SITE Centers Corp. — Q2 2023 Form 10-Q
Business and period. Unaudited quarterly report for the three and six months ended June 30, 2023. SITE Centers is a REIT that owns, leases, acquires, redevelops, develops and manages shopping centers. Its portfolio included 121 centers, including 13 held through unconsolidated joint ventures, with approximately 26.2 million square feet of GLA.
Key financial results
Amounts below are in millions, except per-share data and operating statistics.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $138.2 | $140.7 | $276.9 | $275.0 |
| Net income attributable to SITE Centers | $5.4 | $60.4 | $20.6 | $74.3 |
| Net income attributable to common shareholders | $2.6 | $57.6 | $15.1 | $68.7 |
| Diluted EPS | $0.01 | $0.27 | $0.07 | $0.32 |
| FFO attributable to common shareholders | $57.5 | $65.9 | $119.4 | $127.1 |
| Operating FFO attributable to common shareholders | $61.3 | $66.5 | $124.0 | $128.0 |
- Revenue and operating trends: Q2 revenue declined 1.8% year over year; six-month revenue rose 0.7%. Six-month rental income increased $5.7 million, reflecting acquisitions and comparable-property growth, partly offset by dispositions. Fee and other income fell $3.9 million over the six-month period, mainly due to lower joint-venture fees after asset sales.
- Profit and margins: GAAP earnings fell sharply against 2022, which included substantial gains from asset and joint-venture transactions. Six-month interest expense increased to $40.8 million from $37.2 million. Same-store NOI increased 2.9% for the six months. The filing does not provide a clear consolidated operating-margin percentage.
- Cash flow: Six-month operating cash flow was $126.8 million, versus $132.1 million; investing cash outflow was $113.0 million, versus $289.0 million; financing cash outflow was $6.5 million, compared with $154.8 million of inflow. Cash, cash equivalents and restricted cash ended at $28.6 million.
- Debt and liquidity: Total consolidated indebtedness was $1.80 billion at June 30, compared with $1.71 billion at year-end. Unrestricted cash was $28.0 million and revolver availability was $775 million, subject to borrowing conditions. The company had $175 million outstanding on its revolver at a 6.0% weighted-average rate. Weighted-average debt interest rate was 4.3%; average maturity was 2.8 years. The company reported compliance with debt covenants.
- Leasing and occupancy: Pro-rata portfolio occupancy was 92.3%, versus 92.8% in March 2023 and 90.9% a year earlier; management attributed the recent decrease primarily to rejection of four wholly owned Bed Bath & Beyond leases. Average annualized base rent per square foot was $19.89, up from $18.86 a year earlier. Six-month cash lease spreads were 16.4% on new leases and 7.7% on renewals.
Material changes and unusual items
- Q2 2023 GAAP net income was far below Q2 2022, principally because the prior-year quarter included a $42.0 million gain on sale and change in control of interests and a $4.6 million real-estate disposition gain. In Q2 2023, those gains were absent.
- Six-month FFO declined 6.0% and Operating FFO declined 3.1%. Management cited reduced joint-venture fees and income, higher interest and corporate expenses, partly offset by base-rent growth and acquisitions. Operating FFO excludes certain charges and gains and is a non-GAAP measure.
- The company acquired five shopping centers for an aggregate $74.6 million and its unconsolidated joint venture sold five centers for $112.2 million in total sales proceeds ($22.4 million at SITE Centers’ share).
- A May 2023 restructuring plan generated a $2.9 million employee-separation charge in Q2; the company expected approximately $1.7 million of additional restructuring-related costs in the second half of 2023.
- The company repurchased 2.0 million common shares through June 30 under its $100 million authorization, at an aggregate cost of $26.6 million. It also repurchased all remaining OP units for $1.7 million.
Outlook, risks and contingencies
- No quantitative full-year earnings or FFO guidance is provided in the supplied filing text. Management said it believes liquidity is sufficient to operate the business and plans to maintain prudent leverage and monitor its dividend policy.
- Management cited retailer demand and leasing strength in suburban, higher-income communities, while cautioning that inflation, higher interest rates, reduced consumer spending, labor shortages, tenant distress and volatile capital markets could weigh on tenants, property operations and refinancing.
- No consolidated debt matures in the remainder of 2023. For 2024, the filing identifies $65.6 million of senior notes and $27.6 million of consolidated mortgage debt due. It also describes joint-venture maturities; the stated company-share amount differs between sections of the filing and should be checked.
- Identified redevelopment projects had approximately $19 million of remaining expected costs; construction commitments for consolidated properties totaled approximately $20.6 million. The company also disclosed approximately $7.0 million of purchase-order obligations.
- The company reported no material adverse expectation from pending legal proceedings and listed no new risk factors in this 10-Q. It noted that refinancing, tenant vacancies or bankruptcies, redevelopment execution, joint-venture outcomes and higher borrowing costs could adversely affect results.
Important facts for investors to verify
- Reconcile the filing’s different disclosures of 2024 joint-venture debt maturities at SITE Centers’ share, including the $112.2 million amount and the $81.1 million amount shown for maturities through July 31, 2024.
- Assess whether occupancy and rent growth can offset lease rejections, tenant failures and the expected elevated leasing capital expenditures.
- Track revolver borrowing costs, available capacity, covenant headroom and refinancing plans for 2024 maturities in a higher-rate environment.
- Compare GAAP results with FFO and Operating FFO, noting that management’s non-GAAP adjustments may include items that could recur.
- Monitor restructuring costs, redevelopment spending and joint-venture asset sales or refinancing, which may affect future earnings, fees and cash distributions.