SITE Centers Corp. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. SITE Centers is a REIT that owns, leases, acquires, redevelops, develops and manages shopping centers. Its portfolio included 122 centers, 28.2 million square feet of GLA and 19 joint-venture properties at quarter-end.
Financial results and operating metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $138.8m | $134.4m | $413.8m | $398.0m |
| Net income attributable to common shareholders | $63.4m | $25.3m | $132.2m | $49.9m |
| Diluted EPS | $0.30 | $0.12 | $0.62 | $0.24 |
| FFO attributable to common shareholders | $61.6m | $66.5m | $188.7m | $176.5m |
| Operating FFO attributable to common shareholders | $62.8m | $61.4m | $190.8m | $181.9m |
Revenue growth reflected higher rental income, partly offset by lower fee and other income. Q3 and nine-month net income benefited substantially from gains on asset and joint-venture-interest dispositions; therefore, GAAP earnings growth did not correspond to Q3 FFO growth. FFO and Operating FFO are non-GAAP measures and are not cash available for dividends or debt service.
- Rent and portfolio: Nine-month rental income was $401.2m, up $34.5m. At September 30, occupancy was 91.4%, versus 90.2% a year earlier; average annualized base rent per occupied square foot was $19.11, versus $18.44.
- Leasing: For comparable leases executed year to date, spreads were 20.0% on new leases and 6.0% on renewals. The company leased approximately 4.2m square feet across 518 leases. These spread figures exclude leasing capital costs.
- Same-store performance: Nine-month SSNOI, including redevelopment, was $274.9m versus $273.9m, an increase of 0.4%.
- Cash flow: Nine-month operating cash flow was $205.5m, down from $217.4m. Investing activities used $282.8m, versus $64.7m, largely reflecting increased property acquisitions and development. Financing activities provided $58.1m, compared with $161.7m used in 2021.
- Debt and liquidity: Total consolidated debt was $1.822bn at September 30, versus $1.677bn at December 31, 2021. Unrestricted cash was $20.9m; the $950m revolving facility had $80m drawn and $870m of stated availability, subject to borrowing conditions. The company reported compliance with debt covenants.
- Debt costs and maturities: Weighted-average debt outstanding was $1.8bn and the nine-month weighted-average interest rate was 4.0%. The company reported no consolidated debt maturing in 2022; senior notes and consolidated mortgage debt mature in 2023. A $200m term loan was swapped to a fixed rate of 3.8% through June 2027.
- Equity and dividends: The company repurchased 1.6m common shares for $20.0m in Q3. Common dividends declared were $0.39 per share for the first nine months. Preferred shares carry a 6.375% cumulative dividend.
Material changes versus the prior comparable period
- Nine-month revenue rose $15.8m, with rental income up $34.5m; fee and other income fell $18.7m, primarily because of asset sales and lower fees from Retail Value Inc. and joint ventures. Management said the lower-fee trend is expected to continue.
- Nine-month common-shareholder net income increased $82.2m, mainly reflecting higher disposition gains and improved operating results. Gains on sale and change in control of interests were $45.6m, and gains on real estate dispositions were $31.3m.
- Nine-month FFO increased $12.2m and Operating FFO increased $8.9m. Q3 FFO, however, declined $4.9m year over year.
- Occupancy, rents and leasing spreads improved. The company acquired 14 shopping centers for an aggregate $301.1m and acquired its joint-venture partner’s interest in Casselberry Commons for $35.6m. It also completed asset and joint-venture-interest sales, including a joint venture portfolio sale of 13 centers.
- Operating cash flow declined while acquisition and development spending increased. Debt rose from year-end 2021, and the company amended and extended its revolving facility and term loan in June 2022.
Outlook, commentary and risks
The filing provides no formal earnings or FFO guidance. Management said it believes liquidity is sufficient for current operations and expects to fund maturities and investment through operating cash flow, revolver availability, asset sales and/or debt or equity financing. Approximately $25m remained to be incurred on identified redevelopment projects; about $60m of consolidated redevelopment and other projects was in construction in progress.
Management cited retailer demand and leasing momentum, while warning that inflation, higher interest rates, labor shortages, supply-chain disruption and capital-market volatility could pressure tenants, operating and construction costs, rent growth, property values and financing. Further COVID-19 disruption could affect leasing and collections; some categories, including theaters, fitness centers and local restaurants, remain vulnerable. Joint-venture debt of $115.8m (with $23.2m at SITE Centers’ share) was due through October 2023; repayment or extension was expected, but not assured. The company also noted refinancing, covenant, tenant-credit, redevelopment, acquisition and disposition risks.
Most prior rent-deferral arrangements had been repaid, and management reported collections broadly consistent with pre-pandemic patterns. Nine-month net uncollectible revenue was $1.9m, compared with $8.3m in 2021. The company recorded a $2.5m impairment tied to a tenant’s fixed-price building purchase option. Management reported no material adverse effect expected from existing legal proceedings; no risk-factor changes were reported in this filing.
Important facts for investors to verify
- How much reported earnings growth came from asset-sale and joint-venture gains, versus recurring property operations; consider GAAP results alongside FFO, Operating FFO and cash flow.
- Whether occupancy, rent growth and leasing spreads can persist, and what leasing capital expenditures will be required to support new leases.
- Actual availability and borrowing conditions under the revolving facility, covenant headroom, and the company’s refinancing plan for 2023 maturities.
- Whether the DDRM Joint Venture repays or extends its 2023 debt and how further joint-venture or property sales affect recurring fee income and earnings.
- Whether inflation, interest rates and tenant financial conditions materially affect collections, operating costs, redevelopment budgets or property values.