Business Overview and History
SITE Centers Corp. (SITC) is a leading owner and operator of open-air shopping centers primarily located in suburban, high household income communities. The company’s recent spin-off of its convenience retail portfolio into a separate publicly traded entity, Curbline Properties Corp. (CURB), has unlocked significant value and positioned both companies for accelerated growth.
SITE Centers Corp. is a self-administered and self-managed real estate investment trust (REIT) that owns, leases, acquires, redevelops, develops and manages shopping centers. The company was founded in 1964 and is headquartered in Beachwood, Ohio. Over its nearly 60-year history, SITE Centers has assembled a diverse portfolio of shopping centers across the United States.
In the late 2000s and early 2010s, SITE Centers faced challenges related to the Great Recession, which led to tenant bankruptcies and reduced consumer spending. To navigate this difficult period, the company focused on leasing and managing its existing portfolio, reducing leverage, and selectively disposing of underperforming assets.
In the mid-2010s, SITE Centers shifted its strategy to concentrate on high-quality, open-air shopping centers located in suburban, high household income communities. The company believed these types of assets would be more resilient and better positioned for growth compared to traditional enclosed malls. This strategic refocus included acquiring new properties and redeveloping existing ones to enhance their appeal and tenant mix.
SITE Centers weathered the challenges posed by the COVID-19 pandemic in 2020 and 2021, as its portfolio of open-air, necessity-based shopping centers proved more durable than enclosed mall properties. The company maintained high occupancy levels and rent collections during this period, demonstrating the strength of its real estate holdings and operational capabilities.
As of the end of 2023, the company owned 106 wholly-owned properties totaling approximately 11.8 million square feet of gross leasable area. SITE Centers has also formed several joint ventures to acquire, develop and manage additional shopping centers, further expanding its real estate footprint and diversifying its income streams.
The company’s portfolio currently consists of 112 properties, including 11 owned through unconsolidated joint ventures, spanning approximately 11.5 million square feet of gross leasable area (GLA) as of September 30, 2024.
Over the years, SITE Centers has strategically positioned its portfolio in suburban, high household income markets, capitalizing on the strong consumer demand and resilience of these communities. The company’s focus on open-air shopping centers, which cater to the daily needs of local residents, has proven to be a successful strategy, with the portfolio maintaining high occupancy rates and generating consistent cash flow.
In 2019, SITE Centers began to identify the growing opportunity in the convenience retail sector, characterized by small-format, service-oriented tenants positioned in highly accessible locations. The company’s research showed that this asset class had historically demonstrated strong tenant credit, high retention rates, and low capital expenditure requirements – attributes that aligned well with SITE Centers’ investment thesis.
Recognizing the unique characteristics and growth potential of the convenience retail portfolio, SITE Centers announced plans in October 2023 to spin off these assets into a separate publicly traded company, Curbline Properties. This strategic move has allowed SITE Centers to focus on its core open-air shopping center business, while providing Curbline with the necessary resources and flexibility to scale its platform and capitalize on the burgeoning convenience retail market.
Financial Highlights and Ratios
As of September 30, 2024, SITE Centers reported total assets of $3.13 billion, with a net debt to EBITDA ratio of 3.1x. The company’s liquidity position was strong, with $1.06 billion in cash and cash equivalents, providing ample resources to fund future growth and development initiatives.
For the nine months ended September 30, 2024, SITE Centers generated total revenue of $328.52 million and net income of $537.65 million, which included significant gains from the sale of properties as part of the company’s strategic portfolio optimization efforts. The company’s operating funds from operations (OFFO) for the same period was $158.44 million, reflecting the impact of asset sales and debt repayments.
SITE Centers’ balance sheet is well-positioned following the spin-off of Curbline, with the company expected to have no outstanding debt and substantial liquidity to support its business plan. This financial flexibility will enable SITE Centers to pursue strategic acquisitions, redevelopment projects, and other value-enhancing initiatives in its core open-air shopping center portfolio.
For the most recent quarter (Q3 2024), SITE Centers reported revenue of $90.76 million, net income of $322.95 million, operating cash flow of $36.76 million, and free cash flow of $18.31 million. It’s worth noting that these quarterly metrics are being reported for the first time, so year-over-year growth comparisons are not applicable.
The company’s financial structure includes a $530 million mortgage loan closed and funded in August 2024, which had an outstanding principal balance of $206.9 million as of September 30, 2024. This, combined with the $1.06 billion in unrestricted cash, provides SITE Centers with significant financial flexibility.
Curbline Properties Spin-Off
The spin-off of Curbline Properties was completed on October 1, 2024, with SITE Centers shareholders receiving two shares of Curbline common stock for every one share of SITE Centers they owned. Curbline, which owns a portfolio of 79 convenience retail properties totaling approximately 2.7 million square feet of GLA, is expected to benefit from its highly liquid balance sheet, with no debt and $800 million in cash at the time of the spin-off.
The separation of the convenience retail assets into Curbline has allowed SITE Centers to streamline its operations and focus on its core open-air shopping center business, which is well-positioned to capitalize on the continued resilience of suburban, high household income communities. SITE Centers’ management believes this strategic move will unlock significant value for shareholders by enabling both companies to pursue their distinct growth strategies.
Acquisition and Disposition Activity
In addition to the spin-off, SITE Centers has been actively managing its portfolio through strategic acquisitions and dispositions. During the first nine months of 2024, the company acquired 13 convenience centers and a fee interest in a land parcel for a total of $193.6 million. These acquisitions were in line with the company’s focus on growing its convenience retail presence in high-quality, suburban markets.
Simultaneously, SITE Centers has been optimizing its portfolio through the sale of 40 wholly-owned shopping centers, excluding certain retained convenience parcels, for an aggregate sales price of $2.25 billion. These dispositions have allowed the company to unlock significant capital, which was used to repay outstanding unsecured debt, including the redemption of all of its senior notes, and to capitalize Curbline.
The company’s active portfolio management, combined with the spin-off of Curbline, has positioned SITE Centers with a streamlined, well-capitalized balance sheet, enabling it to pursue accretive growth opportunities in its core open-air shopping center business.
Leasing and Operations
SITE Centers’ leasing activity remained robust throughout the first nine months of 2024, with the company executing approximately 1.7 million square feet of new leases and renewals on a pro rata basis. This strong leasing performance, coupled with the company’s focus on high-quality suburban markets, has contributed to a portfolio occupancy rate of 91.1% as of September 30, 2024.
The company’s average annualized base rent per occupied square foot increased to $24.83 as of September 30, 2024, up from $20.35 at the end of 2023. This growth in rental rates highlights SITE Centers’ ability to capture mark-to-market opportunities and the resilience of its tenant base, which includes a diverse mix of national and regional retailers.
Guidance and Outlook
Due to the significant transaction activity and the spin-off of Curbline, SITE Centers did not provide formal 2024 guidance. However, the company did provide projections for the total portfolio net operating income (NOI) of both SITE Centers and Curbline.
For the Curbline portfolio, total NOI is now expected to be approximately $84 million in 2024, up from $79 million at the midpoint of the projected range before any additional acquisitions. Curbline’s same-store NOI growth is projected to be between 3.5% and 5.5% for 2024.
SITE Centers’ total NOI is now expected to be $201 million at the midpoint of the projected range before any additional dispositions. The company’s strong operational performance, coupled with its enhanced financial flexibility following the Curbline spin-off, positions SITE Centers well to navigate the evolving retail landscape and pursue accretive growth opportunities in its core open-air shopping center portfolio.
The company noted that its second quarter results were ahead of budget due to better-than-expected operations, including higher-than-forecast lease termination fees and other positive variances. At the time of the spin-off, Curbline Properties is expected to have no debt and $600 million of cash.
Revenue Segments
SITE Centers’ primary source of revenue is rental income, which accounted for $322.09 million, or 97.9%, of the company’s total revenues for the nine months ended September 30, 2024. Rental income is generated from base and percentage rental payments, as well as recoveries from tenants for operating expenses and real estate taxes. The company’s shopping center portfolio had an aggregate occupancy rate of 91.2% as of September 30, 2024, with an average annualized base rent per occupied square foot of $25.58. SITC has been able to generate rental income growth through new lease executions, renewals, and annual rent escalations, partially offset by the impact of property dispositions.
In addition to rental income, SITC also earns fee and other income, primarily from its unconsolidated joint ventures. This segment accounted for $6.44 million, or 2.1%, of the company’s total revenues for the nine months ended September 30, 2024. The fees earned by SITC are related to the asset management, property management, leasing, and development services provided to its joint venture partners. The decrease in fee and other income compared to the prior year period was primarily due to the reduction in the number of assets under management as a result of SITC’s disposition activities.
Expenses and Other Financial Items
SITE Centers’ primary expenses include operating and maintenance costs, real estate taxes, general and administrative expenses, and depreciation and amortization. The company recorded $66.60 million in impairment charges during the nine months ended September 30, 2024, which were triggered by a change in the company’s hold period assumptions. SITC also incurred $43.00 million in debt extinguishment costs related to the repayment and termination of its outstanding unsecured indebtedness.
During the nine months ended September 30, 2024, SITC recognized $633.17 million in net gains from the disposition of real estate, as the company continued to actively manage its portfolio through the sale of 40 wholly-owned shopping centers. The company also recorded a $2.67 million gain related to the change in control of its interest in the Meadowmont Village property, which was previously owned by the DDRM Properties Joint Venture.
Risks and Challenges
As with any real estate investment trust, SITE Centers is subject to risks associated with the broader economic conditions, changes in consumer behavior, and competition from other retail formats. The company’s performance is also tied to the financial health and operational success of its tenants, which could be impacted by factors such as rising interest rates, inflation, and shifts in consumer spending patterns.
Additionally, the company’s ability to execute its growth strategies, including potential acquisitions and redevelopment projects, is dependent on access to capital markets and the availability of attractive investment opportunities.
Despite these challenges, SITE Centers’ focus on suburban, high household income markets, its diversified tenant mix, and its strong financial position following the Curbline spin-off provide a solid foundation for the company to navigate the evolving retail landscape and deliver long-term value for its shareholders.
Conclusion
SITE Centers’ strategic spin-off of its convenience retail portfolio into Curbline Properties has unlocked significant value and positioned both companies for accelerated growth. SITE Centers’ streamlined focus on its core open-air shopping center business, coupled with its strong financial flexibility, positions the company well to capitalize on the continued resilience of suburban, high household income communities. As SITE Centers continues to optimize its portfolio and pursue accretive growth opportunities, the company’s long-term success will be driven by its ability to adapt to the changing retail landscape and deliver consistent operational and financial performance.
The company’s active portfolio management, demonstrated by its recent acquisitions and dispositions, along with its strong leasing activity and improved rental rates, showcase SITE Centers’ commitment to maintaining a high-quality, well-positioned real estate portfolio. With a robust liquidity position and a simplified debt structure following the Curbline spin-off, SITE Centers is well-equipped to pursue strategic growth initiatives and navigate potential market uncertainties.
As the retail landscape continues to evolve, SITE Centers’ focus on open-air shopping centers in desirable suburban locations provides a solid foundation for sustained performance. The company’s ability to attract and retain quality tenants, coupled with its strategic capital allocation decisions, will be crucial in driving long-term shareholder value and maintaining its competitive position in the retail REIT sector.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.