SITE Centers Corp. — 2020 Form 10-K Summary
Business context and reporting period
SITE Centers is a self-managed REIT that owns, leases and manages open-air shopping centers. This filing covers the fiscal year ended December 31, 2020. At year-end, its portfolio included 138 centers, including joint ventures, across 22 states; pro rata occupancy was 89.0%. The company also managed about 9.6 million square feet for Retail Value Inc. (RVI).
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $460.3 million | $508.0 million |
| Net income attributable to SITE Centers | $35.7 million | $100.7 million |
| Net income attributable to common shareholders | $15.2 million | $61.3 million |
| Diluted earnings per share | $0.08 | $0.33 |
| FFO attributable to common shareholders | $176.6 million | $229.8 million |
| Operating FFO attributable to common shareholders | $192.8 million | $233.4 million |
| Cash flow from operating activities | $190.2 million | $270.2 million |
| Same-store NOI, including redevelopment | $319.3 million | $359.4 million |
Revenue declined 9.4%; common-shareholder net income fell about 75%, FFO about 23%, and operating cash flow about 30%. Same-store NOI declined 11.1%. These non-GAAP property and FFO measures are not substitutes for GAAP income or cash flow.
Rental income was $414.9 million, down $28.6 million. It included $31.9 million of uncollectible revenue, primarily pandemic-related. Fee and other income fell to $45.5 million from $63.7 million. Interest expense was $77.6 million, down from $84.7 million; the weighted-average interest rate on debt was 3.8%, versus 4.4%.
At December 31, 2020, consolidated debt was $1.93 billion, compared with $1.85 billion a year earlier. Cash and cash equivalents were $69.7 million, with $135 million drawn on revolving facilities and $835 million of remaining availability, subject to borrowing conditions. Debt to total market capitalization was 0.46, versus 0.38 in 2019. The company reported covenant compliance at year-end.
Material changes versus 2019
- Occupancy fell to 89.0% from 90.8%; average annualized base rent per occupied square foot rose to $18.50 from $18.25.
- Rent collection recovered after the spring shutdown: as of February 12, 2021, the company reported collection of 79% of second-quarter, 88% of third-quarter and 94% of fourth-quarter 2020 rent, using its stated methodology. About 98% of tenants were open for business.
- The company sold its 15% interest in the DDRTC joint venture for net proceeds of $140.4 million and redeemed $200 million of 4.625% notes due 2022, incurring $16.6 million of make-whole costs.
- It terminated the BRE DDR joint ventures through property transfers and acquisitions, including nine properties, and recorded a $19.4 million reserve against preferred equity interests before the transactions.
- Operating cash flow declined, while investing cash flow turned positive at $102.5 million, largely reflecting proceeds from the joint-venture interest sale and lower acquisitions and capital spending.
Outlook, commentary and risks
Management gave no specific earnings or FFO guidance and said the pandemic’s ultimate effect on results, liquidity and capital resources could not be reasonably forecast. It expects continued adverse effects and identified possible further rent defaults, tenant relief requests, closures and bankruptcies as risks. Theaters, fitness businesses and local restaurants were particularly affected; these categories represented 11% of pro rata annualized base rent.
The company’s stated priorities are leasing and occupancy, selective redevelopment, recycling capital from lower-growth assets, and maintaining liquidity and prudent leverage. It anticipated about $24 million of redevelopment spending from its identified pipeline, while describing such spending as discretionary. The common dividend was suspended in the second and third quarters; the company declared $0.25 per share for 2020 and $0.11 per share for first-quarter 2021.
Key risks include pandemic-related rent collection and tenant credit, e-commerce and retail-sector distress, lease rollover and reletting costs, joint-venture debt refinancing, variable-rate exposure, property impairment, and access to external capital. Consolidated mortgage debt of $111.8 million was scheduled to mature in 2021 before a January 2021 extension and repayment; joint ventures also faced near-term mortgage maturities. The company noted uncertainty around the transition away from LIBOR.
Unusual items included $5.2 million of consolidated real-estate impairment charges, the $19.4 million preferred-equity reserve, a $45.5 million gain on sale of the DDRTC interest, and the $16.6 million debt redemption cost. The auditor issued an unqualified opinion on the financial statements and internal controls and identified property acquisition valuation and impairment-indicator assessment as critical audit matters.
Investor verification priorities
- Review the full financial statements and notes for rent-receivable reserves, tenant concessions, and the collection methodology, including deferred rents and later receipts.
- Confirm the status and terms of 2021 consolidated and joint-venture debt maturities, extensions, refinancings, and covenant headroom.
- Assess whether occupancy, rent collections and leasing spreads improved after year-end; fourth-quarter 2020 leasing spreads were negative despite full-year positive spreads.
- Evaluate recurring earnings and cash generation apart from asset-sale gains, debt-extinguishment costs, preferred-equity reserves and other adjusted FFO items.
- Verify the sustainability of the common dividend against operating cash flow, REIT distribution requirements and capital needs.