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, 2023
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 27, 2023 the registrant had 209,317,553 shares of common stock, $0.10 par value per share, outstanding.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED September 30, 2023
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements – Unaudited
Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022
3
Consolidated Statements of Operations for the Three Months Ended September 30, 2023 and 2022
4
Consolidated Statements of Operations for the Nine Months Ended September 30, 2023 and 2022
5
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022
6
Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2023 and 2022
7
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022
8
Notes to Condensed Consolidated Financial Statements
9
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
16
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
34
Item 4.
Controls and Procedures
35
PART II. OTHER INFORMATION
Legal Proceedings
36
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
37
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
38
SIGNATURES
39
2
CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands, except share amounts)
September 30, 2023
December 31, 2022
Assets
Land
$
1,082,330
1,066,852
Buildings
3,717,850
3,733,805
Fixtures and tenant improvements
597,874
576,036
5,398,054
5,376,693
Less: Accumulated depreciation
(1,730,179
)
(1,652,899
3,667,875
3,723,794
Construction in progress and land
62,809
56,466
Total real estate assets, net
3,730,684
3,780,260
Investments in and advances to joint ventures, net
40,830
44,608
Cash and cash equivalents
26,560
20,254
Restricted cash
36,701
960
Accounts receivable
65,192
63,926
Other assets, net
125,155
135,009
4,025,122
4,045,017
Liabilities and Equity
Unsecured indebtedness:
Senior notes, net
1,368,282
1,453,923
Term loan, net
198,772
198,521
Revolving credit facility
135,000
—
1,702,054
1,652,444
Mortgage indebtedness, net
38,100
54,577
Total indebtedness
1,740,154
1,707,021
Accounts payable and other liabilities
208,151
214,985
Dividends payable
30,100
30,389
Total liabilities
1,978,405
1,952,395
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, 2023 and December 31, 2022
175,000
Common shares, with par value, $0.10 stated value; 300,000,000 shares authorized; 214,373,180 and 214,371,498 shares issued at September 30, 2023 and December 31, 2022, respectively
21,437
Additional paid-in capital
5,972,902
5,974,216
Accumulated distributions in excess of net income
(4,067,355
(4,046,370
Deferred compensation obligation
5,053
5,025
Accumulated other comprehensive income
12,055
9,038
Less: Common shares in treasury at cost: 5,341,958 and 3,787,279 shares at September 30, 2023 and December 31, 2022, respectively
(72,375
(51,518
Total SITE Centers shareholders' equity
2,046,717
2,086,828
Non-controlling interests
5,794
Total equity
2,092,622
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,
2023
2022
Revenues from operations:
Rental income
142,498
135,123
Fee and other income
2,261
3,720
144,759
138,843
Rental operation expenses:
Operating and maintenance
20,986
22,314
Real estate taxes
20,543
20,423
General and administrative
11,259
10,799
Depreciation and amortization
52,821
51,179
105,609
104,715
Other income (expense):
Interest expense
(21,147
(20,139
Other income (expense), net
(690
(501
(21,837
(20,640
Income before earnings from equity method investments and other items
17,313
13,488
Equity in net income of joint ventures
518
25,918
Gain on sale and change in control of interests
228
Gain on disposition of real estate, net
31,047
26,837
Income before tax expense
48,878
66,471
Tax expense of taxable REIT subsidiaries and state franchise and income taxes
(236
(258
Net income
48,642
66,213
Income attributable to non-controlling interests, net
(18
Net income attributable to SITE Centers
66,195
Preferred dividends
(2,789
Net income attributable to common shareholders
45,853
63,406
Per share data:
Basic
0.22
0.30
Diluted
Nine Months
414,324
401,210
7,285
12,635
421,609
413,845
66,628
66,528
60,875
61,230
Impairment charges
2,536
35,935
34,403
165,535
152,564
328,973
317,261
(61,991
(57,306
(2,011
(2,152
(64,002
(59,458
28,634
37,126
6,495
27,468
3,749
45,554
31,230
31,292
70,108
141,440
(811
(863
69,297
140,577
(55
69,279
140,522
(8,367
60,912
132,155
0.29
0.62
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in thousands)
Other comprehensive income:
Change in cash flow hedges, net of amount reclassed to earnings
1,930
9,782
3,017
Total other comprehensive income
Comprehensive income
50,572
75,995
72,314
150,359
Comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to SITE Centers
75,977
72,296
150,304
CONSOLIDATED STATEMENTS OF EQUITY
Preferred Shares
CommonShares
AdditionalPaid-inCapital
Accumulated Distributionsin Excess ofNet Income
DeferredCompensationObligation
Accumulated Other Comprehensive Income
TreasuryStock atCost
Non-ControllingInterests
Total
Balance, December 31, 2022
Issuance of common shares related to stock plans
13
Repurchase of common shares
(26,611
Stock-based compensation, net
(6,370
(84
5,303
(1,151
Repurchase of OP units
4,059
(5,794
(1,735
Distributions to non-controlling interests
Dividends declared-common shares
(54,586
Dividends declared-preferred shares
(5,578
20,637
1,087
18
21,742
Balance, June 30, 2023
5,971,918
(4,085,897
4,941
10,125
(72,826
-
2,024,698
977
112
451
1,540
(27,311
Balance, September 30, 2023
Deferred Compensation Obligation
Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2021
21,129
5,934,166
(4,092,783
4,695
(5,349
2,042,652
65
71
Issuance of common shares for cash offering
243
36,614
36,857
2,649
(4,498
(1,841
(37
(55,810
74,327
74,364
Balance, June 30, 2022
5,973,435
(4,079,844
4,703
(9,847
2,090,678
Expenses for cash offering
(126
686
162
581
1,429
(20,000
(27,740
Balance, September 30, 2022
5,974,001
(4,044,178
4,865
(29,266
2,117,435
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flow from operating activities:
Adjustments to reconcile net income to net cash flow provided by operating activities:
Stock-based compensation
5,530
5,430
Amortization and write-off of debt issuance costs and fair market value of debt adjustments
3,217
3,929
(6,495
(27,468
Operating cash distributions from joint ventures
258
1,111
(3,749
(45,554
(31,230
(31,292
Assumption of buildings due to ground lease terminations
(2,900
Net change in accounts receivable
(1,180
95
Net change in accounts payable and accrued expenses
7,323
8,025
Net change in other operating assets and liabilities
(16,457
(1,567
Total adjustments
122,752
64,909
Net cash flow provided by operating activities
192,049
205,486
Cash flow from investing activities:
Real estate acquired, net of liabilities and cash assumed
(102,095
(329,570
Real estate developed and improvements to operating real estate
(80,782
(87,902
Proceeds from sale of joint venture interests
3,405
39,250
Proceeds from disposition of real estate
112,292
55,866
Equity contributions to joint ventures
(118
(143
Repayment of joint venture advance, net
318
Distributions from unconsolidated joint ventures
9,468
39,656
Net cash flow used for investing activities
(57,512
(282,843
Cash flow from financing activities:
Proceeds from revolving credit facility, net
80,000
Proceeds from unsecured term loan
100,000
Payment of debt issuance costs
(7,598
Repayment of senior notes
(87,209
Repayment of mortgage debt
(16,224
(35,577
Proceeds from issuance of common shares, net of offering expenses
36,731
Repurchase of common shares in conjunction with equity award plans and dividend reinvestment plan
(5,224
(5,873
Repurchase of operating partnership units
Distributions to redeemable operating partnership units
(53
Dividends paid
(90,450
(89,523
Net cash flow (used for) provided by financing activities
(92,490
58,107
Net increase (decrease) in cash, cash equivalents and restricted cash
42,047
(19,250
Cash, cash equivalents and restricted cash, beginning of period
21,214
43,252
Cash, cash equivalents and restricted cash, end of period
63,261
24,002
Nature of Business
SITE Centers Corp. and its related consolidated real estate subsidiaries (collectively, the “Company” or “SITE Centers”) and unconsolidated joint ventures are primarily engaged in the business of owning, leasing, acquiring, redeveloping, developing and managing shopping centers. Unless otherwise provided, references herein to the Company or SITE Centers include SITE Centers Corp. and its wholly-owned subsidiaries. The Company’s tenant base includes a mixture of national and regional retail chains and local tenants. Consequently, the Company’s credit risk is primarily concentrated in the retail industry.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates.
Unaudited Interim Financial Statements
These financial statements have been prepared by the Company in accordance with GAAP for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results of the periods presented. The results of operations for the three and nine months ended September 30, 2023 and 2022, 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, 2022.
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. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in real estate joint ventures in which the Company has the ability to exercise significant influence, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or loss) of these joint ventures is included in consolidated net income (loss).
Statements of Cash Flows and Supplemental Disclosure of Non-Cash Investing and Financing Information
Non-cash investing and financing activities are summarized as follows (in millions):
Consolidation of the net assets of previously unconsolidated joint ventures
42.8
Net assets acquired from an unconsolidated joint venture
8.5
Dividends declared, but not paid
30.1
30.5
Accounts payable related to construction in progress
12.0
12.6
4.1
2.9
Fee and Other Income
Fee and Other Income on the consolidated statements of operations includes revenue from contracts with customers, which is primarily from the Company’s unconsolidated joint ventures (Note 2).
At September 30, 2023 and December 31, 2022, the Company had ownership interests in various unconsolidated joint ventures that had investments in 13 and 18 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
180,588
212,326
556,898
643,334
55,500
70,636
792,986
926,296
(181,799
(220,642
611,187
705,654
1,012
1,965
Real estate, net
612,199
707,619
Cash and restricted cash
51,363
44,809
Receivables, net
9,054
11,671
29,051
36,272
701,667
800,371
Mortgage debt
466,631
535,093
Notes and accrued interest payable to the Company
2,759
2,972
Other liabilities
38,469
41,588
507,859
579,653
Accumulated equity
193,808
220,718
Company's share of accumulated equity
37,442
42,644
Basis differentials
762
(707
Deferred development fees, net of portion related to the Company's interest
(133
(301
Amounts payable to the Company
Investments in and Advances to Joint Ventures, net
Condensed Combined Statements of Operations
Revenues from operations
21,682
25,855
70,442
105,666
Expenses from operations:
Operating expenses
5,552
6,975
18,234
28,991
9,010
17,550
7,806
9,450
25,149
37,123
5,668
8,241
19,016
Other expense, net
2,084
6,120
7,022
11,114
21,110
39,796
69,421
121,338
Income (loss) before gain on disposition of real estate
572
(13,941
1,021
(15,672
973
119,813
21,151
121,505
Net income attributable to unconsolidated joint ventures
1,545
105,872
22,172
105,833
Company's share of equity in net income of joint ventures
491
21,276
4,677
21,898
Basis differential adjustments(A)
27
4,642
1,818
5,570
10
Revenues earned by the Company related to all of the Company’s unconsolidated joint ventures are as follows (in millions):
Revenue from contracts:
Asset and property management fees
1.4
1.7
4.4
6.2
Leasing commissions and development fees
0.1
0.6
0.4
1.6
1.5
2.3
4.8
7.8
Other
0.2
0.8
2.5
5.2
8.6
Disposition of Shopping Centers
During the nine months ended September 30, 2023, the DDRM Joint Venture sold five shopping centers for an aggregate sales price of $112.2 million ($22.4 million at the Company’s share). The proceeds were used to repay mortgage indebtedness of the joint venture, general corporate purposes of the joint venture and distributions to the partners.
Disposition of Joint Venture Interests
In 2021, one of the Company’s unconsolidated joint ventures sold its sole asset, a parcel of undeveloped land. The transaction had contingent proceeds based upon finalization of the tax returns and dissolution of the partnership. In the first quarter of 2023, the contingencies were resolved and the Company recorded a Gain on Sale of Interests of $3.7 million.
In 2022, the Company acquired its joint venture partner’s 80% interest in one asset owned by the DDRM Properties Joint Venture (Casselberry Commons, Casselberry, Florida) and stepped up the previous 20% interest due to change in control, sold its 20% interest in the SAU Joint Venture to its partner, the State of Utah, and sold its 50% interest in Lennox Town Center to its partner. For the year ended December 31, 2022, these transactions aggregated a Gain on Sale and Change in Control of Interests of $45.5 million.
During the nine months ended September 30, 2023, the Company acquired the following convenience centers (in millions):
Asset
Location
DateAcquired
PurchasePrice
Parker Keystone
Denver, Colorado
January 2023
11.0
Foxtail Center
Baltimore, Maryland
15.1
Barrett Corners
Atlanta, Georgia
April 2023
15.6
Alpha Soda Center
May 2023
9.4
Briarcroft Center
Houston, Texas
23.5
Towne Crossing Shops
Richmond, Virginia
July 2023
4.2
Oaks at Slaughter
Austin, Texas
August 2023
14.1
Marketplace at 249
September 2023
9.8
The fair value of the acquisitions above was allocated as follows (in thousands):
Weighted-AverageAmortization Period(in Years)
35,608
N/A
58,388
(A)
Tenant improvements
2,502
In-place leases (including lease origination costs and fair market value of leases)
10,425
7.1
106,923
Less: Below-market leases
(4,181
14.6
Less: Other liabilities assumed
(647
Net assets acquired
102,095
11
The total consideration for these assets was paid in cash. Included in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2023, was $1.6 million and $3.4 million, respectively, in total revenues from the date of acquisition through September 30, 2023, for the properties acquired in 2023.
Other assets and intangibles consist of the following (in thousands):
Intangible assets, net:
In-place leases
52,940
61,918
Above-market leases
5,061
6,206
Lease origination costs
8,103
8,093
Tenant relationships
8,358
11,531
Total intangible assets(A)
74,462
87,748
Operating lease ROU assets
17,665
18,197
Other assets:
Prepaid expenses
10,839
6,721
Swap receivable
11,520
8,138
Other assets
2,118
3,491
Deposits
2,676
3,188
Deferred charges, net
5,875
7,526
Total other assets, net
Below-market leases, net (other liabilities)(B)
48,833
59,825
As of September 30, 2023, the Company’s Revolving Credit Facility (as defined below) had outstanding borrowings of $135.0 million with a weighted-average interest rate of 6.0%. In March 2023, the Company entered into a 5.0% interest rate cap with respect to the variable-rate (the Secured Overnight Financing Rate or “SOFR”) component applicable to borrowings up to $100 million under the Revolving Credit Facility, of which $75.0 million was designated as an effective hedge at September 30, 2023. The interest rate cap expires in April 2024.
The Company maintains a revolving credit facility with a syndicate of financial institutions and JPMorgan Chase Bank, N.A., as administrative agent (the “Revolving Credit Facility”). The Revolving Credit Facility provides for borrowings of up to $950 million if certain borrowing conditions are satisfied, and an accordion feature for expansion of availability up to $1.45 billion, provided that new lenders agree to the existing terms of the facility or existing lenders increase their commitment level and subject to other customary conditions precedent. The Revolving Credit Facility maturity date is June 2026 subject to two six-month options to extend the maturity to June 2027 upon the Company’s request (subject to satisfaction of certain conditions).
The Company’s borrowings under the Revolving Credit Facility bear interest at variable rates at the Company’s election, based on either (i) the SOFR rate plus a 10 basis-point spread adjustment plus an applicable margin (0.85% at September 30, 2023) or (ii) the alternative base rate plus an applicable margin (0% at September 30, 2023). The Revolving Credit Facility also provides for an annual facility fee, which was 20 basis points on the entire facility at September 30, 2023. The applicable margins and facility fee vary depending on the Company’s long-term senior unsecured debt ratings from Moody’s Investors Service, Inc., S&P Global Ratings and Fitch Investor Services, Inc. (or their respective successors). The Revolving Credit Facility also features a sustainability-linked pricing component whereby the applicable interest rate margin can be adjusted by one or two basis points if the Company meets certain sustainability performance targets. The Company is required to comply with certain covenants under the Revolving Credit Facility relating to total outstanding indebtedness, secured indebtedness, value of unencumbered real estate assets and fixed charge coverage. The Company was in compliance with these financial covenants at September 30, 2023.
12
The following methods and assumptions were used by the Company in estimating fair value disclosures of financial instruments:
Measurement of Fair Value
At September 30, 2023, the Company used a pay-fixed interest rate swap to manage some of its exposure to changes in benchmark-interest rates. The estimated fair value was determined using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contract, are incorporated in the fair value to account for potential non-performance risk, including the Company’s own non-performance risk and the respective counterparty’s non-performance risk. The Company determined that the significant inputs used to value its derivative fell within Level 2 of the fair value hierarchy.
Items Measured on Fair Value on a Recurring Basis
The Company maintains an interest rate swap agreement (included in Other Assets) measured at fair value on a recurring basis as of September 30, 2023. The following table presents information about the Company’s financial assets and liabilities and indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in millions):
Fair Value Measurements
Assets (Liabilities):
Level 1
Level 2
Level 3
Derivative Financial Instruments
11.5
8.1
Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Accounts Payable and Other Liabilities
The carrying amounts reported in the Company’s consolidated balance sheets for these financial instruments approximated fair value because of their short-term maturities.
Debt
The following methods and assumptions were used by the Company in estimating fair value disclosures of debt. The fair market value of senior notes is determined using a pricing model to approximate the trading price of the Company’s public debt. The fair market value for all other debt is estimated using a discounted cash flow technique that incorporates future contractual interest and principal payments and a market interest yield curve with adjustments for duration, optionality and risk profile, including the Company’s non-performance risk and loan to value. The Company’s senior notes and all other debt are classified as Level 2 and Level 3, respectively, in the fair value hierarchy. Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments.
Carrying values that are different from estimated fair values are summarized as follows (in thousands):
CarryingAmount
FairValue
Senior Notes
1,291,178
1,378,485
Revolving Credit Facility and term loan
333,772
335,000
200,000
Mortgage Indebtedness
36,749
51,936
1,662,927
1,630,421
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and, from time to time, through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt
or payment of future known and uncertain cash amounts, the values of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. To accomplish this objective, the Company generally uses swaps and caps as part of its interest rate risk management strategy. The swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
As of September 30, 2023, the Company had one effective swap with a notional amount of $200.0 million, expiring in June 2027, which converts the variable-rate SOFR component of the interest rate applicable to its term loan to a fixed rate of 2.75%.
The effective portion of changes in the fair value of derivatives designated, and that qualify, as a cash flow hedge is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings, into interest expense, in the period that the hedged forecasted transaction affects earnings. All components of the swap were included in the assessment of hedge effectiveness. The Company expects to reflect within the next 12 months, a decrease to interest expense (and a corresponding increase to earnings) of approximately $5.0 million.
The Company is exposed to credit risk in the event of non-performance by the counterparty to the swap if the derivative position has a positive balance. The Company believes it mitigates its credit risk by entering into swaps with major financial institutions. The Company continually monitors and actively manages interest costs on its variable-rate debt portfolio and may enter into additional interest rate swap positions or other derivative interest rate instruments based on market conditions. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes.
Credit Risk-Related Contingent Features
The Company has an agreement with the swap counterparty that contains a provision whereby if the Company defaults on certain of its indebtedness, the Company could also be declared in default on the swap, resulting in an acceleration of payment under the swap.
Common Share Dividends
Common share dividends declared per share
0.13
0.39
Common Shares Repurchased
In the first quarter of 2023, the Company repurchased 1.5 million of its common shares in open market transactions at an aggregate cost of $20.0 million, or $13.43 per share. In late December 2022, the Company repurchased 0.5 million common shares at an aggregate cost of $6.6 million, which settled in January 2023.
Non-Controlling Interests
In May 2023, the Company repurchased 140,633 Operating Partnership units (“OP Units”) outstanding for cash at an aggregate cost of $1.7 million. The gain on the transaction was reflected in Additional Paid-in-Capital.
The changes in Accumulated Other Comprehensive Income by component are as follows (in thousands):
Change in cash flow hedges
6,350
Amounts reclassified from accumulated other comprehensive income to interest expense
(3,333
Balance, September 30, 2023 (A)
14
(A) Includes derivative financial instruments entered into by the Company on its term loan (Note 6) and by an unconsolidated joint venture.
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
(100
(117
(295
(368
Net income attributable to common shareholders after allocation to participating securities
45,753
63,289
60,617
131,787
Denominators – Number of Shares
Basic—Average shares outstanding
209,286
213,846
209,505
213,278
Assumed conversion of dilutive securities:
PRSUs
113
341
241
441
OP Units
141
Diluted—Average shares outstanding
209,399
214,328
209,746
213,860
Earnings Per Share:
For the three and nine months ended September 30, 2023, Performance Restricted Stock Units (“PRSUs”) issued to certain executives in March 2021 were considered in the computation of diluted EPS. The PRSUs issued in March 2022 were considered in the computation of diluted EPS for the three months ended September 30, 2023 and not considered in the computation of diluted EPS for the nine months ended September 30, 2023, because they were antidilutive. The PRSUs issued in March 2023 were not considered in the computation of diluted EPS for the three months ended September 30, 2023, because they were antidilutive and were considered in the computation of diluted EPS for the nine months ended September 30, 2023. For the three and nine months ended September 30, 2022, PRSUs issued to certain executives in March 2020 were considered in the computation of diluted EPS, PRSUs issued in March 2021 and 2022 were not considered in the computation of diluted EPS, because they were antidilutive. In March 2023, the Company issued 559,559 common shares in settlement of PRSUs granted in 2020.
In October 2023, the Company acquired two convenience centers for an aggregate price of $26.0 million and sold six shopping centers for an aggregate price of $527.3 million.
Also in October 2023, the Company closed on a five-year, $100 million mortgage financing for Nassau Park Pavilion (Princeton, New Jersey).
On October 30, 2023, the Company declared a dividend of $0.13 per common share, payable on January 5, 2024, to shareholders of record at the close of business on December 11, 2023.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides readers with a perspective from management on the financial condition, results of operations and liquidity of SITE Centers Corp. and its related consolidated real estate subsidiaries (collectively, the “Company” or “SITE Centers”) and other factors that may affect the Company’s future results. The Company believes it is important to read the MD&A in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2022, as well as other publicly available information.
EXECUTIVE SUMMARY
The Company is a self-administered and self-managed Real Estate Investment Trust (“REIT”) in the business of owning, leasing, acquiring, redeveloping, developing and managing shopping centers. As of September 30, 2023, the Company’s portfolio consisted of 119 shopping centers (including 13 shopping centers owned through unconsolidated joint ventures). At September 30, 2023, the Company owned approximately 25.6 million square feet of gross leasable area (“GLA”) through all its properties (wholly-owned and joint venture).
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
67,845
61,637
187,263
188,729
Operating FFO attributable to common shareholders
69,869
62,833
193,893
190,845
Earnings per share – Diluted
For the nine months ended September 30, 2023, the decrease in net income attributable to common shareholders, as compared to the prior-year period, primarily was the result of the gain on sale of joint venture assets recognized in 2022. Additionally, results for the nine months ended September 30, 2023 were impacted by lower joint venture management fees and income, higher interest expense, higher depreciation expense and an employee separation charge included within general and administrative expenses relating to the restructuring plan initiated in May 2023, partially offset by base rent growth, the write-off of below-market lease intangibles and the net impact of property acquisitions. Third quarter 2023 included $8.1 million of income related to below-market lease adjustments primarily from terminated leases from units previously occupied by Bed, Bath & Beyond.
Plan to Separate Convenience Retail Portfolio
In October 2023, the Company announced a plan to spin off its unanchored convenience retail assets into a separate, publicly-traded REIT to be named Curbline Properties Corp. (“Curbline”) in recognition of the distinct characteristics and opportunities within the Company’s unanchored, grocery and power center portfolios. Convenience retail properties are positioned on the curbline of well-trafficked intersections, offering enhanced access and visibility relative to other retail property types. The properties generally consist of a ubiquitous row of primarily shop units along with dedicated parking leased to a diversified mixture of national and local service and restaurant tenants that cater to daily convenience trips from the growing suburban population. The property type’s site plan and depth of leasing prospects generally reduce operating capital expenditures and provide significant tenant diversification.
As of September 30, 2023, the Company’s portfolio of convenience assets consisted of 61 wholly-owned properties, including 27 assets separated or in the process of being separated from existing Company properties. The median asset size of the Curbline portfolio as of September 30, 2023 was approximately 20,000 square feet with 91% of base rent generated by units less than 10,000 square feet. Curbline is expected to be in a net cash position at the time of its separation from the Company with cash on hand, a preferred investment in the Company, and an unsecured, undrawn line of credit. Curbline is not expected to have any debt outstanding at the time of its separation from the Company and therefore Curbline is expected to have significant access to sources of debt capital in order to fund significant asset growth. The Company may acquire additional convenience properties prior to the spin-off, which will be included in the Curbline portfolio, funded through additional Company dispositions, retained cash flow and cash on hand. The Company currently expects to complete the separation of Curbline in the second half of 2024.
After giving effect to the spin-off of Curbline and dispositions consummated through September 30, 2023, the Company’s portfolio will include 83 properties, including 13 joint venture properties. The Company has obtained a delayed-draw financing commitment for a $1.1 billion mortgage facility (further described below), which is expected to close prior to the consummation of the
spin-off, with loan and additional asset sale proceeds expected to be used to repay of all of the Company’s outstanding unsecured indebtedness. Following the separation of Curbline, the Company intends to continue to maximize value though its leasing and tactical redevelopment activities and may opportunistically realize value through additional asset sales where appropriate.
Company Activity
The growth opportunities within the Company’s core property operations include rental rate increases, continued lease-up of the portfolio, and the adaptation of existing site plans and square footage to generate higher blended rental rates and operating cash flows. Additional growth opportunities include external acquisitions and tactical redevelopment. Management intends to use retained cash flow, proceeds from the sale of lower growth assets and proceeds from equity offerings and debt financings to fund capital expenditures relating to new leasing activity, acquisitions, including opportunistic investments, and tactical redevelopment activity. The Company expects that its future acquisition activity prior to the consummation of the Curbline spin-off will largely focus on unanchored, convenience retail properties that offer enhanced prospects for cash flow growth through rent increases and lower capital expenditure requirements.
Transactional and investment highlights for the Company through October 27, 2023, include the following:
Company Operational Highlights
Operational highlights for the Company through September 30, 2023, include the following:
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RESULTS OF OPERATIONS
Consolidated shopping center properties owned as of January 1, 2022, are referred to herein as the “Comparable Portfolio Properties.”
Revenues from Operations (in thousands)
$ Change
Rental income(A)
7,375
(1,459
Total revenues
5,916
13,114
Fee and other income(B)
(5,350
7,764
Contractual Lease Payments
Base and percentage rental income
106,827
99,326
7,501
Recoveries from tenants
34,753
33,214
1,539
Uncollectible revenue
(381
(430
Lease termination fees, ancillary and other rental income
1,729
2,964
(1,235
Total contractual lease payments
Base and percentage rental income(1)
305,578
291,483
14,095
Recoveries from tenants(2)
104,570
99,811
4,759
Uncollectible revenue(3)
(1,126
1,889
(3,015
5,302
8,027
(2,725
Increase (Decrease)
Acquisition of shopping centers
9.3
Comparable Portfolio Properties
Disposition of shopping centers
(10.5
Straight-line rents
(0.3
The increase within the Comparable Portfolio Properties includes the write-off of approximately $8.4 million of below‑market lease intangibles due to the early termination of tenant leases.
At September 30, 2023 and 2022, the Company owned 106 and 103 wholly-owned properties, respectively, with an aggregate occupancy rate of 92.3% and 91.6%, respectively, and average annualized base rent per occupied square foot of $20.29 and $19.18, respectively.
Expenses from Operations (in thousands)
(1,328
120
460
1,642
894
Operating and maintenance(A)
100
Real estate taxes(A)
(355
(2,536
General and administrative(B)
1,532
Depreciation and amortization(A)
12,971
11,712
OperatingandMaintenance
Real EstateTaxes
DepreciationandAmortization
2.7
6.0
(0.1
13.7
(2.6
(3.0
(6.7
(0.4
13.0
19
The increase in depreciation for the Comparable Portfolio Properties was primarily the result of the change in useful life of several assets.
Other Income and Expenses (in thousands)
(1,008
(189
(1,197
Interest expense(A)
(4,685
(4,544
Weighted-average debt outstanding (in billions)
1.8
Weighted-average interest rate
%
4.0
The Company’s overall balance sheet strategy is to continue to maintain substantial liquidity and prudent leverage levels and average debt maturities. The weighted-average interest rate (based on contractual rates and excluding fair market value of adjustments and debt issuance costs) was 4.3% and 4.1% at September 30, 2023 and 2022, respectively. At September 30, 2023, the weighted-average maturity (without extensions) was 2.5 years. Interest costs capitalized in conjunction with redevelopment projects were $0.3 million and $0.3 million for the three months ended September 30, 2023 and 2022, respectively, and $0.9 million and $0.8 million for the nine months ended September 30, 2023 and 2022, respectively.
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Other Items (in thousands)
(25,400
(228
4,210
22
Equity in net income of joint ventures(A)
(20,973
Gain on sale and change in control of interests(B)
(41,805
(62
52
Net Income (in thousands)
(17,553
(71,243
The decrease in net income attributable to SITE Centers, as compared to the prior-year period, was primarily attributable to the gain on sale of joint venture assets recognized in 2022. Additionally, results for the nine months ended September 30, 2023 were also impacted by lower joint venture management fees, higher interest expense, higher depreciation expense and an employee separation charge included within general and administrative expenses relating to the restructuring plan initiated in May 2023, partially offset by base rent growth, the write-off of below-market lease intangibles and the net impact of property acquisitions.
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NON-GAAP FINANCIAL MEASURES
Funds from Operations and Operating Funds from Operations
Definition and Basis of Presentation
The Company believes that Funds from Operations (“FFO”) and Operating FFO, both non-GAAP financial measures, provide additional and useful means to assess the financial performance of REITs. FFO and Operating FFO are frequently used by the real estate industry, as well as securities analysts, investors and other interested parties, to evaluate the performance of REITs. The Company also believes that FFO and Operating FFO more appropriately measure the core operations of the Company and provide benchmarks to its peer group.
FFO excludes GAAP historical cost depreciation and amortization of real estate and real estate investments, which assume that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions, and many companies use different depreciable lives and methods. Because FFO excludes depreciation and amortization unique to real estate and gains and losses from property dispositions, it can provide a performance measure that, when compared year over year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, interest costs and acquisition, disposition and development activities. This provides a perspective of the Company’s financial performance not immediately apparent from net income determined in accordance with GAAP.
FFO is generally defined and calculated by the Company as net income (loss) (computed in accordance with GAAP), adjusted to exclude (i) preferred share dividends, (ii) gains and losses from disposition of real estate property and related investments, which are presented net of taxes, (iii) impairment charges on real estate property and related investments, (iv) gains and losses from changes in control and (v) certain non-cash items. These non-cash items principally include real property depreciation and amortization of intangibles, equity income (loss) from joint ventures and equity income (loss) from non-controlling interests and adding the Company’s proportionate share of FFO from its unconsolidated joint ventures and non-controlling interests, determined on a consistent basis. The Company’s calculation of FFO is consistent with the definition of FFO provided by the National Association of Real Estate Investment Trusts ("NAREIT").
The Company believes that certain charges, income and gains recorded in its operating results are not comparable or reflective of its core operating performance. Operating FFO is useful to investors as the Company removes non-comparable charges, income and gains to analyze the results of its operations and assess performance of the core operating real estate portfolio. As a result, the Company also computes Operating FFO and discusses it with the users of its financial statements, in addition to other measures such as net income (loss) determined in accordance with GAAP and FFO. Operating FFO is generally defined and calculated by the Company as FFO excluding certain charges, income and gains that management believes are not comparable and indicative of the results of the Company’s operating real estate portfolio. Such adjustments include write-off of preferred share original issuance costs, gains/losses on the early extinguishment of debt, certain transaction fee income, transaction costs and other restructuring type costs, including employee separation costs. The disclosure of these adjustments is regularly requested by users of the Company’s financial statements.
The adjustment for these charges, income and gains may not be comparable to how other REITs or real estate companies calculate their results of operations, and the Company’s calculation of Operating FFO differs from NAREIT’s definition of FFO. Additionally, the Company provides no assurances that these charges, income and gains are non-recurring. These charges, income and gains could be reasonably expected to recur in future results of operations.
These measures of performance are used by the Company for several business purposes and by other REITs. The Company uses FFO and/or Operating FFO in part (i) as a disclosure to improve the understanding of the Company’s operating results among the investing public, (ii) as a measure of a real estate asset company’s performance, (iii) to influence acquisition, disposition and capital investment strategies and (iv) to compare the Company’s performance to that of other publicly traded shopping center REITs.
For the reasons described above, management believes that FFO and Operating FFO provide the Company and investors with an important indicator of the Company’s operating performance. They provide recognized measures of performance other than GAAP net income, which may include non-cash items (often significant). Other real estate companies may calculate FFO and Operating FFO in a different manner.
Management recognizes the limitations of FFO and Operating FFO when compared to GAAP’s net income. FFO and Operating FFO do not represent amounts available for dividends, capital replacement or expansion, debt service obligations or other commitments and uncertainties. Management does not use FFO or Operating FFO as an indicator of the Company’s cash obligations and funding requirements for future commitments, acquisitions or development activities. Neither FFO nor Operating FFO represents cash generated from operating activities in accordance with GAAP, and neither is necessarily indicative of cash available to fund cash
needs. Neither FFO nor Operating FFO should be considered an alternative to net income (computed in accordance with GAAP) or as an alternative to cash flow as a measure of liquidity. FFO and Operating FFO are simply used as additional indicators of the Company’s operating performance. The Company believes that to further understand its performance, FFO and Operating FFO should be compared with the Company’s reported net income (loss) and considered in addition to cash flows determined in accordance with GAAP, as presented in its consolidated financial statements. Reconciliations of these measures to their most directly comparable GAAP measure of net income (loss) have been provided below.
Reconciliation Presentation
FFO and Operating FFO attributable to common shareholders were as follows (in thousands):
6,208
7,036
(1,466
3,048
The decrease in FFO for the nine months ended September 30, 2023, as compared to the prior-year period, was primarily attributable to lower management fees and income from joint ventures and higher interest and general and administrative expenses, partially offset by base rent growth, the write-off of below-market lease intangibles and the net impact of property acquisitions. The change in Operating FFO primarily was due to the same drivers impacting FFO but excludes the impact of an employee separation charge included within general and administrative expenses, relating to the restructuring plan initiated in May 2023.
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
51,412
49,925
161,480
148,828
(518
(25,918
Joint ventures' FFO(A)
2,145
1,271
6,327
9,469
Non-controlling interests (OP Units)
55
Impairment of real estate
(31,047
(26,837
Separation and other charges
1,345
4,444
Transaction, debt extinguishment and other (at SITE's share)
679
1,196
2,186
2,501
RVI disposition fees
(385
Non-operating items, net
2,024
6,630
2,116
23
Joint ventures’ FFO and Operating FFO are summarized as follows (in thousands):
(973
(119,813
(21,151
(121,505
FFO
8,378
4,519
26,170
39,001
FFO at SITE Centers' ownership interests
Operating FFO at SITE Centers' ownership interests
2,227
2,126
6,707
10,327
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 including activity associated with redevelopment. 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
(5,307
(9,471
61,991
57,306
Other expense (income), net
2,011
2,152
Tax expense
811
863
Income from non-controlling interests
Consolidated NOI
288,799
276,616
Less: Non-Same Store NOI adjustments
(25,710
(20,747
Total Consolidated SSNOI
263,089
255,869
Consolidated SSNOI % Change
2.8
Net income from unconsolidated joint ventures
4,724
21,887
4,342
5,982
5,878
8,304
3,510
1,593
2,468
(4,232
(24,254
Unconsolidated NOI
52,208
76,675
12,305
17,897
(1,124
(6,969
Total Unconsolidated SSNOI at SITE share
11,181
10,928
Unconsolidated SSNOI % Change
SSNOI % Change at SITE Share
The SSNOI increase for the nine months ended September 30, 2023, as compared to the prior-year period, primarily related to increases in rents and recoveries attributable to sequential increases in occupancy for same-store assets.
LIQUIDITY, CAPITAL RESOURCES AND FINANCING ACTIVITIES
The Company periodically evaluates opportunities to issue and sell additional debt or equity securities, obtain credit facilities from lenders or repurchase or refinance long-term debt as part of its overall strategy to further strengthen its financial position. The Company remains committed to monitoring liquidity and the duration of its indebtedness and to maintaining prudent leverage levels in an effort to manage its overall risk profile.
The Company’s consolidated and unconsolidated debt obligations generally require monthly or semi-annual payments of principal and/or interest over the term of the obligation. While the Company currently believes it has several viable sources to obtain capital and fund its business, including capacity under its Revolving Credit Facility (as defined below), no assurance can be provided that these obligations will be refinanced or repaid as currently anticipated. Any new debt financings may also entail higher rates of interest than the indebtedness being refinanced, which could have an adverse effect on the Company’s operations.
The Company has historically accessed capital sources through both the public and private markets. Acquisitions and redevelopments are generally financed through cash provided from operating activities, the Revolving Credit Facility, mortgages assumed, secured debt, unsecured debt, common and preferred equity offerings, joint venture capital and asset sales. Total consolidated debt outstanding was $1.7 billion at September 30, 2023 and December 31, 2022.
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At September 30, 2023, the Company had an unrestricted cash balance of $26.6 million and a restricted cash balance of $35.5 million related to asset sale proceeds available to fund future qualifying acquisitions as part of a forward like kind exchange transaction. The Company has availability under its Revolving Credit Facility of $815.0 million (subject to satisfaction of applicable borrowing conditions). The Company has no remaining consolidated debt maturing in 2023. In 2024, the Company has $65.6 million aggregate principal amount of senior notes and $12.2 million of consolidated mortgage debt maturing. The Company’s unconsolidated joint ventures have $112.1 million in mortgage debt at the Company’s share maturing in 2024. As of September 30, 2023, the Company anticipates that it has approximately $14 million to be incurred on its pipeline of identified redevelopment projects. The Company declared common share dividends of $0.39 per share in the aggregate in the nine months ended September 30, 2023 and also on October 30, 2023, the Company declared a dividend of $0.13 per common share, payable on January 5, 2024, to shareholders of record at the close of business on December 11, 2023. The Company believes it has sufficient liquidity to operate its business at this time. In March 2023, the Company entered into a 5.0% interest rate cap with respect to the variable-rate (the Secured Overnight Financing Rate or "SOFR") component applicable to borrowings up to $100 million under the Company's Revolving Credit Facility, which interest rate cap will remain in effect through the beginning of April 2024. In May 2023, the Company repaid $87.2 million of senior notes due 2023 with amounts drawn under its Revolving Credit Facility. At September 30, 2023, the Company had $135.0 million drawn on the Revolving Credit Facility.
Revolving Credit Facility
The Company maintains an unsecured Revolving Credit Facility with a syndicate of financial institutions and JPMorgan Chase Bank, N.A., as administrative agent that provides for borrowings of up to $950 million, which limit may be increased to $1.45 billion provided that existing or new lenders agree to provide incremental commitments and subject to other conditions precedent. The Revolving Credit Facility matures in June 2026 subject to two six-month options to extend the maturity to June 2027 at the Company's option (subject to the satisfaction of certain conditions). The Company’s borrowings under the Revolving Credit Facility bear interest at variable rates at the Company’s election, based on either (i) the SOFR rate plus a 10-basis point credit spread adjustment plus an applicable margin (0.85% at September 30, 2023) or (ii) the alternative base rate plus an applicable margin (0% at September 30, 2023). The Revolving Credit Facility also provides for an annual facility fee, which was 20 basis points on the entire facility at September 30, 2023. The applicable margins and facility fee vary depending on the Company’s long-term senior unsecured debt ratings from Moody’s, S&P Global Ratings (“S&P”) and Fitch (or their respective successors). The Revolving Credit Facility also features a sustainability-linked pricing component whereby the applicable interest-rate margin can be adjusted by one or two basis points if the Company meets certain sustainability performance targets.
The Revolving Credit Facility, the Company’s $200.0 million term loan facility and the indentures under which the Company’s senior and subordinated unsecured indebtedness are, or may be, issued contain certain financial and operating covenants including, among other things, leverage ratios and debt service coverage and fixed-charge coverage ratios, as well as limitations on the Company’s ability to incur secured and unsecured indebtedness, sell all or substantially all of the Company’s assets and engage in certain mergers and acquisitions. The Revolving Credit Facility, the term loan and the 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, 2023, the Company was in compliance with all of its financial covenants in the agreements governing its debt. Although the Company believes it will continue to operate in compliance with these covenants, if the Company were to violate these covenants, the Company may be subject to higher finance costs and fees or accelerated maturities.
Mortgage Financing Commitment
In October 2023, in preparation for the eventual spin-off of the Company’s convenience retail properties, the Company obtained a commitment (the “Commitment”) from affiliates of Apollo, including ATLAS SP Partners, to provide a $1.1 billion delayed-draw mortgage facility to be secured by approximately 40 of the Company’s retail properties (the “Mortgage Facility”). The Company may proceed to close and draw all or a portion of the Mortgage Facility on any date prior to October 25, 2024 subject to the satisfaction of various closing conditions set forth in the Commitment, including debt yield and loan-to-value thresholds, the lender’s receipt of acceptable appraisal, title, survey, tenant estoppel and property inspection reports and satisfaction of other customary closing requirements. To the extent that any of the collateral properties are sold prior to the closing of the Mortgage Facility, the amount available under the Commitment will be reduced. The Company currently expects to close and draw on the Mortgage Facility prior to the spin-off of Curbline, and to use loan and additional asset sale proceeds to redeem and/or repay its outstanding unsecured indebtedness and for general corporate purposes.
As set forth in the Commitment, the Mortgage Facility will mature on the second anniversary of the closing date subject to a one-year extension option at the Company’s election and subject to the Company’s satisfaction of certain conditions at the time of the
26
extension. Following closing, the Company will be able to effectuate the release of properties serving as collateral for the Mortgage Facility by making a principal prepayment based on the amount of the loan amount allocated to such property.
The Company paid upfront commitment and structuring fees to the lender and its affiliates and will also pay the lender fees during the unfunded commitment period based on the committed loan amount (as such amount may be reduced from time to time by the Company) and a closing fee based on the amount of the loan funded at closing. The Company is not obligated to close or draw on the Mortgage Facility and no assurances can be given that the Company will satisfy the conditions to close the Mortgage Facility or that the Mortgage Facility will close on the terms set forth in the Commitment or at all.
Consolidated Indebtedness – as of September 30, 2023
As discussed above, the Company is committed to maintaining prudent leverage levels and may utilize proceeds from the sale of properties or other investments or equity offerings 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, 2022.
The Company continually evaluates its debt maturities and, based on management’s assessment, believes it has viable financing and refinancing alternatives including the Mortgage Facility. The Company has sought to manage its debt maturities, increase liquidity, maintain prudent leverage levels 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, 2023
The outstanding indebtedness of the Company’s unconsolidated joint ventures at September 30, 2023, which matures in the subsequent 13-month period (i.e., through October 31, 2024), is as follows (in millions):
Outstanding at September 30, 2023
At SITE Centers' Share
Dividend Trust Portfolio(A)
364.3
72.9
DDRM Joint Venture(B)
40.9
8.2
Total debt maturities through October 31, 2024
405.2
81.0
No assurance can be provided that these obligations will be refinanced or repaid as currently anticipated. Any future deterioration in property-level revenues may cause one or more of these joint ventures to be unable to refinance maturing obligations or satisfy applicable covenants, financial tests or debt service requirements or loan maturity extension conditions in the future, thereby allowing the mortgage lender to assume control of property cash flows, limit distributions of cash to joint venture members, declare a default, increase the interest rate or accelerate the loan’s maturity. In addition, rising interest rates may adversely impact the ability of the Company’s joint ventures to sell assets at attractive prices in order to repay indebtedness.
Cash Flow Activity
The Company’s cash flow activities are summarized as follows (in thousands):
Cash flow provided by operating activities
Cash flow used for investing activities
Cash flow (used for) provided by financing activities
Changes in cash flow for the nine months ended September 30, 2023, compared to the prior comparable period, are as follows:
Operating Activities: Cash provided by operating activities decreased $13.4 million primarily due to changes in cash flow from dispositions, higher interest rates, higher general and administrative expenses attributable to the May 2023 restructuring plan and changes in working capital.
Investing Activities: Cash used for investing activities decreased $225.3 million primarily due to the following:
Financing Activities: Cash from financing activities changed $150.6 million primarily due to the following:
Dividend Distribution
The Company declared common and preferred cash dividends of $90.3 million and $91.9 million for the nine months ended September 30, 2023 and 2022, 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, 2023 in order to maintain compliance with REIT requirements and in order to not incur federal income taxes (excluding federal income taxes applicable to its taxable REIT subsidiary activities).
The Company declared a quarterly cash dividend of $0.13 per common share for each of the first three quarters of 2023. On October 30, 2023, the Company declared a dividend of $0.13 per common share, payable on January 5, 2024, to shareholders of record at the close of business on December 11, 2023.
As a result of significant disposition activity consummated during the nine months ended September 30, 2023 and additional asset sales likely to close during the fourth quarter of 2023, the Company also expects to declare and pay a special cash dividend of at least $0.10 per share prior to January 31, 2024, subject to the final approval of the Company’s Board of Directors.
The Board of Directors of the Company intends to monitor the Company’s dividend policy in order to maintain sufficient liquidity for operations and in order to maximize the Company’s free cash flow while still adhering to REIT payout requirements and minimizing federal income taxes (excluding federal income taxes applicable to its taxable REIT subsidiary activities). The Company’s future dividend policy may also be influenced by future transaction activity including asset sales.
SITE Centers’ Equity
In December 2022, the Company’s Board of Directors authorized a common share repurchase program. Under the terms of the program, the Company is authorized to repurchase up to a maximum value of $100 million of its common shares without an expiration date. In the first quarter of 2023, the Company repurchased 1.5 million of its common shares in open market transactions at an aggregate cost of $20.0 million, or $13.43 per share. Through September 30, 2023, the Company had repurchased under this program 2.0 million of its common shares in open market transactions at an aggregate cost of $26.6 million.
SOURCES AND USES OF CAPITAL
Strategic Transaction Activity
The Company remains committed to maintaining sufficient liquidity, managing debt duration and maintaining prudent leverage levels in an effort to manage its overall risk profile. Equity offerings, debt financings (including the Mortgage Facility), asset sales and cash flow from operations continue to represent potential sources of proceeds to be used to achieve these objectives.
Acquisitions
In October 2023, the Company acquired two convenience centers for an aggregate price of $26.0 million, including Estero Crossing (Estero, Florida) for $17.1 million and Point at University (Charlotte, North Carolina) for $8.9 million.
Through September 30, 2023, the Company acquired Parker Keystone (Denver, Colorado) for $11.0 million, Alpha Soda Center (Atlanta, Georgia) for $9.4 million, Barrett Corners (Atlanta, Georgia) for $15.6 million, Foxtail Center (Baltimore, Maryland) for $15.1 million, Oaks at Slaughter (Austin, Texas) for $14.1 million, Marketplace at 249 (Houston, Texas) for $9.8 million, Briarcroft Center (Houston, Texas) for $23.5 million and Towne Crossing Shops (Richmond, Virginia) for $4.2 million.
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Dispositions
Through October 27, 2023, the Company sold 11 wholly-owned shopping centers (in thousands):
Date Sold
Property Name
City, State
Total Owned GLA
GrossSales Price
08/10/23
Sharon Green
Cumming, Georgia
98
17,450
08/24/23
Terrell Plaza
San Antonio, Texas
108
25,106
08/28/23
Windsor Court
Windsor, Connecticut
79
19,000
09/08/23
Larkin's Corner
Boothwyn, Pennsylvania
225
26,000
09/22/23
Waterstone Center
Mason, Ohio
30,718
10/23/23
Boston Portfolio(A)
Boston, Massachusetts
1,354
319,000
10/24/23
Cotswold Village
Charlotte, North Carolina
263
110,400
10/27/23
Tampa Portfolio(B)
Tampa, Florida
97,900
2,730
645,574
In the nine months ended September 30, 2023, unconsolidated shopping centers sold by the DDRM Joint Venture generated proceeds totaling $112.2 million of which the Company’s share was $22.4 million.
As of October 27, 2023, the Company was under contract to sell, subject to standards closing conditions, an additional four wholly-owned properties for an aggregate sale price of $127.9 million, for which the buyers’ general due diligence condition expired.
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.
Equity Transactions
In the first quarter of 2023, the Company repurchased 1.5 million of its common shares in open market transactions at an aggregate cost of $20.0 million, or $13.43 per share with the remaining proceeds from the sale of wholly-owned properties in the fourth quarter of 2022 and proceeds from the sale of joint venture properties.
In the second quarter of 2023, the Company repurchased 140,633 OP Units in a privately negotiated transaction at an aggregate cost of $1.7 million, or $12.34 per unit. Following the repurchase, the Company has no outstanding OP Units.
Redevelopment Pipeline
The Company evaluates additional tactical redevelopment potential within the portfolio, particularly as it relates to the efficient use of the underlying real estate, which includes to expand, improve and re-tenant various properties. The Company generally expects to commence construction on redevelopment projects only after substantial tenant leasing has occurred. At September 30, 2023, the Company had approximately $63 million in construction in progress in various active consolidated redevelopments and other projects and anticipates that it has approximately $14 million yet to be incurred on its pipeline of identified redevelopment projects. At September 30, 2023, the Company’s shopping center expansions, outparcel developments, construction of first-generation space and repurposing projects were as follows (in thousands):
EstimatedStabilizedQuarter
EstimatedCost
Costs Incurred at September 30, 2023
West Bay Plaza - Phase II (Cleveland, Ohio)
4Q23
7,941
7,155
Carolina Pavilion (Charlotte, North Carolina)
2,721
2,486
Nassau Park Pavilion (Trenton, New Jersey)
1Q24
7,635
5,746
University Hills (Denver, Colorado)
3Q24
6,718
5,190
Shoppers World (Boston, Massachusetts)
2Q24
2,414
1,313
Tanasbourne Town Center (Portland, Oregon)
1Q26
13,769
4,966
Perimeter Pointe (Atlanta, Georgia)
TBD
1,417
41,198
28,273
29
CAPITALIZATION
At September 30, 2023, the Company’s capitalization consisted of $1.7 billion of debt, $175.0 million of preferred shares and $2.6 billion of market equity (calculated as the common shares outstanding multiplied by $12.33, the closing price of the Company’s common shares on the New York Stock Exchange at September 29, 2023, the last trading day of September 2023). At September 30, 2023, after giving effect to the swap of the variable-rate component of the term loan's interest rate to a fixed rate, the Company’s total debt consisted of $1.6 billion of fixed-rate debt and $135.0 million of variable-rate debt.
Management seeks to maintain access to the capital resources necessary to manage the Company’s balance sheet and to repay upcoming maturities. Accordingly, the Company may seek to obtain funds through additional debt or equity financings and/or joint venture capital in a manner consistent with its intention to operate with a prudent 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 Revolving Credit Facility, term loan and the indentures under which the Company’s senior and subordinated unsecured indebtedness is, or may be, issued contain certain financial and operating covenants, including, among other things, debt service coverage and fixed charge coverage ratios, as well as limitations on the Company’s ability to incur secured and unsecured indebtedness, sell all or substantially all of the Company’s assets, engage in certain mergers and acquisitions and make distribution to its shareholders. Although the Company intends to operate in compliance with these covenants, if the Company were to violate these covenants, the Company may be subject to higher finance costs and fees or accelerated maturities. In addition, the Revolving Credit Facility, term loan and the Company’s 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
As of September 30, 2023, the Company has no remaining debt maturing in 2023. In 2024, the Company has $65.6 million aggregate principal amount of senior notes, $12.2 million of consolidated mortgage debt and $112.1 million of unconsolidated joint venture mortgage debt at the Company’s share maturing. The Company expects to fund future maturities from utilization of its Revolving Credit Facility, proceeds from asset sales and other investments, cash flow from operations and/or additional debt or equity financings including the Mortgage Facility. 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 $13.5 million for its consolidated properties at September 30, 2023, which includes the assets in the redevelopment pipeline. These obligations, composed principally of construction contracts, are generally due within 12 to 24 months, as the related construction costs are incurred, and are expected to be financed through operating cash flow, asset sales or borrowings under the Revolving Credit Facility. These contracts typically can be changed or terminated without penalty.
The Company routinely enters into contracts for the maintenance of its properties. These contracts typically can be canceled upon 30 to 60 days’ notice without penalty. At September 30, 2023, the Company had purchase order obligations, typically payable within one year, aggregating approximately $8.7 million related to the maintenance of its properties and general and administrative expenses.
ECONOMIC CONDITIONS
Despite current economic uncertainty, the Company continues to experience retailer demand for quality real estate locations within well-positioned shopping centers consistent with the Company’s owned properties. The Company executed new leases and renewals aggregating approximately 2.8 million square feet of space on a pro rata basis for the nine months ended September 30, 2023. The Company believes these strong leasing results and tenant demand are attributable to the concentration of the Company’s portfolio in suburban, high household income communities, pandemic-induced work-from-home trends, limited new construction and tenants’ increasing use of physical store locations to improve the speed and efficiency of merchandise distribution.
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 6.1% as of September 30, 2023). Other significant national tenants generally have relatively strong
30
financial positions, have outperformed other retail categories over time and the Company believes remain well-capitalized. Historically these national tenants have provided a stable revenue base, and the Company believes that they will continue to provide a stable revenue base going forward, given the long-term nature of these leases. The majority of the tenants in the Company’s shopping centers provide day-to-day 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 the position of its portfolio and the general diversity and credit quality of its tenant base should enable it to successfully navigate through a potentially challenging economic environment. The Company has relatively little reliance on overage or percentage rents generated by tenant sales performance.
The Company believes that its shopping center portfolio is well positioned, as evidenced by its recent leasing activity, historical property income growth and consistent growth in average annualized base rent per occupied square foot. Historical occupancy has generally ranged from 89% to 94% over the last 10 years. At September 30, 2023 and December 31, 2022, the shopping center portfolio occupancy, on a pro rata basis, was 92.2% and 92.4%, respectively, and the total portfolio average annualized base rent per occupied square foot, on a pro rata basis, was $20.20 and $19.52, respectively. The Company’s portfolio has been impacted by tenant bankruptcies, and the Company expects to expend capital in coming periods in connection with leases executed to backfill these and other closures. Although the per square foot cost of leasing capital expenditures has been predominantly consistent with the Company’s historical trends, the high volume of the Company’s recent leasing activity will cause aggregate leasing capital expenditure levels to be elevated. The weighted-average cost of tenant improvements and lease commissions estimated to be incurred over the expected lease term for new leases executed during the nine months ended September 30, 2023 and 2022, on a pro rata basis, was $4.82 and $7.31 per rentable square foot, respectively. The Company generally does not expend a significant amount of capital on lease renewals.
Although disruptions to the Company’s business stemming from the COVID-19 pandemic have subsided, inflation, higher interest rates, reduced consumer spending, labor shortages, geopolitical tensions and the volatility of global capital markets pose risks to the U.S. economy and the Company’s tenants. In addition to these macroeconomic challenges, the retail sector has been affected by changing consumer behaviors following the COVID-19 pandemic, including the competitive nature of the retail business and the competition for the share of the consumer wallet. The Company routinely monitors the credit profiles of its tenants and analyzes the possible impact of any potential tenant credit issues on the financial statements of the Company and its unconsolidated joint ventures. In some cases, changing conditions have resulted in weaker retailers and retail categories losing market share and declaring bankruptcy and/or closing stores. However, other retailers, specifically those in the value and convenience category, continue to express interest in launching new concepts and expanding their store fleets within the suburban, high household income communities in which the Company’s properties are located. As a result, the Company believes that its prospects to backfill any spaces vacated by bankrupt or non-renewing tenants are generally good, though such re-tenanting efforts would likely require additional capital expenditures and the opportunities to lease any vacant theater spaces may be more limited. However, there can be no assurance that vacancy resulting from increasingly uncertain economic conditions will not adversely affect the Company’s operating results (see Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022).
Inflation, rising interest rates, the availability of commercial real estate financing have also impacted, in certain cases, real estate owners’ ability to acquire and sell assets and raise equity and debt financing. Although the Company has relatively small amounts of consolidated indebtedness maturing in 2024 (none remaining in 2023), debt capital markets liquidity could adversely impact the Company’s ability to refinance future maturities and the interest rates applicable thereto. To the extent that the interest rate environment does not moderate prior to the time of these refinancings, the Company’s interest expense levels would be adversely affected.
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
31
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, 2022.
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:
32
33
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s primary market risk exposure is interest rate risk. At September 30, 2023, the Company’s debt, excluding unconsolidated joint venture debt and adjusted to reflect the swap of the variable-rate (SOFR) component of interest rate applicable to the Company’s $200.0 million term loan to a fixed rate of 2.75%, is summarized as follows:
Amount(Millions)
Weighted-AverageMaturity(Years)
Weighted-AverageInterestRate
Percentageof Total
Fixed-Rate Debt
1,605.2
92.2
1,707.0
3.1
100.0
Variable-Rate Debt
135.0
0.0
The Company’s unconsolidated joint ventures’ indebtedness at its carrying value is summarized as follows:
JointVentureDebt(Millions)
Company'sProportionateShare(Millions)
364.0
72.8
0.5
363.5
72.7
1.3
102.6
39.0
1.1
4.5
171.6
53.0
5.4
The Company intends to use retained cash flow, proceeds from asset sales, equity and debt financing including the Mortgage Facility and variable-rate indebtedness available under its Revolving Credit Facility to repay indebtedness and fund capital expenditures at the Company’s shopping centers. Thus, to the extent the Company incurs additional variable-rate indebtedness or needs to refinance existing fixed-rate indebtedness in a rising interest rate environment, its exposure to increases in interest rates in an inflationary period could increase.
The interest rate risk on a portion of the Company’s variable-rate debt has been mitigated through the use of an interest rate swap agreement with major financial institutions. At September 30, 2023, the variable (SOFR) component of the interest rate applicable to the Company’s $200.0 million consolidated term loan facility was swapped to a fixed rate. The Company is exposed to credit risk in the event of nonperformance by the counterparties to the swaps. The Company believes it mitigates its credit risk by entering into swaps with major financial institutions.
The carrying value of the Company’s fixed-rate debt is adjusted to include the $200.0 million of variable-rate debt that was swapped to a fixed rate at September 30, 2023. An estimate of the effect of a 100 basis-point increase at September 30, 2023 and December 31, 2022, is summarized as follows (in millions):
Carrying Value
100 Basis-PointIncrease inMarket InterestRate
Company's fixed-rate debt
1,516.5
1,482.4
(B)
1,622.2
1,577.7
Company's proportionate share of joint venture fixed-rate debt
70.5
69.6
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 at September 30, 2023, would result in an increase in interest expense of approximately $0.3 million relating to the Company’s variable-rate debt outstanding for the nine months ended September 30, 2023. This exposure to interest rate risk was mitigated by the implementation of a 5.0% interest rate cap with respect to the variable (SOFR) component applicable to borrowings up to $100 million under the Company's Revolving Credit Facility through the beginning of April 2024. The estimated increase in interest expense does not give effect to possible changes in the daily balance of the Company’s outstanding variable-rate debt. All of the variable-rate debt outstanding at the unconsolidated joint ventures is subject to hedging agreements.
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, 2023, the Company had no other material exposure to market risk.
Item 4. CONTROLS AND PROCEDURES
The Company’s management, with the participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), conducted an evaluation, pursuant to Securities Exchange Act of 1934 Rules 13a-15(b) and 15d-15(b), of the effectiveness of our disclosure controls and procedures. Based on their evaluation as required, the CEO and CFO have concluded that the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and were effective as of the end of such period to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’s management, including its CEO and CFO, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
During the three months ended September 30, 2023, there were no changes in the Company’s internal control over financial reporting that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
“PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to various legal proceedings, which, taken together, are not expected to have a material adverse effect on the Company. The Company is also subject to a variety of legal actions for personal injury or property damage arising in the ordinary course of its business, most of which are covered by insurance. While the resolution of all matters cannot be predicted with certainty, management believes that the final outcome of such legal proceedings and claims will not have a material adverse effect on the Company’s liquidity, financial position or results of operations.
Item 1A. RISK FACTORS
Reference is made to Part 1, Item 1A. “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The risk factors set forth below update, and should be read together with, such risk factors.
The Proposed Spin-off of the Company’s Curbline Convenience Assets into a Separate, Publicly-Traded REIT May Not Be Completed on the Currently Contemplated Timeline or Terms, or at All, and May Not Achieve the Intended Benefits
In October 2023, the Company announced a plan to spin off its convenience assets into Curbline, a separate, publicly-traded REIT, for the purpose of pursuing the acquisition and aggregation of unanchored convenience retail properties. The Company expects Curbline to elect to be treated as and qualify for taxation as a REIT for U.S. federal income tax purposes. The Company currently expects to complete the taxable spin-off in the second half of 2024, although there can be no assurances as to whether or when the spin-off will occur, what the final structure of Curbline will be or the tax treatment of Curbline as a separate entity or the tax effects of the spin-off on the Company.
The completion of the spin-off will be subject to various conditions, including effectiveness of a registration statement on Form 10 and final approval and declaration of the distribution of Curbline’s common stock to the Company’s shareholders by the Company’s Board of Directors. Satisfaction of such conditions and other unforeseen developments could delay or prevent the spin-off or cause the spin-off to occur on terms or conditions that are less favorable and/or different than anticipated. The Company may also elect not to proceed with the spin-off if it is unable to complete the closing of the related Mortgage Facility. Whether or not the spin-off is ultimately completed, the pendency of the spin-off may impose challenges on the Company and its business, including the diversion of management time on matters relating to the spin-off and potential impacts on the Company’s relationships with its employees, tenants and other counterparties. To the extent the Company is unable to complete the spin-off, the Company’s future performance and the trading price of its shares may be adversely affected. If the spin-off is consummated, the trading price of the Company’s common shares is expected to decrease significantly as a result of the value of the spin-off distribution, and the combined value of the common shares of the two publicly traded companies may not be equal to or greater than what the value of the Company’s common shares would have been had the spin-off not occurred. The Company also expects to incur significant expenses in connection with its pursuit of the spin-off.
In the event the spin-off is consummated, the Company and its shareholders may not be able to achieve the full strategic and financial benefits that are currently anticipated to result from the spin-off, or such benefits may be delayed, particularly if Curbline is unable to acquire additional convenience assets or if the Company is unable to maximize value through operations and opportunistic asset sales. Curbline’s ability to execute on its plan to acquire assets is dependent on many factors, including the availability of additional sources of capital, the level of supply and pricing for such assets and the internal resources required to pursue such acquisitions. The Company’s ability to maximize value through operations and additional opportunistic asset sales is dependent on many factors, including demand for space within the Company’s portfolio and the level of demand and pricing for its assets. Even if the Company disposes of additional assets, the ability to distribute sales proceeds to shareholders will be subject to any restrictions set forth in the terms of the Company’s then-outstanding indebtedness and preferred investments.
The Proposed Spin-Off May Create, or Appear to Create, Potential Conflicts of Interest for Certain of Our Directors and Officers Because of Their Positions or Relationships with Curbline
In the event the spin-off is consummated, members of the Company’s Board of Directors and management are expected to own shares of Curbline, including as a result of the distribution of Curbline shares made on account of Company shares currently owned by such individuals. Ownership of Curbline shares by these individuals could create, or appear to create, potential conflicts of interest when the Company’s directors and executive officers are faced with decisions that could have different implications for the Company and Curbline. It is expected that some of the Company’s current or former directors might also become directors of Curbline following the spin-off.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
ISSUER PURCHASES OF EQUITY SECURITIES
(a)
(b)
(c)
(d)
TotalNumber ofSharesPurchased(A)
AveragePrice Paidper Share
Total Numberof Shares Purchasedas Part ofPublicly AnnouncedPlans or Programs
Maximum Number(or ApproximateDollar Value) ofShares that May YetBe Purchased Under the Plans or Programs(Millions)
July 1–31, 2023
August 1–31, 2023
September 1–30, 2023
28,437
13.67
73.4
On December 20, 2022, the Company announced that its Board of Directors authorized a common share repurchase program. Under the terms of the program, the Company is authorized to repurchase up to a maximum value of $100 million of its common shares. From December 20, 2022 through September 30, 2023, the Company had repurchased 2.0 million of its common shares in the aggregate at a cost of $26.6 million under the program.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
Item 6. EXHIBITS
10.1
Employment Agreement, dated as of September 15, 2023, by and between SITE Centers Corp. and Conor Fennerty
10.2
Employment Agreement, dated as of September 15, 2023, by and between SITE Centers Corp. and John Cattonar
31.1
Certification of principal executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 19341
31.2
Certification of principal financial officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 19341
32.1
Certification of chief executive officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of this report pursuant to the Sarbanes-Oxley Act of 20021,2
32.2
Certification of chief financial officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of this report pursuant to the Sarbanes-Oxley Act of 20021,2
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document1
101.SCH
Inline XBRL Taxonomy Extension Schema Document1
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document1
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document1
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document1
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document1
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 has been formatted in Inline XBRL and included in Exhibit 101.
Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, (ii) Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022, (iii) Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022, (iv) Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2023 and 2022, (v) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 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 Presidentand Chief Accounting Officer
(Principal Accounting Officer)
Date: November 1, 2023