SITE Centers Corp. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. SITE Centers is a REIT that owns, develops, leases and manages shopping centers. At quarter-end, its portfolio included 171 centers, including 103 held through joint ventures; pro rata occupancy was 89.8% and annualized base rent was $17.98 per occupied square foot.
Financial results and key metrics
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Total revenue | $128.7 million | $211.5 million | $259.7 million | $426.6 million |
| Net income (loss) attributable to SITE Centers | $17.3 million | $(3.3) million | $53.1 million | $(57.5) million |
| Net income (loss) attributable to common shareholders | $8.9 million | $(11.7) million | $36.3 million | $(74.2) million |
| Diluted earnings (loss) per share | $0.05 | $(0.07) | $0.20 | $(0.41) |
| FFO attributable to common shareholders | $57.9 million | $49.4 million | $118.6 million | $82.6 million |
| Operating FFO attributable to common shareholders | $57.0 million | $90.5 million | $115.7 million | $188.2 million |
Cash flow: First-half operating cash flow was $120.2 million, versus $161.8 million in 2018; investing activities provided $8.4 million, versus $325.1 million; financing activities used $131.1 million, versus $474.7 million. Cash, cash equivalents and restricted cash ended the period at $11.2 million.
Debt and liquidity: Total consolidated indebtedness was $1.86 billion, down from $1.88 billion at December 31, 2018. Cash and cash equivalents were $9.4 million, with $895 million of revolving-credit capacity available. Debt-to-total-market-capitalization was 0.39 at quarter-end, versus 0.53 a year earlier. The company reported compliance with debt covenants.
Operating performance: First-half same-store NOI increased 3.8% at SITE Centers’ ownership share (2.3% at 100%). Management attributed the increase to rent growth, new lease commencements, a one-time tenant bankruptcy settlement and favorable bad-debt comparisons. Occupancy was 89.8%, compared with 89.9% at year-end 2018 and 90.5% at June 2018. New-lease and renewal spreads were positive: 13.7% for new leases and 6.2% for renewals during the first half.
Material changes versus prior periods
- Revenue fell about 39% in both the quarter and first half, primarily reflecting asset sales and the July 2018 spin-off of Retail Value Inc. (RVI), rather than a like-for-like decline in the retained portfolio. First-half comparable base and percentage rental income increased $2.8 million.
- GAAP earnings improved substantially from prior-year losses. Management cited lower debt-extinguishment costs, transaction costs, impairment charges and interest expense, partly offset by the smaller post-sale and post-spin-off portfolio.
- First-half FFO increased, largely because 2018 included substantial spin-off-related debt and transaction costs. Operating FFO decreased, mainly from the dilutive effect of asset sales and the RVI spin-off, partly offset by lower interest expense and higher fee income.
- First-half interest expense declined to $42.8 million from $89.0 million; weighted-average debt outstanding was $1.9 billion versus $3.7 billion. The prior-year period included significant debt associated with the RVI separation.
- The company sold two consolidated centers for $67.0 million and recorded a $16.6 million net gain; joint ventures sold four centers for $128.2 million. The company repurchased 1.2 million shares for $14.1 million in the first half.
Outlook, risks and unusual items
- No numerical earnings or FFO guidance is provided. Management described continued focus on low leverage, liquidity, selective redevelopment and using asset-sale proceeds for debt reduction and opportunistic investment. Redevelopment spending is discretionary; the company had invested about $71 million in active consolidated projects by June 30.
- In July 2019, after quarter-end, the company extended its unsecured revolving-credit facility maturity to January 2024, with two six-month extension options, and reduced applicable borrowing margins. It also increased its unsecured term loan from $50 million to $100 million.
- The company recorded a $5.7 million first-half reserve increase on preferred interests in Blackstone joint ventures, bringing the valuation allowance to $78.2 million. The reserve reflects management estimates of property sale timing and value and could change.
- Retail exposure remains a key risk: management noted tenant bankruptcies, e-commerce competition, store closures and anchor-tenant occupancy loss. TJX and Bed Bath & Beyond represented 5.7% and 3.4% of annualized revenue, respectively. Management cited demand for well-positioned centers and value-oriented retailers as offsets.
- Unconsolidated joint ventures had $1.9 billion of debt. $521.5 million was scheduled to mature through July 2020, representing $84.7 million at SITE Centers’ share; repayment, refinancing or extension was expected but not assured.
- Other notable items include adoption of the new lease accounting standard, which management said did not materially affect net income or cash flows, and a $0.6 million impairment on a property marketed for sale. Legal proceedings were not expected to have a material adverse effect. Management reported effective disclosure controls.
Most important facts for investors to verify
- Whether occupancy stabilizes or recovers, and whether leasing spreads translate into sustained rent and same-store NOI growth.
- How much of reported earnings and FFO depends on asset dispositions, one-time items, and non-GAAP adjustments; compare Operating FFO with GAAP cash flow.
- The timing and proceeds of planned asset sales and the impact of further portfolio reductions on recurring rental income.
- Performance and recoverability of Blackstone joint-venture preferred investments, including the valuation allowance and expected repayments.
- Refinancing outcomes for joint-venture maturities, covenant headroom, and the company’s ability to preserve liquidity while funding dividends and redevelopment.