SITE Centers Corp. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. SITE Centers is a REIT focused on acquiring, owning, developing, leasing, and managing shopping centers. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Business context
At quarter-end, the portfolio comprised 138 shopping centers, including 46 held through unconsolidated joint ventures. Pro rata portfolio occupancy was 90.2%, up from 90.0% at December 31, 2021 and 88.6% a year earlier. Average annualized base rent was $18.55 per occupied square foot, versus $18.39 a year earlier.
Financial and operating metrics
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $134.3 | $128.1 |
| Rental income | $129.9 | $119.9 |
| Net income | $14.0 | $16.2 |
| Net income attributable to common shareholders | $11.1 | $10.9 |
| Diluted earnings per share | $0.05 | $0.05 |
| FFO attributable to common shareholders | $61.2 | $49.5 |
| Operating FFO attributable to common shareholders | $61.6 | $55.3 |
| Same-store NOI growth, including redevelopment | 2.9% | Year-over-year |
| Cash flow from operating activities | $50.0 | $56.1 |
| Cash flow from investing activities | $(154.5) | $10.5 provided |
| Cash flow from financing activities | $80.4 | $52.6 |
Cash and restricted cash totaled $19.2 at quarter-end, including $17.2 of unrestricted cash. Total indebtedness was $1.76 billion, compared with $1.68 billion at year-end 2021. Debt included $115 million drawn on revolving facilities, with $855 million of stated availability subject to borrowing conditions. The company reported no consolidated debt maturities in 2022; specified 2023 maturities total $222.8 million. The debt-to-total-market-capitalization ratio was 0.33.
The company declared a quarterly common dividend of $0.13 per share. The filing does not provide a formal earnings or FFO outlook.
Material changes and notable items
- Revenue rose $6.2 million year over year, primarily from higher base rent and tenant recoveries, acquisitions, and improved operating performance. Fee and other income fell $3.8 million, mainly because RVI sold assets and generated lower management fees.
- Net income attributable to common shareholders increased modestly, while total net income declined. Lower fee income and a smaller gain on change in control of interests were more than offset at the common-shareholder level by operating growth, acquisitions, and lower impairment charges.
- FFO increased, reflecting stronger property operations and acquisitions. Operating FFO also rose; the comparison benefited from a $5.6 million 2021 PRSU mark-to-market expense excluded from 2021 Operating FFO.
- Operating cash flow declined $6.1 million, principally due to lower tenant collections than the prior-year period, reduced fees, and other working-capital effects. Investing cash use reflected $133.5 million of real estate acquisitions and $24.7 million of development and property improvements.
- Q1 acquisitions included Artesia Village, Shops at Boca Center, and the partner’s interest in Casselberry Commons. The Casselberry transaction generated a $3.3 million gain on change in control. The company also settled 2.2 million shares under a forward equity offering, receiving $35.1 million gross.
- Unconsolidated joint ventures recorded a $5.2 million impairment charge and a net loss, compared with substantial gains in the prior-year quarter that included a property disposition gain.
Outlook, risks, and contingencies
- Management cited leasing demand and positive spreads: Q1 leasing spreads were 15.4% for new leases and 5.6% for renewals. Management expects continued opportunities from leasing, rent increases, acquisitions, and redevelopment.
- Approximately $32 million of future spending was anticipated for identified redevelopment projects; consolidated redevelopment and other construction in progress was approximately $57 million. Construction commitments were about $31.8 million, generally payable as work proceeds.
- Management said liquidity was sufficient at the time of filing and that the company was in compliance with debt covenants. It intends to maintain prudent leverage and access to financing, but refinancing or repayment of maturities is not assured.
- Risks include inflation, rising interest rates, labor shortages and supply-chain disruptions, tenant financial stress, retail competition and e-commerce, and renewed COVID-19 disruption. The company warned these factors could affect rents, collections, leasing, redevelopment costs, and financing.
- Joint-venture debt and refinancing are additional exposures. Excluding the SAU Joint Venture interest sold after quarter-end, joint ventures had $71.0 million of debt at the company’s share maturing through April 2023; management expected refinancing or repayment, including through possible asset sales, but gave no assurance.
- Subsequent events: in April, the company acquired Shoppes of Crabapple for $4.4 million and sold its 20% interest in the SAU Joint Venture. Ordinary-course legal proceedings were not expected by management to have a material adverse effect. No new risk factors were reported in Part II.
Important facts for investors to verify
- Review the reconciliation and limitations of FFO, Operating FFO, and same-store NOI; these are non-GAAP measures and are not substitutes for cash flow or net income.
- Track rent collections, cash-basis tenants, deferred rents, occupancy, and leasing costs as pandemic-related recovery continues.
- Confirm financing plans for 2023 consolidated maturities and near-term joint-venture maturities, and monitor variable-rate exposure and LIBOR transition arrangements.
- Assess whether acquisitions and redevelopment spending produce the expected occupancy, rent growth, and returns, while considering the company’s capital commitments and dividend.
- Evaluate the ongoing decline in RVI and joint-venture fee income, including the effects of asset sales and changes to management agreements.