SITE Centers Corp. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. SITE Centers is a REIT that owns, operates, leases and manages shopping centers. Unless stated otherwise, financial amounts below are in millions; comparisons are with 2019 or December 31, 2019, as applicable.
Business context and operating results
The pandemic materially affected tenants and rent collections. At June 30, the portfolio comprised 148 shopping centers, including 79 held through joint ventures, with 90.2% occupancy and average annualized base rent of $18.51 per occupied square foot. By July 24, about 92% of tenants, weighted by base rent, were open.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $107.6 | $128.7 | $236.9 | $259.7 |
| Net income (loss) attributable to SITE Centers | $(4.6) | $17.3 | $29.7 | $53.1 |
| Net income (loss) attributable to common shareholders | $(9.7) | $8.9 | $19.5 | $36.3 |
| Diluted earnings (loss) per share | $(0.05) | $0.05 | $0.10 | $0.20 |
| FFO attributable to common shareholders | $39.2 | $57.9 | $86.6 | $118.6 |
| Operating FFO attributable to common shareholders | $39.9 | $57.0 | $101.0 | $115.7 |
Q2 rental income declined $14.2 million year over year; fee and other income declined $6.9 million. Uncollectible revenue was $13.2 million in Q2 versus $0.8 million of positive revenue in Q2 2019. Q2 property NOI was $73.7 million versus $92.1 million. First-half same-store NOI declined 7.8% including redevelopment properties and 8.0% excluding them. Positive leasing spreads for the first half were 21.8% on new leases and 4.5% on renewals.
Cash flow, debt and liquidity
- First-half operating cash flow was $71.9 million, down from $120.2 million. Investing activities provided $111.9 million, mainly reflecting $140.4 million of proceeds from the sale of the DDRTC joint-venture interest; financing activities used $74.2 million.
- Cash and cash equivalents were $128.5 million at June 30, up from $16.1 million at year-end. Total consolidated debt was $1.887 billion, versus $1.847 billion at year-end. The company reported $685 million of remaining revolving-credit availability, subject to borrowing conditions.
- In March, the company drew $500 million on revolving facilities as a precaution and redeemed $200 million of 4.625% notes due 2022, incurring $16.6 million of make-whole/debt-extinguishment costs. It repaid $360 million of revolver borrowings in Q2.
- Debt was 79.6% fixed-rate and 20.4% variable-rate at June 30. The company reported compliance with debt covenants. No consolidated mortgage debt matured in 2020; $15.9 million was due in 2021, with no unsecured debt maturities before 2023.
Material changes, outlook and risks
- As of July 24, tenants had paid approximately 64% of Q2 aggregate base rent and 71% of July base rent. Rent deferrals or other agreed arrangements covered about 17% of Q2 base rent; the company had begun collection actions against some tenants. Management could not forecast the ultimate recovery of unpaid rents or the pandemic’s duration and expected continuing adverse operating effects.
- The company increased its valuation allowance on preferred investments in Blackstone joint ventures by $22.9 million in the first half. A $45.6 million gain on the February sale of its 15% DDRTC interest partly offset weaker results; the sale generated $140.4 million of net proceeds before final working-capital adjustments.
- On July 14, the company agreed to terminate its BRE DDR III and IV joint ventures with Blackstone. The transactions, subject to conditions including lender consents, were expected to close by early Q4 2020. They involve transfers of interests, properties, cash and associated mortgage debt; closing terms and realized values remain important uncertainties. Management also expected the terminations to reduce fee income.
- The company suspended common dividends for Q2 and elected not to declare one for Q3 2020; future policy was to be reviewed quarterly. It intended to meet REIT taxable-income distribution requirements. Redevelopment spending was reduced, with about $19 million remaining to fund the pipeline at June 30. Management believed liquidity was sufficient for at least the next 12 months.
- Other principal risks include further tenant closures or bankruptcies, weaker leasing and rent collection, joint-venture mortgage refinancing and covenant pressure, impairment risk, and adverse changes in capital markets. No specific full-year earnings or revenue guidance is provided in the filing.
Important facts for investors to verify
- Subsequent rent collections, deferred-rent repayment performance and tenant credit quality, including cash-basis accounting and reserve assumptions.
- Completion and final economic terms of the BRE DDR III/IV exits, lender consents, debt assumed, and effects on investment value and fee income.
- Revolver availability, covenant headroom, joint-venture debt maturities and refinancing outcomes.
- Dividend decisions after Q3, REIT distribution requirements and cash available after operating needs and redevelopment commitments.
- Underlying operating performance apart from transaction gains and valuation reserves; FFO and Operating FFO are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.