SITE Centers Corp. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. SITE Centers is a REIT focused on owning, leasing, developing and managing shopping centers. Its portfolio included 169 centers, including 103 held through joint ventures; portfolio occupancy was 91.0% and annualized base rent was $18.04 per occupied square foot on a pro rata basis.
Key financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $122.5 million | $144.1 million | $382.2 million | $570.7 million |
| Net income (loss) attributable to common shareholders | $15.2 million | $(17.3) million | $51.5 million | $(91.6) million |
| Diluted EPS | $0.08 | $(0.09) | $0.28 | $(0.50) |
| FFO attributable to common shareholders | $55.1 million | $62.9 million | $173.7 million | $145.5 million |
| Operating FFO attributable to common shareholders | $55.4 million | $61.0 million | $171.1 million | $249.2 million |
| Cash flow from operating activities | Not separately stated | Not separately stated | $189.4 million | $197.5 million |
Nine-month same-store NOI increased 3.0% at SITE Centers’ effective ownership interest (1.8% at 100%). Management attributed the increase to rent growth, new lease commencements, higher percentage and overage rents, a tenant bankruptcy settlement and lower bad debt. Q3 property-level NOI was $89.1 million, compared with $104.5 million a year earlier.
At September 30, 2019, total debt was $1.83 billion, down from $1.88 billion at December 31, 2018; cash and cash equivalents were $23.7 million, with $2.3 million of restricted cash. Debt comprised $1.73 billion fixed-rate and $99.4 million variable-rate. The company reported $970 million of available revolving-credit capacity and compliance with debt covenants. Consolidated debt to total market capitalization was 0.36 to 1.0.
Changes and drivers versus prior periods
- Revenue declined 15% in Q3 and 33% for the first nine months. The decrease principally reflects properties sold, assets transferred to joint ventures and the 2018 spin-off of Retail Value Inc. (RVI), rather than a like-for-like deterioration alone. Topic 842 presentation changes also affected revenue comparisons but did not materially affect net income or cash flows.
- Common-share earnings improved from losses in 2018, aided by lower interest expense, debt-extinguishment and transaction costs, and impairment charges. The 2018 comparison included substantial RVI spin-off and debt-related costs. Nine-month GAAP results also included $31.1 million of net real-estate disposition gains.
- Nine-month FFO rose year over year, while Operating FFO fell 31%, primarily reflecting the reduced asset base after the RVI spin-off and portfolio transactions, partly offset by lower interest expense and higher fee income. FFO and Operating FFO are non-GAAP measures and are not substitutes for cash flow or funds available for dividends.
- Operating cash flow was $189.4 million, down $8.0 million. Investing cash flow was $29.6 million, versus $291.0 million, mainly due to lower property-sale proceeds. Financing cash used was $206.7 million, versus $569.9 million, reflecting lower net debt repayments and dividends paid.
Outlook, management commentary and notable items
- No numerical earnings or full-year guidance is provided in the filing. Management emphasizes low leverage, liquidity, asset sales and investment repayments as sources to fund debt reduction, opportunistic investment and redevelopment. Redevelopment spending is discretionary; the company reported about $94 million invested in active consolidated projects.
- Management cited leasing demand, particularly from value-oriented and off-price retailers, while noting retail bankruptcies, store closures, e-commerce competition and possible tenant rent defaults. TJX and Bed Bath & Beyond represented 6.0% and 3.4% of annualized revenue, respectively.
- The company leased approximately 2.3 million square feet during the first nine months. Leasing spreads were 13.8% for new leases and 5.6% for renewals. Occupancy rose from 89.9% at year-end 2018 to 91.0% at September 30, 2019.
- In July 2019, the company extended and amended its $950 million unsecured revolving facility to a January 2024 maturity, with two six-month extension options; an accordion feature could raise commitments to $1.45 billion subject to lender commitments. The company had $40.4 million of consolidated mortgage debt maturing in 2020 and said 2019 consolidated maturities had been addressed.
- During the first nine months, the company sold four consolidated centers for $103.5 million and recognized a $31.1 million gain; joint ventures sold four centers for $129.5 million gross. The company recorded $3.4 million of consolidated impairment charges and increased the reserve on preferred interests in Blackstone joint ventures by $12.1 million year to date. The reserve depends on valuation assumptions and may change.
- After quarter-end, SITE Centers issued 13.225 million common shares for approximately $195 million net proceeds, acquired an Austin shopping center for $12.6 million, and received $12 million from repayment of a loan investment. It also gave notice to redeem all $200 million of its 6.5% Class J preferred shares; the expected fourth-quarter non-cash charge for issuance-cost write-off is approximately $7.2 million.
- The company agreed to sell its 15% interest in the DDRTC joint venture, with closing expected in early 2020; the filing says the joint venture repaid debt in October 2019. Joint-venture mortgage maturities through October 2020 totaled $521.4 million, representing $84.6 million at SITE Centers’ share; refinancing and extension outcomes are not assured.
- Management said pending legal matters are not expected to materially affect the company. The filing identifies risks including tenant credit and retail-sector disruption, refinancing and interest-rate exposure, joint-venture valuations, asset-sale and redevelopment execution, and weather, environmental and regulatory matters. No material change to internal controls was reported.
Important facts for investors to verify
- How much of the revenue and Operating FFO decline reflects portfolio dispositions and the RVI spin-off versus comparable-property performance.
- Whether occupancy, leasing spreads and same-store NOI remain resilient, particularly as tenant bankruptcies and closures affect recoveries and leasing costs.
- The recoverability and valuation assumptions underlying the $84.5 million preferred-equity valuation allowance and any future changes to that reserve.
- Progress and final proceeds from the DDRTC interest sale, joint-venture debt extensions or refinancing, and the $40.4 million 2020 consolidated mortgage maturity.
- Execution and balance-sheet effects of the post-quarter share issuance and Class J preferred redemption, including the expected $7.2 million non-cash charge.
- Cash available after dividends, redevelopment commitments and debt service; FFO and NOI are non-GAAP measures and do not establish cash available for distributions.