SITE Centers Corp. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. SITE Centers is a retail REIT that owns, leases, acquires, redevelops, develops, and manages shopping centers. At quarter-end, its portfolio included 119 centers, including 13 held through unconsolidated joint ventures, with approximately 25.6 million square feet of gross leasable area.
Financial results and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $144.8 million | $138.8 million | $421.6 million | $413.8 million |
| Net income attributable to SITE Centers | $48.6 million | $66.2 million | $69.3 million | $140.5 million |
| Net income attributable to common shareholders | $45.9 million | $63.4 million | $60.9 million | $132.2 million |
| Diluted EPS | $0.22 | $0.30 | $0.29 | $0.62 |
| FFO attributable to common shareholders | $67.8 million | $61.6 million | $187.3 million | $188.7 million |
| Operating FFO attributable to common shareholders | $69.9 million | $62.8 million | $193.9 million | $190.8 million |
Cash flow: For the first nine months, operating cash flow was $192.0 million, versus $205.5 million a year earlier. Investing activities used $57.5 million, compared with $282.8 million, chiefly reflecting lower acquisition spending; financing activities used $92.5 million, versus $58.1 million provided in 2022. Cash, cash equivalents, and restricted cash totaled $63.3 million at September 30.
Debt and liquidity: Total consolidated debt was $1.740 billion, compared with $1.707 billion at year-end 2022. This included $135.0 million drawn on the revolving credit facility at a 6.0% weighted-average rate. Unrestricted cash was $26.6 million; the company reported $815.0 million of revolver availability, subject to borrowing conditions. Weighted-average debt maturity was 2.5 years; the weighted-average interest rate was 4.3%. Approximately 92.2% of consolidated debt was fixed-rate after giving effect to the term-loan swap. The company reported compliance with debt covenants.
Property operating indicators: Portfolio occupancy was 92.2% on a pro rata basis, compared with 91.4% a year earlier; average annualized base rent was $20.20 per square foot, versus $19.11. Nine-month comparable cash leasing spreads were 33.8% for new leases and 7.2% for renewals. Consolidated same-store NOI increased 2.8% for the nine-month period.
Material changes versus prior periods
- Nine-month GAAP net income attributable to common shareholders fell to $60.9 million from $132.2 million. The principal comparison was the large 2022 gain on joint-venture asset sales and changes in interests. Lower joint-venture fees and income, higher interest and depreciation expense, and restructuring costs also weighed on 2023 results.
- Despite lower nine-month GAAP earnings, operating FFO increased to $193.9 million from $190.8 million. The company cited base-rent growth, acquisitions, and below-market lease write-offs as offsets to higher costs and lower joint-venture income.
- Interest expense increased to $62.0 million for the first nine months from $57.3 million. The reported weighted-average interest rate on debt for the period rose to 4.4% from 4.0%.
- Q3 included $8.1 million of income from below-market lease adjustments, primarily associated with terminated leases in former Bed Bath & Beyond spaces. This helped lift Q3 rental income and is an unusual item to distinguish from recurring rent growth.
Outlook, commentary, and risks
- Planned spin-off: In October 2023, SITE Centers announced plans to spin off its unanchored convenience-retail assets into a separate publicly traded REIT, Curbline Properties Corp. The company expected completion in the second half of 2024. Curbline was expected to have no debt at separation; the timing, structure, tax treatment, and completion remain uncertain and subject to conditions.
- Proposed financing: SITE Centers obtained a commitment for a $1.1 billion delayed-draw mortgage facility secured by approximately 40 properties. Management expected to close before the spin-off and use proceeds, along with asset-sale proceeds, to repay unsecured debt and for general corporate purposes. Closing is not assured; the commitment has conditions, may be reduced if collateral properties are sold, and the facility would mature two years after closing, subject to an extension option.
- Asset activity: Through October 27, the company reported 11 wholly owned center sales for $645.6 million and convenience-center acquisitions totaling $128.7 million. In October, it also reported acquiring two centers for $26.0 million and selling six centers for $527.3 million. Four further properties were under contract to sell for $127.9 million as of October 27, subject to customary closing conditions.
- Dividends: Common dividends were $0.13 per share quarterly, or $0.39 for the first nine months. Management expected to declare a special dividend of at least $0.10 per share before January 31, 2024, subject to final board approval. The company stated it intends to distribute at least 100% of ordinary taxable income to maintain REIT status.
- Operations and risks: Management described tenant demand and leasing activity as healthy, while identifying inflation, higher interest rates, weaker consumer spending, labor constraints, tenant bankruptcies, refinancing availability, and retail-sector change as risks. Backfilling vacant space may require additional capital; theater space may be harder to re-lease. Joint-venture debt maturities and asset-sale outcomes also pose uncertainty.
- Other items: The company recorded $4.4 million of separation and other charges through September 30, primarily related to a restructuring plan, and expected additional charges in Q4. It anticipated approximately $14 million of remaining spending on identified redevelopment projects. Management said existing liquidity was sufficient for current operations. Legal proceedings were not expected to have a material adverse effect; disclosure controls were reported effective.
Important facts for investors to verify
- Whether the Curbline spin-off and the $1.1 billion mortgage facility close on the expected timeline and terms, including their effects on SITE Centers’ remaining portfolio, leverage, and share value.
- Whether announced property sales, including the four properties under contract, close at stated prices and how proceeds are applied to debt, dividends, or investment.
- Whether the special dividend is approved and how future distributions align with REIT requirements and post-transaction liquidity.
- How much recurring operating performance is represented by FFO growth versus lease adjustments, asset transactions, and other non-recurring or non-comparable items.
- Progress in leasing vacant space and maintaining occupancy, rent growth, and capital costs amid tenant distress and higher financing costs.
- Refinancing and repayment plans for 2024 maturities: $65.6 million of senior notes, $12.2 million of consolidated mortgage debt, and joint-venture debt maturities reported at $112.1 million at the company’s share in MD&A.