SITE Centers Corp

Nature of Business and Financial Statement Presentation

Nature of Business

SITE Centers Corp. and its related consolidated real estate subsidiaries (collectively, the “Company” or “SITE Centers”) and unconsolidated joint ventures are primarily engaged in the business of owning, leasing, acquiring, redeveloping, developing and managing shopping centers. Unless otherwise provided, references herein to the Company or SITE Centers include SITE Centers Corp. and its wholly-owned subsidiaries. The Company’s tenant base includes a mixture of national and regional retail chains and local tenants. Consequently, the Company’s credit risk is primarily concentrated in the retail industry.

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates.

Unaudited Interim Financial Statements

These financial statements have been prepared by the Company in accordance with GAAP for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results of the periods presented. The results of operations for the three and six months ended June 30, 2024 and 2023, are not necessarily indicative of the results that may be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Principles of Consolidation

The consolidated financial statements include the results of the Company and all entities in which the Company has a controlling interest or has been determined to be the primary beneficiary of a variable interest entity. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in real estate joint ventures in which the Company has the ability to exercise significant influence, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or loss) of these joint ventures is included in consolidated net income (loss).

Disposition of Real Estate

For the three and six months ended June 30, 2024, the Company received gross proceeds of $764.2 million and $883.6 million, respectively, from the sale of 12 and 15 wholly-owned shopping centers (excluding certain retained convenience parcels) andone parcel at a wholly-owned shopping center resulting in gain on dispositions of $233.3 million and $265.0 million, respectively. For thethree and six months ended June 30, 2023, the Company didnot sell any wholly-owned real estate.

Statements of Cash Flows and Supplemental Disclosure of Non-Cash Investing and Financing Information

Non-cash investing and financing activities are summarized as follows (in millions):

Acquisitions

During thesix months ended June 30, 2024, the Company acquired the following convenience centers and land (in thousands):

(A)

Acquired the fee interest in a land parcel at this center.

(B)

Acquired from the DDRM Properties Joint Venture (Note 3). It is intended that 62,116 square feet of GLA will be included in the anticipated spin-off of Curbline Properties Corp.

The fair value of the acquisitions was allocated as follows (in thousands):

(A)

Depreciated in accordance with the Company’s policy.

Included in the Company’s consolidated statements of operations for the three and six months ended June 30, 2024, was $0.9 million and $1.0 million, respectively, in total revenues from the date of acquisition through June 30, 2024, for the properties acquired in 2024.

Investments in and Advances to Joint Ventures

At June 30, 2024 and December 31, 2023, the Company had ownership interests in various unconsolidated joint ventures that had investments in 11 and 13 shopping center properties, respectively. The changes to Investments in and Advances to Joint Ventures are as follows (in thousands):

A reconciliation of the consolidated joint venture equity is as follows (in thousands):

Revenues earned by the Company for providing asset management, property management and leasing and development services to all of the Company’s unconsolidated joint ventures were $1.4 million and $2.8 million and $1.7 million and $3.5 million for the three and six months ended June 30, 2024 and 2023, respectively.

Disposition of Shopping Centers

In May 2024, the Company acquiredone asset previously owned by the DDRM Properties Joint Venture (Meadowmont Village, Chapel Hill, North Carolina) for $44.2 million and stepped up its 20% interest due to a change in control. The transaction resulted in a Gain on Sale and Change in Control of Interests of $2.7 million. In June 2024, the DDRM Properties Joint Venture soldone asset (Hilltop Plaza, Richmond, California) for $36.5 million. There are no remaining assets in this joint venture.

Other Assets and Intangibles, net

Other assets, liabilities and intangibles consist of the following (in thousands):

(A)

In connection with the sale of two assets in June 2024 to unrelated third parties, intercompany ground leases related to certain portions of land that had initial terms of 90-years and 99-years, respectively, with a fixed, prepaid rent of $1 were assumed by the buyers. Such intercompany ground leases were previously eliminated in consolidation and treated as a sale leaseback when the shopping centers were sold. The leased back land pertains to land underlying convenience assets that were retained by the company. Upon sale of the shopping centers, the Company recognized below-market ground lease assets of approximately $13.7 million.

(B)

The Company recorded amortization expense related to its intangibles, excluding above- and below-market leases, of $4.5 million and $5.9 million for the three months ended June 30, 2024 and 2023, respectively, and $9.2 million and $12.1 million for the six months ended June 30, 2024 and 2023, respectively.

(C)

Fees related to a commitment obtained in October 2023 for a lender to provide a $1.1 billion mortgage facility to be secured by an originally identified group of 40 properties (the “Mortgage Facility”). The fees paid to date related to the Mortgage Facility are recorded as a deferred fee as the facility has not closed and therefore no amounts have been drawn. The Company may proceed to close and draw all or a portion of the Mortgage Facility on any date prior to October 25, 2024, subject to the satisfaction of various closing conditions. Once amounts are drawn on the Mortgage Facility, the fees, including a funding fee to be paid at closing, will be classified as a contra asset to the borrowings and amortized over the life of the Mortgage Facility. If it becomes probable that the Mortgage Facility, or a portion of lender’s commitment with respect to the Mortgage Facility, will not be drawn upon, the fees paid to date, or a portion of the fees paid to date, will be expensed. For the three and six months ended June 30, 2024, the Company wrote-off $8.6 million and $9.3 million, respectively, of fees to Other Income (Expense), net, on the Company’s Consolidated Statements of Operations because the maximum amount available to be borrowed under the Mortgage Facility decreased to $554.8 million due to the release of 13 properties that were originally identified to serve as collateral for the Mortgage Facility.

(D)

Includes cash flow hedge and derivative on unsecured notes (Note 6).

Revolving Credit Facility

As of June 30, 2024, the Company’s Revolving Credit Facility (as defined below) hadno outstanding borrowings.

The Company maintains a revolving credit facility with a syndicate of financial institutions and JPMorgan Chase Bank, N.A., as administrative agent (the “Revolving Credit Facility”). The Revolving Credit Facility provides for borrowings of up to $950 million if certain borrowing conditions are satisfied, and an accordion feature for expansion of availability up to $1.45 billion, provided that new lenders agree to the existing terms of the facility or existing lenders increase their commitment level and subject to other customary conditions precedent. The Revolving Credit Facility maturity date is June 2026 subject to two six-month options to extend the maturity to June 2027 upon the Company’s request (subject to satisfaction of certain conditions).

The Company’s borrowings under the Revolving Credit Facility bear interest at variable rates at the Company’s election, based on either (i) the SOFR rate plus a 10 basis-point spread adjustment plus an applicable margin (0.85% at June 30, 2024) or (ii) the alternative base rate plus an applicable margin (0.0% at June 30, 2024). The Revolving Credit Facility also provides for an annual facility fee, which was 20 basis points on the entire facility at June 30, 2024. The applicable margins and facility fee vary depending on the Company’s long-term senior unsecured debt ratings from Moody’s Investors Service, Inc., S&P Global Ratingsand Fitch Investor Services Inc. (or their respective successors). The Revolving Credit Facility also features a sustainability-linked pricing component whereby the applicable interest rate margin can be adjusted by one or two basis points if the Company meets certain sustainability performance targets. The Company is required to comply with certain covenants under the Revolving Credit Facility relating to total outstanding indebtedness, secured indebtedness, value of unencumbered real estate assets and fixed charge coverage. The Company was in compliance with these financial covenants at June 30, 2024.

Financial Instruments and Fair Value Measurements

The following methods and assumptions were used by the Company in estimating fair value disclosures of financial instruments.

Measurement of Fair Value

At June 30, 2024, the Company used a pay-fixed interest rate swap to manage some of its exposure to changes in benchmark-interest rates. The estimated fair value was determined using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contract, are incorporated in the fair value to account for potential non-performance risk, including the Company’s own non-performance risk and the respective counterparty’s non-performance risk. The Company determined that the significant inputs used to value its derivative fell within Level 2 of the fair value hierarchy.

Items Measured on Fair Value on a Recurring Basis

The Company maintains swap agreements (included in Other Assets) measured at fair value on a recurring basis as of June 30, 2024. The following table presents information about the Company’s financial assets and liabilities and indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in millions):

Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Accounts Payable and Other Liabilities

The carrying amounts reported in the Company’s consolidated balance sheets for these financial instruments approximated fair value because of their short-term maturities.

Debt

The following methods and assumptions were used by the Company in estimating fair value disclosures of debt. The fair market value of senior notes is determined using a pricing model to approximate the trading price of the Company’s public debt. The fair market value for all other debt is estimated using a discounted cash flow technique that incorporates future contractual interest and principal payments and a market interest yield curve with adjustments for duration, optionality and risk profile, including the Company’s non-performance risk and loan to value. The Company’s senior notes and all other debt are classified as Level 2 and Level 3, respectively, in the fair value hierarchy. Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments.

Carrying values that are different from estimated fair values are summarized as follows (in thousands):

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and, from time to time, through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the values of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. To accomplish this objective, the Company generally uses swaps and caps as part of its interest rate risk management strategy. The swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

As of June 30, 2024, the Company had one effective swap with a notional amount of $200.0 million, expiring in June 2027, which converts the variable-rate SOFR component of the interest rate applicable to its term loan to a fixed rate of 2.75%.

The effective portion of changes in the fair value of derivatives designated, and that qualify, as a cash flow hedge is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings, into interest expense, in the period that the hedged forecasted transaction affects earnings. All components of the swap were included in the assessment of hedge effectiveness. The Company expects to reflect within the next 12 months, a decrease to interest expense (and a corresponding increase to earnings) of approximately$4.3 million.

The Company is exposed to credit risk in the event of non-performance by the counterparty to the swap if the derivative position has a positive balance. The Company believes it mitigates its credit risk by entering into swaps with major financial institutions. The Company continually monitors and actively manages interest costs on its variable-rate debt portfolio and may enter into additional interest rate swap positions or other derivative interest rate instruments based on market conditions. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes.

Credit Risk-Related Contingent Features

The Company has an agreement with the swap counterparty that contains a provision whereby if the Company defaults on certain of its indebtedness, the Company could also be declared in default on the swap, resulting in an acceleration of payment under the swap.

Derivative – Unsecured Notes

In 2023, the Company entered into swaption agreements with a notional amount aggregating $450.0 million to partially hedge the impact of change in benchmark interest rates on potential yield maintenance premiums applicable to its unsecured notes due in 2027. The swaptions did not qualify for hedge accounting. As a result, these derivative instruments are recorded in the Company’s consolidated balance sheets at fair market value, with changes in value recorded through earnings as of each balance sheet date until exercise or expiration, in October 2024. Accordingly, the Company reported non-cash loss of$1.1 million and $5.2 million, respectively, related to the valuation adjustments associated with these instruments for thethree and six months ended June 30, 2024.

Senior Notes

During the six-month period ended June 30, 2024, the Company purchased $88.3 million aggregate principal amount of its outstanding senior unsecured notes due in 2025, 2026 and 2027 at a discount to par. The Company recorded a net gain of $0.3 million and $1.0 million, for thethree and six months ended June 30, 2024, respectively.

Other Comprehensive Income

The changes in Accumulated Other Comprehensive Income by component are as follows (in thousands):

(A) Includes derivative financial instruments entered into by the Company on its term loan and by an unconsolidated joint venture.

Earnings Per Share

The following table provides a reconciliation of net income and the number of common shares used in the computations of “basic” earnings per share (“EPS”), which utilizes the weighted-average number of common shares outstanding without regard to dilutive potential common shares, and “diluted” EPS, which includes all such shares (in thousands, except per share amounts):

For the three and six months ended June 30, 2024, Performance Restricted Stock Units (“PRSUs”) issued to certain executives in March 2024, March 2023 and March 2022 were considered in the computation of diluted EPS. The PRSUs issued in March 2022 were considered in the computation of diluted EPS for the three months ended June 30, 2023 and not considered in the computation of diluted EPS for the six months ended June 30, 2023, because they were antidilutive. The PRSUs issued in March 2023 were not considered in the computation of diluted EPS because they were antidilutive for the three months ended June 30, 2023 and were considered in the computation of diluted EPS for the six months ended June 30, 2023. For the three and six months ended June 30, 2023, PRSUs issued to certain executives in March 2021 were considered in the computation of diluted EPS. In March 2024, the Company issued 178,527 common shares in settlement of PRSUs granted in 2021.

Common Share Dividends

The Company declared a quarterly cash dividend of $0.13 per common share for both three-month periods ended June 30, 2024 and 2023 and $0.26 per common share for both six-month periods ended June 30, 2024 and 2023.

Impairment Charges

For the six months ended June 30, 2024, the Company recorded impairment charges aggregating $66.6 million, based on the difference between the carrying value of the assets and the estimated fair market value. The impairment charges recorded were triggeredby a change in the hold period assumptions.

Items Measured at Fair Value

The Company is required to assess the fair value of certain impaired consolidated investments. The valuation of impaired real estate assets is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each asset, as well as the income capitalization approach considering prevailing market capitalization rates, analysis of recent comparable sales transactions, actual sales negotiations and bona fide purchase offers received from third parties and/or consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence. In general, the Company considers multiple valuation techniques when measuring fair value of an investment. However, in certain circumstances, a single valuation technique may be appropriate.

These valuations are calculated based on market conditions and assumptions made by management at the time the valuation adjustments and impairments were recorded, which may differ materially from actual results if market conditions or the underlying assumptions change.

The following table presents information about the fair value of real estate that was impaired, and therefore, measured on a fair value basis, along with the related impairment charge for the six months ended June 30, 2024. The table also indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in millions):

The following table presents quantitative information about the significant unobservable inputs used by the Company to determine the fair value (in millions, except per square foot):

(A) Fair value measurements based upon an indicative bid and developed by third-party sources (including offers and comparable sales values), subject to the Company’s corroboration for reasonableness. The Company does not have access to certain unobservable inputs used by these third parties to determine these estimated fair values.

Subsequent Events

From July 1, 2024 through July 26, 2024, the Company acquiredtwo convenience centers for the purchase price of $26.7 million and soldtwo shopping centers (excluding certain retained convenience parcels) for an aggregate price of $67.5 million.

In July 2024, the Company announced a one-for-four reverse stock split of its common shares and anticipates split-adjusted trading will begin on the New York Stock Exchange at the opening of trading on August 19, 2024.