SITE CENTERS CORP.
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") provides readers with a perspective from management on the
financial condition, results of operations and liquidity of SITE Centers Corp.
and its related consolidated real estate subsidiaries (collectively, the
"Company" or "SITE Centers") and other factors that may affect the Company's
future results. The Company believes it is important to read the MD&A in
conjunction with its Annual Report on Form 10-K for the year ended December 31,
2021 , as well as other publicly available information.
EXECUTIVE SUMMARY
The Company is a self-administered and self-managed Real Estate Investment Trust
("REIT") in the business of acquiring, owning, developing, redeveloping, leasing
and managing shopping centers. As of June 30, 2022 , the Company's portfolio
consisted of 132 shopping centers (including 33 shopping centers owned through
unconsolidated joint ventures). At June 30, 2022 , the Company owned
approximately 30.8 million square feet of gross leasable area ("GLA") through
all its properties (wholly-owned and joint venture). At June 30, 2022 , the
aggregate occupancy of the Company's operating shopping center portfolio was
90.9% versus 89.7% at June 30, 2021 , and the average annualized base rent per
occupied square foot was $18.86 versus $18.39 at June 30, 2021 , on a pro rata
basis.
The following provides an overview of the Company's key financial metrics (see
Non-GAAP Financial Measures described later in this section) (in thousands,
except per share amounts):
Three Months Six Months
Ended June 30, Ended June 30,
2022 2021 2022 2021
Net income attributable to common
shareholders $ 57,601 $ 13,768 $ 68,749 $ 24,643
FFO attributable to common shareholders $ 65,866 $ 60,495 $ 127,092 $ 110,006
Operating FFO attributable to common
shareholders $ 66,454 $ 65,254 $ 128,011 $ 120,556
Earnings per share - Diluted $ 0.27 $ 0.06 $
0.32
For the six months endedJune 30, 2022 , the increase in net income attributable to common shareholders, as compared to the prior-year period, was primarily attributable to higher gain on sale and change in control of interests, operating results driven by base rent growth at existing assets, the net impact of property investments and the write-off of preferred share original issuance costs in 2021, partially offset by lower equity in net income of joint ventures and lower fee income from Retail Value Inc. ("RVI"). InMarch 2020 , theWorld Health Organization categorized COVID-19 as a pandemic, and it continues to spread throughoutthe United States and other countries across the world. Beginning inmid-March 2020 , federal, state and local governments took various actions to limit the spread of COVID-19, including ordering the temporary closure of non-essential businesses (which included many of the Company's tenants) and imposing significant social distancing guidelines and restrictions on the continued operations of essential businesses and the subsequent reopening of non-essential businesses. The Company continues to monitor the impact of the COVID-19 pandemic on its business and has taken additional steps as needed in order to protect the health and safety of its workforce. The Company's collection rates continued to improve throughout 2021 reaching at or near pre-pandemic levels by year-end 2021. A substantial majority of tenants, consistent with periods prior to the COVID-19 pandemic, including tenants previously on the cash basis of accounting, are paying their monthly rent and have repaid deferred rents relating to prior periods. Included in the results for the three and six months endedJune 30, 2022 were$1.2 million and$2.3 million , respectively, of prior-period net revenue atSITE Centers' share, primarily from cash basis tenants and related reserve adjustments.
Company Activity
The growth opportunities within the Company's core property operations include rental rate increases, continued lease-up of the portfolio, and the adaptation of existing site plans and square footage to generate higher blended rental rates and operating cash flows. Additional growth opportunities include external acquisition investments and tactical redevelopment. Management intends to use retained cash flow, proceeds from the sale of lower growth assets and proceeds from equity offerings and debt financings to fund capital expenditures relating to new leasing activity, acquisitions and tactical redevelopment activity.
Year-to-date transaction and investment highlights for the Company through
•
Acquired nine shopping centers for an aggregate purchase price of
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•
Acquired its joint venture partner's interest in
•
Sold a wholly-owned shopping center and one parcel at a wholly-owned shopping center in addition to an unconsolidated shopping center for an aggregate sales price of$35.4 million or$25.0 million at the Company's share.
•
Sold its 20% interest in the SAU Joint Venture to its partner based on a gross
asset value of
•
Amended and restated its$950 million revolving credit facility to extend the maturity date toJune 2026 (subject to two six-month extension options). The Company amended its$100 million term loan to extend the maturity date toJune 2027 and change the interest rate benchmark from LIBOR to SOFR. Also, inJune 2022 , the Company drew an additional$100.0 million on the term loan facility with total borrowings aggregating$200.0 million atJune 30, 2022 . As ofJuly 22, 2022 , the Company no longer maintains any indebtedness having an interest rate determined by reference to the LIBOR benchmark.
•
Settled 2.2 million common shares which were offered and sold on a forward basis in 2021 under its$250 million continuous equity program, resulting in gross proceeds of$35.1 million . In the second quarter of 2022, the Company sold 0.2 million common shares resulting in gross proceeds of$3.2 million .
•
In
•
InJuly 2022 , the DDRM Joint Venture sold 13 assets for an aggregate sales price of$387.6 million ($77.5 million at the Company's share) with$225.0 million of mortgage debt repaid upon closing. This joint venture also soldOviedo Park Crossing (Oviedo, Florida ) inJuly 2022 for$28.0 million ($5.6 million at the Company's share) with related mortgage debt repaid upon closing.
Company Operational Highlights
During the six months ended
•
Leased approximately 2.6 million square feet of GLA, including 132 new leases and 226 renewals for a total of 358 leases. As ofJune 30, 2022 , the remaining 2022 lease expirations aggregated approximately 0.3 million square feet of GLA (representing approximately 24% of total annualized base rent of 2022 expiring leases as ofDecember 31, 2021 ), as compared to 1.7 million square feet of GLA as ofDecember 31, 2021 ;
•
AtDecember 31, 2021 , the Company had 339 leases expiring in 2022, with an average base rent per square foot of$20.31 , on a pro rata basis. For the comparable leases executed in the six months endedJune 30, 2022 , the Company generated positive leasing spreads on a pro rata basis of 23.7% for new leases and 5.1% for renewals. Leasing spreads are a key metric in real estate, representing the percentage increase of rental rates on new and renewal leases over rental rates on existing leases, though leasing spreads exclude consideration of the amount of capital expended in connection with new leasing activity. The Company's leasing spread calculation includes only those deals that were executed within one year of the date the prior tenant vacated, and as a result, is a useful benchmark to compare the average annualized base rent of expiring leases with the comparable executed market rental rates;
•
The Company's total portfolio average annualized base rent per square foot increased to$18.86 atJune 30, 2022 , on a pro rata basis, as compared to$18.33 atDecember 31, 2021 and$18.39 atJune 30, 2021 , primarily due to the impact of acquisitions and new leases that commenced in the first half of 2022;
•
The aggregate occupancy of the Company's operating shopping center portfolio was 90.9% atJune 30, 2022 , on a pro rata basis, as compared to 90.0% atDecember 31, 2021 and 89.7% atJune 30, 2021 and
•
For new leases executed during the six months endedJune 30, 2022 , the Company expended a weighted-average cost of tenant improvements and lease commissions estimated at$7.15 per rentable square foot, on a pro rata basis, over the lease term, as compared to$7.70 per rentable square foot in 2021. The Company generally does not expend a significant amount of capital on lease renewals. 18 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS
Consolidated shopping center properties owned as of
Revenues from Operations (in thousands)
Three Months
Ended June 30,
2022 2021 $ Change
Rental income(A) $ 136,203 $ 126,230 $ 9,973
Fee and other income 4,479 9,238 (4,759 )
Total revenues $ 140,682 $ 135,468 $ 5,214
Six Months
Ended June 30,
2022 2021 $ Change
Rental income(A)
(A)
The following tables summarize the key components of the 2022 rental income as compared to 2021 (in thousands):
Three Months
Ended June 30,
Contractual Lease Payments 2022 2021 $ Change
Base and percentage rental income $ 97,933 $ 87,683 $ 10,250
Recoveries from tenants 33,763 30,482 3,281
Uncollectible revenue 1,162 5,787 (4,625 )
Lease termination fees, ancillary and other
rental income 3,345 2,278 1,067
Total contractual lease payments$ 136,203 $ 126,230 $ 9,973 Six Months Ended June 30, Contractual Lease Payments 2022 2021 $ Change Base and percentage rental income(1)$ 192,157 $ 173,942 $ 18,215 Recoveries from tenants(2) 66,597 61,077 5,520 Uncollectible revenue(3) 2,270 7,185 (4,915 ) Lease termination fees, ancillary and other rental income 5,063 3,916
1,147
Total contractual lease payments$ 266,087 $ 246,120
(1)
The changes in base and percentage rental income for the six months ended
Increase
Acquisition of shopping centers $ 10.8
Comparable Portfolio Properties 5.7
Straight-line rents 1.7
Total $ 18.2 The increase in straight-line rents is primarily due to the removal of
straight-line rent reserves for tenants that were removed from the cash basis of
accounting (
19
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The following tables present the statistics for the Company's assets affecting
base and percentage rental income summarized by the following portfolios: pro
rata combined shopping center portfolio, wholly-owned shopping center portfolio
and joint venture shopping center portfolio:
Pro Rata Combined
Shopping Center Portfolio
June 30,
2022 2021
Centers owned (at 100%) 132 137
Aggregate occupancy rate 90.9 % 89.7 %
Average annualized base rent per occupied square foot $ 18.86 $ 18.39
Wholly-Owned Shopping Centers
June 30,
2022 2021
Centers owned 99 80
Aggregate occupancy rate 91.0 % 90.2 %Average annualized base rent per occupied square foot $ 19.06
$ 18.61
Joint Venture Shopping Centers
June 30,
2022 2021
Centers owned 33 57
Aggregate occupancy rate 90.7 % 86.7 %Average annualized base rent per occupied square foot $ 15.25
$ 15.27
(2)
Recoveries from tenants were approximately 78.7% and 78.2% of reimbursable
operating expenses and real estate taxes for the six months ended
(3)
Primarily relates to the impact of the COVID-19 pandemic on rent collections, including the impact of lease modification accounting and tenants on the cash basis of accounting due to collectability concerns. The net amount reported as income was primarily attributable to rental income paid in each respective year from tenants on the cash basis of accounting and related reserve adjustments, which related to amounts (including deferred rents) originally owed in 2020 and 2021.
(B)
In 2022, Fee and Other Income was primarily earned from the Company's unconsolidated joint ventures. The decrease primarily relates to lower fee revenue from RVI as a result of assets sales completed by RVI in 2021. In 2022, the Company expects to record less fee income due to the continued decrease in assets under management as compared to prior years related to both RVI and joint ventures. As ofJune 30, 2022 , RVI does not own any remaining real estate investments. The management agreement with RVI in effect as ofJanuary 1, 2022 , includes a reduced asset management fee to effectuate a wind-up of its operations. InJuly 2022 , the DDRM Joint Venture sold 14 assets. The Company expects that the DDRM Properties Joint Venture may sell additional assets in the future. Changes in the number of assets under management, or the fee structures applicable to such arrangements, will adversely impact the amount of revenue recorded in future periods. The Company's other joint venture partners may also elect to terminate their joint venture arrangements with the Company in connection with a change in investment strategy or otherwise. See "-Sources and Uses of Capital" included elsewhere herein.
Expenses from Operations (in thousands)
Three Months
Ended June 30,
2022 2021 $ Change
Operating and maintenance $ 22,278 $ 19,422 $ 2,856
Real estate taxes 20,624 19,535 1,089
Impairment charges 2,536 - 2,536General and administrative 11,353 12,425 (1,072 ) Depreciation and amortization 51,021 47,217 3,804
$ 107,812 $ 98,599 $ 9,213 20
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Six Months
Ended June 30,
2022 2021 $ Change
Operating and maintenance(A) $ 44,214 $ 39,638 $ 4,576
Real estate taxes(A) 40,807 39,199 1,608
Impairment charges(B) 2,536 7,270 (4,734 )General and administrative(C) 23,604 29,820 (6,216 ) Depreciation and amortization(A) 101,385 92,777 8,608
$ 212,546 $ 208,704 $ 3,842
(A)
The changes for the six months endedJune 30, 2022 , were due to the following (in millions): Operating Depreciation and Real Estate and Maintenance Taxes Amortization
Acquisition of shopping centers $ 2.1 $ 2.0 $
9.5
Comparable Portfolio Properties 2.5 (0.4 ) (0.9 )
$ 4.6 $ 1.6 $ 8.6
(B)
Changes in (i) an asset's expected future undiscounted cash flows due to changes
in market or leasing conditions, (ii) various courses of action that may occur
or (iii) holding periods could result in the recognition of impairment charges.
(C)
General and administrative expenses for the six months endedJune 30, 2022 and 2021, were approximately 6.6% and 6.9% of total revenues (excluding uncollectible revenue), respectively, including total revenues of unconsolidated joint ventures and managed properties for the comparable periods. Excluding marktomarket activity recorded in 2021 of$5.6 million for certain PRSUs which were granted in 2018 and settled in 2021, general and administrative expenses were 5.6% of total revenues for the six months endedJune 30, 2021 . The Company continues to expense certain internal leasing salaries, legal salaries and related expenses associated with leasing and re-leasing of existing space.
Other Income and Expenses (in thousands)
Three Months
Ended June 30,
2022 2021 $ Change
Interest expense
$ (20,056 ) $ (19,460 ) $ (596 ) Six Months Ended June 30, 2022 2021 $ Change
Interest expense(A)
$ (38,818 ) $ (39,221 ) $ 403
(A)
The weighted-average debt outstanding and related weighted-average interest rate
are as follows:
Six Months
Ended June 30,
2022 2021
Weighted-average debt outstanding (in billions)
3.9 % 4.0 %
The Company's overall balance sheet strategy is to continue to maintain
substantial liquidity and prudent leverage levels and lengthy average debt
maturities. The weighted-average interest rate (based on contractual rates and
excluding fair market value of adjustments and debt issuance costs) was 3.8% and
3.9% at June 30, 2022 and 2021, respectively.
Interest costs capitalized in conjunction with redevelopment projects were $0.2
million for both the three months ended June 30, 2022 and 2021 and $0.5 million
and $0.3 million for the six months ended June 30, 2022 and 2021, respectively.
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Other Items (in thousands)
Three Months
Ended June 30,
2022 2021 $ Change
Equity in net income of joint ventures $ 1,381 $ 4,850 $ (3,469 )
Gain on sale of interests 41,970 - 41,970
Gain on disposition of real estate, net 4,597 218
4,379
Tax expense of taxable REIT subsidiaries and state franchise and income taxes (353 ) (490 )
137
Income attributable to non-controlling
interests, net (19 ) (118 ) 99
Six Months
Ended June 30,
2022 2021 $ Change
Equity in net income of joint ventures(A) $ 1,550 $ 9,235 $ (7,685 )
Gain on sale and change in control of
interests(B) 45,326 13,908 31,418
Gain on disposition of real estate, net 4,455 198
4,257
Tax expense of taxable REIT subsidiaries and state franchise and income taxes (605 ) (855 )
250
Income attributable to non-controlling interests, net (37 ) (291 ) 254 (A) The decrease primarily was the result of gains on sale of assets recognized in 2021. Joint venture property sales could significantly impact the amount of income or loss recognized in future periods. See Note 3, "Investments in and Advances to Joint Ventures," in the Company's consolidated financial statements included herein.
(B)
In 2022, the Company recorded a$3.3 million gain from the acquisition of its partner's 80% equity interest in an asset (Casselberry Commons ) from the Company's partner in the DDRM Properties Joint Venture, a$16.6 million gain from the sale of its 20% interest in the SAU Joint Venture to its partner and a$25.4 million gain from the sale of its 50% interest inLennox Town Center to its partner. In 2021, relates to the sale of the Company's interest in the undeveloped land inRichmond Hill, Ontario .
Net Income (in thousands)
Three Months
Ended June 30,
2022 2021 $ Change
Net income attributable to
Six Months
Ended June 30,
2022 2021 $ Change
Net income attributable to
The increase in net income attributable toSITE Centers , as compared to the prior-year period, was primarily attributable to higher gain on sale and change in control of interests, higher operating results driven by base rent growth at existing assets and the net impact of property investments, partially offset by lower equity in net income of joint ventures and lower fee income. 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
22
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conditions, and many companies use different depreciable lives and methods.
Because FFO excludes depreciation and amortization unique to real estate and
gains and losses from property dispositions, it can provide a performance
measure that, when compared year over year, reflects the impact on operations
from trends in occupancy rates, rental rates, operating costs, interest costs
and acquisition, disposition and development activities. This provides a
perspective of the Company's financial performance not immediately apparent from
net income determined in accordance with GAAP.
FFO is generally defined and calculated by the Company as net income (loss)
(computed in accordance with GAAP), adjusted to exclude (i) preferred share
dividends, (ii) gains and losses from disposition of real estate property and
related investments, which are presented net of taxes, (iii) impairment charges
on real estate property and related investments, (iv) gains and losses from
changes in control and (v) certain non-cash items. These non-cash items
principally include real property depreciation and amortization of intangibles,
equity income (loss) from joint ventures and equity income (loss) from
non-controlling interests and adding the Company's proportionate share of FFO
from its unconsolidated joint ventures and non-controlling interests, determined
on a consistent basis. The Company's calculation of FFO is consistent with the
definition of FFO provided by NAREIT.
The Company believes that certain charges, income and gains recorded in its
operating results are not comparable or reflective of its core operating
performance. Operating FFO is useful to investors as the Company removes
non-comparable charges, income and gains to analyze the results of its
operations and assess performance of the core operating real estate portfolio.
As a result, the Company also computes Operating FFO and discusses it with the
users of its financial statements, in addition to other measures such as net
income (loss) determined in accordance with GAAP and FFO. Operating FFO is
generally defined and calculated by the Company as FFO excluding certain
charges, income and gains that management believes are not comparable and
indicative of the results of the Company's operating real estate portfolio. Such
adjustments include write-off of preferred share original issuance costs,
gains/losses on the early extinguishment of debt, certain transaction fee
income, transaction costs and other restructuring type costs. The disclosure of
these adjustments is regularly requested by users of the Company's financial
statements.
The adjustment for these charges, income and gains may not be comparable to how
other REITs or real estate companies calculate their results of operations, and
the Company's calculation of Operating FFO differs from NAREIT's definition of
FFO. Additionally, the Company provides no assurances that these charges, income
and gains are non-recurring. These charges, income and gains could be reasonably
expected to recur in future results of operations.
These measures of performance are used by the Company for several business
purposes and by other REITs. The Company uses FFO and/or Operating FFO in part
(i) as a disclosure to improve the understanding of the Company's operating
results among the investing public, (ii) as a measure of a real estate asset
company's performance, (iii) to influence acquisition, disposition and capital
investment strategies and (iv) to compare the Company's performance to that of
other publicly traded shopping center REITs.
For the reasons described above, management believes that FFO and Operating FFO
provide the Company and investors with an important indicator of the Company's
operating performance. They provide recognized measures of performance other
than GAAP net income, which may include non-cash items (often significant).
Other real estate companies may calculate FFO and Operating FFO in a different
manner.
Management recognizes the limitations of FFO and Operating FFO when compared to
GAAP's net income. FFO and Operating FFO do not represent amounts available for
dividends, capital replacement or expansion, debt service obligations or other
commitments and uncertainties. Management does not use FFO or Operating FFO as
an indicator of the Company's cash obligations and funding requirements for
future commitments, acquisitions or development activities. Neither FFO nor
Operating FFO represents cash generated from operating activities in accordance
with GAAP, and neither is necessarily indicative of cash available to fund cash
needs. Neither FFO nor Operating FFO should be considered an alternative to net
income (computed in accordance with GAAP) or as an alternative to cash flow as a
measure of liquidity. FFO and Operating FFO are simply used as additional
indicators of the Company's operating performance. The Company believes that to
further understand its performance, FFO and Operating FFO should be compared
with the Company's reported net income (loss) and considered in addition to cash
flows determined in accordance with GAAP, as presented in its consolidated
financial statements. Reconciliations of these measures to their most directly
comparable GAAP measure of net income (loss) have been provided below.
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Reconciliation Presentation
FFO and Operating FFO attributable to common shareholders were as follows (in
thousands):
Three Months
Ended June 30,
2022 2021 $ Change
FFO attributable to common shareholders $ 65,866 $ 60,495 $ 5,371
Operating FFO attributable to common shareholders 66,454 65,254 1,200
Six Months
Ended June 30,
2022 2021 $ Change
FFO attributable to common shareholders $ 127,092 $ 110,006 $ 17,086
Operating FFO attributable to common shareholders 128,011 120,556 7,455
The increase in FFO for the six months endedJune 30, 2022 , as compared to the prior-year period, was primarily attributable to higher operating results driven by base rent growth at existing assets and the net impact of property investments and lower general and administrative expenses due to the mark-to-market adjustment on certain PRSUs settled in 2021, partially offset by lower management fees and lower uncollectible revenue due to lower reserve adjustments and the write-off of preferred share original issuance costs in 2021. The change in Operating FFO primarily was due to positive operating results, partially offset by lower fee income. The Company's reconciliation of net income attributable to common shareholders computed in accordance with GAAP to FFO attributable to common shareholders and Operating FFO attributable to common shareholders is as follows (in thousands). The 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: Three Months Six Months Ended June 30, Ended June 30, 2022 2021 2022 2021 Net income attributable to common shareholders$ 57,601 $ 13,768 $ 68,749 $ 24,643 Depreciation and amortization of real estate investments 49,775 45,807 98,903 89,995 Equity in net income of joint ventures (1,381 ) (4,850 ) (1,550 ) (9,235 ) Joint ventures' FFO(A) 3,883 5,971 8,198 11,406 Non-controlling interests (OP Units) 19 17 37 33 Impairment of real estate 2,536 - 2,536 7,270 Gain on sale and change in control of interests (41,970 ) - (45,326 ) (13,908 ) Gain on disposition of real estate, net (4,597 ) (218 ) (4,455 ) (198 ) FFO attributable to common shareholders 65,866 60,495 127,092 110,006 RVI disposition fees (385 ) (592 ) (385 ) (592 ) Mark-to-market adjustment (PRSUs) - - - 5,589 Debt extinguishment, transactions, net 971 165 1,302 367 Joint ventures - debt extinguishment and other, net 2 30 2 30 Write-off of preferred share original issuance costs - 5,156 - 5,156 Non-operating items, net 588 4,759 919 10,550 Operating FFO attributable to common shareholders$ 66,454 $ 65,254 $ 128,011 $ 120,556 24
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(A)
AtJune 30, 2022 and 2021, the Company had an economic investment in unconsolidated joint ventures which owned 33 and 56 shopping center properties, respectively. These joint ventures represent the investments in which the Company recorded its share of equity in net income or loss and, accordingly, FFO and Operating FFO. Joint ventures' FFO and Operating FFO are summarized as follows (in thousands): Three Months Six Months Ended June 30, Ended June 30, 2022 2021 2022 2021 Net income (loss) attributable to unconsolidated joint ventures$ 1,339 $ 15,146 $ (39 ) $ 48,662 Depreciation and amortization of real estate investments 13,328 16,587 27,673 33,704 Impairment of real estate 3,340 - 8,540 -
Gain on disposition of real estate, net (1,790 ) (8,186 ) (1,692 ) (36,587 ) FFO
$ 16,217 $ 23,547 $ 34,482 $ 45,779 FFO at SITE Centers' ownership interests$ 3,883 $ 5,971 $ 8,198 $ 11,406 Operating FFO atSITE Centers' ownership interests$ 3,885 $ 6,001 $
8,200
Net Operating Income and Same Store Net Operating Income
Definition and Basis of Presentation
The Company uses Net Operating Income ("NOI"), which is a non-GAAP financial
measure, as a supplemental performance measure. NOI is calculated as property
revenues less property-related expenses. The Company believes NOI provides
useful information to investors regarding the Company's financial condition and
results of operations because it reflects only those income and expense items
that are incurred at the property level and, when compared across periods,
reflects the impact on operations from trends in occupancy rates, rental rates,
operating costs and acquisition and disposition activity on an unleveraged
basis.
The Company also presents NOI information on a same store basis, or Same Store
Net Operating Income ("SSNOI"). The Company defines SSNOI as property revenues
less property-related expenses, which exclude straight-line rental income
(including reimbursements) and expenses, lease termination income, management
fee expense, fair market value of leases and expense recovery adjustments. SSNOI
includes assets owned in comparable periods (15 months for quarter comparisons).
In addition, SSNOI excludes all non-property and corporate level revenue and
expenses. Other real estate companies may calculate NOI and SSNOI in a different
manner. The Company believes SSNOI at its effective ownership interest provides
investors with additional information regarding the operating performances of
comparable assets because it excludes certain non-cash and non-comparable items
as noted above. SSNOI is frequently used by the real estate industry, as well as
securities analysts, investors and other interested parties, to evaluate the
performance of REITs.
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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Reconciliation Presentation
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 Six Months Ended June 30,
2022 2021 2022 2021
At 100% At the Company's Interest
Net income attributable to SITE Centers $ 74,327 $ 37,877 $ 74,327 $ 37,877
Fee income (6,818 ) (16,906 ) (6,818 ) (16,906 )
Interest expense 37,167 38,531 37,167 38,531
Depreciation and amortization 101,385 92,777 101,385 92,777
General and administrative 23,604 29,820 23,604 29,820
Other expense, net 1,651 690 1,651 690
Impairment charges 2,536 7,270 2,536 7,270
Equity in net income of joint ventures (1,550 ) (9,235 ) (1,550 ) (9,235 )
Tax expense 605 855 605 855
Gain on sale and change in control of interests (45,326 ) (13,908 ) (45,326 ) (13,908 ) Gain on disposition of real estate, net
(4,455 ) (198 ) (4,455 ) (198 )
Income from non-controlling interests 37 291 37 291
Consolidated NOI, net of non-controlling interests
Net (loss) income from unconsolidated joint ventures$ (39 ) $ 48,662 $ 615$ 8,187 Interest expense 18,319 21,918 4,151 5,407 Depreciation and amortization 27,673 33,704 6,148 7,675 Impairment charges 8,540 - 1,708 - Other expense, net 4,994 5,974 1,182 1,486 Gain on disposition of real estate, net (1,692 ) (36,587 ) (291 ) (4,478 ) Unconsolidated NOI$ 57,795 $
73,671
Total Consolidated + Unconsolidated NOI$ 196,676 $ 186,141 Less: Non-Same Store NOI adjustments (9,234 ) 1,158 Total SSNOI including redevelopment
SSNOI % Change including redevelopment 0.1 % SSNOI for the six months endedJune 30, 2022 included uncollectible revenue of$2.3 million as compared to$7.2 million for the six months endedJune 30, 2021 , due to a decrease in the amount of net revenues received from tenants related to prior periods primarily from cash basis tenants and related reserve adjustments. 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$1.9 billion atJune 30, 2022 , compared to$1.7 billion atDecember 31, 2021 . The Company had an unrestricted cash balance of$38.5 million atJune 30, 2022 and a$125.0 million outstanding balance on its Revolving Credit Facility, and accordingly, availability under the Revolving Credit Facility of$825.0 million (subject to satisfaction of applicable borrowing conditions). The Company has no remaining consolidated debt maturing in 2022. The Company 26 -------------------------------------------------------------------------------- has$87.2 million aggregate principal amount of senior notes and$35.5 million aggregate principal amount of consolidated mortgage debt maturing in 2023. As ofJuly 22, 2022 , reflecting the refinancing of the DDRM Joint Venture mortgage loan onJuly 1, 2022 and excluding the indebtedness relating to the assets in the DDRM Joint Venture that were sold inJuly 2022 , the DDRM Joint Venture had approximately$23.2 million of mortgage debt outstanding at the Company's share maturing inJune 2023 , which has a one-year extension option subject to certain conditions. As ofJune 30, 2022 , the Company did not have any consolidated indebtedness outstanding having an interest rate determined by reference to LIBOR. As ofJune 30, 2022 , the Company anticipates that it has approximately$30 million to be incurred on its pipeline of identified redevelopment projects. The Company declared a common share dividend of$0.26 per share in the six months endedJune 30, 2022 . The Company believes it has sufficient liquidity to operate its business at this time.
Revolving Credit Facility and Term Loan
InJune 2022 , the Company amended and restated its unsecured revolving credit facility with a syndicate of financial institutions andJ.P. Morgan Chase Bank, N.A ., as administrative agent, (the "Revolving Credit Facility.") The Revolving Credit Facility provides for borrowings of up to$950 million , which limit may be increased to$1.45 billion provided that existing or new lenders agree to provide incremental commitments. The Revolving Credit Facility was amended to, among other things, (i) modify the financial covenants and certain other provisions contained therein, (ii) extend the maturity date toJune 2026 subject to two six-month options to extend the maturity date toJune 2027 upon the Company's request (subject to satisfaction of certain conditions), and (iii) change the interest rate benchmark from LIBOR to SOFR. The Company's borrowings under the Revolving Credit Facility bear interest at variable rates at the Company's election, based on either (i) the SOFR rate plus a spread (0.95% atJune 30, 2022 ) or (ii) the alternative base rate plus a spread (0% atJune 30, 2022 ). The Revolving Credit Facility also provides for an annual facility fee, which was 20 basis points on the entire facility atJune 30, 2022 . The specified spreads and facility fee vary depending on the Company's long-term senior unsecured debt ratings from Moody's Investors Service, Inc. ("Moody's"),S&P Global Ratings ("S&P") andFitch Investor Services Inc. ("Fitch") (or their respective successors). The Revolving Credit Facility also features a sustainability-linked pricing component whereby the applicable interest rate margin can be adjusted by one or two basis points if the Company meets certain sustainability performance targets.
In
InJune 2022 , the Company also amended and restated its$100 million unsecured term loan with a syndicate of financial institutions andWells Fargo Bank, National Association , as administrative agent (the "Term Loan") to, among other things, (i) modify the financial covenants and certain other provisions contained therein in a manner consistent with the amendments made to the Revolving Credit Facility, (ii) extend the maturity date toJune 2027 , (iii) add a$100 million delayed draw feature and (iv) change the interest rate benchmark from LIBOR to SOFR. The Term Loan bears interest at variable rates, based on the Company's long-term senior unsecured debt ratings, equal to (i) the SOFR rate plus a spread (1.05% atJune 30, 2022 ) or (ii) the alternative base rate plus a spread (0.0% atJune 30, 2022 ). The Company may increase the principal amount of the Term Loan in the future to up to$800 million in the aggregate provided that existing or new lenders are identified to provide additional loan commitments. The Term Loan also features a sustainability-linked pricing component where by the applicable interest rate margin can be adjusted by one to two basis points if the Company meets certain sustainability performance targets. The covenants governing the Term Loan are substantially identical to those governing the Revolving Credit Facility. In lateJune 2022 , the Company utilized the Term Loan's delayed draw feature to borrow an additional$100.0 million on the Term Loan. As a result, the aggregate principal amount outstanding on the Term Loan was$200.0 million atJune 30, 2022 . The Revolving Credit Facility, the Term Loan and the indentures under which the Company's senior and subordinated unsecured indebtedness are, or may be, issued contain certain financial and operating covenants including, among other things, leverage ratios and debt service coverage and fixed charge coverage ratios, as well as limitations on the Company's ability to incur secured and unsecured indebtedness, sell all or substantially all of the Company's assets and engage in certain mergers and acquisitions. These credit facilities and indentures also contain customary default provisions including the failure to make timely payments of principal and interest payable thereunder, the failure to comply with the Company's financial and operating covenants and the failure of the Company or its majority-owned subsidiaries (i.e., entities in which the Company has a greater than 50% interest) to pay, when due, certain indebtedness in excess of certain thresholds beyond applicable grace and cure periods. In the event the Company's lenders or note holders declare a default, as defined in the applicable agreements governing the debt, the Company may be unable to obtain further funding and/or an acceleration of any outstanding borrowings may occur. As ofJune 30, 2022 , 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. 27
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Consolidated Indebtedness - as of
As discussed above, the Company is committed to maintaining prudent leverage levels and may utilize proceeds from equity offerings or the sale of properties or other investments to repay additional debt. These sources of funds could be affected by various risks and uncertainties. No assurance can be provided that the Company's debt obligations will be refinanced or repaid as currently anticipated. See Item 1A. Risk Factors in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . The Company continually evaluates its debt maturities and, based on management's assessment, believes it has viable financing and refinancing alternatives. The Company has sought to manage its debt maturities through executing a strategy to extend debt duration, increase liquidity, maintain prudent leverage and improve the Company's credit profile with a focus of lowering the Company's balance sheet risk and cost of capital.
The Company's unconsolidated joint ventures had aggregate outstanding indebtedness to third parties of$0.8 billion and$1.0 billion atJune 30, 2022 and 2021, respectively. Such mortgages are generally non-recourse to the Company and its partners; however, certain mortgages may have recourse to the Company and its partners in certain limited situations, such as misappropriation of funds, impermissible transfer, environmental contamination and material misrepresentation. Excluding the Company's DDRM Joint Venture's mortgage debt that was refinanced and repaid inJuly 2022 with proceeds from the joint venture's sale of 14 assets, the outstanding indebtedness of the Company's unconsolidated joint ventures atJune 30, 2022 , which matures in the subsequent 13-month period (i.e. throughJuly 2023 ), is$115.8 million ($23.2 million at the Company's share). All of this amount is attributable to the DDRM Joint Venture and the Company expects the joint venture to repay the indebtedness with proceeds from possible asset sales or to exercise the option to extend the loan's maturity date by one year. No assurance can be provided that these obligations will be refinanced or repaid as currently anticipated. Similar toSITE Centers , the Company's joint ventures experienced a reduction in rent collections, beginning in the second quarter of 2020, as a result of the impact of the COVID-19 pandemic. Though rent collection at the Company's joint ventures had reached at or near pre-pandemic levels by year-end 2021, any future deterioration in rent collection may cause one or more of these joint ventures to be unable to refinance maturing obligations or satisfy applicable covenants, financial tests or debt service requirements or loan maturity extension conditions in the future, thereby allowing the mortgage lender to assume control of property cash flows, limit distributions of cash to joint venture members, declare a default, increase the interest rate or accelerate the loan's maturity.
Cash Flow Activity
The Company's cash flow activities are summarized as follows (in thousands):
Six Months
Ended June 30,
2022 2021
Cash flow provided by operating activities $ 132,107 $ 144,756
Cash flow used for investing activities (288,951 )
(31,561 ) Cash flow provided by (used for) financing activities 154,772 (126,457 )
Changes in cash flow for the six months ended
Operating Activities: Cash provided by operating activities decreased$12.6 million primarily due to the following: • Decrease in cash collected from tenants in 2022 related to prior periods primarily from cash basis tenants; • Decrease in fees earned from joint ventures and managed properties and • Increase in income from acquired properties. Investing Activities: Cash used for investing activities increased$257.4 million primarily due to the following: • Increase in real estate assets acquired, developed and improved of$288.3 million ; • Increase in proceeds from disposition of real estate and disposition of joint venture interests of$46.9 million and • Decrease in distributions from unconsolidated joint ventures of$16.0 million . 28 -------------------------------------------------------------------------------- Financing Activities: Cash provided by financing activities increased$281.2 million primarily due to the following: • Increase in borrowings from the Revolving Credit Facility and Term Loan, net of debt repayments of$344.0 million ; • Increase in payment of debt issuance costs of$7.6 million ; • Increase in dividends paid of$15.8 million ; • Increase from prior year preferred share redemption of$150.0 million and • Decrease in net proceeds from common share offerings of$188.5 million .
Dividend Distribution
The Company declared common and preferred cash dividends of$61.4 million and$56.5 million for the six months endedJune 30, 2022 and 2021, respectively. The Company intends to distribute at least 100% of ordinary taxable income in the form of common and preferred dividends with respect to the year endingDecember 31, 2022 in order to maintain compliance with REIT requirements and in order to not incur federal income taxes (excluding federal income taxes applicable to its taxable REIT subsidiary activities). The Company declared a quarterly cash dividend of$0.13 per common share for the first and second quarters of 2022. The Board of Directors of the Company intends to monitor the Company's dividend policy in order to maintain sufficient liquidity for operating and in order to maximize the Company's free cash flow while still adhering to REIT payout requirements.
InMarch 2022 , the Company settled 2.2 million common shares, which were offered and sold on a forward basis in 2021 under its$250 million continuous equity program, resulting in gross proceeds of$35.1 million . In the second quarter of 2022, the Company sold 201,800 common shares at a weighted-average price of$16.03 per share before issuance costs generating gross proceeds of$3.2 million . AtJuly 22, 2022 , the Company had approximately$211.7 million available for the future offering of common shares under this program. InNovember 2018 , the Company's Board of Directors authorized a common share repurchase program. Under the terms of the program, the Company may purchase up to a maximum value of$100 million of its common shares. ThroughJuly 22, 2022 , the Company had repurchased 5.1 million of its common shares under this program in open market transactions at an aggregate cost of approximately$57.9 million , or$11.33 per share. As ofJuly 22, 2022 , the Company had not repurchased any shares under the program sinceMarch 2020 . SOURCES AND USES OF CAPITAL
Strategic Transaction Activity
The Company remains committed to maintaining sufficient liquidity, managing debt duration and maintaining prudent leverage levels in an effort to manage its overall risk profile. Equity offerings, debt financings, asset sales and cash flow from operations continue to represent a potential source of proceeds to be used to achieve these objectives.
Equity Transactions
InMarch 2022 , the Company settled 2.2 million common shares which were offered and sold on a forward basis in 2021 under its$250 million continuous equity program, resulting in gross proceeds of$35.1 million . In the second quarter of 2022, the Company sold 201,800 common shares, generating gross proceeds of$3.2 million . Acquisitions During the six months endedJune 30, 2022 , the Company acquired nine assets for an aggregate purchase price of$269.7 million:Artesia Village (Scottsdale, Arizona ) for$14.5 million ;La Fiesta Square and Lafayette Mercantile (Lafayette, California ) for$60.8 million and$43.0 million , respectively; Shops at Boca Center (Boca Raton, Florida ) for$90.0 million ; Shoppes of Crabapple (Alpharetta, Georgia ) for$4.4 million ; Shops at Tanglewood (Houston, Texas ) for$22.2 million andBoulevard Marketplace ,Fairfax Marketplace andFairfax Pointe (Fairfax, Virginia ) for$10.4 million ,$16.0 million and$8.4 million , respectively.
The Company also acquired its partner's 80% equity interest in
In
29--------------------------------------------------------------------------------
Dispositions
In the second quarter of 2022, the Company sold its 20% interest in the SAU Joint Venture to its partner, theState of Utah , based on a gross asset value of$155.7 million (at 100%). In addition, the Company sold its 50% interest inLennox Town Center to its partner based on a gross asset value of$77.0 million (at 100%). These transactions resulted in a Gain on Sale of Interests of$42.0 million . In the six months endedJune 30, 2022 , the Company sold a wholly-owned shopping center and one parcel at a wholly-owned shopping center in addition to an unconsolidated shopping center generating proceeds totaling$35.4 million of which the Company's share was$25.0 million . InJuly 2022 , the DDRM Joint Venture sold 13 owned shopping centers for an aggregate sales price of$387.6 million ($77.5 million at the Company's share) with the related mortgage debt of$225.0 million repaid upon closing. Also, inJuly 2022 , the DDRM Joint Venture soldOviedo Park Crossing (Oviedo, Florida ) for$28.0 million ($5.6 million at the Company's share) with related mortgage debt repaid upon closing. Changes in investment strategies for assets may impact the Company's hold-period assumptions for those properties. The disposition of certain assets could result in a loss or impairment recorded in future periods. The Company evaluates all potential sale opportunities taking into account the long-term growth prospects of the assets, the use of proceeds and the impact to the Company's balance sheet, in addition to the impact on operating results.
Redevelopment Opportunities
One key component of the Company's long-term strategic plan will be the evaluation of additional tactical redevelopment potential within the portfolio, particularly as it relates to the efficient use of the underlying real estate. The Company will generally commence construction on redevelopment projects only after substantial tenant leasing has occurred. AtJune 30, 2022 , the Company anticipates that it has approximately$30 million to be incurred on its pipeline of identified redevelopment projects.
Redevelopment Projects
As part of its strategy to expand, improve and re-tenant various properties, atJune 30, 2022 , the Company had approximately$63 million in construction in progress in various active consolidated redevelopment and other projects on a net basis. The Company's major redevelopment projects are typically substantially complete within two years of the construction commencement date. AtJune 30, 2022 , the Company's large-scale shopping center expansion and repurposing projects were as follows (in thousands): Estimated Stabilized Estimated Cost Incurred at Location Quarter Gross Cost June 30, 2022 West Bay Plaza - Phase II (Cleveland, Ohio) 4Q23$ 9,102 $ 6,360 Perimeter Pointe (Atlanta, Georgia) TBD TBD 1,314 Total$ 9,102 $ 7,674
At
Estimated
Stabilized Estimated Cost Incurred at
Location Quarter Gross Cost June 30, 2022
Tanasbourne Town Center (Portland, Oregon) 4Q24 $ 11,540 $ 1,593
Nassau Park Pavilion (Trenton, New Jersey) 3Q23 7,635 1,666
University Hills (Denver, Colorado) 4Q23 5,972 2,231
Shoppers World (Boston, Massachusetts) 4Q23 4,967 1,299
Hamilton Marketplace (Trenton, New Jersey) 1Q23 3,843 3,407
Carolina Pavilion (Charlotte, North Carolina) 4Q23 2,339 1,034
Other Tactical Projects N/A 9,226 6,990
Total $ 45,522 $ 18,220
Redevelopment projects placed into service in 2022 were completed at a cost of
approximately
30
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CAPITALIZATION
At June 30, 2022 , the Company's capitalization consisted of $1.9 billion of
debt, $175.0 million of preferred shares and $2.9 billion of market equity
(market equity is defined as common shares and OP Units outstanding multiplied
by $13.47 , the closing price of the Company's common shares on the New York
Stock Exchange on June 30, 2022 ), resulting in a debt to total market
capitalization ratio of 0.38 to 1.0, as compared to the ratio of 0.35 to 1.0 at
June 30, 2021 . The closing price of the Company's common shares on the New York
Stock Exchange was $15.06 at June 30, 2021 . At June 30, 2022 and 2021, the
Company's total debt consisted of $1.6 billion of fixed-rate debt for both
periods and $0.3 billion and $0.2 billion , respectively, of variable-rate debt.
Management's strategy is to maintain access to the capital resources necessary
to manage the Company's balance sheet and to repay upcoming maturities.
Accordingly, the Company may seek to obtain funds through additional debt or
equity financings and/or joint venture capital in a manner consistent with its
intention to operate with a conservative debt capitalization policy and to
reduce the Company's cost of capital by maintaining an investment grade rating
with Moody's, S&P and Fitch. A security rating is not a recommendation to buy,
sell or hold securities, as it may be subject to revision or withdrawal at any
time by the rating organization. Each rating should be evaluated independently
of any other rating. The Company may not be able to obtain financing on
favorable terms, or at all, which may negatively affect future ratings.
The Company's credit facilities and the indentures under which the Company's
senior and subordinated unsecured indebtedness are, or may be, issued contain
certain financial and operating covenants, including, among other things, debt
service coverage and fixed charge coverage ratios, as well as limitations on the
Company's ability to incur secured and unsecured indebtedness, sell all or
substantially all of the Company's assets, engage in certain mergers and
acquisitions and make distribution to its shareholders. Although the Company
intends to operate in compliance with these covenants, if the Company were to
violate these covenants, the Company may be subject to higher finance costs and
fees or accelerated maturities. In addition, certain of the Company's credit
facilities and indentures permit the acceleration of maturity in the event
certain other debt of the Company is in default or has been accelerated.
Foreclosure on mortgaged properties or an inability to refinance existing
indebtedness would have a negative impact on the Company's financial condition
and results of operations.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Company has no remaining consolidated debt maturing in 2022. The Company has
$87.2 million aggregate principal amount of senior notes and $35.5 million
aggregate principal amount of consolidated mortgage debt maturing in 2023. The
Company expects to fund future maturities from utilization of its Revolving
Credit Facility, proceeds from asset sales and other investments, cash flow from
operations and/or additional debt or equity financings. No assurance can be
provided that these obligations will be repaid as currently anticipated or
refinanced.
Other Guaranties
In conjunction with the redevelopment of shopping centers, the Company had entered into commitments with general contractors aggregating approximately$24.6 million for its consolidated properties atJune 30, 2022 . These obligations, composed principally of construction contracts, are generally due within 12 to 24 months, as the related construction costs are incurred, and are expected to be financed through operating cash flow, asset sales or borrowings under the Revolving Credit Facility. These contracts typically can be changed or terminated without penalty. The Company routinely enters into contracts for the maintenance of its properties. These contracts typically can be canceled upon 30 to 60 days' notice without penalty. AtJune 30, 2022 , the Company had purchase order obligations, typically payable within one year, aggregating approximately$12.2 million related to the maintenance of its properties and general and administrative expenses. ECONOMIC CONDITIONS Despite the impact of the COVID-19 pandemic, increasing e-commerce distribution and growing economic uncertainty, the Company continues to believe there is retailer demand for quality locations within well-positioned shopping centers and continues to see demand from a broad range of tenants for its space. The Company has experienced strong momentum in new lease discussions and renewal negotiations with tenants. The Company executed new leases and renewals aggregating approximately 2.1 million square feet of space for the six months endedJune 30, 2022 , on a pro rata basis, which is higher than the Company's typical pre-pandemic leasing volumes despite a decrease in the Company's owned GLA since 2019. Although there may be some additional disruption among existing tenants due to inflationary pressures, supply chain impacts and labor shortages, the Company believes that recent strong leasing volumes are attributable to the location of the Company's portfolio in suburban, high household income communities (which have been impacted less by the COVID-19 pandemic on a relative basis) and to its national tenants' strong financial positions and increasing emphasis and reliance on physical store locations to improve the spread and efficiency of fulfillment of online purchases. 31 -------------------------------------------------------------------------------- The Company benefits from a diversified tenant base, with only one tenant whose annualized rental revenue equals or exceeds 3% of the Company's annualized consolidated revenues plus the Company's proportionate share of unconsolidated joint venture revenues (TJX Companies at 5.8%). Other significant tenants include Dick's Sporting Goods, Ross Stores,Burlington and Five Below, all of which have relatively strong financial positions, have outperformed other retail categories over time and the Company believes remain well-capitalized. Historically these tenants have provided a stable revenue base, and the Company believes that they will continue to provide a stable revenue base going forward, given the long-term nature of these leases. The majority of the tenants in the Company's shopping centers provide day-to-day consumer necessities with a focus on value and convenience, versus discretionary items, which the Company believes will enable many of its tenants to outperform under a variety of economic conditions. The Company recognizes the risks posed by current economic conditions but believes that the position of its portfolio and the general diversity and credit quality of its tenant base should enable it to successfully navigate through a potentially challenging economic environment. The Company has relatively little reliance on overage or percentage rents generated by tenant sales performance. The Company believes that its shopping center portfolio is well positioned, as evidenced by its recent leasing activity, historical property income growth and consistent growth in average annualized base rent per occupied square foot. Historical occupancy has generally ranged from 89% to 96% since the Company's initial public offering in 1993. AtJune 30, 2022 andDecember 31, 2021 , the shopping center portfolio occupancy, on a pro rata basis, was 90.9% and 90.0%, respectively, and the total portfolio average annualized base rent per occupied square foot, on a pro rata basis, was$18.86 and$18.33 , respectively. The Company's portfolio was impacted by tenant bankruptcies and lease expirations in 2020, and the Company expects to expend significant amounts of capital in coming periods in connection with recently executed leases and in order to re-lease remaining vacancies. Although the per square foot cost of leasing capital expenditures has been predominantly consistent with the Company's historical trends, the high volume of the Company's recent anchor leasing activity will cause aggregate leasing capital expenditure levels to remain elevated. The weighted-average cost of tenant improvements and lease commissions estimated to be incurred over the expected lease term for new leases executed during the six months endedJune 30, 2022 and 2021, on a pro rata basis, was$7.15 and$7.70 per rentable square foot, respectively. The Company generally does not expend a significant amount of capital on lease renewals. Beginning inMarch 2020 , the retail sector was significantly impacted by the COVID-19 pandemic. Though the impact of the COVID-19 pandemic on tenant operations varied by tenant category, local conditions and applicable government mandates, a significant number of the Company's tenants experienced a reduction in sales and foot traffic, and many tenants were forced to limit their operations or close their businesses for a period of time. During early 2021, the Company worked with tenants to maximize the collection of unpaid 2020 rents by offering rent deferment on a case-by-case basis often in exchange for concessions in the form of tenant extensions of lease terms, the relaxation of leasing restrictions and co-tenancy provisions and, in some cases, alterations of control areas allowing for future redevelopment of the shopping center. The Company's collection rates showed significant improvements in 2021 and a substantial majority of the Company's tenants consistent with trends prior to the COVID-19 pandemic, including cash basis tenants, are paying their monthly rent and repaying deferred rents relating to prior periods. As ofJune 30, 2022 , the majority of rent deferral arrangements for tenants that are not accounted for on the cash basis have been repaid. The Company is unable to forecast the duration of the disruption to tenant and Company operations caused by the COVID-19 pandemic. As new surges in contagion occur, or if new COVID-19 variants were to emerge which are more resistant to vaccines, or if there are decreases in the effectiveness of such vaccines, the Company's recent success in the leasing space and the collection of deferred rents and unresolved amounts could be adversely impacted and such developments could lead to new restrictions on tenant operations, nonpayment of contractual and previously deferred rents, additional tenant requests for rent relief and additional tenant closures and bankruptcies, all of which could adversely impact the Company's results of operations in the future. Certain tenant categories remain especially vulnerable to the impact of the COVID-19 pandemic, including movie theaters, fitness centers and local restaurants. For additional risks relating to the COVID-19 pandemic, see Item 1A. Risk Factors in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . Although disruptions in rent collections stemming from the COVID-19 pandemic have generally subsided, inflation, labor shortages, supply chain disruptions and global unrest continue to pose risks to theU.S. economy, the Company's tenants and business. Inflationary pressures and rising interest rates could result in reductions in consumer spending and retailer profitability which could impact the Company's ability to grow rents and tenant demand for new and existing store locations. Regardless of accelerating inflation levels, base rent under most of the Company's long-term anchor leases will remain constant (subject to tenants' exercise of renewal options at pre-negotiated rent increases) until the expiration of their lease terms. While many of these leases require tenants to pay their share of shopping center operating expenses (including common area maintenance, real estate tax and insurance expenses), the Company's ability to collect the passed-through expense increases to tenants is dependent on their ability to absorb and pay these increases. Inflation may also impact other aspects of the Company's operating costs, including employee retention costs, the cost to complete redevelopments and build-outs of recently leased vacancies and interest rate costs relating to variable rate loans and refinancings of lower fixed-rate indebtedness. While the Company has not been significantly impacted by any of these items to date, no assurances can be provided that these inflationary pressures will not have a material adverse effect on the Company's business in the future. 32 -------------------------------------------------------------------------------- FORWARD-LOOKING STATEMENTS MD&A should be read in conjunction with the Company's consolidated financial statements and the notes thereto appearing elsewhere in this report. Historical results and percentage relationships set forth in the Company's consolidated financial statements, including trends that might appear, should not be taken as indicative of future operations. The Company considers portions of this information to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to the Company's expectations for future periods. Forward-looking statements include, without limitation, statements related to acquisitions (including any related pro forma financial information) and other business development activities, future capital expenditures, financing sources and availability and the effects of environmental and other regulations. Although the Company believes that the expectations reflected in these forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. For this purpose, any statements contained herein that are not statements of historical fact should be deemed to be forward-looking statements. Without limiting the foregoing, the words "will," "believes," "anticipates," "plans," "expects," "seeks," "estimates" and similar expressions are intended to identify forward-looking statements. Readers should exercise caution in interpreting and relying on forward-looking statements because such statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company's control and that could cause actual results to differ materially from those expressed or implied in the forward-looking statements and that could materially affect the Company's actual results, performance or achievements. For additional factors that could cause the results of the Company to differ materially from those indicated in the forward-looking statements see Item 1A. Risk Factors in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the following:
•
The Company is subject to general risks affecting the real estate industry, including the need to enter into new leases or renew leases on favorable terms to generate rental revenues, and any economic downturn may adversely affect the ability of the Company's tenants, or new tenants, to enter into new leases or the ability of the Company's existing tenants to renew their leases at rates at least as favorable as their current rates;
•
The Company could be adversely affected by changes in the local markets where its properties are located, as well as by adverse changes in national economic and market conditions;
•
The Company may fail to anticipate the effects on its properties of changes in consumer buying practices, including sales over the internet and the resulting retailing practices and space needs of its tenants, or a general downturn in its tenants' businesses, which may cause tenants to close stores or default in payment of rent;
•
The Company is subject to competition for tenants from other owners of retail properties, and its tenants are subject to competition from other retailers and methods of distribution. The Company is dependent upon the successful operations and financial condition of its tenants, in particular its major tenants, and could be adversely affected by the bankruptcy of those tenants;
•
The Company relies on major tenants, which makes it vulnerable to changes in the business and financial condition of, or demand for its space by, such tenants;
•
The Company may not realize the intended benefits of acquisition or merger transactions. The acquired assets may not perform as well as the Company anticipated, or the Company may not successfully integrate the assets and realize improvements in occupancy and operating results. The acquisition of certain assets may subject the Company to liabilities, including environmental liabilities;
•
The Company may fail to identify, acquire, construct or develop additional properties that produce a desired yield on invested capital, or may fail to effectively integrate acquisitions of properties or portfolios of properties. In addition, the Company may be limited in its acquisition opportunities due to competition, the inability to obtain financing on reasonable terms or any financing at all and other factors;
•
The Company may fail to dispose of properties on favorable terms, especially in regions experiencing deteriorating economic conditions. In addition, real estate investments can be illiquid, particularly as prospective buyers may experience increased costs of financing or difficulties obtaining financing due to local or global conditions, and could limit the Company's ability to promptly make changes to its portfolio to respond to economic and other conditions;
•
The Company may abandon a development or redevelopment opportunity after
expending resources if it determines that the opportunity is not feasible due to
a variety of factors, including a lack of availability of construction financing
on reasonable terms, the impact of the economic environment on prospective
tenants' ability to enter into new leases or pay
33--------------------------------------------------------------------------------
contractual rent, or the inability of the Company to obtain all necessary zoning and other required governmental permits and authorizations;
•
The Company may not complete development or redevelopment projects on schedule as a result of various factors, many of which are beyond the Company's control, such as weather, labor conditions, governmental approvals, material shortages or general economic downturn, resulting in limited availability of capital, increased debt service expense and construction costs and decreases in revenue;
•
The Company's financial condition may be affected by required debt service payments, the risk of default, restrictions on its ability to incur additional debt or to enter into certain transactions under its Revolving Credit Facility and Term Loan and other documents governing its debt obligations and the risk of downgrades from debt rating services. In addition, the Company may encounter difficulties in obtaining permanent financing or refinancing existing debt. Borrowings under the Company's Revolving Credit Facility are subject to certain representations and warranties and customary events of default, including any event that has had or could reasonably be expected to have a material adverse effect on the Company's business or financial condition;
•
Changes in interest rates could adversely affect the market price of the Company's common shares, as well as its performance and cash flow;
•
Debt and/or equity financing necessary for the Company to continue to grow and operate its business may not be available or may not be available on favorable terms;
•
Disruptions in the financial markets could affect the Company's ability to obtain financing on reasonable terms and have other adverse effects on the Company and the market price of the Company's common shares;
•
The Company is subject to complex regulations related to its status as a REIT and would be adversely affected if it failed to qualify as a REIT;
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The Company must make distributions to shareholders to continue to qualify as a REIT, and if the Company must borrow funds to make distributions, those borrowings may not be available on favorable terms or at all;
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Joint venture investments may involve risks not otherwise present for investments made solely by the Company, including the possibility that a partner or co-venturer may become bankrupt, may at any time have interests or goals different from those of the Company and may take action contrary to the Company's instructions, requests, policies or objectives, including the Company's policy with respect to maintaining its qualification as a REIT. In addition, a partner or coventurer may not have access to sufficient capital to satisfy its funding obligations to the joint venture or may seek to terminate the joint venture, resulting in a loss to the Company of property revenues and management fees. The partner could cause a default under the joint venture loan for reasons outside the Company's control. Furthermore, the Company could be required to reduce the carrying value of its equity investments, including preferred investments, if a loss in the carrying value of the investment is realized;
•
The Company's decision to dispose of real estate assets, including undeveloped land and construction in progress, would change the holding period assumption in the undiscounted cash flow impairment analyses, which could result in material impairment losses and adversely affect the Company's financial results;
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The outcome of pending or future litigation, including litigation with tenants or joint venture partners, may adversely affect the Company's results of operations and financial condition;
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Property damage, expenses related thereto, and other business and economic consequences (including the potential loss of revenue) resulting from extreme weather conditions or natural disasters in locations where the Company owns properties may adversely affect the Company's results of operations and financial condition;
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Sufficiency and timing of any insurance recovery payments related to damages and lost revenues from extreme weather conditions or natural disasters may adversely affect the Company's results of operations and financial condition;
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The Company and its tenants could be negatively affected by the impacts of pandemics and other public health crises;
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The Company is subject to potential environmental liabilities;
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The Company may incur losses that are uninsured or exceed policy coverage due to its liability for certain injuries to persons, property or the environment occurring on its properties;
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The Company could incur additional expenses to comply with or respond to claims under the Americans with Disabilities Act or otherwise be adversely affected by changes in government regulations, including changes in environmental, zoning, tax and other regulations;
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Changes in accounting standards or other standards may adversely affect the Company's business;
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The Company's Board of Directors, which regularly reviews the Company's business strategy and objectives, may change the Company's strategic plan based on a variety of factors and conditions, including in response to changing market conditions and
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The Company and its vendors could sustain a disruption, failure or breach of their respective networks and systems, including as a result of cyber-attacks, which could disrupt the Company's business operations, compromise the confidentiality of sensitive information and result in fines or penalties.
The impact of the COVID-19 pandemic may also exacerbate the risks discussed herein, any of which could have a material effect on the Company.
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