SITE Centers Corp. Q1 FY2024 earnings call

• Curbline: Began investing in convenience assets over 5 years ago, creating Curbline as a first mover REIT with high organic cash flow potential. Spinoff expected on or around October 1, 2024, with Curbline having no outstanding debt, $300 million of cash, and a $300 million preferred investment in SITE Centers.
• Transactions: Closed $170 million of wholly-owned property sales year-to-date, over $1 billion under contract/LOI at a blended cap rate of ~7%, acquired $19 million of convenience properties in Q1, and over $100 million of additional convenience assets awarded/under contract.
• Quarter and operations: Q1 results ahead of expectations due to lower G&A, higher occupancy, and higher lease termination fees; leasing volume up sequentially but down from 2023 levels, strong leasing demand, lease rate down 30bps due to holding space offline for sales, with over 350,000 sq ft in lease negotiations expected to be completed over the next 2 quarters.

The Curbline portfolio as of quarter end included 67 wholly-owned convenience properties expected to generate about $79 million of NOI in 2024. Same-store NOI for the current Curbline portfolio is expected to grow 4.5% in 2024 and average greater than 3% for the next 3 years. For the SITE portfolio, total NOI is now expected to be $257 million down from $265 million at the midpoint of the projected range before any additional dispositions.

• Curbline total NOI expected ~$79 million, same-store NOI growth 3.5%-5.5% in 2024.
• SITE total NOI expected $257 million, down from prior projection.
• G&A expected ~$12 million per quarter pre-spinoff, interest income elevated, repurchased ~$62 million of bonds, transaction volume key driver of FFO.
• Curbline expected to have no debt, $300 million cash, $300 million preferred investment in SITE Centers, or fully cash with no preferred investment depending on asset sales.

• Capital markets volatility could impact asset sales and cap rates.
• Timing of asset sales affects FFO.
• Leverage and debt repayment depend on short-term rates and closing conditions for mortgage.

Q: You noted a blended cap rate for $1 billion under contract or negotiation of just under 7%, I believe. Is that in line with your initial expectations for these assets? Or has interest been better than expected?

A: I think you're merging 2 comments. We've sold and closed on over $1 billion just below a 7% cap rate. The $1 billion we've awarded under negotiating LOIs or negotiating contracts is approximately a 7% cap rate. I would say, in general, the pricing has been a little stronger than we expected 6 months ago.

Q: How should we think of pacing of dispositions ahead of October 1?

A: It's a really good question. I would say that with $1 billion awarded to buyers in various stages, some of those may close, some of those may not close. As you know, they are contingent on a number of factors, but our confidence level in the buyers is pretty high. We've taken a lot of time to interview buyers and understand where their equity is coming from, their need for debt and so forth. So our confidence level of a lot of closings occurring in the next couple of months is pretty high. Having said that, anything that's not awarded as of today is unlikely to close in the next couple of months. So I think you probably can guesstimate a pretty decent pipeline for the next few months, but having an increase substantially would be unlikely.

Q: You noted a blended cap rate for $1 billion under contract or negotiation of just under 7%, I believe. Is that in line with your initial expectations for these assets? Or has interest been better than expected?

A: I think you're merging 2 comments. We've sold and closed on over $1 billion just below a 7% cap rate. The $1 billion we've awarded under negotiating LOIs or negotiating contracts is approximately a 7% cap rate. I would say, in general, the pricing has been a little stronger than we expected 6 months ago.

Q: And how should we think of pacing of dispositions ahead of October 1?

A: It's a really good question. I would say that with $1 billion awarded to buyers in various stages, some of those may close, some of those may not close. As you know, they are contingent on a number of factors, but our confidence level in the buyers is pretty high. We've taken a lot of time to interview buyers and understand where their equity is coming from, their need for debt and so forth. So our confidence level of a lot of closings occurring in the next couple of months is pretty high. Having said that, anything that's not awarded as of today is unlikely to close in the next couple of months. So I think you probably can guesstimate a pretty decent pipeline for the next few months, but having an increase substantially would be unlikely.