UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-11690
SITE Centers Corp.
(Exact name of registrant as specified in its charter)
Ohio
34-1723097
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
3300 Enterprise Parkway
Beachwood, OH
44122
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (216) 755-5500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Shares, Par Value $0.10 Per Share
SITC
New York Stock Exchange
Depositary Shares, each representing 1/20 of a share of 6.375% Class A Cumulative Redeemable Preferred Shares without Par Value
SITC PRA
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 21, 2022 the registrant had 212,512,324 shares of common stock, $0.10 par value per share, outstanding.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED September 30, 2022
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements – Unaudited
Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021
3
Consolidated Statements of Operations for the Three Months Ended September 30, 2022 and 2021
4
Consolidated Statements of Operations for the Nine Months Ended September 30, 2022 and 2021
5
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021
6
Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2022 and 2021
7
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021
8
Notes to Condensed Consolidated Financial Statements
9
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
17
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
35
Item 4.
Controls and Procedures
36
PART II. OTHER INFORMATION
Legal Proceedings
37
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
38
SIGNATURES
39
2
CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands, except share amounts)
September 30, 2022
December 31, 2021
Assets
Land
$
1,095,662
1,011,401
Buildings
3,848,821
3,624,164
Fixtures and tenant improvements
587,962
556,056
5,532,445
5,191,621
Less: Accumulated depreciation
(1,672,242
)
(1,571,569
3,860,203
3,620,052
Construction in progress and land
59,812
47,260
Total real estate assets, net
3,920,015
3,667,312
Investments in and advances to joint ventures, net
46,001
64,626
Cash and cash equivalents
20,883
41,807
Restricted cash
3,119
1,445
Accounts receivable
59,446
61,382
Other assets, net
147,507
130,479
4,196,971
3,967,051
Liabilities and Equity
Unsecured indebtedness:
Senior notes, net
1,453,384
1,451,768
Term loan, net
198,437
99,810
Revolving credit facilities
80,000
—
1,731,821
1,551,578
Mortgage indebtedness, net
90,235
125,799
Total indebtedness
1,822,056
1,677,377
Accounts payable and other liabilities
226,952
218,779
Dividends payable
30,528
28,243
Total liabilities
2,079,536
1,924,399
Commitments and contingencies
SITE Centers Equity
Class A—6.375% cumulative redeemable preferred shares, without par value, $500 liquidation value; 750,000 shares authorized; 350,000 shares issued and outstanding at September 30, 2022 and December 31, 2021
175,000
Common shares, with par value, $0.10 stated value; 300,000,000 shares authorized; 214,370,870 and 211,286,874 shares issued at September 30, 2022 and December 31, 2021, respectively
21,437
21,129
Additional paid-in capital
5,974,001
5,934,166
Accumulated distributions in excess of net income
(4,044,178
(4,092,783
Deferred compensation obligation
4,865
4,695
Accumulated other comprehensive income
9,782
Less: Common shares in treasury at cost: 2,115,175 and 287,645 shares at September 30, 2022 and December 31, 2021, respectively
(29,266
(5,349
Total SITE Centers shareholders' equity
2,111,641
2,036,858
Non-controlling interests
5,794
Total equity
2,117,435
2,042,652
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share amounts)
Three Months
Ended September 30,
2022
2021
Revenues from operations:
Rental income
135,123
120,569
Fee and other income
3,720
13,872
138,843
134,441
Rental operation expenses:
Operating and maintenance
22,314
18,562
Real estate taxes
20,423
19,160
General and administrative
10,799
11,727
Depreciation and amortization
51,179
44,669
104,715
94,118
Other income (expense):
Interest expense
(20,139
(19,170
Other expense, net
(501
(524
(20,640
(19,694
Income before earnings from equity method investments and other items
13,488
20,629
Equity in net income of joint ventures
25,918
1,824
Gain on sale of interests
228
Gain on disposition of real estate, net
26,837
5,871
Income before tax expense
66,471
28,359
Tax expense of taxable REIT subsidiaries and state franchise and income taxes
(258
(202
Net income
66,213
28,157
Income attributable to non-controlling interests, net
(18
(93
Net income attributable to SITE Centers
66,195
28,064
Preferred dividends
(2,789
Net income attributable to common shareholders
63,406
25,275
Per share data:
Basic
0.30
0.12
Diluted
Nine Months
401,210
366,689
12,635
31,359
413,845
398,048
66,528
58,200
61,230
58,359
Impairment charges
2,536
7,270
34,403
41,547
152,564
137,446
317,261
302,822
(57,306
(57,701
(2,152
(1,214
(59,458
(58,915
37,126
36,311
27,468
11,059
Gain on sale and change in control of interests
45,554
13,943
31,292
6,069
141,440
67,382
(863
(1,057
140,577
66,325
(55
(384
140,522
65,941
Write-off of preferred share original issuance costs
(5,156
(8,367
(10,867
132,155
49,918
0.62
0.24
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in thousands)
Other comprehensive income:
Change in fair value of interest-rate contracts
Foreign currency translation, net
(1
Reclassification adjustment for foreign currency translation included in net income
2,683
Total other comprehensive income
2,682
Comprehensive income
75,995
150,359
69,007
Total comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to SITE Centers
75,977
150,304
68,623
CONSOLIDATED STATEMENTS OF EQUITY
Preferred Shares
CommonShares
AdditionalPaid-inCapital
Accumulated Distributionsin Excess ofNet Income
DeferredCompensationObligation
Accumulated Other Comprehensive Income
TreasuryStock atCost
Non-ControllingInterests
Total
Balance, December 31, 2021
Issuance of common shares related to stock plans
65
71
Issuance of common shares for cash offering
243
36,614
36,857
Stock-based compensation, net
2,649
(4,498
(1,841
Distributions to non-controlling interests
(37
Dividends declared-common shares
(55,810
Dividends declared-preferred shares
(5,578
74,327
74,364
Balance, June 30, 2022
5,973,435
(4,079,844
4,703
(9,847
2,090,678
Expenses for cash offering
(126
686
162
581
1,429
Repurchase of common shares
(20,000
(27,740
18
Balance, September 30, 2022
Deferred Compensation Obligation
Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2020
325,000
19,400
5,705,164
(4,099,534
5,479
(2,682
(11,319
3,315
1,944,823
91
99
1,696
219,711
3,923
225,330
10,425
(995
3,085
12,515
(33
Redemption of preferred shares
(150,000
5,137
(150,019
(48,795
(7,739
37,877
291
40,850
Balance, June 30, 2021
21,104
5,940,528
(4,123,347
4,484
(4,311
3,573
2,017,031
127
133
(164
1,975
106
(504
1,577
(16
(25,462
93
Balance, September 30, 2021
21,110
5,942,466
(4,123,534
4,590
(4,815
3,650
2,018,467
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flow from operating activities:
Adjustments to reconcile net income to net cash flow provided by operating activities:
Stock-based compensation
5,430
11,698
Amortization and write-off of debt issuance costs and fair market value of debt adjustments
3,929
3,210
(27,468
(11,059
Operating cash distributions from joint ventures
1,111
2,840
(45,554
(13,943
(31,292
(6,069
Assumption of buildings due to ground lease terminations
(2,900
Net change in accounts receivable
95
18,391
Net change in accounts payable and accrued expenses
8,025
5,143
Net change in other operating assets and liabilities
(1,567
(3,888
Total adjustments
64,909
151,039
Net cash flow provided by operating activities
205,486
217,364
Cash flow from investing activities:
Real estate acquired, net of liabilities and cash assumed
(329,570
(62,610
Real estate developed and improvements to operating real estate
(87,902
(55,677
Proceeds from disposition of joint venture interests
39,250
Proceeds from disposition of real estate
55,866
29,793
Equity contributions to joint ventures
(143
(247
Distributions from unconsolidated joint ventures
39,656
23,081
Repayment of joint venture advances, net
929
Net cash flow used for investing activities
(282,843
(64,731
Cash flow from financing activities:
Proceeds from (repayment of) revolving credit facilities, net
(135,000
Proceeds from unsecured term loan
100,000
Payment of debt issuance costs
(7,598
Repayment of mortgage debt
(35,577
(25,613
Proceeds from issuance of common shares, net of offering expenses
36,731
225,166
Repurchase of common shares in conjunction with equity award plans and dividend reinvestment plan
(5,873
(4,878
Distributions to non-controlling interests and redeemable operating partnership units
(53
(39
Dividends paid
(89,523
(71,325
Net cash flow provided by (used for) financing activities
58,107
(161,708
Effect of foreign exchange rate changes on cash and cash equivalents
Net decrease in cash, cash equivalents and restricted cash
(19,250
(9,075
Cash, cash equivalents and restricted cash, beginning of period
43,252
74,414
Cash, cash equivalents and restricted cash, end of period
24,002
65,338
Nature of Business
SITE Centers Corp. and its related consolidated real estate subsidiaries (collectively, the “Company” or “SITE Centers”) and unconsolidated joint ventures are primarily engaged in the business of owning, leasing, acquiring, redeveloping, developing and managing shopping centers. Unless otherwise provided, references herein to the Company or SITE Centers include SITE Centers Corp. and its wholly-owned subsidiaries. The Company’s tenant base includes a mixture of national and regional retail chains and local tenants. Consequently, the Company’s credit risk is primarily concentrated in the retail industry.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates.
Unaudited Interim Financial Statements
These financial statements have been prepared by the Company in accordance with GAAP for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results of the periods presented. The results of operations for the three and nine months ended September 30, 2022 and 2021, are not necessarily indicative of the results that may be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Principles of Consolidation
The consolidated financial statements include the results of the Company and all entities in which the Company has a controlling interest or has been determined to be the primary beneficiary of a variable interest entity (“VIE”). All significant inter-company balances and transactions have been eliminated in consolidation. Investments in real estate joint ventures in which the Company has the ability to exercise significant influence, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or loss) of these joint ventures is included in consolidated net income (loss).
Statements of Cash Flows and Supplemental Disclosure of Non-Cash Investing and Financing Information
Non-cash investing and financing activities are summarized as follows (in millions):
Consolidation of the net assets of previously unconsolidated joint ventures
42.8
Investment in joint venture related to net assets acquired
8.5
Dividends declared, but not paid
30.5
28.3
Accounts payable related to construction in progress
12.6
10.2
2.9
Mortgages assumed, shopping center acquisition
17.9
5.1
Tax receivable - investment sale proceeds
4.1
Impact of the COVID-19 Pandemic on Revenue and Receivables
Beginning in March 2020, the retail sector was significantly impacted by the COVID-19 pandemic. Though the impact of the COVID-19 pandemic on tenant operations varied by tenant category, local conditions and applicable government mandates, a significant number of the Company’s tenants experienced a reduction in sales and foot traffic, and many tenants were forced to limit
their operations or close their businesses for a period of time, primarily in 2020. The COVID-19 pandemic also had a significant impact on the Company’s collection of rents from April 2020 through the end of 2020. The Company engaged in discussions with most of its larger tenants that failed to satisfy all or a portion of their rent obligations and agreed to terms on rent-deferral arrangements (and, in a small number of cases, rent abatements) and other lease modifications with a significant number of such tenants. As of September 30, 2022, the majority of these deferral arrangements for tenants that are not accounted for on the cash basis have been repaid.
For those tenants where the Company is unable to assert that collection of amounts due over the lease term is probable, regardless if the Company has entered into a deferral agreement to extend the payment terms, the Company has categorized these tenants on the cash basis of accounting. As a result, all existing accounts receivable relating to these tenants have been reserved in full, including straight-line rental income, and no rental income is recognized from such tenants once they have been placed on the cash basis of accounting until payments are received. The Company will remove the cash basis designation and resume recording rental income from such tenants on a straight-line basis at such time it believes collection from the tenants is probable based upon a demonstrated payment history, improved liquidity, the addition of credit-worthy guarantors or a recapitalization event.
The Company recorded net uncollectible revenue of $1.9 million for the nine months ended September 30, 2022, primarily due to rental income paid in 2022 related to outstanding amounts owed for prior periods from tenants on the cash basis of accounting and related reserve adjustments.
Fee and Other Income
Fee and Other Income on the consolidated statements of operations includes revenue from contracts with customers, which is primarily from the Company's unconsolidated joint ventures (Note 3). Revenue from contracts with Retail Value Inc. was $0.1 million and $9.5 million for the three months ended September 30, 2022 and 2021, respectively, and $0.9 million and $19.4 million for the nine months ended September 30, 2022 and 2021, respectively.
At September 30, 2022 and December 31, 2021, the Company had ownership interests in various unconsolidated joint ventures that had investments in 19 and 47 shopping center properties, respectively. Condensed combined financial information of the Company’s unconsolidated joint venture investments is as follows (in thousands):
Condensed Combined Balance Sheets
214,310
378,442
651,111
1,092,245
69,964
123,313
935,385
1,594,000
(218,942
(441,215
716,443
1,152,785
1,655
5,778
Real estate, net
718,098
1,158,563
Cash and restricted cash
43,951
37,535
Receivables, net
11,122
16,854
38,973
49,029
812,144
1,261,981
Mortgage debt
539,897
873,336
Notes and accrued interest payable to the Company
3,194
3,331
Other liabilities
41,304
51,473
584,395
928,140
Accumulated equity
227,749
333,841
Company's share of accumulated equity
43,886
59,286
Basis differentials
(760
2,946
Deferred development fees, net of portion related to the Company's interest
(319
(937
Amounts payable to the Company
Investments in and Advances to Joint Ventures, net
10
Condensed Combined Statements of Operations
Revenues from operations
25,855
48,666
105,666
150,623
Expenses from operations:
Operating expenses
6,975
12,931
28,991
41,217
9,010
17,550
9,450
16,605
37,123
50,309
8,241
10,980
26,560
32,898
6,120
2,832
11,114
8,806
39,796
43,348
121,338
133,230
(Loss) income before gain on disposition of real estate
(13,941
5,318
(15,672
17,393
Gain (loss) on disposition of real estate, net
119,813
(455
121,505
36,132
Net income attributable to unconsolidated joint ventures
105,872
4,863
105,833
53,525
Company's share of equity in net income of joint ventures
21,276
1,760
21,898
9,897
Basis differential adjustments(A)
4,642
64
5,570
1,162
The impact of the COVID-19 pandemic on revenues and receivables for the Company’s joint ventures is more fully described in Note 2.
Revenues earned by the Company related to all of the Company’s unconsolidated joint ventures are as follows (in millions):
Revenue from contracts:
Asset and property management fees
1.7
2.8
6.2
8.0
Leasing commissions and development fees
0.6
1.6
1.5
2.3
3.4
7.8
9.5
Other
0.2
0.4
0.8
1.2
2.5
3.8
8.6
10.7
Disposition of Shopping Centers and Joint Venture Interests
In the third quarter of 2022, the DDRM Joint Venture sold a portfolio of 13 shopping centers for an aggregate sales price of $387.6 million ($77.5 million at the Company's share) with the related mortgage debt of $225.0 million repaid upon closing. In 2022, the DDRM Joint Venture sold two additional shopping centers for an aggregate sales price of $41.0 million ($8.2 million at the Company’s share). The Company’s share of the gain on sale on these transactions was $27.3 million.
In the second quarter of 2022, the Company sold its 20% interest in the SAU Joint Venture to its partner, the State of Utah, based on a gross asset value of $155.7 million (at 100%). In addition, the Company sold its 50% interest in Lennox Town Center to its partner, based on a gross asset value of $77.0 million (at 100%). These transactions resulted in Gain on Sale of Interests of $42.2 million.
In the first quarter of 2022, the Company acquired its joint venture partner’s 80% interest in one asset owned by the DDRM Joint Venture (Casselberry Commons, Casselberry, Florida) for $35.6 million, and stepped up the previous 20% interest due to change in control. The transaction resulted in Gain on Change in Control of Interests of $3.3 million (Note 4).
11
During the nine months ended September 30, 2022, the Company acquired the following shopping centers (in millions):
Asset
Location
DateAcquired
PurchasePrice
Artesia Village
Scottsdale, Arizona
January 2022
14.5
Casselberry Commons(A)
Casselberry, Florida
February 2022
35.6
Shops at Boca Center
Boca Raton, Florida
March 2022
90.0
Shoppes of Crabapple
Alpharetta, Georgia
April 2022
4.4
La Fiesta Square
Lafayette, California
May 2022
60.8
Lafayette Mercantile
43.0
Shops at Tanglewood
Houston, Texas
June 2022
22.2
Boulevard Marketplace
Fairfax, Virginia
10.4
Fairfax Marketplace
16.0
Fairfax Pointe
8.4
Parkwood Shops
Atlanta, Georgia
July 2022
Chandler Center
Chandler, Arizona
August 2022
7.0
Shops at Power and Baseline
Mesa, Arizona
4.6
Northsight Plaza
5.3
Broadway Center
Tempe, Arizona
6.1
The fair value of the acquisitions was allocated as follows (in thousands):
Weighted-AverageAmortization Period(in Years)
92,848
N/A
223,221
(A)
Tenant improvements
4,454
In-place leases (including lease origination costs and fair market value of leases)
29,395
6.4
Other assets assumed
505
350,423
Less: Below-market leases
(9,472
13.8
Less: Other liabilities assumed
(2,890
Net assets acquired
338,061
Consideration:
Cash
329,570
Gain on Change in Control of Interest
3,319
Carrying value of previously held common equity interest
5,172
Total consideration
Included in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2022, was $6.2 million and $11.1 million, respectively, in total revenues from the date of acquisition through September 30, 2022, for the properties acquired in 2022.
12
Other assets and intangibles consist of the following (in thousands):
Intangible assets:
In-place leases, net
69,415
64,464
Above-market leases, net
7,724
7,390
Lease origination costs, net
8,753
6,636
Tenant relationships, net
12,661
15,569
Total intangible assets, net(A)
98,553
94,059
Operating lease ROU assets
17,795
19,047
Other assets:
Prepaid expenses
9,617
7,722
Swap receivable
8,895
Other assets
1,358
1,708
Deposits
3,217
3,796
Deferred charges, net
8,072
4,147
Total other assets, net
Below-market leases, net (other liabilities)
63,267
59,690
As of September 30, 2022, the Company’s Revolving Credit Facility (as defined below) had outstanding borrowings of $80.0 million with a weighted-average interest rate of 3.9%.
In June 2022, the Company amended and restated its unsecured revolving credit facility with a syndicate of financial institutions and J.P. Morgan Chase Bank, N.A., as administrative agent (the “Revolving Credit Facility”). The Revolving Credit Facility provides for borrowings of up to $950 million if certain borrowing conditions are satisfied, and an accordion feature for expansion of availability up to $1.45 billion, provided that new lenders agree to the existing terms of the facility or existing lenders increase their commitment level. The Revolving Credit Facility was amended to, among other things, (i) modify the financial covenants and certain other provisions contained therein, (ii) extend the maturity date to June 2026 subject to two six-month options to extend the maturity to June 2027 upon the Company’s request (subject to satisfaction of certain conditions), and (iii) change the interest rate benchmark from the London Inter-Bank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”).
The Company’s borrowings under the Revolving Credit Facility bear interest at variable rates at the Company’s election, based on either (i) the SOFR rate plus a spread (0.95% at September 30, 2022) or (ii) the alternative base rate plus a spread (0% at September 30, 2022). The Revolving Credit Facility also provides for an annual facility fee, which was 20 basis points on the entire facility at September 30, 2022. The specified spreads and facility fee vary depending on the Company’s long-term senior unsecured debt ratings from Moody’s Investors Service, Inc., S&P Global Ratings and Fitch Investor Services, Inc. (or their respective successors). The Revolving Credit Facility also features a sustainability-linked pricing component whereby the applicable interest rate margin can be adjusted by one or two basis points if the Company meets certain sustainability performance targets. The Company is required to comply with certain covenants under the Revolving Credit Facility relating to total outstanding indebtedness, secured indebtedness, value of unencumbered real estate assets and fixed charge coverage. The Company was in compliance with these financial covenants at September 30, 2022.
In June 2022, in connection with the amendment to the Revolving Credit Facility described above, the Company terminated its separate $20 million unsecured revolving credit facility with PNC Bank, National Association.
As of September 30, 2022, the Company’s Term Loan (as defined below) had outstanding borrowings of $200.0 million, all of which has been converted to a fixed interest rate through the utilization of the Swap (Note 8). The effective fixed rate which includes the applicable margin described below is 3.8%.
In June 2022, the Company amended and restated its $100 million unsecured term loan with a syndicate of financial institutions and Wells Fargo Bank, National Association, as administrative agent (the “Term Loan”) to, among other things, (i) modify the
13
financial covenants and certain other provisions contained therein in a manner consistent with the amendments made to the Revolving Credit Facility, (ii) extend the maturity date to June 2027, (iii) add a $100 million delayed draw feature (that was drawn upon in June 2022) and (iv) change the interest rate benchmark from LIBOR to SOFR. The Term Loan bears interest at variable rates, based on the Company’s long-term senior unsecured debt ratings, equal to (i) the SOFR rate plus a spread (1.05% at September 30, 2022) or (ii) the alternative base rate plus a spread (0.0% at September 30, 2022). The Company may increase the principal amount of the Term Loan in the future to up to $800 million in the aggregate provided that existing or new lenders are identified to provide additional loan commitments. The Term Loan also features a sustainability-linked pricing component whereby the applicable interest rate margin can be adjusted by one to two basis points if the Company meets certain sustainability performance targets. The Company is required to comply with covenants similar to those contained in the Revolving Credit Facility. The Company was in compliance with these financial covenants at September 30, 2022.
Measurement of Fair Value
At September 30, 2022, the Company used a pay-fixed interest rate swap to manage its exposure to changes in benchmark interest rates (the “Swap”). The estimated fair value was determined using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contract, are incorporated in the fair value to account for potential non-performance risk, including the Company’s own non-performance risk and the respective counterparty’s non-performance risk. The Company determined that the significant inputs used to value its derivative fell within Level 2 of the fair value hierarchy.
Items Measured on Fair Value on a Recurring Basis
The Company maintains an interest rate swap agreement (included in Other Assets) measured at fair value on a recurring basis as of September 30, 2022. The following table presents information about the Company’s financial assets and liabilities and indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in millions):
Fair Value Measurements
Assets:
Level 1
Level 2
Level 3
Derivative Financial Instruments
8.9
Debt
The following methods and assumptions were used by the Company in estimating fair value disclosures of debt. The fair market value of senior notes is determined using a pricing model to approximate the trading price of the Company’s public debt. The fair market value for all other debt is estimated using a discounted cash flow technique that incorporates future contractual interest and principal payments and a market interest yield curve with adjustments for duration, optionality and risk profile, including the Company’s non-performance risk and loan to value. The Company’s senior notes and all other debt are classified as Level 2 and Level 3, respectively, in the fair value hierarchy.
Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments.
Carrying values that are different from estimated fair values are summarized as follows (in thousands):
CarryingAmount
FairValue
Senior Notes
1,374,206
1,559,973
Revolving Credit Facilities and Term Loan
278,437
280,000
Mortgage Indebtedness
87,535
127,488
1,741,741
1,787,461
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and, from time to time, through the use of derivative financial instruments. Specifically, the
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Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the values of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. To accomplish this objective, the Company generally uses swaps as part of its interest rate risk management strategy. The swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
As of September 30, 2022, the Company had one effective Swap with a notional amount of $200.0 million, expiring in June 2027, which converts SOFR rate debt to a fixed rate of 2.75%.
The effective portion of changes in the fair value of derivatives designated, and that qualify, as cash flow hedges is recorded in Accumulated Other Comprehensive Income (“OCI”) and is subsequently reclassified into earnings, into interest expense, in the period that the hedged forecasted transaction affects earnings. All components of the Swap were included in the assessment of hedge effectiveness. The Company expects to reflect within the next 12 months, a decrease to interest expense (and a corresponding increase to earnings) of approximately $2.8 million.
The Company is exposed to credit risk in the event of non-performance by the counterparty to the Swaps if the derivative position has a positive balance. The Company believes it mitigates its credit risk by entering into swaps with major financial institutions. The Company continually monitors and actively manages interest costs on its variable-rate debt portfolio and may enter into additional interest rate swap positions or other derivative interest rate instruments based on market conditions. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes.
Credit Risk-Related Contingent Features
The Company has an agreement with the Swap counterparty that contains a provision whereby if the Company defaults on certain of its indebtedness, the Company could also be declared in default on the Swap, resulting in an acceleration of payment under the Swap.
Common Share Dividend
Common share dividends declared per share
0.13
0.39
0.35
Common Shares Repurchased
In the third quarter of 2022, the Company repurchased 1.6 million of its common shares in open market transactions at an aggregate cost of $20.0 million, or $12.74 per share.
Common Shares Issued
On March 1, 2022, the Company settled 2.2 million common shares which were offered and sold on a forward basis in 2021 under its $250 million continuous equity program, resulting in gross proceeds of $35.1 million. In the second quarter of 2022, the Company sold 201,800 common shares at a weighted-average price of $16.03 per share before issuance costs resulting in gross proceeds of $3.2 million.
The changes in Accumulated Other Comprehensive Income by component are as follows (in thousands):
Comprehensive income from cash flow hedges
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For the nine months ended September 30, 2022, the Company recorded an impairment charge of $2.5 million as a result of its tenant exercising a $7.0 million fixed price purchase option of their building pursuant to the lease agreement. The charge was based on the difference between the carrying value of the asset and the purchase price.
The following table provides a reconciliation of net income and the number of common shares used in the computations of “basic” earnings per share (“EPS”), which utilizes the weighted-average number of common shares outstanding without regard to dilutive potential common shares, and “diluted” EPS, which includes all such shares (in thousands, except per share amounts).
Numerators – Basic and Diluted
Income attributable to non-controlling interests
Earnings attributable to unvested shares and OP units
(117
(150
(368
(450
Net income attributable to common shareholders after allocation to participating securities
63,289
25,125
131,787
49,468
Denominators – Number of Shares
Basic—Average shares outstanding
213,846
211,048
213,278
206,918
Assumed conversion of dilutive securities:
PRSUs
341
1,114
441
1,146
Forward equity
29
OP units
141
Diluted—Average shares outstanding
214,328
212,191
213,860
208,074
Earnings Per Share:
For the three and nine months ended September 30, 2022, Performance Restricted Stock Units (“PRSUs”) issued to certain executives in March 2020 were considered in the computation of diluted EPS and the PRSUs issued in March 2022 and March 2021 were not considered in computing diluted EPS because they were antidilutive. For the three and nine months ended September 30, 2021, PRSUs issued to certain executives in March 2021, March 2020 and March 2019 were considered in the computation of diluted EPS. The Company recorded a mark-to-market adjustment of $5.6 million as expense for the nine months ended September 30, 2021, in connection with the PRSUs granted in March 2018. In March 2022, the Company issued 519,255 common shares in settlement of certain PRSUs granted in 2019 and 2020.
The agreements to offer and sell approximately 1.7 million common shares on a forward basis were considered in the computation of diluted EPS for the three and nine months ended September 30, 2021. These shares were settled in the first quarter of 2022 (Note 9).
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides readers with a perspective from management on the financial condition, results of operations and liquidity of SITE Centers Corp. and its related consolidated real estate subsidiaries (collectively, the “Company” or “SITE Centers”) and other factors that may affect the Company’s future results. The Company believes it is important to read the MD&A in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2021, as well as other publicly available information.
EXECUTIVE SUMMARY
The Company is a self-administered and self-managed Real Estate Investment Trust (“REIT”) in the business of owning, leasing, acquiring, redeveloping, developing and managing shopping centers. As of September 30, 2022, the Company’s portfolio consisted of 122 shopping centers (including 19 shopping centers owned through unconsolidated joint ventures). At September 30, 2022, the Company owned approximately 28.2 million square feet of gross leasable area (“GLA”) through all its properties (wholly-owned and joint venture). At September 30, 2022, the aggregate occupancy of the Company’s operating shopping center portfolio was 91.4% versus 90.2% at September 30, 2021, on a pro rata basis, and the average annualized base rent per occupied square foot was $19.11 versus $18.44 at September 30, 2021, on a pro rata basis.
The following provides an overview of the Company’s key financial metrics (see Non-GAAP Financial Measures described later in this section) (in thousands, except per share amounts):
FFO attributable to common shareholders
61,637
66,504
188,729
176,510
Operating FFO attributable to common shareholders
62,833
61,361
190,845
181,917
Earnings per share – Diluted
For the nine months ended September 30, 2022, the increase in net income attributable to common shareholders, as compared to the prior-year period, was primarily attributable to higher gain on sale of wholly-owned and joint venture assets, higher operating results driven by base rent growth at existing assets, the net impact of property acquisitions and the write-off of preferred share original issuance costs in 2021, partially offset by lower fee income from joint ventures and Retail Value Inc. (“RVI”).
In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and it continues to spread throughout the United States and other countries across the world. Beginning in mid-March 2020, federal, state and local governments took various actions to limit the spread of COVID-19, including ordering the temporary closure of non-essential businesses (which included many of the Company’s tenants) and imposing significant social distancing guidelines and restrictions on the continued operations of essential businesses and the subsequent reopening of non-essential businesses. The Company continues to monitor the impact of the COVID-19 pandemic on its business and will take additional steps as needed in order to protect the health and safety of its workforce.
The Company’s collection rates continued to improve throughout 2021 reaching at or near pre-pandemic levels by year-end 2021. The Company's tenants, including tenants previously on the cash basis of accounting, are paying their monthly rent in a manner consistent with periods prior to the COVID-19 pandemic and have repaid deferred rents relating to prior periods. Rental income for the nine months ended September 30, 2022 was $1.9 million of prior-period net revenue at SITE Centers’ share, primarily from cash basis tenants and related reserve adjustments.
Company Activity
The growth opportunities within the Company’s core property operations include rental rate increases, continued lease-up of the portfolio, and the adaptation of existing site plans and square footage to generate higher blended rental rates and operating cash flows. Additional growth opportunities include external acquisition investments and tactical redevelopment. Management intends to use retained cash flow, proceeds from the sale of lower growth assets and proceeds from equity offerings and debt financings to fund capital expenditures relating to new leasing activity, acquisitions and tactical redevelopment activity.
Year-to-date transaction and investment highlights for the Company through October 21, 2022, include the following:
Company Operational Highlights
During the nine months ended September 30, 2022, the Company completed the following operational activities:
RESULTS OF OPERATIONS
Consolidated shopping center properties owned as of January 1, 2021, are referred to herein as the “Comparable Portfolio Properties.”
Revenues from Operations (in thousands)
$ Change
Rental income(A)
14,554
(10,152
Total revenues
4,402
34,521
Fee and other income(B)
(18,724
15,797
Contractual Lease Payments
Base and percentage rental income
99,326
88,403
10,923
Recoveries from tenants
33,214
29,441
3,773
Uncollectible revenue
(381
1,083
(1,464
Lease termination fees, ancillary and other rental income
2,964
1,642
1,322
Total contractual lease payments
Base and percentage rental income(1)
291,483
262,345
29,138
Recoveries from tenants(2)
99,811
90,518
9,293
Uncollectible revenue(3)
1,889
8,268
(6,379
8,027
5,558
2,469
Increase
Acquisition of shopping centers
18.3
Comparable Portfolio Properties
8.8
Straight-line rents
2.0
29.1
The increase in straight-line rents was primarily due to the removal of straight-line rent reserves for tenants that were removed from the cash basis of accounting and the impact of straight-line rents recorded on properties recently acquired.
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The following tables present the statistics for the Company’s assets affecting base and percentage rental income summarized by the following portfolios: pro rata combined shopping center portfolio, wholly-owned shopping center portfolio and joint venture shopping center portfolio:
Pro Rata CombinedShopping Center PortfolioSeptember 30,
Centers owned (at 100%)
122
137
Aggregate occupancy rate
91.4
%
90.2
Average annualized base rent per occupied square foot
19.11
18.44
Wholly-Owned Shopping CentersSeptember 30,
Centers owned
103
81
91.6
90.6
19.18
18.67
Joint Venture Shopping CentersSeptember 30,
56
89.9
87.9
16.18
15.25
Changes in the number of assets under management, or the fee structures applicable to such arrangements, will adversely impact the amount of revenue recorded in future periods. The Company’s other joint venture partners may also elect to terminate their joint venture arrangements with the Company in connection with a change in investment strategy or otherwise. See “—Sources and Uses of Capital” included elsewhere herein.
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Expenses from Operations (in thousands)
3,752
1,263
(928
6,510
10,597
Operating and maintenance(A)
8,328
Real estate taxes(A)
2,871
Impairment charges(B)
(4,734
General and administrative(C)
(7,144
Depreciation and amortization(A)
15,118
14,439
OperatingandMaintenance
Real EstateTaxes
DepreciationandAmortization
3.2
15.4
4.5
(0.3
8.3
15.1
Other Income and Expenses (in thousands)
(969
23
(946
Interest expense(A)
395
(938
(543
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Weighted-average debt outstanding (in billions)
1.8
Weighted-average interest rate
4.0
The Company’s overall balance sheet strategy is to continue to maintain substantial liquidity, prudent leverage levels and lengthy average debt maturities. The weighted-average interest rate (based on contractual rates and excluding fair market value of adjustments and debt issuance costs) was 4.1% and 3.9% at September 30, 2022 and 2021, respectively.
Interest costs capitalized in conjunction with redevelopment projects were $0.3 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively, and $0.8 million and $0.5 million for the nine months ended September 30, 2022 and 2021, respectively.
Other Items (in thousands)
24,094
193
20,966
(56
75
Equity in net income of joint ventures(A)
16,409
Gain on sale and change in control of interests(B)
31,611
Gain on disposition of real estate, net(C)
25,223
194
329
22
Net Income (in thousands)
38,131
74,581
The increase in net income attributable to SITE Centers, as compared to the prior-year period, was primarily attributable to higher gain on sale of wholly-owned and joint venture assets, higher operating results driven by base rent growth at existing assets and the net impact of property acquisitions, partially offset by lower fee income from joint ventures and RVI.
NON-GAAP FINANCIAL MEASURES
Funds from Operations and Operating Funds from Operations
Definition and Basis of Presentation
The Company believes that Funds from Operations (“FFO”) and Operating FFO, both non-GAAP financial measures, provide additional and useful means to assess the financial performance of REITs. FFO and Operating FFO are frequently used by the real estate industry, as well as securities analysts, investors and other interested parties, to evaluate the performance of REITs. The Company also believes that FFO and Operating FFO more appropriately measure the core operations of the Company and provide benchmarks to its peer group.
FFO excludes GAAP historical cost depreciation and amortization of real estate and real estate investments, which assume that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions, and many companies use different depreciable lives and methods. Because FFO excludes depreciation and amortization unique to real estate and gains and losses from property dispositions, it can provide a performance measure that, when compared year over year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, interest costs and acquisition, disposition and development activities. This provides a perspective of the Company’s financial performance not immediately apparent from net income determined in accordance with GAAP.
FFO is generally defined and calculated by the Company as net income (loss) (computed in accordance with GAAP), adjusted to exclude (i) preferred share dividends, (ii) gains and losses from disposition of real estate property and related investments, which are presented net of taxes, (iii) impairment charges on real estate property and related investments, (iv) gains and losses from changes in control and (v) certain non-cash items. These non-cash items principally include real property depreciation and amortization of intangibles, equity income (loss) from joint ventures and equity income (loss) from non-controlling interests and adding the Company’s proportionate share of FFO from its unconsolidated joint ventures and non-controlling interests, determined on a consistent basis. The Company’s calculation of FFO is consistent with the definition of FFO provided by NAREIT.
The Company believes that certain charges, income and gains recorded in its operating results are not comparable or reflective of its core operating performance. Operating FFO is useful to investors as the Company removes non-comparable charges, income and gains to analyze the results of its operations and assess performance of the core operating real estate portfolio. As a result, the Company also computes Operating FFO and discusses it with the users of its financial statements, in addition to other measures such as net income (loss) determined in accordance with GAAP and FFO. Operating FFO is generally defined and calculated by the Company as FFO excluding certain charges, income and gains that management believes are not comparable and indicative of the results of the Company’s operating real estate portfolio. Such adjustments include write-off of preferred share original issuance costs, gains/losses on the early extinguishment of debt, certain transaction fee income, transaction costs and other restructuring type costs. The disclosure of these adjustments is regularly requested by users of the Company’s financial statements.
The adjustment for these charges, income and gains may not be comparable to how other REITs or real estate companies calculate their results of operations, and the Company’s calculation of Operating FFO differs from NAREIT’s definition of FFO. Additionally, the Company provides no assurances that these charges, income and gains are non-recurring. These charges, income and gains could be reasonably expected to recur in future results of operations.
These measures of performance are used by the Company for several business purposes and by other REITs. The Company uses FFO and/or Operating FFO in part (i) as a disclosure to improve the understanding of the Company’s operating results among the
investing public, (ii) as a measure of a real estate asset company’s performance, (iii) to influence acquisition, disposition and capital investment strategies and (iv) to compare the Company’s performance to that of other publicly traded shopping center REITs.
For the reasons described above, management believes that FFO and Operating FFO provide the Company and investors with an important indicator of the Company’s operating performance. They provide recognized measures of performance other than GAAP net income, which may include non-cash items (often significant). Other real estate companies may calculate FFO and Operating FFO in a different manner.
Management recognizes the limitations of FFO and Operating FFO when compared to GAAP’s net income. FFO and Operating FFO do not represent amounts available for dividends, capital replacement or expansion, debt service obligations or other commitments and uncertainties. Management does not use FFO or Operating FFO as an indicator of the Company’s cash obligations and funding requirements for future commitments, acquisitions or development activities. Neither FFO nor Operating FFO represents cash generated from operating activities in accordance with GAAP, and neither is necessarily indicative of cash available to fund cash needs. Neither FFO nor Operating FFO should be considered an alternative to net income (computed in accordance with GAAP) or as an alternative to cash flow as a measure of liquidity. FFO and Operating FFO are simply used as additional indicators of the Company’s operating performance. The Company believes that to further understand its performance, FFO and Operating FFO should be compared with the Company’s reported net income (loss) and considered in addition to cash flows determined in accordance with GAAP, as presented in its consolidated financial statements. Reconciliations of these measures to their most directly comparable GAAP measure of net income (loss) have been provided below.
Reconciliation Presentation
FFO and Operating FFO attributable to common shareholders were as follows (in thousands):
(4,867
1,472
12,219
8,928
The increase in FFO for the nine months ended September 30, 2022, as compared to the prior-year period, was primarily attributable to higher operating results driven by base rent growth at existing assets and the net impact of property acquisitions and lower general and administrative expenses due to the mark-to-market adjustment on certain PRSUs settled in 2021, partially offset by lower management fees and the write-off of preferred share original issuance costs in 2021. The change in Operating FFO primarily was due to positive operating results, partially offset by lower fee income.
The Company’s reconciliation of net income attributable to common shareholders computed in accordance with GAAP to FFO attributable to common shareholders and Operating FFO attributable to common shareholders is as follows (in thousands). The
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Company provides no assurances that these charges and gains are non-recurring. These charges and gains could reasonably be expected to recur in future results of operations:
Depreciation and amortization of real estate investments
49,925
43,283
148,828
133,279
(25,918
(1,824
Joint ventures' FFO(A)
1,271
5,659
9,469
17,065
Non-controlling interests (OP Units)
55
49
Impairment of real estate
(228
(35
(26,837
(5,871
RVI disposition fees
(5,500
(385
(6,092
Mark-to-market adjustment (PRSUs)
5,589
Debt extinguishment, transactions, net
356
1,643
722
Joint ventures – debt extinguishment and other, net
855
1
858
32
5,156
Non-operating items, net
1,196
(5,143
2,116
5,407
Joint ventures’ FFO and Operating FFO are summarized as follows (in thousands):
(Gain) loss on disposition of real estate, net
(119,813
455
(121,505
(36,132
FFO
4,519
21,923
39,001
67,702
FFO at SITE Centers' ownership interests
Operating FFO at SITE Centers' ownership interests
2,126
5,660
10,327
17,097
Net Operating Income and Same Store Net Operating Income
The Company uses Net Operating Income (“NOI”), which is a non-GAAP financial measure, as a supplemental performance measure. NOI is calculated as property revenues less property-related expenses. The Company believes NOI provides useful information to investors regarding the Company’s financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level and, when compared across periods, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition and disposition activity on an unleveraged basis.
The Company also presents NOI information on a same store basis, or Same Store Net Operating Income (“SSNOI”). The Company defines SSNOI as property revenues less property-related expenses, which exclude straight-line rental income (including reimbursements) and expenses, lease termination income, management fee expense, fair market value of leases and expense recovery adjustments. SSNOI includes assets owned in comparable periods (15 months for quarter comparisons). In addition, SSNOI excludes all non-property and corporate level revenue and expenses. Other real estate companies may calculate NOI and SSNOI in a different manner. The Company believes SSNOI at its effective ownership interest provides investors with additional information regarding the operating performances of comparable assets because it excludes certain non-cash and non-comparable items as noted above. SSNOI is frequently used by the real estate industry, as well as securities analysts, investors and other interested parties, to evaluate the performance of REITs.
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SSNOI is not, and is not intended to be, a presentation in accordance with GAAP. SSNOI information has its limitations as it excludes any capital expenditures associated with the re-leasing of tenant space or as needed to operate the assets. SSNOI does not represent amounts available for dividends, capital replacement or expansion, debt service obligations or other commitments and uncertainties. Management does not use SSNOI as an indicator of the Company’s cash obligations and funding requirements for future commitments, acquisitions or development activities. SSNOI does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. SSNOI should not be considered as an alternative to net income (computed in accordance with GAAP) or as an alternative to cash flow as a measure of liquidity. A reconciliation of NOI and SSNOI to their most directly comparable GAAP measure of net income (loss) is provided below.
The Company’s reconciliation of net income computed in accordance with GAAP to NOI and SSNOI for the Company at 100% and at its effective ownership interest of the assets is as follows (in thousands):
For the Nine Months Ended September 30,
At 100%
At the Company's Interest
Fee income
(9,471
(30,264
57,306
57,701
2,152
1,214
Tax expense
863
1,057
Income from non-controlling interests
384
Consolidated NOI, net of non-controlling interests
276,616
251,225
Net income from unconsolidated joint ventures
21,887
9,943
5,982
8,113
8,304
11,480
3,510
2,468
2,186
(24,254
(4,387
Unconsolidated NOI
76,675
109,406
17,897
27,335
Total Consolidated + Unconsolidated NOI
294,513
278,560
Less: Non-Same Store NOI adjustments
(19,604
(4,637
Total SSNOI including redevelopment
274,909
273,923
SSNOI % Change including redevelopment
SSNOI for the nine months ended September 30, 2022 included uncollectible revenue of $1.9 million as compared to $8.3 million for the nine months ended September 30, 2021, due to a decrease in the amount of net revenues received from tenants related to prior periods primarily from cash basis tenants and related reserve adjustments. The decrease in prior period cash receipts was offset by increases in rents and recoveries primarily attributable to sequential increases in occupancy for same-store assets.
LIQUIDITY, CAPITAL RESOURCES AND FINANCING ACTIVITIES
The Company periodically evaluates opportunities to issue and sell additional debt or equity securities, obtain credit facilities from lenders or repurchase or refinance long-term debt as part of its overall strategy to further strengthen its financial position. The Company remains committed to monitoring liquidity and the duration of its indebtedness and to maintaining prudent leverage levels in an effort to manage its overall risk profile.
The Company’s consolidated and unconsolidated debt obligations generally require monthly or semi-annual payments of principal and/or interest over the term of the obligation. While the Company currently believes it has several viable sources to obtain capital and fund its business, including capacity under its Revolving Credit Facility (as defined below), no assurance can be provided
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that these obligations will be refinanced or repaid as currently anticipated. Any new debt financings may also entail higher rates of interest than the indebtedness being refinanced, which could have an adverse effect on the Company’s operations.
The Company has historically accessed capital sources through both the public and private markets. Acquisitions and redevelopments are generally financed through cash provided from operating activities, the Revolving Credit Facility, mortgages assumed, secured debt, unsecured debt, common and preferred equity offerings, joint venture capital and asset sales. Total consolidated debt outstanding was $1.8 billion at September 30, 2022, compared to $1.7 billion at December 31, 2021.
The Company had an unrestricted cash balance of $20.9 million at September 30, 2022 and an $80.0 million outstanding balance on its Revolving Credit Facility, and accordingly, availability under the Revolving Credit Facility of $870.0 million (subject to satisfaction of applicable borrowing conditions). The Company has no remaining debt maturing in 2022. The Company has $87.2 million aggregate principal amount of senior notes maturing in 2023. At September 30, 2022, the Company had $35.3 million aggregate principal amount of consolidated mortgage debt scheduled to mature in 2023, of which $15.7 million was repaid in October 2022. At September 30, 2022, the DDRM Joint Venture has approximately $23.2 million of mortgage debt outstanding at the Company’s share maturing in July 2023, which has a one-year extension option subject to certain conditions. As of September 30, 2022, the Company did not have any indebtedness outstanding having an interest rate determined by reference to LIBOR. As of September 30, 2022, the Company anticipates that it has approximately $25 million to be incurred on its pipeline of identified redevelopment projects. The Company declared a common share dividend of $0.39 per share in the nine months ended September 30, 2022. The Company believes it has sufficient liquidity to operate its business at this time.
Revolving Credit Facility and Term Loan
The Company maintains an unsecured revolving credit facility with a syndicate of financial institutions and J.P. Morgan Chase Bank, N.A., as administrative agent (the “Revolving Credit Facility”) that provides for borrowings of up to $950 million, which limit may be increased to $1.45 billion provided that existing or new lenders agree to provide incremental commitments. The Revolving Credit Facility matures in June 2026 subject to two six-month options to extend the maturity to June 2027 at the Company's option (subject to the satisfaction of certain conditions). The Company’s borrowings under the Revolving Credit Facility bear interest at variable rates at the Company’s election, based on either (i) the SOFR rate plus a spread (0.95% at September 30, 2022) or (ii) the alternative base rate plus a spread (0% at September 30, 2022). The Revolving Credit Facility also provides for an annual facility fee, which was 20 basis points on the entire facility at September 30, 2022. The specified spreads and facility fee vary depending on the Company’s long-term senior unsecured debt ratings from Moody’s Investors Service, Inc. (“Moody’s”), S&P Global Ratings (“S&P”) and Fitch Investor Services Inc. (“Fitch”) (or their respective successors). The Revolving Credit Facility also features a sustainability-linked pricing component whereby the applicable interest rate margin can be adjusted by one or two basis points if the Company meets certain sustainability performance targets.
The Company also maintains a $200 million unsecured term loan with a syndicate of financial institutions and Wells Fargo Bank, National Association, as administrative agent (the “Term Loan”), that bears interest at variable rates, based on the Company’s long-term senior unsecured debt ratings, equal to (i) the SOFR rate plus a spread (1.05% at September 30, 2022) or (ii) the alternative base rate plus a spread (0.0% at September 30, 2022). The Term Loan matures in June 2027. The Company may increase the principal amount of the Term Loan in the future to up to $800 million in the aggregate provided that existing or new lenders are identified to provide additional loan commitments. The Term Loan also features a sustainability-linked pricing component whereby the applicable interest rate margin can be adjusted by one to two basis points if the Company meets certain sustainability performance targets. The covenants governing the Term Loan are substantially identical to those governing the Revolving Credit Facility.
In late June 2022, the Company utilized the Term Loan’s delayed draw feature to borrow an additional $100.0 million on the Term Loan. As a result, the aggregate principal amount outstanding on the Term Loan was $200.0 million at September 30, 2022. In August 2022, the Company entered into a $200 million Swap to effectively convert the Term Loan to a fixed rate of 3.8% through the loan’s maturity in June 2027.
The Revolving Credit Facility, the Term Loan and the indentures under which the Company’s senior and subordinated unsecured indebtedness are, or may be, issued contain certain financial and operating covenants including, among other things, leverage ratios and debt service coverage and fixed charge coverage ratios, as well as limitations on the Company’s ability to incur secured and unsecured indebtedness, sell all or substantially all of the Company’s assets and engage in certain mergers and acquisitions. These credit facilities and indentures also contain customary default provisions including the failure to make timely payments of principal and interest payable thereunder, the failure to comply with the Company’s financial and operating covenants and the failure of the Company or its majority-owned subsidiaries (i.e., entities in which the Company has a greater than 50% interest) to pay, when due, certain indebtedness in excess of certain thresholds beyond applicable grace and cure periods. In the event the Company’s lenders or note holders declare a default, as defined in the applicable agreements governing the debt, the Company may be unable to obtain further funding and/or an acceleration of any outstanding borrowings may occur. As of September 30, 2022, the Company was in compliance with all of its financial covenants in the agreements governing its debt. Although the Company believes
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it will continue to operate in compliance with these covenants, if the Company were to violate these covenants, the Company may be subject to higher finance costs and fees or accelerated maturities.
Consolidated Indebtedness – as of September 30, 2022
As discussed above, the Company is committed to maintaining prudent leverage levels and may utilize proceeds from equity offerings or the sale of properties or other investments to repay additional debt. These sources of funds could be affected by various risks and uncertainties. No assurance can be provided that the Company’s debt obligations will be refinanced or repaid as currently anticipated. See Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The Company continually evaluates its debt maturities and, based on management’s assessment, believes it has viable financing and refinancing alternatives. The Company has sought to manage its debt maturities through executing a strategy to extend debt duration, increase liquidity, maintain prudent leverage and improve the Company’s credit profile with a focus of lowering the Company's balance sheet risk and cost of capital.
Unconsolidated Joint Ventures’ Mortgage Indebtedness – as of September 30, 2022
The Company’s unconsolidated joint ventures had aggregate outstanding indebtedness to third parties of $0.5 billion and $1.0 billion at September 30, 2022 and 2021, respectively. Such mortgages are generally non-recourse to the Company and its partners; however, certain mortgages may have recourse to the Company and its partners in certain limited situations, such as misappropriation of funds, impermissible transfer, environmental contamination and material misrepresentation. The outstanding indebtedness of the Company’s unconsolidated joint ventures at September 30, 2022, which matures in the subsequent 13-month period (i.e., through October 2023), is $115.8 million ($23.2 million at the Company’s share). All of this amount is attributable to the DDRM Joint Venture and the Company expects the joint venture to repay the indebtedness with proceeds from asset sales or to exercise the option to extend the loan's maturity date by one year.
No assurance can be provided that these obligations will be refinanced or repaid as currently anticipated. Similar to SITE Centers, the Company’s joint ventures experienced a reduction in rent collections, beginning in the second quarter of 2020, as a result of the impact of the COVID-19 pandemic. Any future deterioration in rent collection may cause one or more of these joint ventures to be unable to refinance maturing obligations or satisfy applicable covenants, financial tests or debt service requirements or loan maturity extension conditions in the future, thereby allowing the mortgage lender to assume control of property cash flows, limit distributions of cash to joint venture members, declare a default, increase the interest rate or accelerate the loan’s maturity. In addition, rising interest rates may adversely impact the ability of the Company's joint ventures to sell assets at attractive prices in order to repay indebtedness.
Cash Flow Activity
The Company’s cash flow activities are summarized as follows (in thousands):
Cash flow provided by operating activities
Cash flow used for investing activities
Cash flow provided by (used for) financing activities
Changes in cash flow for the nine months ended September 30, 2022, compared to the prior comparable period, are as follows:
Operating Activities: Cash provided by operating activities decreased $11.9 million primarily due to the following:
Investing Activities: Cash used for investing activities increased $218.1 million primarily due to the following:
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Financing Activities: Cash provided by financing activities increased $219.8 million primarily due to the following:
Dividend Distribution
The Company declared common and preferred cash dividends of $91.9 million and $84.8 million for the nine months ended September 30, 2022 and 2021, respectively. The Company intends to distribute at least 100% of ordinary taxable income in the form of common and preferred dividends with respect to the year ending December 31, 2022 in order to maintain compliance with REIT requirements and in order to not incur federal income taxes (excluding federal income taxes applicable to its taxable REIT subsidiary activities).
The Company declared a quarterly cash dividend of $0.13 per common share for each of the first three quarters of 2022. The Board of Directors of the Company intends to monitor the Company’s dividend policy in order to maintain sufficient liquidity for operating and in order to maximize the Company’s free cash flow while still adhering to REIT payout requirements.
SITE Centers’ Equity
In March 2022, the Company settled 2.2 million common shares, which were offered and sold on a forward basis in 2021 under its $250 million continuous equity program, resulting in gross proceeds of $35.1 million. In the second quarter of 2022, the Company sold 201,800 common shares at a weighted-average price of $16.03 per share before issuance costs generating gross proceeds of $3.2 million. At October 21, 2022, the Company had approximately $211.7 million available for the future offering of common shares under this program.
In the third quarter of 2022, the Company repurchased 1.6 million of its common shares in open market transactions at an aggregate cost of $20.0 million, or $12.74 per share. In November 2018, the Company’s Board of Directors authorized a common share repurchase program. Under the terms of the program, the Company may purchase up to a maximum value of $100 million of its common shares. Through October 21, 2022, the Company had repurchased 6.7 million of its common shares under this program in open market transactions at an aggregate cost of approximately $77.9 million, or $11.66 per share.
SOURCES AND USES OF CAPITAL
Strategic Transaction Activity
The Company remains committed to maintaining sufficient liquidity, managing debt duration and maintaining prudent leverage levels in an effort to manage its overall risk profile. Equity offerings, debt financings, asset sales and cash flow from operations continue to represent a potential source of proceeds to be used to achieve these objectives.
Equity Transactions
In March 2022, the Company settled 2.2 million common shares which were offered and sold on a forward basis in 2021 under its $250 million continuous equity program, resulting in gross proceeds of $35.1 million. In the second quarter of 2022, the Company sold 201,800 common shares, generating gross proceeds of $3.2 million.
Acquisitions
During the nine months ended September 30, 2022, the Company acquired 14 assets for an aggregate purchase price of $301.1 million: Chandler Center (Chandler, Arizona); Shops at Power and Baseline (Mesa, Arizona); Northsight Plaza (Scottsdale, Arizona); Broadway Center (Tempe, Arizona); Artesia Village (Scottsdale, Arizona); La Fiesta Square and Lafayette Mercantile (Lafayette, California); Shops at Boca Center (Boca Raton, Florida); Shoppes of Crabapple (Alpharetta, Georgia); Parkwood Shops (Atlanta, Georgia); Shops at Tanglewood (Houston, Texas) and Boulevard Marketplace, Fairfax Marketplace and Fairfax Pointe (Fairfax, Virginia).
The Company also acquired its joint venture partner’s 80% equity interest in Casselberry Commons (Casselberry, Florida) owned by the DDRM Joint Venture for $35.6 million ($44.5 million at 100%). This transaction resulted in a Gain on Change in Control of Interests of $3.3 million.
Dispositions
In the nine months ended September 30, 2022, the Company sold two wholly-owned shopping centers and one parcel at a wholly-owned shopping center in addition to two unconsolidated shopping centers generating proceeds totaling $98.4 million, of which the Company’s share was $65.6 million. In addition, in the third quarter of 2022, the DDRM Joint Venture sold 13 shopping centers for an aggregate sales price of $387.6 million ($77.5 million at the Company's share) with the related mortgage debt of $225.0 million repaid upon closing.
In the second quarter of 2022, the Company sold its 20% interest in the SAU Joint Venture to its partner, the State of Utah, based on a gross asset value of $155.7 million (at 100%). In addition, the Company sold its 50% interest in Lennox Town Center to its partner based on a gross asset value of $77.0 million (at 100%). These transactions resulted in a Gain on Sale of Interests of $42.2 million.
Changes in investment strategies for assets may impact the Company’s hold-period assumptions for those properties. The disposition of certain assets could result in a loss or impairment recorded in future periods. The Company evaluates all potential sale opportunities taking into account the long-term growth prospects of the assets, the use of proceeds and the impact to the Company’s balance sheet, in addition to the impact on operating results.
Redevelopment Opportunities
One key component of the Company’s long-term strategic plan will be the evaluation of additional tactical redevelopment potential within the portfolio, particularly as it relates to the efficient use of the underlying real estate. The Company will generally commence construction on redevelopment projects only after substantial tenant leasing has occurred. At September 30, 2022, the Company anticipates that it has approximately $25 million to be incurred on its pipeline of identified redevelopment projects.
Redevelopment Projects
As part of its strategy to expand, improve and re-tenant various properties, at September 30, 2022, the Company had approximately $60 million in construction in progress in various active consolidated redevelopment and other projects on a net basis. The Company’s major redevelopment projects are typically substantially complete within two years of the construction commencement date. Redevelopment projects placed into service in 2022 were completed at a cost of approximately $322 per square foot. At September 30, 2022, the Company’s large-scale shopping center expansion and repurposing projects were as follows (in thousands):
EstimatedStabilizedQuarter
EstimatedGross Cost
Cost Incurred atSeptember 30, 2022
West Bay Plaza - Phase II (Cleveland, Ohio)
4Q23
9,102
6,455
Perimeter Pointe (Atlanta, Georgia)
TBD
1,326
7,781
At September 30, 2022, the Company’s tactical redevelopment projects, including outparcels, first generation space and small-scale shopping center expansions and other capital improvements, were as follows (in thousands):
Tanasbourne Town Center (Portland, Oregon)
4Q24
11,540
Nassau Park Pavilion (Trenton, New Jersey)
7,635
2,426
University Hills (Denver, Colorado)
5,972
3,228
Shoppers World (Boston, Massachusetts)
4,967
2,631
Hamilton Marketplace (Trenton, New Jersey)
2Q23
3,843
3,589
Carolina Pavilion (Charlotte, North Carolina)
2,339
1,861
Other Tactical Projects
1,884
38,180
15,404
CAPITALIZATION
At September 30, 2022, the Company’s capitalization consisted of $1.8 billion of debt, $175.0 million of preferred shares and $2.3 billion of market equity (market equity is defined as common shares and OP Units outstanding multiplied by $10.71, the closing price of the Company’s common shares on the New York Stock Exchange on September 30, 2022). The closing price of the Company’s common shares on the New York Stock Exchange was $15.44 at September 30, 2021. At September 30, 2022 and 2021,
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the Company’s total debt consisted of $1.7 billion and $1.6 billion, respectively, of fixed-rate debt and $0.1 billion and $0.2 billion, respectively, of variable-rate debt. At September 30, 2022, the fixed-rate debt includes $200.0 million of variable-rate debt that had been effectively swapped to a fixed rate through the use of interest rate derivative contracts.
Management’s strategy is to maintain access to the capital resources necessary to manage the Company’s balance sheet and to repay upcoming maturities. Accordingly, the Company may seek to obtain funds through additional debt or equity financings and/or joint venture capital in a manner consistent with its intention to operate with a conservative debt capitalization policy and to reduce the Company’s cost of capital by maintaining an investment grade rating with Moody’s, S&P and Fitch. A security rating is not a recommendation to buy, sell or hold securities, as it may be subject to revision or withdrawal at any time by the rating organization. Each rating should be evaluated independently of any other rating. The Company may not be able to obtain financing on favorable terms, or at all, which may negatively affect future ratings.
The Company’s credit facilities and the indentures under which the Company’s senior and subordinated unsecured indebtedness are, or may be, issued contain certain financial and operating covenants, including, among other things, debt service coverage and fixed charge coverage ratios, as well as limitations on the Company’s ability to incur secured and unsecured indebtedness, sell all or substantially all of the Company’s assets, engage in certain mergers and acquisitions and make distribution to its shareholders. Although the Company intends to operate in compliance with these covenants, if the Company were to violate these covenants, the Company may be subject to higher finance costs and fees or accelerated maturities. In addition, certain of the Company’s credit facilities and indentures permit the acceleration of maturity in the event certain other debt of the Company is in default or has been accelerated. Foreclosure on mortgaged properties or an inability to refinance existing indebtedness would have a negative impact on the Company’s financial condition and results of operations.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Company has no remaining consolidated debt maturing in 2022. As of October 21, 2022, the Company has $87.2 million aggregate principal amount of senior notes and $19.6 million of consolidated secured mortgage debt maturing in 2023. The Company expects to fund future maturities from utilization of its Revolving Credit Facility, proceeds from asset sales and other investments, cash flow from operations and/or additional debt or equity financings. No assurance can be provided that these obligations will be repaid as currently anticipated or refinanced.
Other Guaranties
In conjunction with the redevelopment of shopping centers, the Company had entered into commitments with general contractors aggregating approximately $30.1 million for its consolidated properties at September 30, 2022. These obligations, composed principally of construction contracts, are generally due within 12 to 24 months, as the related construction costs are incurred, and are expected to be financed through operating cash flow, asset sales or borrowings under the Revolving Credit Facility. These contracts typically can be changed or terminated without penalty.
The Company routinely enters into contracts for the maintenance of its properties. These contracts typically can be canceled upon 30 to 60 days’ notice without penalty. At September 30, 2022, the Company had purchase order obligations, typically payable within one year, aggregating approximately $7.7 million related to the maintenance of its properties and general and administrative expenses.
ECONOMIC CONDITIONS
The Company continues to believe there is retailer demand for quality real estate locations within well-positioned shopping centers and continues to see demand from a broad range of tenants for its space, despite growing uncertainty and increasing e‑commerce distribution. The Company has experienced strong momentum in new lease discussions and renewal negotiations with tenants. The Company executed new leases and renewals aggregating approximately 3.5 million square feet of space for the nine months ended September 30, 2022, on a pro rata basis. Although there may be some additional disruption among existing tenants due to inflationary pressures, supply chain impacts, labor shortages and capital markets volatility, the Company believes that recent strong leasing volumes are attributable to the location of the Company’s portfolio in suburban, high household income communities and to its national tenants’ strong financial positions and increasing emphasis and reliance on physical store locations to improve the spread and efficiency of purchases agnostic of channel.
The Company benefits from a diversified tenant base, with only one tenant whose annualized rental revenue equals or exceeds 3% of the Company’s annualized consolidated revenues plus the Company’s proportionate share of unconsolidated joint venture revenues (TJX Companies at 5.8%). Other significant national tenants generally have relatively strong financial positions, have outperformed other retail categories over time and the Company believes remain well-capitalized. Historically these national tenants have provided a stable revenue base, and the Company believes that they will continue to provide a stable revenue base going forward, given the long-term nature of these leases. The majority of the tenants in the Company’s shopping centers provide day-to-day
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consumer necessities with a focus on value and convenience, versus discretionary items, which the Company believes will enable many of its tenants to outperform under a variety of economic conditions. The Company recognizes the risks posed by current economic conditions but believes that the position of its portfolio and the general diversity and credit quality of its tenant base should enable it to successfully navigate through a potentially challenging economic environment. The Company has relatively little reliance on overage or percentage rents generated by tenant sales performance.
The Company believes that its shopping center portfolio is well positioned, as evidenced by its recent leasing activity, historical property income growth and consistent growth in average annualized base rent per occupied square foot. Historical occupancy has generally ranged from 89% to 96% since the Company’s initial public offering in 1993. At September 30, 2022 and December 31, 2021, the shopping center portfolio occupancy, on a pro rata basis, was 91.4% and 90.0%, respectively, and the total portfolio average annualized base rent per occupied square foot, on a pro rata basis, was $19.11 and $18.33, respectively. The Company’s portfolio was impacted by tenant bankruptcies and closures in 2020, primarily due to the impact of the COVID-19 pandemic, and the Company expects to expend significant amounts of capital in coming periods in connection with recently executed leases to backfill these closures. Although the per square foot cost of leasing capital expenditures has been predominantly consistent with the Company’s historical trends, the high volume of the Company’s recent leasing activity will cause aggregate leasing capital expenditure levels to remain elevated. The weighted-average cost of tenant improvements and lease commissions estimated to be incurred over the expected lease term for new leases executed during the nine months ended September 30, 2022 and 2021, on a pro rata basis, was $7.31 and $8.56 per rentable square foot, respectively. The Company generally does not expend a significant amount of capital on lease renewals.
Beginning in March 2020, the retail sector was significantly impacted by the COVID-19 pandemic. Though the impact of the COVID-19 pandemic on tenant operations varied by tenant category, local conditions and applicable government mandates, a significant number of the Company’s tenants experienced a reduction in sales and foot traffic, and many tenants were forced to limit their operations or close their businesses for a period of time. The Company worked with tenants to maximize the collection of unpaid 2020 rents by offering rent deferment on a case-by-case basis often in exchange for concessions in the form of tenant extensions of lease terms, the relaxation of leasing restrictions and co-tenancy provisions and, in some cases, alterations of control areas allowing for future redevelopment of the shopping center. The Company’s collection rates showed significant improvements in 2021 and the Company’s tenants, including cash basis tenants, are paying their monthly rent in a manner consistent with the period prior to the COVID-19 pandemic and have repaid deferred rents relating to prior periods. As of September 30, 2022, the majority of rent deferral arrangements for tenants that are not accounted for on the cash basis have been repaid. Any new surges in contagion or new COVID‑19 variants could adversely impact the Company's ability to lease space and collect rents. Certain tenant categories remain especially vulnerable to the impact of the COVID-19 pandemic, including movie theaters, fitness centers and local restaurants. For additional risks relating to the COVID-19 pandemic, see Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Although disruptions in rent collections stemming from the COVID-19 pandemic have subsided, inflation, labor shortages, supply chain disruptions and global capital markets volatility continue to pose risks to the U.S. economy, the Company’s tenants and business. Inflationary pressures and rising interest rates could result in reductions in consumer spending and retailer profitability which could impact the Company’s ability to grow rents and tenant demand for new and existing store locations. Regardless of accelerating inflation levels, base rent under most of the Company’s long-term anchor leases will remain constant (subject to tenants’ exercise of renewal options at pre-negotiated rent increases) until the expiration of their lease terms. While many of these leases require tenants to pay their share of shopping center operating expenses (including common area maintenance, real estate tax and insurance expenses), the Company’s ability to collect the passed-through expense increases to tenants is dependent on their ability to absorb and pay these increases. Inflation may also impact other aspects of the Company’s operating costs, including employee retention costs, the cost to complete redevelopments and build-outs of recently leased vacancies and interest rate costs relating to variable rate loans and refinancing of fixed-rate indebtedness. Increasing interest rates or capital availability constraints may also adversely impact the transaction market, asset values and the Company's ability to buy or sell properties. While the Company has not been significantly impacted by any of these items to date, no assurances can be provided that these inflationary pressures will not have a material adverse effect on the Company’s business in the future.
FORWARD-LOOKING STATEMENTS
MD&A should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing elsewhere in this report. Historical results and percentage relationships set forth in the Company’s consolidated financial statements, including trends that might appear, should not be taken as indicative of future operations. The Company considers portions of this information to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to the Company’s expectations for future periods. Forward-looking statements include, without limitation, statements related to acquisitions (including any related pro forma financial information) and other business development activities, future capital expenditures, financing sources and availability and the effects of environmental and other regulations. Although the Company believes that the expectations reflected in these forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. For this purpose,
any statements contained herein that are not statements of historical fact should be deemed to be forward-looking statements. Without limiting the foregoing, the words “will,” “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates” and similar expressions are intended to identify forward-looking statements. Readers should exercise caution in interpreting and relying on forward-looking statements because such statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company’s control and that could cause actual results to differ materially from those expressed or implied in the forward-looking statements and that could materially affect the Company’s actual results, performance or achievements. For additional factors that could cause the results of the Company to differ materially from those indicated in the forward-looking statements see Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the following:
33
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s primary market risk exposure is interest rate risk. The Company’s debt, excluding unconsolidated joint venture debt and adjusted to reflect the $200.0 million of variable-rate debt that SOFR was swapped to a fixed rate of 2.75% at September 30, 2022 is summarized as follows:
Amount(Millions)
Weighted-AverageMaturity(Years)
Weighted-AverageInterestRate
Percentageof Total
Fixed-Rate Debt
1,742.1
3.3
95.6
1,577.6
94.1
Variable-Rate Debt
80.0
3.7
3.9
99.8
1.1
5.9
The Company’s unconsolidated joint ventures’ indebtedness at its carrying value is summarized as follows:
JointVentureDebt(Millions)
Company'sProportionateShare(Millions)
363.4
72.7
4.8
673.9
146.2
2.4
4.2
176.5
38.9
1.3
199.4
43.5
1.4
2.2
The Company intends to use retained cash flow, proceeds from asset sales, equity and debt financing and variable-rate indebtedness available under its Revolving Credit Facility to repay indebtedness and fund capital expenditures at the Company’s shopping centers. Thus, to the extent the Company incurs additional variable-rate indebtedness or needs to refinance existing fixed-rate indebtedness in a rising interest rate environment, its exposure to increases in interest rates in an inflationary period could increase. The Company does not believe, however, that increases in interest expense will significantly impact the Company’s distributable cash flow given the Company’s outstanding debt maturity profile.
The interest rate risk on a portion of the Company’s variable-rate debt has been mitigated through the use of an interest rate swap agreement with major financial institutions. At September 30, 2022, the interest rate on $200.0 million of the Company’s consolidated variable-rate debt was swapped to a fixed rate. The Company is exposed to credit risk in the event of nonperformance by the counterparties to the swaps. The Company believes it mitigates its credit risk by entering into swaps with major financial institutions.
The carrying value of the Company’s fixed-rate debt is adjusted to include the $200.0 million of variable-rate debt that was swapped to a fixed rate at September 30, 2022. The fair value of the Company's fixed-rate debt is adjusted to include (i) the swap reflected in the carrying value and (ii) the Company’s proportionate share of the joint ventures' fixed-rate debt. An estimate of the effect of a 100 basis-point increase at September 30, 2022 and December 31, 2021, is summarized as follows (in millions):
Carrying Value
100 Basis-PointIncrease inMarket InterestRate
Company's fixed-rate debt
1,652.7
1,604.8
(B)
1,687.5
1,630.3
Company's proportionate share of joint venture fixed-rate debt
70.8
69.8
149.7
146.8
The sensitivity to changes in interest rates of the Company’s fixed-rate debt was determined using a valuation model based upon factors that measure the net present value of such obligations that arise from the hypothetical estimate as discussed above. A 100 basis-point increase in short-term market interest rates on variable-rate debt at September 30, 2022, would result in an increase in interest expense of approximately $0.6 million for the Company and $0.1 million representing the Company’s proportionate share of
the joint ventures’ interest expense relating to variable-rate debt outstanding for the nine months ended September 30, 2022. The estimated increase in interest expense for the year does not give effect to possible changes in the daily balance of the Company’s or joint ventures’ outstanding variable-rate debt.
The Company and its joint ventures intend to continually monitor and actively manage interest costs on their variable-rate debt portfolio and may enter into swap positions based on market fluctuations. In addition, the Company believes it has the ability to obtain funds through additional equity and/or debt offerings and joint venture capital. Accordingly, the cost of obtaining such protection agreements versus the Company’s access to capital markets will continue to be evaluated. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes. As of September 30, 2022, the Company had no other material exposure to market risk.
Item 4. CONTROLS AND PROCEDURES
The Company’s management, with the participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), conducted an evaluation, pursuant to Securities Exchange Act of 1934 Rules 13a-15(b) and 15d-15(b), of the effectiveness of our disclosure controls and procedures. Based on their evaluation as required, the CEO and CFO have concluded that the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and were effective as of the end of such period to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’s management, including its CEO and CFO, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
During the three months ended September 30, 2022, there were no changes in the Company’s internal control over financial reporting that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to various legal proceedings, which, taken together, are not expected to have a material adverse effect on the Company. The Company is also subject to a variety of legal actions for personal injury or property damage arising in the ordinary course of its business, most of which are covered by insurance. While the resolution of all matters cannot be predicted with certainty, management believes that the final outcome of such legal proceedings and claims will not have a material adverse effect on the Company’s liquidity, financial position or results of operations.
Item 1A. RISK FACTORS
None.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
(a)
(b)
(c)
(d)
TotalNumber ofSharesPurchased
AveragePrice Paidper Share
Total Numberof Shares Purchasedas Part ofPublicly AnnouncedPlans or Programs
Maximum Number(or ApproximateDollar Value) ofShares that May YetBe Purchased Under the Plans or Programs(Millions)
July 1–31, 2022
1,872
(1)
13.47
August 1–31, 2022
14.61
September 1–30, 2022
1,598,226
(2)
12.75
1,569,602
(3)
1,600,118
12.76
22.1
Item 3. DEFAULTS UPON SENIOR SECURITIES
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
Item 6. EXHIBITS
31.1
Certification of principal executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 19341
31.2
Certification of principal financial officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 19341
32.1
Certification of chief executive officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of this report pursuant to the Sarbanes-Oxley Act of 20021,2
32.2
Certification of chief financial officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of this report pursuant to the Sarbanes-Oxley Act of 20021,2
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document1
101.SCH
Inline XBRL Taxonomy Extension Schema Document1
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document1
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document1
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document1
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document1
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 has been formatted in Inline XBRL and included in Exhibit 101.
Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, (ii) Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021, (iii) Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021, (iv) Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2022 and 2021, (v) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 and (vi) Notes to Condensed Consolidated Financial Statements.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SITE CENTERS CORP.
By:
/s/ Christa A. Vesy
Name:
Christa A. Vesy
Title:
Executive Vice President and Chief Accounting Officer (Authorized Officer)
Date: October 27, 2022