaled $41.2 million at June 30; unrestricted cash was $38.5 million.
- Total consolidated debt was $1.87 billion, up from $1.68 billion at December 31, 2021. The company had $125 million drawn on its $950 million revolving facility and reported $825 million of availability, subject to borrowing conditions. Debt to total market capitalization was 0.38 to 1.0.
- In June, the company extended its revolving facility to June 2026, with two six-month extension options, and amended its term loan to mature in June 2027. Both facilities transitioned from LIBOR to SOFR; the company reported no consolidated LIBOR-based debt at quarter-end. It drew an additional $100 million under the term loan, bringing principal outstanding to $200 million.
- No consolidated debt matured in 2022. Scheduled 2023 maturities included $87.2 million of senior notes and $35.5 million of mortgage debt. The company was in compliance with debt covenants at quarter-end.
- The company declared common dividends of $0.13 per share in each of Q1 and Q2. Management said it believed liquidity was sufficient and intends to distribute at least 100% of ordinary taxable income to maintain REIT status.
Material changes, outlook, and risks
The company acquired nine shopping centers for $269.7 million in the first half and acquired its partner’s interest in Casselberry Commons. It sold its interests in the SAU Joint Venture and Lennox Town Center, recognizing $42.0 million in gains. In July, the DDRM Joint Venture sold 14 properties, with related mortgage debt repaid at closing; the company also acquired Parkwood Shops for $8.4 million.
Management reported strong leasing activity and demand for well-positioned centers, while noting that inflation, rising interest rates, labor shortages, and supply-chain disruption could affect tenants, rents, operating costs, redevelopment expenses, and financing costs. COVID-19-related collection trends had improved, but renewed disruption, tenant distress, or further restrictions could impair collections and leasing. Management anticipated approximately $30 million of spending on identified redevelopment projects and approximately $63 million of construction in progress at quarter-end. No specific full-year earnings or FFO guidance was provided.
Key financial risks include refinancing availability and cost, variable-rate exposure, tenant credit and lease renewals, property-sale execution, joint-venture debt and partner decisions, and the possibility that inflation or economic weakness pressures tenant demand and collections. Management estimated that a 100-basis-point increase in short-term rates would raise six-month interest expense by approximately $1.6 million for the company and $0.2 million for its proportionate share of joint ventures. The filing reported no new risk factors in Part II; it also said ordinary-course legal proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- How much of reported earnings growth is recurring, given the substantial property-interest sale gains?
- Whether occupancy, rents, leasing spreads, and tenant collections remain durable amid inflation and economic uncertainty.
- Debt maturities, revolving-facility availability, covenant headroom, and exposure to higher SOFR and refinancing rates.
- The financial and operating effects of the July DDRM asset sales and associated mortgage repayments.
- Expected redevelopment and leasing capital requirements, and the sustainability of dividend coverage from recurring cash flows.