SITE Centers Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. SITE Centers is a REIT that owns, develops, leases and manages shopping centers. At quarter-end, its portfolio comprised 138 centers, including 60 held through joint ventures.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $128.1 million | $129.3 million |
| Net income attributable to SITE Centers | $16.0 million | $34.3 million |
| Net income attributable to common shareholders | $10.9 million; diluted EPS $0.05 | $29.2 million; diluted EPS $0.15 |
| FFO attributable to common shareholders (non-GAAP) | $49.5 million | $47.4 million |
| Operating FFO attributable to common shareholders (non-GAAP) | $55.3 million | $61.2 million |
| Cash from operating activities | $56.1 million | $35.9 million |
| Same-store NOI (non-GAAP, at effective ownership) | Including redevelopment: $89.7 million; excluding redevelopment: $86.5 million | Down 1.4% and 2.1%, respectively |
Rental income increased 6.5% to $119.9 million, but fee and other income fell to $8.2 million from $16.8 million. The decline in GAAP net income primarily reflected lower fee and interest income, a smaller gain on sale of joint venture interests, and $7.3 million of impairment charges. Comparisons also reflect significant prior-year items, including a $45.7 million gain on sale of a joint venture interest and debt-extinguishment costs. FFO increased, while Operating FFO declined; both are non-GAAP measures and should be considered alongside GAAP results and cash flows.
Portfolio occupancy was 88.6%, versus 89.0% at December 31, 2020 and 90.1% a year earlier. Average annualized base rent per occupied square foot was $18.39, versus $18.50 at year-end 2020. Q1 leasing spreads were positive 14.9% for new leases and negative 4.2% for renewals; management said renewals prioritized occupancy.
Balance sheet, liquidity and capital
- At March 31, 2021, consolidated debt was $1.780 billion, down from $1.934 billion at December 31, 2020. Cash and cash equivalents were $190.8 million; restricted cash was $2.9 million. The filing reports $193.7 million of cash, cash equivalents and restricted cash at quarter-end.
- No borrowings were outstanding under revolving facilities, with $970 million of stated availability, subject to borrowing conditions. The $950 million unsecured facility matures in January 2024 and has two six-month extension options, subject to conditions. The company reported compliance with debt covenants.
- Debt was 89.5% fixed-rate and 10.5% variable-rate. Management described its strategy as maintaining liquidity and low leverage. A 100-basis-point increase in short-term rates was estimated to increase quarterly interest expense by about $0.5 million for the company, plus $0.1 million for its proportionate share of joint ventures’ variable-rate debt.
- In March, SITE issued 17.25 million common shares for net proceeds of $225.5 million. In April, it redeemed all $150 million of its 6.25% Class K preferred shares; the company expects a $5.1 million non-cash charge to net income attributable to common shareholders in Q2.
- Operating, investing and financing cash flows were $56.1 million, $10.5 million and $52.6 million, respectively. Financing cash flow included the equity offering and $135 million net repayment of revolving credit borrowings.
Management commentary, outlook and risks
- COVID-19 continued to affect tenant operations and collections. As of April 16, 2021, 99% of tenants, measured by the company’s share of average base rent, were open, and reported rent collection rates were 84% for Q2 2020, 89% for Q3 2020, 95% for Q4 2020 and 96% for Q1 2021. These figures include subsequent receipts and allocate deferred-rent payments to the period originally owed.
- Management said collections and leasing momentum improved, but collections remained below historical levels. A majority of remaining deferred rents were expected to be repaid by year-end 2021. The ultimate pandemic impact could not be reasonably forecast; renewed restrictions, variants, tenant distress, bankruptcies or further nonpayment could impair results and liquidity. Theaters, fitness and local restaurants remained particularly vulnerable.
- No formal earnings or revenue guidance is provided in the filing. Management said it believed liquidity was sufficient to operate and anticipated approximately $22 million of funding for identified redevelopment projects. It declared a Q1 common dividend of $0.11 per share, paid April 6, and said dividend policy would be monitored to preserve liquidity while meeting REIT distribution requirements.
- One unconsolidated joint venture sold undeveloped Ontario land in February. SITE’s share of net proceeds was $22.1 million, including $6.1 million held in escrow; the company recorded an aggregate $16.7 million gain, including a $13.9 million promoted-interest and foreign-currency-related gain. Certain escrow proceeds remain subject to tax clearance or partnership dissolution.
- Joint ventures had $89.6 million of mortgage maturities, at SITE’s share, through April 2022. Management expected extensions, refinancing or other funding, but cautioned that outcomes were uncertain and pandemic-related rent weakness could affect covenant compliance or refinancing.
- The company recorded a $7.3 million impairment after changing the expected hold period for an asset considered for sale. Management noted that changed market conditions or assumptions could result in further impairments. Ordinary-course legal proceedings were not expected to have a material adverse effect; the filing reported no material risk-factor changes for the quarter.
Important facts for investors to verify
- Whether tenant rent collections, deferred-rent repayments and occupancy continued to improve after the April 2021 dates reported, and whether cash-basis tenants resumed accrual accounting.
- The status and recovery of the Ontario land-sale escrow, and whether joint-venture mortgage maturities were extended or refinanced on acceptable terms.
- The effect of the common-share issuance and April preferred-share redemption on leverage, liquidity, preferred dividends and Q2 per-share earnings.
- Whether leasing spreads, occupancy and same-store NOI stabilized, particularly given negative renewal spreads and the priority placed on occupancy.
- How FFO and Operating FFO reconcile to GAAP results, and the sensitivity of impairment valuations and redevelopment plans to changes in assumptions.