SITE Centers Corp. (NYSE: SITC) is a real estate investment trust (REIT) that owns, manages, acquires, and develops retail real estate properties across the United States. The company's portfolio consists of 114 shopping centers, including 13 owned through unconsolidated joint ventures, totaling approximately 21.9 million square feet of gross leasable area (GLA) as of December 31, 2023.

Business Overview

SITE Centers' core business strategy is to own and operate high-quality, open-air shopping centers located in suburban, high-household income communities. The company's tenant base includes a diverse mix of national and regional retail chains, as well as local tenants, catering to the daily needs of the surrounding population. This focus on necessity-based retail has helped the company maintain a stable revenue stream, even during challenging economic conditions.

One of SITE Centers' key strengths is its ability to actively manage its portfolio through strategic acquisitions, dispositions, and redevelopment projects. The company has demonstrated a disciplined approach to capital allocation, consistently seeking to enhance the quality and performance of its assets. This has included the recent announcement of a plan to spin off its convenience retail portfolio into a separate publicly traded REIT, Curbline Properties, to unlock the value of this specialized asset class.

Financials

For the full year 2023, SITE Centers reported annual net income of $170,067,000, annual revenue of $2,217,000,000, annual operating cash flow of $313,556,000, and annual free cash flow of $313,556,000. These strong financial results reflect the company's ability to maintain high occupancy levels, drive rental rate growth, and effectively manage its operating expenses.

In the fourth quarter of 2023, the company continued to deliver solid operational performance. Rental income for the quarter was $119,592,000, a decrease from $135,872,000 in the prior-year period, primarily due to the impact of net property dispositions. Fee and other income was $2,499,000, down from $2,820,000 in the fourth quarter of 2022.

The company's same-store net operating income (SSNOI) increased by 1.6% year-over-year, driven by increases in annual base rents for non-anchor tenants. Occupancy in the operating shopping center portfolio was 92.0% as of December 31, 2023, compared to 92.8% in the prior-year period.

Leasing Activity and Acquisitions

SITE Centers' leasing momentum remained strong in the fourth quarter of 2023, with the company executing approximately 0.8 million square feet of new leases and renewals. The company generated cash lease spreads of 11.5% on new leases and 8.0% on renewals, reflecting the continued demand for space in its well-located shopping centers.

In addition to its leasing success, SITE Centers has been actively expanding its portfolio through strategic acquisitions. During the fourth quarter of 2023, the company acquired two convenience centers in Conroe, Texas, and Gilbert, Arizona, for a total purchase price of $19.1 million. These acquisitions are part of the company's broader strategy to grow its convenience retail platform ahead of the planned spin-off of Curbline Properties.

Spin-Off of Curbline Properties

As mentioned, SITE Centers announced plans in October 2023 to spin off its convenience retail portfolio into a separate publicly traded REIT, Curbline Properties. This strategic move is designed to unlock the value of the company's convenience assets, which are characterized by strong tenant demand, limited capital expenditure requirements, and high organic cash flow growth potential.

The Curbline portfolio is expected to include 67 wholly-owned convenience properties, generating approximately $79 million in net operating income in 2024. The new REIT is anticipated to have a highly liquid balance sheet, with no debt and $600 million in cash at the time of the spin-off, providing significant financial flexibility to fund future growth.

Disposition Activity and Balance Sheet Management

In addition to its acquisition and development efforts, SITE Centers has been actively managing its portfolio through strategic dispositions. Since July 2023, the company has closed on the sale of over $1.1 billion in wholly-owned properties at a blended capitalization rate of under 7%. The company currently has an additional $1 billion in assets under contract, negotiation, or with executed non-binding letters of intent, also at a blended capitalization rate of approximately 7%.

These disposition proceeds, combined with the anticipated $1 billion mortgage facility secured by 38 SITE Centers properties, are expected to be used to repay the company's outstanding unsecured indebtedness prior to the Curbline spin-off. This will position SITE Centers with a significantly strengthened balance sheet, with low leverage and ample liquidity to support its ongoing operations and growth initiatives.

Outlook

For the Curbline portfolio, SITE Centers expects total net operating income to be approximately $79 million in 2024, with same-store NOI growth projected between 3.5% and 5.5%. For the SITE Centers portfolio, total NOI is expected to be $257 million, down from the previous projection of $265 million, primarily due to the impact of asset sales.

The company has not provided formal 2024 FFO guidance, as the planned spin-off of Curbline and significant expected asset sales will have a material impact on the company's financial results. However, SITE Centers has stated that it will continue to update its projections for future transaction activity as the year progresses.

Risks and Challenges

While SITE Centers' outlook remains positive, the company faces several risks and challenges that investors should consider. These include the ongoing impact of e-commerce on brick-and-mortar retail, potential tenant bankruptcies, rising interest rates, and the successful execution of the Curbline spin-off.

Additionally, the company's reliance on a limited number of large tenants, as well as its exposure to the broader retail industry, could pose risks to its financial performance. SITE Centers also faces competition from other retail REITs and alternative forms of retail distribution, which could impact its ability to maintain occupancy and rental rates.

Conclusion

SITE Centers Corp. is a well-positioned retail REIT with a diversified portfolio of high-quality shopping centers located in attractive suburban markets. The company's strategic initiatives, including the planned spin-off of Curbline Properties and its active portfolio management through acquisitions and dispositions, position it for continued growth and value creation.

Despite the challenges facing the retail industry, SITE Centers' focus on necessity-based retail, strong tenant roster, and prudent capital management have enabled the company to deliver solid financial results. As the company navigates the evolving retail landscape, investors should closely monitor SITE Centers' progress in executing its strategic plan and managing its risks.