SITE Centers Corp. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. SITE Centers is a REIT focused on owning, leasing, developing, and managing shopping centers. Unless otherwise noted, financial figures below are in millions; the filing reports financial statements in thousands.
Business context and operating metrics
- At quarter-end, the portfolio comprised 147 shopping centers, including 78 held through joint ventures, with 47.2 million square feet of GLA. Portfolio occupancy was 89.7%, down from 91.0% a year earlier; annualized base rent per occupied square foot was $18.53, up from $18.04.
- As of October 23, 2020, approximately 98% of tenants, measured by average base rent, were open. Rent collections were approximately 70% for Q2 and 84% for Q3; these figures include amounts billed that were deferred or abated. Unpaid rents under agreed deferral arrangements represented about 16% of Q2 and 8% of Q3 base rents.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $105.6 | $122.5 | $342.4 | $382.2 |
| Net income attributable to SITE Centers | $7.3 | $23.6 | $37.0 | $76.7 |
| Net income attributable to common shareholders | $2.2 | $15.2 | $21.6 | $51.5 |
| Diluted EPS | $0.01 | $0.08 | $0.11 | $0.28 |
| FFO attributable to common shareholders | $42.3 | $55.1 | $128.9 | $173.7 |
| Operating FFO attributable to common shareholders | $43.5 | $55.4 | $144.6 | $171.1 |
- Revenue declined about 13.9% in Q3 and 10.4% for the nine-month period. Nine-month rental income included $27.9 million of uncollectible revenue, versus $0.2 million a year earlier; the company attributed the increase primarily to COVID-19 and related collection concerns.
- Nine-month same-store NOI fell 10.7% including redevelopment and 11.2% excluding redevelopment. Management attributed the decline primarily to pandemic-related rent collection impacts, partly offset by higher base rent per occupied square foot.
- Operating cash flow was $125.9 million for the nine months, versus $189.4 million in 2019. Investing activities provided $102.4 million; financing activities used $189.9 million. Cash, cash equivalents, and restricted cash ended at $57.5 million.
- Total debt was $1.777 billion at September 30, compared with $1.847 billion at year-end 2019. Debt included $1.502 billion of fixed-rate and $274.6 million of variable-rate obligations. The weighted-average debt interest rate was 3.7% at quarter-end.
- The company reported $795 million of remaining revolving-facility availability, subject to borrowing conditions, and said it was in compliance with debt covenants. No unsecured debt matures before 2023; consolidated mortgage maturities include $15.6 million in 2021.
Material changes and notable items
- Common-share dividends were declared at $0.20 per share for Q1 2020; the board did not declare common dividends for Q2 or Q3 to preserve flexibility. Preferred dividends continued. Future common-dividend policy had not been decided and would be reviewed quarterly.
- The company sold its 15% interest in the DDRTC joint venture in February for net proceeds of $140.4 million and recorded a $45.6 million gain. It redeemed $200 million of 4.625% notes due 2022 in March, incurring $16.6 million of make-whole debt-extinguishment costs.
- A $19.4 million nine-month reserve was recorded against preferred investments in the Blackstone joint ventures. Agreements to terminate those ventures were signed in July. BRE DDR IV closed in October 2020, transferring seven properties and associated debt to SITE Centers; BRE DDR III was expected to close in Q4, subject to conditions including lender consent.
- The company reduced capital spending and reported approximately $31 million remaining to fund its redevelopment pipeline. It repurchased 0.8 million common shares for $7.5 million during the first nine months.
Outlook, risks, and contingencies
- No specific earnings or FFO guidance was provided. Management said the pandemic’s ultimate effects on operations, financial position, liquidity, and capital resources could not be reasonably forecast, and expected results to remain adversely affected.
- Management cited possible renewed restrictions, weaker collections, further rent-relief requests, tenant closures or bankruptcies, and reduced leasing demand. Movie theaters, restaurants, fitness, and entertainment tenants were identified as particularly vulnerable. The company had commenced collection actions against several tenants.
- Management said the liquidity measures taken were expected to provide sufficient liquidity and that it expected continued covenant compliance. However, refinancing or repayment of debt, including joint-venture debt, was not assured. Reduced collections could pressure joint-venture covenants and debt service.
- COVID-related estimates and valuations are subject to uncertainty. The preferred-investment reserve depends on assumptions including projected cash flows, redemption timing, discount rates, and capitalization rates, and could change in future periods.
- The filing reports no legal proceedings expected to have a material adverse effect. Disclosure controls were deemed effective, with no material change in internal control over financial reporting reported for the quarter.
Investor verification checklist
- Track rent collections, deferred-rent repayments, abatements, cash-basis tenant exposure, and the potential for additional reserves or revenue reversals.
- Verify occupancy, leasing volumes and spreads, same-store NOI trends, and tenant improvement and leasing costs as pandemic effects evolve.
- Monitor available revolver capacity, debt maturities, covenant headroom, interest-rate exposure, and joint-venture refinancing or extension outcomes.
- Confirm the final economics and accounting effects of the BRE DDR III and BRE DDR IV terminations, including transferred properties, debt, cash, and future fee and interest income.
- Follow the board’s common-dividend decisions and distinguish GAAP earnings and cash flow from non-GAAP FFO and Operating FFO.