8-K: SITE Centers Corp. Announces Fourth Quarter and Full-Year 2023 Results, Plans Curbline Properties Spin-Off

SITE Centers Corp. reported a significant increase in fourth-quarter net income and announced progress on the planned spin-off of its convenience assets into Curbline Properties Corp.

Summary

• SITE Centers Corp. released its financial results for the fourth quarter and full year of 2023, showing a substantial increase in net income attributable to common shareholders for both periods.
• The fourth quarter net income was $193.6 million, or $0.92 per diluted share, compared to $25.4 million, or $0.12 per diluted share, in the same period last year, primarily due to higher gains on property sales.
• Full-year net income reached $254.5 million, or $1.21 per diluted share, up from $157.6 million, or $0.73 per diluted share, in the previous year.
• Operating Funds From Operations (OFFO) for the fourth quarter was $54.0 million, or $0.26 per diluted share, down from $62.5 million, or $0.29 per diluted share, year-over-year, mainly due to property dispositions.
• For the full year, OFFO was $247.9 million, or $1.18 per diluted share, compared to $253.3 million, or $1.18 per diluted share, in 2022.
• The company sold 14 wholly-owned shopping centers for $818.6 million in the fourth quarter and early first quarter of 2024, and acquired four convenience shopping centers for $62.4 million during the fourth quarter.
• SITE Centers is progressing with the spin-off of its convenience assets into Curbline Properties Corp., expected to be completed around October 1, 2024.
• The company has secured a $1.1 billion mortgage facility from Apollo affiliates to retire unsecured debt before the spin-off.
• Same-store net operating income (SSNOI) increased by 0.3% in the fourth quarter of 2023, including redevelopment, compared to the same period last year.
• The company reported a leased rate of 94.5% at the end of 2023, slightly down from 95.4% at the end of 2022.
• Cash new leasing spreads were 9.2% and cash renewal leasing spreads were 3.1% for the fourth quarter of 2023.
• The company projects 2024 property level NOI to be between $260.7 and $269.8 million for SITE Centers and between $73.9 and $77.9 million for Curbline Properties.

Sentiment

Score: 6

Explanation: The document presents a mixed picture. While net income is up significantly, operating FFO is down, and the leased rate has slightly decreased. The strategic spin-off is a positive move, but it introduces execution risk. The sentiment is cautiously optimistic, reflecting both positive developments and potential challenges.

Positives

• Net income attributable to common shareholders increased significantly year-over-year for both the fourth quarter and full year 2023.
• The company is making progress on the spin-off of Curbline Properties, which is expected to unlock value for stakeholders.
• The $1.1 billion mortgage facility provides financial flexibility and allows for the retirement of unsecured debt.
• The company achieved positive same-store net operating income (SSNOI) growth of 0.3% in the fourth quarter of 2023.
• The company generated strong cash new leasing spreads of 9.2% in the fourth quarter of 2023.
• The company declared a dividend of $0.13 per share for the first quarter of 2024.

Negatives

• Operating FFO decreased year-over-year for both the fourth quarter and full year 2023, primarily due to property dispositions.
• The leased rate decreased slightly from 95.4% at the end of 2022 to 94.5% at the end of 2023.
• Net transaction activity was a 50 basis point sequential headwind related to the sale of properties in the fourth quarter.

Risks

• The spin-off of Curbline Properties is subject to certain conditions, including the effectiveness of CURB's Form 10 registration statement and final approval by SITE Centers' Board of Directors.
• The company's future performance is subject to general economic conditions, including inflation and interest rate volatility.
• The company is exposed to risks related to local conditions, e-commerce, and dependence on rental income from real property.
• The company's results could be impacted by the loss of, significant downsizing of, or bankruptcy of a major tenant.
• The company's ability to secure equity or debt financing on commercially acceptable terms is not guaranteed.
• Redevelopment and construction activities may not achieve a desired return on investment.
• The company is exposed to risks related to joint venture investments and the termination of joint venture arrangements.
• The company is exposed to risks related to property damage from extreme weather conditions or natural disasters.
• The company is exposed to risks related to pandemics and other public health crises.
• The company is exposed to risks related to unauthorized access, use, theft or destruction of financial, operations or third party data.

Future Outlook

The company projects 2024 property level NOI to be between $260.7 and $269.8 million for SITE Centers and between $73.9 and $77.9 million for Curbline Properties, assuming 2024 SSNOI growth of 3.5% 5.5% for Curbline Properties.

Management Comments

• David R. Lukes, President and Chief Executive Officer, stated that the fourth quarter was a significant time period for SITE Centers, highlighted by the announced planned spin-off of the company's convenience assets, nearly $800 million of total transaction activity, and over $1.5 billion of total financings closed or committed.
• He also mentioned that the company is well underway on the timeline to form and scale the first public real estate company focused exclusively on convenience properties.

Industry Context

This announcement reflects a strategic shift in the retail REIT sector, with SITE Centers focusing on open-air shopping centers in high-income suburban areas while spinning off its convenience assets into a separate entity. This move is likely aimed at enhancing shareholder value by creating two distinct investment profiles.

Comparison to Industry Standards

• SITE Centers' same-store NOI growth of 0.3% in Q4 2023 is below the average for the retail REIT sector, which has seen growth closer to 2-3% in recent quarters. However, this is impacted by the 240 basis-point headwind due to the bankruptcy of Bed Bath & Beyond.
• The company's leased rate of 94.5% is slightly below the industry average for open-air shopping centers, which typically ranges from 95% to 97%.
• The cash new leasing spreads of 9.2% are strong compared to industry averages, indicating good demand for their properties.
• The company's debt to adjusted EBITDA ratio of 4.0x is within the range of other retail REITs, but the pro-rata ratio of 4.2x is slightly higher.
• Compared to peers like Regency Centers (REG) and Federal Realty Investment Trust (FRT), SITE Centers is undergoing a significant strategic shift with the spin-off, which is not a common move among these larger, more established REITs.

Stakeholder Impact

• Shareholders will be impacted by the spin-off of Curbline Properties, which is intended to unlock value.
• Employees may be affected by the restructuring plan and the spin-off of the convenience assets.
• Tenants will be impacted by the company's leasing activities and property management strategies.
• Creditors will be impacted by the company's debt management and financing activities.

Next Steps

• The company will continue to work towards the completion of the spin-off of Curbline Properties, expected around October 1, 2024.
• SITE Centers will focus on managing its portfolio of open-air shopping centers and executing its strategic plan.
• The company will hold its quarterly conference call to discuss the results and provide further updates.

Key Dates

Keywords

REIT, Shopping Centers, Real Estate, Spin-off, Curbline Properties, Property Dispositions, Leasing, Net Operating Income, FFO, Dividends, Mortgage Facility