SITE Centers Corp. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed February 27, 2020. This is an annual filing, not a standalone fourth-quarter report. SITE Centers is a self-managed REIT focused on owning, leasing, redeveloping and managing shopping centers.
Business context and operating performance
At year-end, the company’s portfolio comprised 170 shopping centers, including 101 held through joint ventures, with 57.0 million square feet of total GLA and more than 400 acres of undeveloped land. It also managed 13.2 million square feet for Retail Value Inc. (RVI). Pro rata occupancy was 90.8%, up from 89.9% in 2018; average annualized base rent per occupied square foot rose 2.2% to $18.25.
- Leasing activity produced a 6.3% blended spread on comparable new leases and renewals: 13.9% on new leases and 4.7% on renewals.
- Same-store NOI at the company’s effective ownership interest increased 3.6% to $323.0 million, mainly reflecting rent increases, new lease commencements and higher percentage rents, as well as favorable bankruptcy settlements and bad debt.
- During 2019, SITE sold 10 shopping centers and land parcels for $523.5 million gross proceeds, acquired three centers for $85.1 million, and issued common shares for $194.6 million net proceeds. It used proceeds and capital recycling as part of its deleveraging and reinvestment strategy.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Total revenue | $508.0 million | $707.3 million |
| Net income attributable to SITE Centers | $100.7 million | $114.4 million |
| Net income attributable to common shareholders | $61.3 million | $80.9 million |
| Diluted EPS | $0.33 | $0.43 |
| FFO attributable to common shareholders | $229.8 million | $191.8 million |
| Operating FFO attributable to common shareholders | $233.4 million | $307.3 million |
| Cash flow from operating activities | $270.2 million | $263.4 million |
Revenue declined primarily because of the 2018 RVI spin-off, property sales and transfers to joint ventures; fee and other income increased to $63.7 million, including higher fees from RVI. Common net income also reflected lower real estate sale gains than in 2018. The rise in FFO partly reflected substantial 2018 debt-extinguishment and transaction costs, while Operating FFO fell mainly due to the RVI spin-off and Dividend Trust Portfolio joint venture contribution, partly offset by lower interest expense and higher fee income.
For the fourth quarter of 2019, revenue was $125.8 million and net income attributable to common shareholders was $9.7 million. The comparable 2018 quarter included a large gain on sale, so reported earnings are not directly comparable.
- At December 31, 2019, total consolidated indebtedness was $1.847 billion, down from $1.884 billion; cash and cash equivalents were $16.1 million, with $965.0 million of available revolving-credit capacity.
- Consolidated debt was predominantly fixed-rate: $1.743 billion fixed-rate and $104.5 million variable-rate. Weighted-average debt interest rate was 4.4% for 2019. The debt-to-total-market-capitalization ratio was 0.38, compared with 0.43 in 2018.
- Unconsolidated joint ventures had approximately $1.6 billion of mortgage debt; SITE’s proportionate share was approximately $0.3 billion. Much of this debt is non-recourse, subject to limited exceptions.
- The company reported total equity of $1.981 billion. It declared common dividends of $0.80 per share for 2019, down from $1.16 in 2018.
Material changes, outlook and risks
- In 2019 SITE issued 13.225 million common shares and redeemed all $200 million of its 6.50% Class J preferred shares. The redemption resulted in a $7.2 million non-cash charge to common shareholders.
- It recorded $3.4 million of consolidated real estate impairment charges and a $15.5 million reserve against preferred equity interests in Blackstone joint ventures. The preferred-equity valuation allowance was $87.9 million at year-end; repayment timing and collateral values are subject to significant management estimates.
- Management’s 2020 priorities include leasing and rent growth, selective redevelopment, and redeploying proceeds from sales of lower-growth assets into opportunistic investments. The filing provides no specific earnings or FFO guidance.
- Redevelopment spending is discretionary. SITE had invested approximately $77 million in active consolidated redevelopment projects at year-end; estimated gross costs for listed significant projects totaled $95.2 million, with $23.9 million incurred. Management did not anticipate significant joint-venture redevelopment spending in 2020.
- On February 19, 2020, SITE sold its 15% interest in the DDRTC joint venture, which held 21 assets, to its partner based on a $1.14 billion gross fund value. The filing does not state the company’s net cash proceeds. SITE also announced an intention to redeem $200 million of 4.625% senior notes due 2022.
- Principal risks include retail tenant distress and bankruptcies, e-commerce and changing consumer behavior, lease renewals and occupancy, property operating costs, joint-venture and preferred-investment recoveries, refinancing and interest-rate exposure, and real estate impairment. About 6% of leased GLA was scheduled to expire in 2020 on a pro rata basis.
- The $950 million unsecured revolving facility matures in January 2024, with two six-month extension options subject to conditions. SITE said it was in compliance with debt covenants at year-end. Approximately $180 million of debt, including its share of joint-venture debt, was LIBOR-indexed, exposing the company to benchmark-transition terms.
- Management said tenant demand remained broad, particularly among value-oriented, convenience, grocery and service tenants, while acknowledging continued retail bankruptcies, closures and store downsizing. Legal proceedings were not expected to have a material adverse effect. The auditor identified real estate impairment and preferred-equity reserves as critical audit matters; the audit opinion was unqualified.
Important facts for investors to verify
- Reconcile reported revenue and earnings declines with the RVI spin-off, asset dispositions, joint-venture transfers, and the unusually high 2018 property-sale gains and transaction costs.
- Review the preferred-equity collateral valuations, reserve assumptions, repayment timing and redemption rights in the Blackstone joint ventures.
- Confirm the DDRTC sale’s actual proceeds and ongoing effects on management fees, joint-venture income and debt exposure.
- Assess liquidity and refinancing needs, including the planned 2022 note redemption, variable-rate exposure, covenant headroom and joint-venture maturities.
- Track occupancy, 2020 lease expirations, renewal spreads, major-tenant credit conditions, redevelopment costs and the sustainability of the $0.80 annual common dividend.