SITE Centers Reports Second Quarter 2023 Results

SITE Centers Corp. (NYSE: SITC), an owner of open-air shopping centers in suburban, high household income communities, announced today operating results for the quarter ended June 30, 2023.

“Second quarter results were ahead of expectations and demand for space across unit sizes in our high-quality portfolio remains elevated,” commented David R. Lukes, President and Chief Executive Officer. “We are encouraged by the depth and breadth of activity on recently recaptured square footage from bankruptcies and remain well positioned given the Company's market mix, liquidity and expected tailwind from rent commencements and tactical redevelopment deliveries.”

Results for the Quarter

• Second quarter net income attributable to common shareholders was $2.6 million, or $0.01 per diluted share, as compared to net income of $57.6 million, or $0.27 per diluted share, in the year-ago period. The decrease year-over-year primarily was the result of the gain on sale of joint venture and wholly-owned assets in the second quarter of 2022 as well as higher depreciation expense due to accelerated depreciation due to the commencement of a redevelopment project. Second quarter 2023 results were also impacted by lower joint venture management fees, higher interest expense and a separation charge included within general and administration expenses, partially offset by base rent growth and the net impact of property acquisitions.
• Second quarter operating funds from operations attributable to common shareholders (“Operating FFO” or “OFFO”) was $61.3 million, or $0.29 per diluted share, compared to $66.5 million, or $0.31 per diluted share, in the year-ago period primarily due to the lower management fees and income from joint ventures and higher interest expense.

Significant Second Quarter and Recent Activity

• Issued the Company's ninth Corporate Responsibility and Sustainability Report. The report was completed in alignment with the Global Reporting Initiative and with the Sustainability Accounting Standards Board metrics and frameworks. The report provides an annual update on the Company's corporate responsibility and sustainability programs and can be found at https://www.sitecenters.com/2022CSR.
• Acquired three convenience shopping centers during the quarter for an aggregate price of $48.5 million, including Alpha Soda Center (Atlanta, GA) for $9.4 million, Barrett Corners (Atlanta, GA) for $15.6 million and Briarcroft Center (Houston, TX) for $23.5 million.
• Sold two shopping centers during the quarter for an aggregate price of $72.0 million ($14.4 million at share).
• As previously announced, recorded a charge of $3.1 million related to a restructuring plan, which includes a Voluntary Retirement Offer. The balance of the expected $5.3 million in total charges is expected to be incurred in the third and fourth quarters of 2023. Restructuring charges have been excluded from OFFO results.
• In May 2023, repurchased 140,633 Operating Partnership (“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, which is expected to reduce future tax and legal compliance costs.

Key Quarterly Operating Results

• Reported an increase of 1.7% in same-store net operating income (“SSNOI”) on a pro rata basis for the second quarter of 2023, including redevelopment, as compared to the year-ago period. SSNOI in the second quarter of 2022 included $1.2 million of rental income at SITE Centers' share related to prior years, primarily from cash basis tenants, which was a 130 basis-point headwind to second quarter 2023 SSNOI growth.
• Generated cash new leasing spreads of 22.5% and cash renewal leasing spreads of 7.4%, both on a pro rata basis, for the trailing twelve-month period ended June 30, 2023 and cash new leasing spreads of 14.8% and cash renewal leasing spreads of 7.2%, both on a pro rata basis, for the second quarter of 2023.
• Generated straight-lined new leasing spreads of 35.0% and straight-lined renewal leasing spreads of 11.3%, both on a pro rata basis, for the trailing twelve-month period ended June 30, 2023 and straight-lined new leasing spreads of 23.3% and straight-lined renewal leasing spreads of 11.9%, both on a pro rata basis, for the second quarter of 2023.
• Reported a leased rate of 95.5% at June 30, 2023, compared to 95.9% at March 31, 2023 and 94.4% at June 30, 2022, all on a pro rata basis. The sequential decline was primarily related to the rejection of four wholly owned Bed, Bath & Beyond leases with one of the units released in the second quarter.
• As of June 30, 2023, the Signed Not Opened (“SNO”) spread was 310 basis points, representing $18.3 million of annualized base rent on a pro rata basis.

Guidance

The Company has updated its 2023 full-year guidance for net income attributable to common shareholders and Operating FFO per share to include the impact of the second quarter operating results. Impairment charges, gains on sale of interests and assets, transaction and debt extinguishment costs are excluded from guidance. The guidance update is as follows:

Reconciliation of Net Income Attributable to Common Shareholders to FFO and Operating FFO estimates:

In reliance on the exception provided by Item 10(e)(1)(i)(B) of Regulation S-K, reconciliation of the assumed range of 2023 SSNOI growth to the most directly comparable GAAP financial measure is not provided because the Company is unable to provide such reconciliation without unreasonable effort due to the multiple components of the calculation which only includes properties owned for comparable periods and excludes all corporate level activity as described below under Non-GAAP Measures and Other Operational Metrics. Key assumptions for 2023 guidance include the following:

About SITE Centers Corp.

SITE Centers is an owner and manager of open-air shopping centers located in suburban, high household income communities. The Company is a self-administered and self-managed REIT operating as a fully integrated real estate company, and is publicly traded on the New York Stock Exchange under the ticker symbol SITC. Additional information about the Company is available at www.sitecenters.com. To be included in the Company’s e-mail distributions for press releases and other investor news, please click here.

Conference Call and Supplemental Information

The Company will hold its quarterly conference call today at 8:00 a.m. Eastern Time. To participate with access to the slide presentation, please visit the Investor Relations portion of SITE's website, ir.sitecenters.com, or for audio only, dial 888‑317‑6003 (U.S.), 866-284-3684 (Canada) or 412-317-6061 (international) using pass code 1798214 at least ten minutes prior to the scheduled start of the call. The call will also be webcast and available in a listen-only mode on SITE Centers’ website at ir.sitecenters.com. If you are unable to participate during the live call, a replay of the conference call will also be available at ir.sitecenters.com for further review. You may also access the telephone replay by dialing 877-344-7529 (U.S.), 855-669-9658 (Canada) or 412-317-0088 (international) using passcode 5634930 through August 25, 2023. Copies of the Company’s supplemental package and earnings slide presentation are available on the Company’s website.

Non-GAAP Measures and Other Operational Metrics

Funds from Operations (“FFO”) is a supplemental non-GAAP financial measure used as a standard in the real estate industry and is a widely accepted measure of real estate investment trust (“REIT”) performance. Management believes that both FFO and Operating FFO provide additional indicators of the financial performance of a REIT. 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 is generally defined and calculated by the Company as net income (loss) (computed in accordance with generally accepted accounting principles in the United States (“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 calculates Operating FFO as FFO excluding certain non-operating charges, income and gains. 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. Other real estate companies may calculate FFO and Operating FFO in a different manner.

In calculating the expected range for or amount of net (loss) income attributable to common shareholders to estimate projected FFO and Operating FFO for future periods, the Company does not include a projection of gain and losses from the disposition of real estate property, potential impairments and reserves of real estate property and related investments, debt extinguishment costs and certain transaction costs. Other real estate companies may calculate expected FFO and Operating FFO in a different manner.

The Company also uses net operating income (“NOI”), 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 presents NOI information herein on a same store basis or “SSNOI.” The Company defines SSNOI as property revenues less property-related expenses, which exclude straight-line rental income and 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 prior period comparisons). In addition, SSNOI is presented including activity associated with major and tactical 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.

FFO, Operating FFO, NOI and SSNOI do not represent cash generated from operating activities in accordance with GAAP, are not necessarily indicative of cash available to fund cash needs and should not be considered as alternatives to net income computed in accordance with GAAP, as indicators of the Company’s operating performance or as alternatives to cash flow as a measure of liquidity. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures have been provided herein. In reliance on the exception provided by Item 10(e)(1)(i)(B) of Regulation S-K, reconciliation of the assumed rate of 2023 SSNOI growth to the most directly comparable GAAP financial measure is not provided because the Company is unable to provide such reconciliation without unreasonable effort due to the multiple components of the calculation which only includes properties owned for comparable periods and excludes all corporate level activity as noted above.

The Company calculates Cash Leasing Spreads by comparing the prior tenant's annual base rent in the final year of the prior lease to the executed tenant's annual base rent in the first year of the executed lease. Straight-Lined Leasing Spreads are calculated by comparing the prior tenant's average base rent over the prior lease term to the executed tenant's average base rent over the term of the executed lease. For both Cash and Straight-Lined Leasing Spreads, the reported calculation includes only comparable leases which are deals executed within one year of the date that the prior tenant vacated. Deals executed after one year of the date the prior tenant vacated, deals which are a combination of existing units, new leases at major redevelopment properties, and deals for units vacant at the time of acquisition are considered non-comparable and excluded from the calculation.

Safe Harbor

SITE Centers Corp. considers portions of the information in this press release 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 expectation for future periods. Although the Company believes that the expectations reflected in such 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 historical fact may be deemed to be forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including, among other factors, general economic conditions, including inflation and interest rate volatility; local conditions such as the supply of, and demand for, retail real estate space in our geographic markets; the impact of e-commerce; dependence on rental income from real property; the loss of, significant downsizing of or bankruptcy of a major tenant and the impact of any such event on rental income from other tenants and our properties; redevelopment and construction activities may not achieve a desired return on investment; our ability to buy or sell assets on commercially reasonable terms; our ability to secure equity or debt financing on commercially acceptable terms or at all; impairment charges; valuation and risks relating to our joint venture investments; the termination of any joint venture arrangements or arrangements to manage real property; property damage, expenses related thereto and other business and economic consequences (including the potential loss of rental revenues) resulting from extreme weather conditions or natural disasters in locations where we own properties, and the ability to estimate accurately the amounts thereof; sufficiency and timing of any insurance recovery payments related to damages from extreme weather conditions or natural disasters; any change in strategy; the impact of pandemics and other public health crises; unauthorized access, use, theft or destruction of financial, operations or third party data maintained in our information systems or by third parties on our behalf; our ability to maintain REIT status; and the finalization of the financial statements for the period ended June 30, 2023. For additional factors that could cause the results of the Company to differ materially from those indicated in the forward-looking statements, please refer to the Company's most recent reports on Forms 10-K and 10-Q. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

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