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, 2021
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 22, 2021, the registrant had 211,217,691shares of common stock, $0.10 par value per share, outstanding.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED September 30, 2021
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements – Unaudited
Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020
2
Consolidated Statements of Operations for the Three Months Ended September 30, 2021 and 2020
3
Consolidated Statements of Operations for the Nine Months Ended September 30, 2021 and 2020
4
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020
5
Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2021 and 2020
6
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020
7
Notes to Condensed Consolidated Financial Statements
8
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
17
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
37
Item 4.
Controls and Procedures
38
PART II. OTHER INFORMATION
Legal Proceedings
39
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
40
SIGNATURES
41
1
CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands, except share amounts)
September 30, 2021
December 31, 2020
Assets
Land
$
962,872
953,556
Buildings
3,533,242
3,488,499
Fixtures and tenant improvements
544,374
509,866
5,040,488
4,951,921
Less: Accumulated depreciation
(1,536,248
)
(1,427,057
3,504,240
3,524,864
Construction in progress and land
42,143
37,467
Total real estate assets, net
3,546,383
3,562,331
Investments in and advances to joint ventures, net
72,684
77,297
Investment in and advances to affiliate
190,121
190,035
Cash and cash equivalents
61,924
69,742
Restricted cash
3,414
4,672
Accounts receivable
59,910
73,517
Other assets, net
117,857
130,690
4,052,293
4,108,284
Liabilities and Equity
Unsecured indebtedness:
Senior notes, net
1,451,229
1,449,613
Term loan, net
99,767
99,635
Revolving credit facilities
—
135,000
1,550,996
1,684,248
Mortgage indebtedness, net
241,561
249,260
Total indebtedness
1,792,557
1,933,508
Accounts payable and other liabilities
213,018
215,109
Dividends payable
28,251
14,844
Total liabilities
2,033,826
2,163,461
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, 2021 and
175,000
Class K—6.25% cumulative redeemable preferred shares, without par value, $500 liquidation value;
750,000 shares authorized; 300,000 shares issued and outstanding at December 31, 2020
150,000
Common shares, with par value, $0.10 stated value; 300,000,000 shares authorized; 211,095,870 and
193,995,499 shares issued at September 30, 2021 and December 31, 2020, respectively
21,110
19,400
Additional paid-in capital
5,942,466
5,705,164
Accumulated distributions in excess of net income
(4,123,534
(4,099,534
Deferred compensation obligation
4,590
5,479
Accumulated other comprehensive loss
(2,682
Less: Common shares in treasury at cost: 254,298 and 898,267 shares at September 30, 2021 and
December 31, 2020, respectively
(4,815
(11,319
Total SITE Centers shareholders' equity
2,014,817
1,941,508
Non-controlling interests
3,650
3,315
Total equity
2,018,467
1,944,823
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,
2021
2020
Revenues from operations:
Rental income
120,569
95,874
Fee and other income
13,872
9,680
134,441
105,554
Rental operation expenses:
Operating and maintenance
18,562
15,775
Real estate taxes
19,160
16,542
General and administrative
11,727
13,664
Depreciation and amortization
44,669
41,148
94,118
87,129
Other income (expense):
Interest expense
(19,170
(18,089
Other (expense) income, net
(524
3,259
(19,694
(14,830
Income before earnings from equity method investments and other items
20,629
3,595
Equity in net income of joint ventures
1,824
250
Adjustment of preferred equity interests, net
3,542
Gain on sale of joint venture interests
35
82
Gain on disposition of real estate, net
5,871
218
Income before tax expense
28,359
7,687
Tax expense of taxable REIT subsidiaries and state franchise and income taxes
(202
(284
Net income
28,157
7,403
Income attributable to non-controlling interests, net
(93
(116
Net income attributable to SITE Centers
28,064
7,287
Preferred dividends
(2,789
(5,133
Net income attributable to common shareholders
25,275
2,154
Per share data:
Basic
0.12
0.01
Diluted
Nine Months
366,689
306,482
31,359
35,953
398,048
342,435
58,200
50,774
58,359
51,547
Impairment charges
7,270
41,547
38,542
137,446
125,014
302,822
265,877
(57,701
(58,487
Other expense, net
(1,214
(7,727
(58,915
(66,214
36,311
10,344
11,059
908
Reserve of preferred equity interests, net
(19,393
13,943
45,635
6,069
993
67,382
38,487
(1,057
(859
66,325
37,628
(384
(621
65,941
37,007
Write-off of preferred share original issuance costs
(5,156
(10,867
(15,399
49,918
21,608
0.24
0.11
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in thousands)
Other comprehensive income:
Foreign currency translation, net
(3,916
(1
(4,409
Reclassification adjustment for foreign currency
translation included in net income
2,683
Change in cash flow hedges reclassed to earnings
1,172
Total other comprehensive income (loss)
2,682
(3,237
Comprehensive income
3,487
69,007
34,391
Total comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to SITE Centers
3,371
68,623
33,770
CONSOLIDATED STATEMENTS OF EQUITY
Preferred Shares
Common
Shares
Additional
Paid-in
Capital
Accumulated Distributions
in Excess of
Net Income
Deferred Compensation Obligation
Accumulated Other Comprehensive (Loss) Income
Treasury
Stock at
Cost
Non-
Controlling
Interests
Total
Balance, December 31, 2020
325,000
Issuance of common shares related
to stock plans
91
99
Issuance of common shares for
cash offering
1,696
219,711
3,923
225,330
Stock-based compensation, net
10,425
(995
3,085
12,515
Distributions to non-controlling
interests
(33
Redemption of preferred shares
(150,000
5,137
(150,019
Dividends declared-common shares
(48,795
Dividends declared-preferred shares
(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
Balance, December 31, 2019
19,382
5,700,400
(4,066,099
7,929
(491
(7,707
3,064
1,981,478
18
(78
(60
Repurchase of common shares
(7,500
4,397
(2,495
2,538
4,440
(278
(38,914
(10,266
29,720
679
505
30,904
Balance, June 30, 2020
5,704,719
(4,085,559
5,434
188
(12,669
3,291
1,959,804
1,506
206
1,720
(166
Comprehensive income (loss)
116
Balance, September 30, 2020
5,706,225
(4,083,405
5,442
(3,728
(12,463
3,241
1,959,712
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
11,698
5,670
Amortization and write-off of debt issuance costs and fair market value of debt adjustments
3,210
3,581
Loss on debt extinguishment
16,568
(11,059
(908
19,393
Operating cash distributions from joint ventures
2,840
2,825
(13,943
(45,635
(6,069
(993
Assumption of buildings due to ground lease terminations
(3,025
Change in notes receivable accrued interest
(2,891
Net change in accounts receivable
18,391
(18,500
Net change in accounts payable and accrued expenses
5,143
(4,567
Net change in other operating assets and liabilities
(3,888
(8,226
Total adjustments
151,039
88,306
Net cash flow provided by operating activities
217,364
125,934
Cash flow from investing activities:
Real estate acquired, net of liabilities and cash assumed
(62,610
Real estate developed and improvements to operating real estate
(55,677
(50,987
Proceeds from disposition of real estate
29,793
1,227
Proceeds from sale of joint venture interests
16,067
140,441
Equity contributions to joint ventures
(247
(206
Distributions from joint ventures
7,014
4,395
Repayment of joint venture advances, net
929
Repayment of notes receivable
7,500
Net cash flow (used for) provided by investing activities
(64,731
102,370
Cash flow from financing activities:
(Repayment of) proceeds from revolving credit facilities, net
(135,000
170,000
Repayment of senior notes, including repayment costs
(216,568
Repayment of mortgage debt
(25,613
(41,230
Proceeds from issuance of common shares, net of offering expenses
225,166
Repurchase of common shares in conjunction with equity award plans and dividend reinvestment plan
(4,878
(955
Distributions to non-controlling interests and redeemable operating partnership units
(39
(473
Dividends paid
(71,325
(93,215
Net cash flow used for financing activities
(161,708
(189,941
Effect of foreign exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash, cash equivalents and restricted cash
(9,075
38,363
Cash, cash equivalents and restricted cash, beginning of period
74,414
19,133
Cash, cash equivalents and restricted cash, end of period
65,338
57,513
1.
Nature of Business and Financial Statement Presentation
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 acquiring, owning, developing, redeveloping, leasing and managing shopping centers. Unless otherwise provided, references herein to the Company or SITE Centers include SITE Centers Corp. and its wholly-owned subsidiaries and consolidated joint ventures. The Company’s tenant base primarily includes national and regional retail chains and local tenants. Consequently, the Company’s credit risk is 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. The Company considered impacts to its estimates related to COVID-19, as appropriate, within its unaudited condensed consolidated financial statements, and there may be changes to those estimates in future periods. The Company believes that its accounting estimates are appropriate after giving consideration to the uncertainties surrounding the severity and duration of the COVID-19 pandemic. 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, 2021 and 2020, 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, 2020.
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).
Reclassifications
Certain amounts for the three and nine months ended September 30, 2020, have been reclassified in order to conform with the current period’s presentation. The Company reclassified $3.4 million and $10.5 million of interest income for the three and nine months ended September 30, 2020, respectively, primarily related to preferred equity investments that were transferred or redeemed in the fourth quarter of 2020, on its consolidated statements of operations from Interest Income to Other (Expense) Income, net.
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):
Dividends declared, but not paid
28.3
5.1
Mortgages assumed, shopping center acquisition
17.9
Accounts payable related to construction in progress
10.2
Tax receivable
4.1
3.0
2.
Revenue Recognition
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, 2021, $1.7 million remains outstanding under these deferral arrangements for tenants that are not accounted for on the cash basis.
During the three and nine months ended September 30, 2021, the Company recorded net uncollectible revenue that resulted in rental income of $1.1 million and $8.3 million, respectively (the Company’s share of unconsolidated joint ventures was $0.2 million and $1.6 million, respectively), primarily due to rental income paid in 2021 related to outstanding amounts owed for 2020 from tenants on the cash basis of accounting.
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.
Fee and Other Income
Fee and Other Income on the consolidated statements of operations includes revenue from contracts with customers and other property-related income and is recognized in the period earned as follows (in thousands):
Revenue from contracts:
Asset and property management fees
6,459
7,326
19,636
24,201
Leasing commissions
624
648
2,679
4,327
Development fees
258
210
497
1,256
RVI Disposition fees
5,500
856
6,092
2,622
RVI Credit facility guaranty fees
60
Total revenue from contracts with customers
12,901
9,100
28,964
32,466
Other property income:
Other
971
580
2,395
Total fee and other income
9
3.
Investments in and Advances to Joint Ventures
At September 30, 2021 and December 31, 2020, the Company had ownership interests in various unconsolidated joint ventures that had investments in 55 and 59 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
428,167
441,412
1,212,771
1,258,879
138,876
137,663
1,779,814
1,837,954
(501,506
(492,288
1,278,308
1,345,666
8,444
58,201
Real estate, net
1,286,752
1,403,867
Cash and restricted cash
61,797
35,212
Receivables, net
19,513
25,719
53,415
61,381
1,421,477
1,526,179
Mortgage debt
996,968
1,029,579
Notes and accrued interest payable to the Company
3,789
4,375
Other liabilities
59,890
57,349
1,060,647
1,091,303
Accumulated equity
360,830
434,876
Company's share of accumulated equity
64,778
72,555
Basis differentials
5,273
1,644
Deferred development fees, net of portion related to the Company's interest
(1,156
(1,277
Amounts payable to the Company
Investments in and Advances to Joint Ventures, net
Condensed Combined Statements of Operations
Revenues from operations
48,666
60,019
150,623
198,906
Expenses from operations:
Operating expenses
12,931
18,613
41,217
61,661
33,240
16,605
23,901
50,309
77,580
10,980
14,700
32,898
47,555
Preferred share expense
4,626
13,710
2,832
3,246
8,806
10,844
43,348
65,086
133,230
244,590
Income (loss) before gain on disposition of real estate
5,318
(5,067
17,393
(45,684
(Loss) gain on disposition of real estate, net
(455
319
36,132
9,229
Net income (loss) attributable to unconsolidated joint ventures
4,863
(4,748
53,525
(36,455
Company's share of equity in net income of joint ventures
1,760
134
9,897
571
Basis differential adjustments(A)
64
1,162
337
(A)
The difference between the Company’s share of net income, as reported above, and the amounts included in the Company’s consolidated statements of operations is attributable to the amortization of basis differentials, the recognition of deferred gains, differences in gain (loss) on sale of certain assets recognized due to the basis differentials and other than temporary impairment charges.
10
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 and interest income are as follows (in millions):
2.8
8.0
10.1
Development fees, leasing commissions and other
0.6
1.5
3.6
3.4
9.5
13.7
Other:
Interest income(A)
3.5
10.5
0.4
0.5
1.2
1.7
4.0
12.2
3.8
7.6
10.7
25.9
Interest income recorded in 2020 related to preferred equity interests in two joint ventures which were transferred or redeemed in the fourth quarter of 2020.
Disposition of Shopping Centers and Undeveloped Land
In February 2021, one of the Company’s unconsolidated joint ventures sold its sole asset, which was a parcel of undeveloped land (approximating 70 acres) in Richmond Hill, Ontario. The Company’s share of net proceeds totaled $22.1 million, after accounting for customary closing costs and foreign currency translation. The net proceeds include $6.1 million that are held in escrow of which $4.1 million is expected to be released to the Company pending receipt of certain tax clearance certificates from the Canadian taxing authorities, and the remaining $2.0 million is considered contingent and should be released upon final dissolution of the partnership. The Company recorded an aggregate gain on the transaction of $16.8 million which included its $2.8 million share of the gain reported by the joint venture, as well as $14.0 million related to the promoted interest on the disposition of the investment and write-off of the accumulated foreign currency translation.
From January 1, 2021 to September 30, 2021, four shopping centers were sold by unconsolidated joint ventures for $53.4 million. The Company’s share of the gain on sale was $2.4 million.
4.
Investment in and Advances to Affiliate
The Company had a preferred investment in Retail Value Inc. (“RVI”) having an aggregate dividend preference of $190.0 million which amount could increase by up to an additional $10 million in the event the aggregate amount of gross proceeds from RVI asset sales exceeds a specified threshold (the “RVI Preferred Shares”). In October 2021, the Company received a distribution of $190.0 million on the RVI Preferred Shares (Note 13). The Company does not expect to receive any additional amount from RVI on account of its preferred investment based on the projected level of sale proceeds from RVI’s remaining assets. Revenue from contracts with RVI is included in Fee and Other Income on the consolidated statements of operations and was composed of the following (in millions):
Three
Revenue from contracts with RVI:
4.4
11.5
14.1
0.3
2.0
Disposition fees
5.5
0.8
6.1
2.6
Credit facility guaranty
0.1
Total revenue from contracts with RVI
5.6
19.4
18.8
11
5.
Acquisitions
During the nine months ended September 30, 2021, the Company acquired the following shopping centers (in millions):
Asset
Location
Date
Acquired
Purchase
Price
Face Value of
Mortgage Debt
Assumed
Shoppes at Addison Place
Delray Beach, Florida
May 2021
40.0
Emmet Street Station
Charlottesville, Virginia
8.8
Hammond Springs
Atlanta, Georgia
September 2021
31.0
The fair value of the acquisitions was allocated as follows (in thousands):
Weighted-Average
Amortization Period
(in Years)
27,203
N/A
48,470
Tenant improvements
1,075
In-place leases (including lease origination costs and fair market value of leases)
5,829
4.9
Other assets assumed
82,614
Less: Mortgage debt assumed at fair value
(17,944
Less: Below-market leases
(2,060
13.5
Net assets acquired
62,610
Depreciated in accordance with the Company’s policy.
The total consideration paid included $62.6 million paid in cash and $17.9 million of assumed mortgage indebtedness. Included in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2021, was $1.1 million and $1.6 million, respectively, in total revenues from the date of acquisition through September 30, 2021, for the three properties acquired.
6.
Other Assets and Intangibles, net
Other assets and intangibles consist of the following (in thousands):
Intangible assets:
In-place leases, net
49,455
56,756
Above-market leases, net
7,032
8,387
Lease origination costs, net
4,838
4,974
Tenant relationships, net
16,680
20,301
Total intangible assets, net(A)
78,005
90,418
Operating lease ROU assets
19,469
20,604
Other assets:
Prepaid expenses
9,679
7,416
Other assets
1,785
2,348
Deposits
4,275
3,767
Deferred charges, net
4,644
6,137
Total other assets, net
Below-market leases, net (other liabilities)
54,802
57,348
The Company recorded amortization expense related to its intangibles, excluding above- and below-market leases, of $5.3 million and $3.2 million for the three months ended September 30, 2021 and 2020, respectively, and $16.3 million and $10.3 million for the nine months ended September 30, 2021 and 2020, respectively.
12
7.
Revolving Credit Facilities
The following table discloses certain information regarding the Company’s Revolving Credit Facilities (as defined below):
Carrying Amount at
Interest Rate at
Maturity Date at
Unsecured Credit Facility
January 2024
PNC Facility
The Company maintains an unsecured revolving credit facility with a syndicate of financial institutions, arranged by Wells Fargo Securities, LLC, J.P. Morgan Chase Bank, N.A., Citizens Bank, N.A., RBC Capital Markets and U.S. Bank National Association (the “Unsecured Credit Facility”). The Unsecured Credit Facility provides for borrowings of up to $950 million if certain financial covenants are maintained and 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, and a maturity date of January 2024, with two six-month options to extend the maturity to January 2025 upon the Company’s request (subject to satisfaction of certain conditions). The Unsecured Credit Facility includes a competitive bid option on periodic interest rates for up to 50% of the facility. The Unsecured Credit Facility also provides for an annual facility fee, which was 20 basis points on the entire facility at September 30, 2021.
The Company maintains a $20 million unsecured revolving credit facility with PNC Bank, National Association (“PNC,” the “PNC Facility” and, together with the Unsecured Credit Facility, the “Revolving Credit Facilities”) which includes substantially the same terms as those contained in the Unsecured Credit Facility. Additionally, the Company provided an unconditional guaranty to PNC with respect to any obligations of RVI outstanding from time to time under a $30 million revolving credit agreement entered into by RVI with PNC. In the third quarter of 2021, the revolving credit agreement between RVI and PNC was terminated, as well as the Company’s guaranty.
The Company’s borrowings under the Revolving Credit Facilities bear interest at variable rates at the Company’s election, based on either LIBOR plus a specified spread (0.90% at September 30, 2021) or the Alternative Base Rate, as defined in the respective facility, plus a specified spread (0% at September 30, 2021). The specified spreads vary depending on the Company’s long-term senior unsecured debt rating from Moody’s Investors Service, Inc., S&P Global Ratings, Fitch Investor Services, Inc. and their successors. The Company is required to comply with certain covenants under the Revolving Credit Facilities 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, 2021.
8.
Fair Value Measurements
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):
Carrying
Amount
Fair
Value
Senior Notes
1,579,853
1,549,866
Revolving Credit Facilities and term loan
100,000
234,635
235,000
Mortgage Indebtedness
243,750
250,624
1,923,603
2,035,490
13
9.
Equity
Common Share Dividend
Common share dividends declared per share
0.35
0.20
Common Shares Issuance
In March 2021, the Company issued 17.25 million common shares resulting in net proceeds of $225.2 million.
Common Shares – Continuous Equity Program
In the second quarter of 2021, the Company offered and sold 980,396 common shares on a forward basis under its $250 million continuous equity program at a weighted-average forward price of $15.09 per share before issuance costs generating expected gross proceeds before issuance costs of $14.8 million. In the third quarter of 2021, the Company offered and sold 720,076 common shares on a forward basis at a weighted-average forward price of $15.89 per share before issuance costs generating expected gross proceeds before issuance costs of $11.4 million. Year to date, the Company has offered and sold 1,700,472 shares on a forward basis at a weighted average price of $15.43 per share before issuance costs generating expected gross proceeds before issuance costs of $26.2 million with no shares settled to date.
The actual proceeds to be received by the Company will vary depending upon the settlement date, the number of shares designated for settlement on that settlement date and the method of settlement. The forward equity sale agreements provide that the forward price will be subsequently adjusted for a floating interest rate factor equal to a specified daily rate plus a spread and scheduled dividends during the term of the applicable agreement. The second quarter transactions may be settled at any time before the July 1, 2022 settlement date and the third quarter transactions may be settled at any time before the September 9, 2022 settlement date. Under limited circumstances or certain unanticipated events, the forward purchaser also has the ability to require the Company to physically settle the forward equity sale agreement in shares prior to the settlement date. The Company intends to use proceeds received upon settlement of the transaction to fund acquisitions and capital expenditures and for general corporate purposes. As of September 30, 2021, the Company has not settled any portion of the second quarter or third quarter transactions. The agreement to offer and sell shares on a forward basis is accounted for as an equity instrument. The fair value will not be adjusted so long as the Company continues to meet the accounting requirements for equity instruments.
In April 2021, the Company redeemed all $150.0 million aggregate liquidation preference of its Class K Cumulative Redeemable Preferred Shares (the “Class K Preferred Shares”) at a redemption price of $500 per Class K Preferred Share (or $25.00 per depositary share) plus accrued and unpaid dividends of $7.2049 per Class K Preferred Share (or $0.3602 per depositary share). The Company recorded a charge of $5.1 million to net income attributable to common shareholders in the second quarter of 2021, which represents the difference between the redemption price and the carrying amount immediately prior to redemption, which was recorded to additional paid in capital upon original issuance.
10.
Other Comprehensive Income
The changes in Accumulated Other Comprehensive (Loss) Income related to foreign currency items are as follows (in thousands):
Other comprehensive loss before reclassifications
Reclassification adjustment for foreign currency translation(A)
Net current-period other comprehensive income
Represents the release of foreign currency translation in the first quarter of 2021, related to the sale of a parcel of undeveloped land in Richmond Hill, Ontario owned by one of the Company’s joint ventures (Note 3).
11.
Impairment Charges
For the nine months ended September 30, 2021, the Company recorded impairment charges of $7.3 million, based on the difference between the carrying value of the assets or investments and the estimated fair market value. In 2021, the impairment
14
charges recorded were triggered by a change in the hold period assumptions for an asset considered for sale and sold in the first quarter. For the three and nine months ended September 30, 2020, the Company recorded an adjustment to the reserve of $3.5 million and net charges of $19.4 million, respectively, as a result of an aggregate valuation allowance on its preferred equity interests in the BRE DDR joint ventures that were transferred or redeemed in the fourth quarter of 2020.
Items Measured at Fair Value
The Company is required to assess the fair value of certain impaired consolidated and unconsolidated joint venture investments. The valuation of impaired real estate assets and investments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each asset, as well as the income capitalization approach considering prevailing market capitalization rates, analysis of recent comparable sales transactions, actual sales negotiations and bona fide purchase offers received from third parties and/or consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence. In general, the Company considers multiple valuation techniques when measuring fair value of an investment. However, in certain circumstances, a single valuation technique may be appropriate.
For operational real estate assets, the significant valuation assumptions included the capitalization rate used in the income capitalization valuation, as well as the projected property net operating income and expected hold period. For projects under development or not at stabilization, the significant assumptions included the discount rate, the timing and the estimated costs for the construction completion and project stabilization, projected net operating income and the exit capitalization rate. These valuations were calculated based on market conditions and assumptions made by management at the time the valuation adjustments and impairments were recorded, which may differ materially from actual results if market conditions or the underlying assumptions change.
The following table presents information about the fair value of real estate that was impaired, and therefore, measured on a fair value basis, along with the related impairment charge, for the nine months ended September 30, 2021. The table also indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in millions):
Level 1
Level 2
Level 3
Impairment
Charges
Long-lived assets held and used
10.0
7.3
The following table presents quantitative information about the significant unobservable inputs used by the Company to determine the fair value (in millions):
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at
Valuation
Weighted
Description
Technique
Unobservable Inputs
Range
Average
Impairment of consolidated assets
Indicative Bid(A)
Fair value measurement based upon an indicative bid and developed by third-party sources (including offers and comparable sales values), subject to the Company’s corroboration for reasonableness. The Company does not have access to certain unobservable inputs used by third parties to determine these estimated fair values.
15
12.
Earnings Per Share
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
(150
(450
(149
Net income attributable to common shareholders after
allocation to participating securities
25,125
49,468
21,459
Denominators – Number of Shares
Basic—Average shares outstanding
211,048
193,203
206,918
193,366
Assumed conversion of dilutive securities:
PRSUs
1,114
162
1,146
Forward equity
29
Diluted—Average shares outstanding
212,191
193,365
208,074
Earnings Per Share:
For the three and nine months ended September 30, 2021, Performance Restricted Stock Units (“PRSUs”) issued to certain executives in March 2021, March 2020 and March 2019 were considered in the computation of dilutive EPS. For the three and nine months ended September 30, 2020, PRSUs issued to certain executives in March 2020, March 2019 and March 2017 (not outstanding for the three months ended September 30, 2020) were anti-dilutive and not considered in the computation of EPS, as no share units would have been issued under the plan if the performance period would have ended on September 30, 2020. The PRSUs issued in March 2018 were considered in the computation of EPS for the three months ended September 30, 2020, but were anti-dilutive and not included in the computation of EPS for the nine months ended September 30, 2020. In connection with the PRSUs granted in March 2018, the Company recorded a mark-to-market adjustment of $5.6 million as expense for the nine months ended September 30, 2021 and recorded $0.3 million as expense and $1.6 million as income for the three and nine months ended September 30, 2020, respectively. In March 2021, the Company issued 570,295 common shares in settlement of certain PRSUs granted in 2018 and 2020. The agreements to offer and sell shares on a forward basis for approximately 1.7 million common shares were considered in the computation of diluted EPS for the three and nine-month periods ended September 30, 2021 (Note 9). This agreement was not outstanding in 2020.
13.
Subsequent Events
On October 6, 2021, the Company received a distribution of $190.0 million on the RVI Preferred Shares, which represents the full amount expected to be paid by RVI on account of the Company’s preferred investment (Note 4).
16
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, 2020, 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 acquiring, owning, developing, redeveloping, leasing and managing shopping centers. As of September 30, 2021, the Company’s portfolio consisted of 137 shopping centers (including 56 shopping centers owned through joint ventures). At September 30, 2021, the Company owned approximately 42.8 million total square feet of gross leasable area (“GLA”) through all its properties (wholly-owned and joint venture) and managed approximately 4.6 million total square feet of GLA owned by Retail Value Inc. (“RVI”). At September 30, 2021, the aggregate occupancy of the Company’s shopping center portfolio was 90.2%, and the average annualized base rent per occupied square foot was $18.44, both 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
66,504
42,262
176,510
128,911
Operating FFO attributable to common shareholders
61,361
43,531
181,917
144,571
Earnings per share – Diluted
For the nine months ended September 30, 2021, the increase in net income attributable to common shareholders, as compared to the prior-year period, was primarily attributable to the impact of net revenue relating to prior periods (including deferred rents), which was collected from cash basis tenants in the current period, gains recorded from asset sales, higher disposition fees, lower debt extinguishment costs and the valuation allowance recognized in 2020 related to the Company’s preferred investments in the BRE DDR joint ventures, partially offset by lower gain on sale of joint venture interests, the write-off of preferred share original issuance costs and lower interest income resulting from the termination of the Company’s preferred investments in the BRE DDR joint ventures in the fourth quarter of 2020.
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. In addition, in order to safeguard the health of its employees and their families, the Company closed all of its offices in March 2020 and successfully transitioned to working remotely. The Company reopened its Corporate Headquarters in Cleveland, Ohio and select regional offices on a voluntary basis in October 2020. Employees returned to the office in September 2021, subject to increased flexible work arrangements. To date, the Company’s leasing and administrative operations have not been significantly impacted by the pandemic, as the Company’s significant investments in its IT infrastructure and systems in prior years facilitated the transition to remote and hybrid working environments.
As of October 15, 2021, all of the Company’s properties remain open and operational with 100% of tenants, at the Company’s share and based on average base rents, open for business. This compares to an open rate low of 45% in April 2020. The COVID-19 pandemic had a significant impact on the Company’s collection of rents from April 2020 through the end of 2020. The Company’s collection rates have shown significant improvement in the first nine months of 2021 relative to 2020 levels. A substantial majority of tenants, including tenants previously on the cash basis of accounting, are paying their monthly rent and are repaying deferred rents relating to prior periods. Included in the third quarter 2021 results and nine-months 2021 results were $1.6 million and $12.4 million, respectively, of 2020 net revenue at SITE Centers’ share, primarily from cash basis tenants. The majority of the deferral arrangements relating to 2020 revenue were repaid by the end of the third quarter of 2021, and therefore, the impact of 2020 rent collections is expected to decline in future periods. At September 30, 2021, the Company had outstanding contractual accounts receivable of $1.7 million and its pro rata share of outstanding contractual accounts receivable of unconsolidated joint ventures was $0.1 million for tenants that are not accounted for on the cash basis.
As of October 15, 2021, the Company’s quarterly rent payment rates for assets owned as of September 30, 2021, determined on a pro rata basis, for each quarterly reporting period since March 2020, and updated for subsequent cash receipts (including the repayment of deferred rents), are reflected as follows:
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
As of October 15, 2021
91%
96%
97%
98%
99%
As of July 21, 2021
89%
93%
As of April 16, 2021
84%
95%
As of February 12, 2021
79%
88%
94%
As of October 23, 2020
70%
As of July 24, 2020
64%
The Company calculates the aggregate percentage of rents paid with respect to a given period by comparing the amount of tenant payments received as of the date presented to the amount billed to tenants during the period. The billed amount includes abated rents, rents subject to deferral arrangements and rents owing from bankrupt tenants that were in possession of the space and billed. For the purposes of reporting the percentage of aggregate base rents collected for a given period, when rents subject to deferral arrangements are later paid, those payments are allocated to the period in which the rent was originally owed.
Although rent collection levels continued to improve in the third quarter of 2021, collection levels have not fully returned to pre-COVID levels during the first nine months of 2021, and future rent collections may be negatively impacted by any surges in COVID‑19 contagion, the discovery of new COVID-19 variants which are more infectious or resistant to COVID-19 vaccines, decreases in the effectiveness of COVID-19 vaccines, and any implementation of additional restrictions on tenant businesses as a result thereof. For a further discussion of the impact of the COVID-19 pandemic on the Company’s business, see “Liquidity, Capital Resources and Financing Activities” and “Economic Conditions” included in this section and Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
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 square footage to generate higher blended rental rates and operating cash flows. Additional growth opportunities include external investments and tactical redevelopment. Management intends to use retained cash flow, proceeds from the sale of lower growth assets, the repayment of other investments and proceeds from equity offerings to fund capital expenditures relating to new leasing activity, opportunistic investing and tactical redevelopment activity.
Transaction and investment highlights for the Company through October 22, 2021, include the following:
•
On October 6, 2021, the Company received a distribution of $190.0 million on the RVI Preferred Shares which represents the full amount expected to be paid by RVI on account of the Company’s preferred investment.
In October 2021, the Company repaid $87.6 million of mortgage debt which was scheduled to mature in January 2022.
During the first nine months of 2021, the Company acquired three shopping centers (Delray Beach, Florida, Charlottesville, Virginia and Atlanta, Georgia) for an aggregate purchase price of $79.8 million.
In March 2021, the Company issued 17.25 million common shares resulting in net proceeds of $225.2 million which were used, in part, in April 2021 to redeem all of its 6.250% Class K Cumulative Redeemable Preferred Shares (the “Class K Preferred Shares”) having an aggregate liquidation preference of $150.0 million.
The Company offered and sold 1,700,472 shares on a forward basis under its continuous equity offering program at a weighted average price of $15.43 per share before issuance costs generating expected gross proceeds before issuance costs of $26.2 million with no shares settled to date.
In February 2021, one of the Company’s unconsolidated joint ventures sold its sole asset, which was a parcel of undeveloped land (approximating 70 acres) in Richmond Hill, Ontario. The Company’s share of net proceeds totaled $22.1 million after accounting for customary closing costs and foreign currency translation.
During the first nine months of 2021, the Company sold four unconsolidated shopping centers, five wholly-owned land parcels and the Hobby Lobby pad of a shopping center for an aggregate sales price of $84.6 million or $41.9 million at the Company’s share.
Company Operational Highlights
During the nine months ended September 30, 2021, the Company completed the following operational activities:
Leased approximately 3.8 million square feet of GLA, including 176 new leases and 274 renewals for a total of 450 leases. At December 31, 2020, the Company had 345 leases expiring in 2021, with an average base rent per square foot of $19.59 on a pro rata basis. The Company has addressed substantially all of its remaining 2021 lease expirations;
For the comparable leases executed in the nine months ended September 30, 2021, the Company generated positive leasing spreads on a pro rata basis of 12.4% and 1.5% for new leases and for renewals, respectively. Leasing spreads are a key metric in real estate, representing the percentage increase of rental rates on new and renewal leases over rental rates on existing leases, though leasing spreads exclude consideration of the amount of capital expended in connection with new leasing activity. Renewal spreads in the first nine months of 2021 were impacted by the Company’s decision to prioritize occupancy at certain properties. The Company’s leasing spread calculation includes only those deals that were executed within one year of the date the prior tenant vacated, and as a result, is a good benchmark to compare the average annualized base rent of expiring leases with the comparable executed market rental rates;
The Company’s total portfolio average annualized base rent per square foot decreased to $18.44 at September 30, 2021, on a pro rata basis, as compared to $18.50 at December 31, 2020 and $18.53 at September 30, 2020 due to the impact of the strategic renewals;
The aggregate occupancy of the Company’s operating shopping center portfolio was 90.2% at September 30, 2021, on a pro rata basis, as compared to 89.0% at December 31, 2020 and 89.7% at September 30, 2020 and
For new leases executed during the nine months ended September 30, 2021, the Company expended a weighted-average cost of tenant improvements and lease commissions estimated at $8.56 per rentable square foot, on a pro rata basis, over the lease term, as compared to $7.46 per rentable square foot in 2020. The Company generally does not expend a significant amount of capital on lease renewals.
2021 RESULTS OF OPERATIONS
Consolidated shopping center properties owned as of January 1, 2020, but excluding properties under development or redevelopment and those sold by the Company, are referred to herein as the “Comparable Portfolio Properties.”
Revenues from Operations (in thousands)
$ Change
Rental income(A)
24,695
4,192
Total revenues
28,887
60,207
Fee and other income(B)
(4,594
55,613
19
The following tables summarize the key components of the 2021 rental income as compared to 2020 (in thousands):
Contractual Lease Payments
Base and percentage rental income
88,403
82,959
5,444
Recoveries from tenants
29,441
25,833
3,608
Uncollectible revenue
1,083
(14,188
15,271
Lease termination fees, ancillary and other rental income
1,642
1,270
372
Total contractual lease payments
Base and percentage rental income(1)
262,345
246,505
15,840
Recoveries from tenants(2)
90,518
80,371
10,147
Uncollectible revenue(3)
8,268
(27,918
36,186
5,558
7,524
(1,966
(1)
The changes in base and percentage rental income for the nine months ended September 30, 2021, were due to the following (in millions):
Increase (Decrease)
Comparable Portfolio Properties
(5.0
Acquisition of shopping centers
19.1
Redevelopment properties
1.0
Straight-line rents
0.7
15.8
Decrease in base and percentage rental income for the Comparable Portfolio Properties is due to the timing of both tenant bankruptcies, store closures from the COVID-19 pandemic and rent commencements in 2021 of the vacated space.
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 Combined
Shopping Center Portfolio
September 30,
Centers owned (at 100%)
137
147
Aggregate occupancy rate
90.2
%
89.7
Average annualized base rent per occupied square foot
18.44
18.53
Wholly-Owned Shopping Centers
Centers owned
81
69
90.6
18.67
18.89
Joint Venture Shopping Centers
56
78
87.9
88.4
15.25
15.14
20
At September 30, 2021 and 2020, the wholly-owned Comparable Portfolio Properties’ aggregate occupancy rate was 91.8% and 91.3%, respectively, and the average annualized base rent per occupied square foot was $18.61 and $18.79, respectively.
(2)
Recoveries from tenants for the Comparable Portfolio Properties were approximately 79.6% and 83.5% of reimbursable operating expenses and real estate taxes for the nine months ended September 30, 2021 and 2020, respectively. The decrease in the recovery rate is a result of increased operating expenses, primarily management fee expense (on increased prior-year cash receipts) and property insurance expense, which generally have lower recovery percentages based upon individual tenant leases.
(3)
Primarily relates to the impact of the COVID-19 pandemic on rent collections including the impact of lease modification accounting and tenants on the cash basis of accounting due to collectability concerns. For the three and nine months ended September 30, 2021, the net amount reported as income was primarily attributable to rental income paid in 2021 from tenants on the cash basis of accounting, which related to amounts (including deferred rents) originally owed in 2020.
(B)
Decrease primarily relates to the transfer and redemption of the Company’s interests in the two BRE DDR joint ventures in the fourth quarter of 2020, the sale of a third joint venture interest in the first quarter of 2020 and the sale of RVI assets offset by increased disposition fees from RVI asset sales (including the sale of RVI’s Puerto Rico portfolio in August 2021). The components of Fee and Other Income are presented in Note 2, “Revenue Recognition,” to the Company’s consolidated financial statements included herein. Changes in the number of assets under management, including the number of assets owned by RVI or the fee structures applicable to such arrangements, will adversely impact the amount of revenue recorded in future periods. Such changes could occur because the Company’s property management agreements contain termination provisions and RVI and the Company’s joint venture partners could dispose of shopping centers under the Company’s management. The Company’s 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.
Expenses from Operations (in thousands)
2,787
2,618
(1,937
3,521
6,989
Operating and maintenance(A)
7,426
Real estate taxes(A)
6,812
Impairment charges(B)
General and administrative(C)
3,005
Depreciation and amortization(A)
12,432
36,945
The changes for the nine months ended September 30, 2021, were due to the following (in millions):
Operating
and
Maintenance
Real Estate
Taxes
Depreciation
Amortization
2.7
1.8
(4.9
4.5
5.8
14.2
0.2
(0.8
3.1
7.4
6.8
12.4
Change in depreciation and amortization for the Comparable Portfolio Properties is primarily a result of accelerated depreciation from tenant bankruptcies in 2020.
21
Changes in (i) an asset’s expected future undiscounted cash flows due to changes in market or leasing conditions, (ii) various courses of action that may occur or (iii) holding periods could result in the recognition of additional impairment charges. Impairment charges are presented in Note 11 “Impairment Charges,” to the Company’s consolidated financial statements included herein.
(C)
General and administrative expenses (including mark-to-market activity for the PRSUs) for the nine months ended September 30, 2021 and 2020 were approximately 6.5% and 5.3% of total revenues (excluding uncollectible revenue), respectively, including total revenues of unconsolidated joint ventures and managed properties for the comparable periods. For the nine months ended September 30, 2021 and 2020, the Company recorded $5.6 million of expense and $1.6 million of income, respectively, related to the mark-to-market adjustment for certain PRSUs which were granted in 2018 and settled in March 2021. Excluding this mark‑to‑market activity, general and administrative expenses for the nine months ended September 30, 2021 and 2020 were 5.6% and 5.5%, respectively, of total revenues. The Company continues to expense certain internal leasing salaries, legal salaries and related expenses associated with leasing and re-leasing of existing space.
Other Income and Expenses (in thousands)
(1,081
(3,783
(4,864
Interest expense(A)
786
Other expense, net(B)
6,513
7,299
The weighted-average debt outstanding and related weighted-average interest rate are as follows:
Weighted-average debt outstanding (in billions)
Weighted-average interest rate
The Company’s overall balance sheet strategy is to continue to maintain liquidity and low leverage. The weighted-average interest rate (based on contractual rates and excluding fair market value of adjustments and debt issuance costs) was 3.9% and 3.7% at September 30, 2021 and 2020, respectively.
Interest costs capitalized in conjunction with redevelopment projects were $0.2 million for each of the three months ended September 30, 2021 and 2020 and $0.5 million and $0.8 million for the nine months ended September 30, 2021 and 2020, respectively. The decrease in the amount of interest costs capitalized is a result of a reduction in redevelopment activity as a result of the COVID‑19 pandemic.
22
In 2020, the Company recorded debt extinguishment costs related to the early repayment of its Senior Notes due 2022, which was partially offset by interest income recorded from preferred equity investments in two joint ventures that were transferred or redeemed in the fourth quarter of 2020.
Other Items (in thousands)
1,574
(3,542
(47
5,653
Tax expense of taxable REIT subsidiaries and state franchise and
income taxes
23
Equity in net income of joint ventures(A)
10,151
Reserve of preferred equity interests, net(B)
Gain on sale of joint venture interests(C)
(31,692
5,076
(198
237
The increase primarily was the result of the gain on sale of undeveloped land in Richmond Hill, Ontario, owned by one of the Company’s joint ventures, discussed below, and other joint venture asset sales in 2021, offset by the transfer and redemption of interests in two joint ventures in the fourth quarter of 2020, the sale of a third joint venture in the first quarter of 2020 and other joint venture asset sales in 2020, plus the impact of the COVID-19 pandemic. Joint venture property sales could significantly impact the amount of income or loss recognized in future periods. See Note 3, “Investments in and Advances to Joint Ventures,” in the Company’s consolidated financial statements included herein.
Decrease in the reserve was as a result of the transfer and redemption of the preferred equity investments in two joint ventures in the fourth quarter of 2020.
In February 2021, one of the Company’s unconsolidated joint ventures sold its sole asset, which was a parcel of undeveloped land (approximating 70 acres) in Richmond Hill, Ontario. The Company’s share of net proceeds totaled $22.1 million, after accounting for customary closing costs and foreign currency translation. The net gain reported in this line item for 2021 primarily related to the Company’s promoted interest on the investment disposition, as well as the write-off of the accumulated foreign currency translation. The net gain reported in this line item for 2020 relates primarily to the sale of the Company’s interest in the DDRTC joint venture.
Net Income (in thousands)
20,777
28,934
The increase in net income attributable to SITE Centers, as compared to the prior-year period, was primarily attributable to the impact of net revenue relating to prior periods (including deferred rents) which was collected from cash basis tenants in the current period, gains recorded from asset sales, higher disposition fees, lower debt extinguishment costs and the valuation allowance
recognized in 2020 related to the Company’s preferred investments in the BRE DDR joint ventures, partially offset by lower gain on sale of joint venture interests and lower interest income resulting from the termination of the Company’s preferred investment in the BRE DDR joint ventures in the fourth quarter of 2020.
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, including reserve adjustments of preferred equity interest, (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 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
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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):
24,242
17,830
47,599
37,346
The increase in FFO for the nine months ended September 30, 2021, primarily was attributable to the impact of net revenue relating to prior periods (including deferred rents) collected from cash basis tenants in the current period and lower debt extinguishment costs partially offset by the write-off of preferred share original issuance costs, lower fee income and lower interest income and the higher mark-to-market expense on the PRSUs. The change in Operating FFO primarily was due to the impact of net revenue relating to prior periods (including deferred rents) collected from cash basis tenants in the current period, partially offset by lower fee income and lower interest 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 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
43,283
39,812
133,279
120,889
(1,824
(250
Joint ventures' FFO(A)
5,659
4,388
17,065
14,529
Non-controlling interests (OP Units)
49
28
Impairment of real estate
(Adjustment) reserve of preferred equity interests
(35
(82
(5,871
(218
RVI disposition fees
(5,500
(856
(6,092
(2,622
Mark-to-market adjustment (PRSUs)
289
5,589
(1,617
Executive separation charge
1,650
Debt extinguishment and other, net
356
186
722
18,207
Joint ventures – debt extinguishment and other, net
32
42
5,156
Non-operating items, net
(5,143
1,269
5,407
15,660
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At September 30, 2021 and 2020, the Company had an economic investment in unconsolidated joint ventures which owned 55 and 77 shopping center properties, respectively. These joint ventures represent the investments in which the Company recorded its share of equity in net income or loss and, accordingly, FFO and Operating FFO.
Joint ventures’ FFO and Operating FFO are summarized as follows (in thousands):
Net income (loss) attributable to unconsolidated
joint ventures
Loss (gain) on disposition of real estate, net
455
(319
(36,132
(9,229
FFO
21,923
18,834
67,702
65,136
FFO at SITE Centers' ownership interests
Operating FFO at SITE Centers' ownership interests
5,660
17,097
14,571
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 is presented both including and excluding activity associated with development and major redevelopment. 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.
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.
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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
(30,264
(34,149
57,701
58,487
1,214
7,727
Reserve of preferred equity interests
Tax expense
1,057
859
Income from non-controlling interests
384
621
Consolidated NOI
251,225
205,965
SITE Centers' consolidated joint venture
(958
(1,200
Consolidated NOI, net of non-controlling interests
250,267
204,765
Net income (loss) from unconsolidated joint ventures
9,943
366
8,113
9,251
11,480
13,665
1,890
685
2,186
2,250
(4,387
(1,778
Unconsolidated NOI
109,406
137,245
27,335
26,329
Total Consolidated + Unconsolidated NOI
277,602
231,094
Less: Non-Same Store NOI adjustments
490
9,705
Total SSNOI including redevelopment
278,092
240,799
Less: Redevelopment Same Store NOI adjustments
(11,071
(7,478
Total SSNOI excluding redevelopment
267,021
233,321
SSNOI % Change including redevelopment
15.5
SSNOI % Change excluding redevelopment
14.4
The increase in SSNOI at the Company’s effective ownership interest for the nine months ended September 30, 2021, as compared to 2020, primarily was attributable to rental income paid in 2021 by cash basis tenants which related to amounts (including deferred rent) originally owed in 2020.
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, duration and maintaining low leverage 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 credit facilities described below, no assurance can be provided that these obligations will be refinanced or repaid as currently anticipated.
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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, Revolving Credit Facilities (as defined below), 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, 2021, compared to $1.9 billion at December 31, 2020.
The Company had an unrestricted cash balance of $61.9 million at September 30, 2021, no outstanding balance on Revolving Credit Facilities, and accordingly, availability under the Revolving Credit Facilities of $970.0 million (subject to satisfaction of applicable borrowing conditions). The Company has $140.5 million of consolidated mortgage debt, at its share, maturing prior to the end of 2022 of which $87.6 million was repaid in October 2021, and no unsecured debt maturities prior to 2023. The Company’s unconsolidated joint ventures have $34.0 million of mortgage debt at the Company’s share maturing in the remainder of 2021, and $92.5 million of mortgage debt at the Company’s share maturing in 2022. As of September 30, 2021, the Company anticipates that it has approximately $26 million to fund on its pipeline of identified redevelopment projects. The Company declared dividends of $0.35 per share in the nine months ended September 30, 2021. The Company believes it has sufficient liquidity to operate its business at this time.
The Company maintains an unsecured revolving credit facility with a syndicate of financial institutions, arranged by Wells Fargo Securities, LLC, J.P. Morgan Chase Bank, N.A., Citizens Bank, N.A., RBC Capital Markets and U.S. Bank National Association (the “Unsecured Credit Facility.”) The Unsecured Credit Facility provides for borrowings of up to $950 million (which may be increased to $1.45 billion provided that the new lenders agree to existing terms of the facility or existing lenders increase their incremental commitments) and a maturity date of January 2024, with two six-month options to extend the maturity to January 2025 upon the Company’s request (subject to satisfaction of certain conditions). The Company also maintains an unsecured revolving credit facility with PNC Bank, National Association, which provides for borrowings of up to $20 million (the “PNC Facility,” and together with the Unsecured Credit Facility, the “Revolving Credit Facilities”), and has terms substantially the same as those contained in the Unsecured Credit Facility. The Company’s borrowings under the Revolving Credit Facilities bear interest at variable rates at the Company’s election, based on either LIBOR plus a specified spread (0.90% at September 30, 2021), or the Alternate Base Rate, as defined in the respective facility, plus a specified spread (0% at September 30, 2021). The Company also pays an annual facility fee of 20 basis points on the aggregate commitments applicable to each Revolving Credit Facility. The specified spreads and commitment fees 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”), Fitch Investor Services Inc. (“Fitch”) and their successors.
The Revolving 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, 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 mergers and certain 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, 2021, the Company was in compliance with all of its financial covenants in the agreements governing its debt. 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. The Company is closely monitoring the impact of the COVID-19 pandemic on its business and the Company believes it will continue to operate in compliance with these covenants.
Consolidated Indebtedness – as of September 30, 2021
As discussed above, the Company is committed to maintaining low leverage 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, 2020.
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 low 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, 2021
The outstanding indebtedness of the Company’s unconsolidated joint ventures at September 30, 2021, which matures in the subsequent 13-month period (i.e. through October 31, 2022), is as follows (in millions):
Outstanding
at September 30, 2021
At SITE Centers' Share
DDR Domestic Retail Fund I(A)
462.5
92.5
RVIP IIIB(A)
61.3
Sun Center Limited(B)
18.7
14.9
DDR SAU Retail Fund LLC(C)
16.6
3.3
Total debt maturities through October 2022
559.1
126.5
Expected to be refinanced.
Expected to repay outstanding loan balance at maturity.
Expected to enter into an extension agreement with the lender or refinanced.
Subject to the uncertain impact of the COVID-19 pandemic on capital and transactions markets, it is expected that the joint ventures will generally fund these obligations from refinancing opportunities, including extension options or possible asset sales. 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. Though rent collection at the Company’s joint ventures have improved during 2021, any future deterioration in rent collection may cause one or more of these joint ventures to be unable to satisfy applicable covenants, financial tests, 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.
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) provided by investing activities
Cash flow used for financing activities
Changes in cash flow for the nine months ended September 30, 2021, compared to the prior comparable period, are as follows:
Operating Activities: Cash provided by operating activities increased $91.4 million primarily due to the following:
Increase in cash collected from tenants;
Reduction in interest income received from preferred investments and
Reduction in fees earned from joint ventures and managed properties.
Investing Activities: Cash (used for) provided by investing activities decreased $167.1 million primarily due to the following:
Decrease in proceeds from disposition of real estate and joint venture interests of $95.8 million and
Increase in real estate assets acquired and developed of $67.3 million.
Financing Activities: Cash used for financing activities decreased $28.2 million primarily due to the following:
Redemption of preferred shares of $150.0 million;
Increase in debt repayments net of proceeds of $72.8 million;
Decrease in dividends paid of $21.9 million and
Net proceeds from the March 2021 common share offering of $225.2 million.
RVI Preferred Shares
In 2018, RVI issued to the Company 1,000 shares of its series A preferred stock (the “RVI Preferred Shares”), which are noncumulative and have no mandatory dividend rate or maturity date. The RVI Preferred Shares rank, with respect to dividend rights and rights upon liquidation, dissolution or winding up of RVI, senior in preference and priority to RVI’s common shares and any other
class or series of RVI capital stock. Subject to the requirement that RVI distribute to its common shareholders the minimum amount required to be distributed with respect to any taxable year in order for RVI to maintain its status as a REIT and to avoid U.S. federal income taxes, the RVI Preferred Shares are entitled to a dividend preference for all dividends declared on RVI’s capital stock at any time up to a “preference amount” equal to $190.0 million in the aggregate, which amount could increase by up to an additional $10 million if the aggregate gross proceeds of RVI asset sales subsequent to July 1, 2018, exceeds approximately $2.0 billion. On October 6, 2021, the Company received a distribution of $190.0 million on the RVI Preferred Shares. Aggregate gross proceeds of RVI’s asset sales subsequent to July 1, 2018 through October 1, 2021 were $1.8 billion. RVI owns three remaining shopping centers as of October 1, 2021. The Company does not expect to receive any additional amounts with respect to the RVI Preferred Shares based on the level of sale proceeds expected from RVI’s remaining assets.
Dividend Distribution
The Company declared common and preferred cash dividends of $84.8 million and $54.3 million for the nine months ended September 30, 2021 and 2020, 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, 2021 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 $0.11 per common share for the first quarter of 2021 and $0.12 per common share for each of the second and third quarters of 2021. The Board of Directors 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 the second and the third quarters of 2021, the Company offered and sold 980,396 and 720,076 of its common shares, respectively, on a forward basis under its $250 million continuous equity program at a weighted average price of $15.09 per share and $15.89 per share, respectively. Year to date, the Company has offered and sold 1,700,472 shares at a weighted average price of $15.43 per share before issuance costs, generating expected gross proceeds before issuance costs of $26.2 million, with no shares settled to date. The second quarter transactions may be settled at any time before the July 1, 2022 settlement date and the third quarter transactions may be settled at any time before the September 9, 2022 settlement date. As of October 22, 2021, the Company had approximately $223.8 million available for the future issuance of common shares under that program.
In April 2021, the Company redeemed all $150.0 million aggregate liquidation preference of its Class K Preferred Shares at a redemption price of $500 per Class K Preferred Share (or $25.00 per depositary share) plus accrued and unpaid dividends of $7.2049 per Class K Preferred Share (or $0.3602 per depositary share). The Company recorded a non-cash charge of $5.1 million to net income attributable to common shareholders in the second quarter of 2021, which represents the difference between the redemption price and the carrying amount immediately prior to redemption, which was recorded to additional paid in capital upon original issuance.
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 22, 2021, the Company had repurchased 5.1 million of its common shares under this program in open market transactions at an aggregate cost of approximately $57.9 million, or $11.33 per share. As of October 22, 2021, the Company had not repurchased any shares under the program during 2021.
SOURCES AND USES OF CAPITAL
Strategic Transaction Activity
The Company remains committed to maintaining sufficient liquidity, managing debt duration and maintaining low leverage in an effort to manage its overall risk profile. Equity offerings, asset sales and proceeds from the repayment of other investments continue to represent a potential source of proceeds to be used to achieve these objectives.
Equity Transactions
In March 2021, the Company issued 17.25 million common shares resulting in net proceeds of $225.2 million which were used, in part, in April 2021 to redeem all of its Class K Preferred Shares having an aggregate liquidation preference of $150.0 million.
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During the nine months ended September 30, 2021, the Company purchased three shopping centers (Delray Beach, Florida, Charlottesville, Virginia and Atlanta, Georgia) for an aggregate purchase price of $79.8 million, which includes $17.9 million of assumed mortgage indebtedness. The Company remains committed to taking advantage of its financial position and elevated cash resources, including as a result of its recent receipt of a $190.0 million distribution on the RVI Preferred Shares, to prudently grow its portfolio of assets in wealthy suburban communities.
Proceeds from Transactional Activity
During the nine months ended September 30, 2021, the Company sold four unconsolidated shopping centers, aggregating 0.6 million square feet, five wholly-owned land parcels and the Hobby Lobby pad of a shopping center. These sales collectively generated proceeds totaling $84.6 million, of which the Company’s proportionate share of the proceeds was $41.9 million. The Company’s pro rata share of proceeds is before giving effect to the repayment of indebtedness and transaction costs.
In February 2021, one of the Company’s unconsolidated joint ventures sold its sole asset, which was a parcel of undeveloped land (approximating 70 acres) in Richmond Hill, Ontario. The Company’s share of net proceeds totaled $22.1 million, after accounting for customary closing costs and foreign currency translation. The net proceeds include $6.1 million that are held in escrow of which $4.1 million is expected to be released to the Company pending receipt of certain tax clearance certificates from the Canadian taxing authorities, and the remaining $2.0 million is considered contingent and should be released upon final dissolution of the partnership. The Company recorded an aggregate gain on the transaction of $16.8 million which included its $2.8 million share of the gain reported by the joint venture, as well as $14.0 million related to the Company’s promoted interest on the disposition of the investment and write-off of the accumulated foreign currency translation. Subsequent to the transaction, the Company has no other investments outside the United States.
On October 6, 2021, the Company received a distribution of $190.0 million on the RVI Preferred Shares, which represents the full amount expected to be paid by RVI on account of the Company’s preferred investment.
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 various redevelopments only after substantial tenant leasing has occurred. At September 30, 2021, the Company anticipates that it has approximately $26 million to fund 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, 2021, the Company had $42 million in construction in progress in various active consolidated redevelopment and other projects. The Company’s major redevelopment projects are typically substantially complete within two years of the construction commencement date. At September 30, 2021, the Company’s large-scale shopping center expansion and repurposing projects were as follows (in thousands):
Estimated
Stabilized
Quarter
Gross Cost
Cost Incurred at
West Bay Plaza - Phase II (Cleveland, Ohio)
2Q23
9,102
2,972
Woodfield Village Green (Chicago, Illinois)
TBD
663
Perimeter Pointe (Atlanta, Georgia)
1,252
4,887
31
At September 30, 2021, 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):
Shoppers World (Boston, Massachusetts)
4Q23
6,672
164
University Hills (Denver, Colorado)
4,589
519
Hamilton Marketplace (Trenton, New Jersey)
4Q22
3,843
2,769
Carolina Pavilion (Charlotte, North Carolina)
2,339
167
West Bay Plaza (Cleveland, Ohio)
1Q22
335
100
Other Tactical Projects
13,549
12,971
31,327
16,690
No major redevelopment assets have been completed to date in 2021. For tactical redevelopment and larger retenanting projects completed in 2021, the assets placed in service were completed at a cost of approximately $116 per square foot.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has a number of off-balance sheet joint ventures with varying economic structures. Through these interests, the Company has investments in operating properties. Such arrangements are generally with institutional investors.
The Company’s unconsolidated joint ventures had aggregate outstanding indebtedness to third parties of $1.0 billion and $1.4 billion at September 30, 2021 and 2020, respectively (see Item 3. Quantitative and Qualitative Disclosures About Market Risk). 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 misrepresentations.
CAPITALIZATION
At September 30, 2021, the Company’s capitalization consisted of $1.8 billion of debt, $175.0 million of preferred shares and $3.3 billion of market equity (market equity is defined as common shares and OP Units outstanding multiplied by $15.44, the closing price of the Company’s common shares on the New York Stock Exchange on September 30, 2021), resulting in a debt to total market capitalization ratio of 0.34 to 1.0, as compared to the ratio of 0.51 to 1.0 at September 30, 2020. The closing price of the Company’s common shares on the New York Stock Exchange was $7.20 at September 30, 2020. At September 30, 2021 and 2020, the Company’s total debt consisted of $1.6 billion and $1.5 billion of fixed-rate debt, respectively, and $0.2 billion and $0.3 billion of variable-rate debt, respectively.
It is management’s strategy to have 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 mergers and certain 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 consolidated debt maturing until January 2022. The Company expects to fund future maturities from utilization of its Revolving Credit Facilities, 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 $19.7 million for its consolidated properties at September 30, 2021. 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 Facilities. 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, 2021, the Company had purchase order obligations, typically payable within one year, aggregating approximately $6.4 million related to the maintenance of its properties and general and administrative expenses.
ECONOMIC CONDITIONS
Despite an increase in retailer bankruptcies in 2020, the Company experienced strong momentum in new lease discussions and renewal negotiations with tenants in the second half of 2020, which continued through the first nine months of 2021. Ultimately, the Company executed new leases and renewals aggregating approximately 2.6 million square feet of space for the nine months ended September 30, 2021, on a pro rata basis, which exceeded first nine months 2020 leasing levels. Although there may be some additional disruption among existing tenants due to the continuing impact of the COVID-19 pandemic, the Company believes that recent strong leasing volumes are attributable to the location of the Company’s portfolio in suburban, high household income communities (which have been impacted less by the pandemic on a relative basis) and to national tenants’ strong financial positions and increasing emphasis and reliance on physical store locations to improve the spread and efficiency of fulfillment of online purchases.
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 5.9%). Other significant tenants include Dick’s Sporting Goods, Ulta, Bed Bath & Beyond, Best Buy, Nordstrom Rack, Five Below, Ross Stores, Kroger, Whole Foods and Home Depot, all of which have relatively strong financial positions, have outperformed other retail categories over time and the Company believes remain well-capitalized. Historically these 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 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 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, 2021 and December 31, 2020, the shopping center portfolio occupancy, on a pro rata basis, was 90.2% and 89.0%, respectively, and the total portfolio average annualized base rent per occupied square foot, on a pro rata basis, was $18.44 and $18.50, respectively. The Company’s portfolio has been impacted by tenant bankruptcies and lease expirations in recent years (which increased in number and pace in 2020 following the onset of the COVID-19 pandemic) and the Company expects to expend significant amounts of capital in coming periods in connection with recently executed anchor leases and in order to re-lease remaining anchor vacancies. 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 anchor 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 and renewal leases executed during the nine months ended September 30, 2021 and 2020, on a pro rata basis, was $2.71 and $2.01 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. As of October 15, 2021, 100% of the Company’s tenants (at the Company’s share and based on average base rents) were open for business, up from an open rate low of 45% in early April 2020. The COVID-19 pandemic had no impact on the Company’s collection of rents for the first quarter of 2020, but it had a significant impact
33
on collection of rents from April 2020 through the end of 2020. The Company’s collection rates have shown significant improvements in 2021 and a substantial majority of the Company’s tenants, including cash basis tenants, are paying their monthly rent and repaying deferred rents relating to prior periods. As of October 15, 2021, the Company’s quarterly rent payment rates, for assets owned at September 30, 2021, determined on a pro rata basis, for each quarterly reporting period since March 2020, and updated for subsequent cash receipts (including the repayment of deferred rents), are reflected as follows:
Second
Third
Fourth
First
For purposes of reporting the percentage of aggregate base rents collected for a given period, when rents subject to deferral arrangements are later paid, those payments are allocated to the period in which the rent was originally owed. The Company calculates the aggregate percentage of rents paid by comparing the amount of tenant payments received as of the date presented to the amount billed to tenants during the period, which billed amount includes abated rents, rents subject to deferral arrangements and rents owing from bankrupt tenants that were in possession of the space and billed.
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, 2021, $1.7 million remains outstanding under these deferral arrangements for tenants that are not accounted for on the cash basis. As of October 15, 2021, agreed upon rent deferral arrangements with tenants that remain unpaid represented 1% of 2020 rents. Agreed upon rental deferral arrangements for the first three quarters of 2021 are immaterial.
The Company is unable to forecast the duration of the disruption to tenant and Company operations caused by the COVID-19 pandemic or the ultimate level of collections of rents and other unpaid amounts owed by tenants that were deferred or unpaid during 2020. However, the level and pace of collections of such deferred rents and other unresolved amounts exceeded management’s expectations during the first nine months of 2021, especially with respect to collections from tenants previously placed on the cash basis of accounting. If new surges in contagion were to occur, or if new COVID-19 variants were to be discovered which are more resistant to vaccines, or if there are decreases in the effectiveness of such vaccines, the Company’s recent success in the collection of deferred rents and unresolved amounts could be adversely impacted and such developments could lead to new restrictions on tenant operations, nonpayment of contractual and previously deferred rents, additional tenant requests for rent relief and additional tenant closures and bankruptcies, all of which could adversely impact the Company’s results of operations in the future. Certain tenant categories remain especially vulnerable to the impacts of the COVID-19 pandemic, including movie theaters, fitness 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, 2020.
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, 2020. The impact of the COVID-19 pandemic may also exacerbate the risks discussed therein and herein, any of which could have a material effect on the Company.
34
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:
The Company is subject to general risks affecting the real estate industry, including the need to enter into new leases or renew leases on favorable terms to generate rental revenues, and any economic downturn may adversely affect the ability of the Company’s tenants, or new tenants, to enter into new leases or the ability of the Company’s existing tenants to renew their leases at rates at least as favorable as their current rates;
The Company could be adversely affected by changes in the local markets where its properties are located, as well as by adverse changes in national economic and market conditions;
The Company may fail to anticipate the effects on its properties of changes in consumer buying practices, including sales over the internet and the resulting retailing practices and space needs of its tenants, or a general downturn in its tenants’ businesses, which may cause tenants to close stores or default in payment of rent;
The Company is subject to competition for tenants from other owners of retail properties, and its tenants are subject to competition from other retailers and methods of distribution. The Company is dependent upon the successful operations and financial condition of its tenants, in particular its major tenants, and could be adversely affected by the bankruptcy of those tenants;
The Company relies on major tenants, which makes it vulnerable to changes in the business and financial condition of, or demand for its space by, such tenants;
The Company may not realize the intended benefits of acquisition or merger transactions. The acquired assets may not perform as well as the Company anticipated, or the Company may not successfully integrate the assets and realize improvements in occupancy and operating results. The acquisition of certain assets may subject the Company to liabilities, including environmental liabilities;
The Company may fail to identify, acquire, construct or develop additional properties that produce a desired yield on invested capital, or may fail to effectively integrate acquisitions of properties or portfolios of properties. In addition, the Company may be limited in its acquisition opportunities due to competition, the inability to obtain financing on reasonable terms or any financing at all and other factors;
The Company may fail to dispose of properties on favorable terms, especially in regions experiencing deteriorating economic conditions. In addition, real estate investments can be illiquid, particularly as prospective buyers may experience increased costs of financing or difficulties obtaining financing due to local or global conditions, and could limit the Company’s ability to promptly make changes to its portfolio to respond to economic and other conditions;
The Company may abandon a development or redevelopment opportunity after expending resources if it determines that the opportunity is not feasible due to a variety of factors, including a lack of availability of construction financing on reasonable terms, the impact of the economic environment on prospective tenants’ ability to enter into new leases or pay contractual rent, or the inability of the Company to obtain all necessary zoning and other required governmental permits and authorizations;
The Company may not complete development or redevelopment projects on schedule as a result of various factors, many of which are beyond the Company’s control, such as weather, labor conditions, governmental approvals, material shortages or general economic downturn, resulting in limited availability of capital, increased debt service expense and construction costs and decreases in revenue;
The Company’s financial condition may be affected by required debt service payments, the risk of default, restrictions on its ability to incur additional debt or to enter into certain transactions under its credit facilities and other documents governing its debt obligations and the risk of downgrades from debt rating services. In addition, the Company may encounter difficulties in obtaining permanent financing or refinancing existing debt. Borrowings under the Company’s Revolving Credit Facilities are subject to certain representations and warranties and customary events of default, including any event that has had or could reasonably be expected to have a material adverse effect on the Company’s business or financial condition;
Changes in interest rates could adversely affect the market price of the Company’s common shares, as well as its performance and cash flow;
Debt and/or equity financing necessary for the Company to continue to grow and operate its business may not be available or may not be available on favorable terms;
Disruptions in the financial markets could affect the Company’s ability to obtain financing on reasonable terms and have other adverse effects on the Company and the market price of the Company’s common shares;
The Company is subject to complex regulations related to its status as a REIT and would be adversely affected if it failed to qualify as a REIT;
The Company must make distributions to shareholders to continue to qualify as a REIT, and if the Company must borrow funds to make distributions, those borrowings may not be available on favorable terms or at all;
Joint venture investments may involve risks not otherwise present for investments made solely by the Company, including the possibility that a partner or co-venturer may become bankrupt, may at any time have interests or goals different from those of the Company and may take action contrary to the Company’s instructions, requests, policies or objectives, including the Company’s policy with respect to maintaining its qualification as a REIT. In addition, a partner or co‑venturer may not have access to sufficient capital to satisfy its funding obligations to the joint venture or may seek to terminate the joint venture, resulting in a loss to the Company of property revenues and management fees. The partner could cause a default under the joint venture loan for reasons outside the Company’s control. Furthermore, the Company could be required to reduce the carrying value of its equity investments, including preferred investments, if a loss in the carrying value of the investment is realized;
The Company’s decision to dispose of real estate assets, including undeveloped land and construction in progress, would change the holding period assumption in the undiscounted cash flow impairment analyses, which could result in material impairment losses and adversely affect the Company’s financial results;
The outcome of pending or future litigation, including litigation with tenants or joint venture partners, may adversely affect the Company’s results of operations and financial condition;
Property damage, expenses related thereto, and other business and economic consequences (including the potential loss of revenue) resulting from extreme weather conditions or natural disasters in locations where the Company owns properties may adversely affect the Company’s results of operations and financial condition;
Sufficiency and timing of any insurance recovery payments related to damages and lost revenues from extreme weather conditions or natural disasters may adversely affect the Company’s results of operations and financial condition;
The Company and its tenants could be negatively affected by the impacts of pandemics and other public health crises, including the COVID-19 pandemic;
The Company is subject to potential environmental liabilities;
The Company may incur losses that are uninsured or exceed policy coverage due to its liability for certain injuries to persons, property or the environment occurring on its properties;
The Company could incur additional expenses to comply with or respond to claims under the Americans with Disabilities Act or otherwise be adversely affected by changes in government regulations, including changes in environmental, zoning, tax and other regulations;
Changes in accounting standards or other standards may adversely affect the Company’s business;
The Company’s Board of Directors, which regularly reviews the Company’s business strategy and objectives, may change the Company’s strategic plan based on a variety of factors and conditions, including in response to changing market conditions and
The Company and its vendors could sustain a disruption, failure or breach of their respective networks and systems, including as a result of cyber-attacks, which could disrupt the Company’s business operations, compromise the confidentiality of sensitive information and result in fines or penalties.
36
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, is summarized as follows:
(Millions)
Weighted-
Maturity
(Years)
Interest
Rate
Percentage
of Total
Fixed-Rate Debt
1,605.1
89.5
1,602.4
4.7
82.9
Variable-Rate Debt
187.5
331.1
1.9
17.1
The Company’s unconsolidated joint ventures’ indebtedness at its carrying value is summarized as follows:
Joint
Venture
Debt
Company's
Proportionate
Share
754.1
176.9
2.2
757.5
178.2
2.9
242.9
48.6
2.5
272.1
54.4
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 Facilities to repay indebtedness and fund capital expenditures at the Company’s shopping centers. Thus, to the extent the Company incurs additional variable-rate indebtedness, its exposure to increases in interest rates in an inflationary period could increase. The Company does not believe, however, that increases in interest expense as a result of inflation will significantly impact the Company’s distributable cash flow.
The carrying value and the fair value of the Company’s fixed-rate debt are adjusted to include the Company’s proportionate share of the joint venture fixed-rate debt. An estimate of the effect of a 100 basis-point increase at September 30, 2021 and December 31, 2020, is summarized as follows (in millions):
100 Basis-Point
Increase in
Market Interest
Company's fixed-rate debt
1,736.0
1,660.5
1,704.0
1,634.3
Company's proportionate share of
joint venture fixed-rate debt
181.5
178.3
181.6
177.2
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, 2021, would result in an increase in interest expense of approximately $1.4 million for the Company and $0.4 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, 2021. 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, 2021, the Company had no other material exposure to market risk.
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, 2021, 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
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.
RISK FACTORS
None.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
(a)
(b)
(c)
(d)
Number of
Purchased(1)
Price Paid
per Share
Total Number
of Shares Purchased
as Part of
Publicly Announced
Plans or Programs
Maximum Number
(or Approximate
Dollar Value) of
Shares that May Yet
Be Purchased Under
the Plans or Programs
July 1–31, 2021
129
15.06
August 1–31, 2021
15.86
September 1–30, 2021
25,350
15.28
25,499
42.1
Common shares surrendered or deemed surrendered to the Company to satisfy statutory minimum tax withholding obligations in connection with the vesting and/or exercise of awards under the Company’s equity-based compensation plans.
On November 29, 2018, the Company announced that its Board of Directors authorized a common share repurchase program. Under the terms of the program authorized by the Board, the Company may purchase up to a maximum value of $100 million of its common shares and the program has no expiration date. As of October 22, 2021, the Company had repurchased 5.1 million of its common shares in the aggregate at a cost of $57.9 million and a weighted-average cost of $11.33 per share under the program. As of October 22, 2021, the Company had not repurchased any shares under the program during 2021.
DEFAULTS UPON SENIOR SECURITIES
MINE SAFETY DISCLOSURES
Not applicable.
EXHIBITS
Employment Agreement, dated as of September 11, 2021, by and between the Company and Christa Vesy1
31.1
Certification of principal executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 19342
31.2
Certification of principal financial officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 19342
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 20022,3
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 20022,3
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 document3
101.SCH
Inline XBRL Taxonomy Extension Schema Document2
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document3
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document3
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document3
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document3
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 has been formatted in Inline XBRL and included in Exhibit 101.
Incorporated by reference to Exhibit 10.1 from the Company’s Current Report on Form 8-K filed with the SEC on September 13, 2021.
Submitted electronically herewith.
Pursuant to SEC Release No. 34-4751, these exhibits are deemed to accompany this report and are not “filed” as part of this report
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, 2021 and December 31, 2020, (ii) Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020, (iii) Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020, (iv) Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2021 and 2020, (v) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 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 28, 2021