SITE Centers Corp. Q4 FY2023 Earnings Call

Good day, and welcome to the SITE Centers Fourth Quarter 2023 Operating Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Stephanie Ruys de Perez, Vice President of Capital Markets. Please go ahead.

Thank you. Good morning, and welcome to SITE Centers fourth quarter 2023 earnings conference call. Joining me today are Chief Executive Officer, David Lukes; and Chief Financial Officer, Conor Fennerty. In addition to the press release distributed this morning, we have posted our quarterly financial supplement and slide presentation on our website at www.sitecenters.com, which are intended to support our prepared remarks during today's call. Please be aware that certain of our statements today may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties and actual results may differ materially from our forward-looking statements. Additional information may be found in our earnings press release and in our filings with the SEC, including our most recent report on Form 10-K and 10-Q. In addition, we will be discussing non-GAAP financial measures on today's call, including FFO, operating FFO and same-store net operating income. Descriptions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's quarterly financial supplement and investor presentation. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.

Good morning, and thank you for joining our quarterly earnings call. The fourth quarter was significant for SITE Centers to say the least, highlighted by the announced planned spin-off of the convenience portfolio from within SITE Centers into a new and unique focused growth company called Curbline Properties. This announcement, along with nearly $1 billion of transaction activity has put us on a dual path of growing our Curbline portfolio through acquisitions and realizing NAV of the SITE Centers portfolio through dispositions and asset management. We are only three months past the spin-off announcement, but have made substantial progress on the business plans for both SITE and Curb with more progress to come. I'll start with an update on Curbline, transition next to transactions and then conclude with an update on the quarter in operations, before turning it over to Conor, to talk about how all of this impacts the balance sheet and 2024 results. Starting with Curbline, we began investing in convenience assets over five years ago, and after several years of transaction activity, reviewing data analytics and financial and tenant analysis, we are more convinced than ever that the convenience sector is both differentiated and a unique growth opportunity. As announced, to seize this opportunity, we are creating Curbline Properties as a unique first-mover REIT that is differentiated from all other retail REITs and has what we believe to be the highest organic cash flow growth potential driven by annual bumps, the ability to recapture and mark-to-market units, a high-quality and diversified tenant roster with minimal concentration risk and limited CapEx needs as compared to other property types. Same-store NOI for the current Curbline portfolio is expected to grow 4.5% in 2024 and average greater than 3% for the next three years, when factoring in all of these attributes. As of the year-end, the Curbline portfolio included 65 wholly-owned convenience properties expected to generate about $76 million of NOI in 2024. All these assets share common characteristics, including excellent visibility, access and what we believe are compelling economics, highlighted by limited CapEx needs. Arguably, what we own today represents the largest, highest-quality convenience portfolio in the United States. These properties, which primarily cater to daily customer errands, are an integral part of the suburban lifestyle, which has only become more entrenched with increased suburban migration and the rise of hybrid work. And combined with the balance sheet that is truly unmatched with no outstanding debt and cash and a preferred investment on hand, Curbline Properties is expected to generate best-in-class growth and returns for stakeholders. As of today, we expect the spin-off to be completed on or around October 1 of this year. Based on the transactions completed to date, we now expect Curb to be capitalized with $600 million of liquidity or $100 million more than a few months ago in the form of cash and the preferred investment in SITE Centers. Additionally, should we make more progress on the dispositions front, it is likely that Curb would not retain a preferred investment in SITE and would be capitalized simply with no debt and $600 million of cash. To that point, moving to transactions. We sold $736 million of wholly-owned properties in the fourth quarter at a blended cap rate of 6.5%. Subsequent to year end, we sold another $82 million. As of today, the pace of dispositions has remained robust, and the pricing of those assets has remained strong, resulting in almost $750 million of real estate currently either under LOI or in contract negotiation at a blended cap rate of roughly 7%. The bulk of this inventory is primarily submarket dominant power centers, with roughly 30% of the assets by value containing a traditional grocer. Needless to say, the level of demand speaks to the quality of the SITE Centers portfolio and highlights the opportunity that we identified with the spin-off announcement. Over the past six years, this management team has sold over $7 billion of shopping centers. Through that process, John Cattonar and his team have gained a very good understanding of which buyers are seeking high-quality assets. These parties include a wide range of market participants, including both private buyers and public REITs. In all cases, these buyers know the assets, they know our submarkets, and they are often unlevered acquirers of high-quality real estate. The SITE Centers portfolio fits that mold, having been carefully selected via the RVI spin-off and our joint venture unwinds and remained extremely attractive to a wide range of buyers looking to invest in open-air retail real estate. The retail operating environment has dramatically shifted post-pandemic with limited supply and higher demand from a broader set of tenants, trends that should support fundamentals for the sector for years. The macro tailwinds, along with company-specific factors like sites SNO pipeline, which represents 4.2% of spin adjusted base rent, along with redevelopment deliveries and the lease-up of vacant units are expected to generate substantial forward NOI growth. These two factors combined, our knowledge of the buyer universe plus sector and specific tailwinds, makes us very confident in maximizing value on additional SITE Centers properties via private market asset sales. Going forward, I would expect SITE to continue to focus on this compelling value creation opportunity and the NAV arbitrage. In terms of acquisitions, we acquired four convenience properties for $62 million in the quarter in Charlotte, Cape Coral, Atlanta and Phoenix. Average household incomes for the fourth quarter investments were over $104,000 and a weighted average lease rate of almost 100%, highlighting our focus on acquiring properties where the renewals and lease bumps drive growth without significant CapEx. Going forward, we remain encouraged by the unique opportunities in the convenience subsector, including the size of the opportunity itself. The addressable market for convenience assets according to ICSC is 950 million square feet. Curbline's current portfolio comprising 2.2 million square feet represents one quarter 1% of total U.S. inventory meaning we have plenty of room to grow. That said, while we expect to acquire additional properties prior to the spin, we are prioritizing dispositions to take advantage of demand for SITE's assets, which will act as a governor of sorts to acquisitions volume in 2024. Ending with the quarter and operations, we had a very productive fourth quarter with results ahead of budget. Our property operations teams continue to do a great job getting tenants open for business ahead of schedule, which drove part of our outperformance this quarter. Overall quarterly leasing volume was down sequentially, but this was largely a function of a smaller portfolio and less availability. Leasing demand continues to be very strong from both existing retailers and service tenants expanding into key suburban markets, along with new concepts competing for the same space. Despite the strength of execution from our leasing team, our lease rate was down 10 basis points sequentially due to a 50-basis-point headwind from significant fourth quarter asset sales, which averaged 98% leased. Looking forward, we have another 350,000 square feet at share in lease negotiation, including effectively all of our remaining Bed Bath square footage, which we expect to be completed over the next two quarters at similar spreads and economics to the trailing 12-month figures reported today. We continue to expect commencement of our signed leases to be the material driver of our same property NOI growth over the course of 2024. Before turning the call over to Conor, I want to thank everyone at the SITE Centers team for their work leading into this announcement and over the last few months. The spin-off of Curbline Properties is possible due to the work of truly everyone across the organization, and it positions us for growth. We strongly believe that the compelling opportunity in front of us is to create significant value for the company's stakeholders. And with that, I'll turn it over to Conor.

Thanks, David. I'll start with fourth quarter earnings and operations before concluding with the 2024 outlook and updates to the balance sheet. As David noted, the fourth quarter OFFO was ahead of budget due to better-than-expected operations and higher interest income, partially offset by higher operating and G&A expenses. Specific to operating expenses, we had about $2 million of higher landlord and CAM expenses in the quarter related in part to some seasonal items, including snow removal that we do not expect to reoccur. Outside of these items, there were no other material callouts in the quarter. Moving to operations. Fourth quarter leasing volume was lower due to the significant dispositions that David highlighted in the back half of the year, along with less available space. With this small denominator, operating metrics will become more volatile. But based on the leasing pipeline at year-end, we expect spreads to be consistent with trailing 12-month levels over the course of the year. Overall, leasing activity and economics remain elevated, and we remain confident on the backfill of the remaining vacancies, highlighting the quality of the portfolio and depth of demand. Moving to 2024. As David noted, we are extremely excited to form and scale the first publicly traded REIT focused exclusively on convenience assets. And based on the mortgage commitment announced in October, along with recent transaction and financing activity, we have positioned both SITE and Curbline with the balance sheets that they need to execute on their business plans. As a result of the planned spin-off and significant expected asset sales, we are not providing a formal 2024 FFO guidance range. We are providing projections though, for total portfolio NOI for the SITE and Curb portfolios that include all properties owned as of year-end. And as we move forward over the course of the year, we expect to update the projection ranges for transaction activity. For the Curb portfolio, total NOI is expected to be roughly $76 million at the midpoint of the projected range before any additional acquisitions, and same-store NOI growth is expected to be between 3.5% and 5.5% for 2024. For the SITE portfolio, total NOI is expected to be roughly $265 million at the midpoint of the projected range before any dispositions. Additional details on the assumptions underpinning these ranges are in our press release and earnings slides. In terms of other line items, we expect JV fees to average around $1.25 million per quarter and G&A to average around $12 million per quarter prior to the planned spin-off. Given the significant cash balance on hand, interest income is likely to remain elevated in the first half of the year, though will obviously be dependent on short-term rates and any debt repayment activity. Transaction volume, particularly the timing of asset sales, is expected to be the largest driver of quarterly FFO and the fourth quarter included $4.5 million of NOI from assets sold in the quarter as detailed in the supplement. Moving to the balance sheet. In terms of leverage, at quarter end, debt-to-EBITDA was 4.2 times, with a net debt yield north of 20%. Over the course of 2024, we expect leverage to continue to decline with debt-to-EBITDA below 4 times. Prior to drawing on the $1.1 billion mortgage commitment, we expect to maintain significant, primarily unencumbered asset base, providing additional scale and collateral for SITE stakeholders. We repaid the 2024 notes and one wholly-owned mortgage in the fourth quarter and expect to retire the majority of outstanding consolidated debt prior to the spin with proceeds from the mortgage commitment. This mortgage will be secured by 40 properties that are expected to be part of SITE Centers post-spin. Funding is expected to occur prior to the spin-off, subject to the satisfaction of closing conditions. For Curbline Properties, the company at the time of the spin is expected to have no debt, now $300 million of cash and a $300 million preferred investment in SITE Centers. This highly liquid balance sheet will allow Curbline to focus on scaling its platform while providing the capital to differentiate itself from the largely private buyer universe acquiring convenience properties. Additionally, as David noted, depending on the level of asset sales completed prior to spin, we may look to fund Curb entirely with cash and no preferred investment in SITE. Details on sources and uses and projected capital structures can be found on Pages 12 and 13 of the earnings slides. Lastly, as a result of 2023 transaction activity, SITE Centers paid in January 2024, a special dividend of $0.16 per share. The dividend was funded with cash on hand. The company also declared its first quarter dividend of $0.13 per share, which is unchanged from the fourth quarter. And with that, I'll turn it back to David.

Thank you, Conor. Operator, we're now ready to take questions.

The first question today comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Good morning. Just a few questions here. Just first, a big one, David. You're not outlining an RVI type entity for legacy SITE, but still it's hard not to think about SITE ultimately sort of going away, if you will, especially at the pace of dispositions that you're doing and clearly, management's focus on Curb. So can you just give a little bit more color on how we should think about SITE post October 1, 2024?

Sure, Alex. I'd be happy to. I think it really depends on what signals we're getting from the public markets and what signals we're getting from the private markets. And at this point, the signals are very strong that the private market values assets at a higher value. And so we're listening to those signals, and we continue to sell assets. Should that continue, then those asset sales, I think, probably pick up. You can see how much activity we have going on right now at values that I think are very strong. So moving forward, all I can say is, in the time being between now and the spin date, we will continue to sell assets, and we'll reconsider what the strategy is and what the eventual outcome is at that time.

Okay. And then on cap rates, I think the prior batch that you sold year-end into early this year, I think you averaged the 6.5% on dispositions. You're saying now the next batch looks to be a 7%. And I don't recall what you said on the Curb asset acquisitions. But can you just talk a little bit more about cap rates? And then also, can you talk about IRR? So when you look at these assets, the ones you're selling and then the ones you're buying, it almost sounds like, based on your comments, literally, the convenience assets not only have lower CapEx needs, but actually have higher returns, which sounds incredible, but just wanted to get a little bit more perspective on that. And then maybe as part of that, you could just talk about what you're finding on credit quality as far as expectations for bad debt as you underwrite the Curb assets.

Sure. Well, on cap rates, I think you and I have discussed numerous times. It's difficult to pin down cap rates when the number of transactions are a handful here and there. I will say that the assets closed in the fourth quarter that were averaging a 6.5% cap did have a wide range of formats as well as a wide range of cap rates. We sold some assets in the low 5s, and we sold some assets in the high 7s. This next group where we're under LOI, we've awarded deals, and we're starting to negotiate contracts, it's the same thing. There are some properties that are low 6s, there's some properties that are high 7s. So I think the average is an interesting note, and I do think the average of 6.5% in the last batch, 7 in this batch, I don't know what that means going forward. I don't know if the additional properties we have are going to be higher or lower. What I have found is that the private market participants are less focused on retail format, and they're more intrigued by the credit quality, the submarket that the asset lies in and the duration of the lease term. And in that sense, the SITE Centers' portfolio fits that mandate of a lot of private buyers because we are in high-income demographics. The lease-up has been so robust in the last two or three years that the duration is pretty strong. And the weaker tenants like Bed Bath & Beyond have largely left the portfolio. So it feels like the private market participants are putting a higher value on those assets, which means that we fit those mandates. One of the things that, as you know, also contributes to a lot of activity is the presence of a grocery store. We still have more than two dozen centers that have a grocery store attached to them in the portfolio today and the average sales are quite high. There's a number of them that are more than $1,000 a square foot. So, I do think that the valuation that we've been seeing feels to be consistent with what I would expect the next couple of months to be. So our view on cap rates is that buyers are seeing the value of this duration and this credit quality, and we're seeing the outcome of that. On the buy side, where we're buying convenience properties, the main difference between what we're selling and buying is that growth and the cost of that growth. So, if we can deliver a much higher same-store number, but the cost to generate that is significantly less, I do agree with you that the unlevered IRR of the convenience properties is higher than what we're selling today.

Thank you.

The next question comes from Craig Mailman with Citi. Please go ahead.

Thank you. Sort of follow-up on the sales, at least the pace of it, because you guys are the last couple of quarters have averaged almost $800 million a quarter. You guys have $750 million under contract. Just beyond the $750 million, how much is being marketed currently and maybe not at the under contract or LOI phase, but kind of close to give us a sense of what the cadence could be for the balance of the year? Because it seems like you guys have, what, about $3.5 billion left to sell pro forma to $750 million is that about right from a volume perspective?

Sure, Craig, it's David. It's a little difficult to hear you, but I think what you're asking is what's the total volume of assets that we're marketing. Is that where you're going?

Yes, sorry. I'll talk louder on my phone. Yes, the total volume that you're marketing today and just the fact that the $750 million kind of that's a pretty similar cadence to what you did in the fourth quarter. So is that an achievable kind of quarterly run rate here? And as you think about what's left, it feels like about $3.5 billion. Is that also kind of the right way to think about kind of what's left here in the near term?

Well, let's say, right now, under LOI negotiating transactions, like I said, it's about $750 million. There's another two dozen properties that are in various forms of marketing with brokers. That equates to somewhere around an $800 million group that's going to be launching sometime in the next 30 days. The real question is how much of that transacts. There have been properties that we didn't like the pricing and we didn't transact. There have been situations where a buyer has wanted to group a couple of assets together and do a small portfolio that has sped up the process. So it really comes down to simply how much time does John's team have to transact, and is it one-by-one or is it in small groups or larger portfolios? So it's really difficult for me to say, other than if we closed $800 million in the fourth quarter, we've got another $750 million that's spoken for, and then we've got another $800 million that's in an early stage of marketing, it feels like there's still plenty of volume out there. What I don't know is how much of that closes and how much of it actually transacts.

Craig, the only thing I'd just slide from a timing perspective, just kind of the cadence of to David's point on when assets are being listed, et cetera. You're likely to see a lull between the December closings we had and then the next batch, meaning it's probably a month or two from now, just to give you context. So it's likely not a $750 million first quarter run rate. But to David's point, based on how much we have under LOI or contract, plus what's being listed, you could see a lot more volume in the second and third quarters. In terms of your question on the valuation, we did provide the projected NOI ranges for SITE and Curb. So I'll defer to you on kind of what cap rate you want to put in there, but that should help give you a sense of sizing on the remaining asset base.

No, that's helpful. And David, to your point of the hit rate, kind of what do you think the hit rate is on the kind of decision to sell versus what's being marketed here? And how does that kind of translate into what you think ultimately, or what are the characteristics that are kind of driving the pricing that you're getting versus maybe some bids that don't fall in? And how far outside of the kind of the parameters or some of these bids? And why not just at this point given the fact that you're effectuating a spin? I mean, are they so low ball as it doesn't make sense just to take them versus continue to hold out for better pricing here since you ultimately need to wind down this portfolio anyway?

Yes. I would say in the fourth quarter, the bid-ask spread was a little wider. And so there were some properties that we chose not to transact on. What feels like has changed, Craig, is capital flows. In the second half of last year, there were a number of value-add buyers that were looking at strips. And I think most of what we sold in the fourth quarter was off market where John had relationships with 1031 buyers or strategic buyers in a certain market. What seems to have changed in the first quarter is that there's just more capital allocated to strips from core and core plus buyers. The increase in institutional interest in the last 30 days has been noticeable. So it feels to me like the bid-ask spread has come in, the amount of capital looking for core real estate has gone up, the confidence level of core buyers that the sector has really good fundamentals and tailwinds seems higher, and therefore, it feels to me like the transaction activity is likely to stay pretty high. And so I do think the hit rate is probably higher than it was in the back half of last year.

Okay. And then just one last one. Just I know we're a couple of months past the initial kind of announcement here. So do you guys have any more clarity on the management structure, G&A kind of fee structure that goes along with the spin between SITE and Curb?

The purpose of these two companies is quite different. One is shrinking while the other is expanding. To support this transition, the shared services we will implement between the two companies will enable the migration of general and administrative functions from one to the other. Ultimately, once the shared services agreement concludes, I don't foresee any staffing overlap between the two companies. In the next six months, we will have a clearer understanding of which company requires more personnel and the appropriate leadership. I expect that in the coming months and quarters, we will provide more information to the market. Our Board of Directors and management are both very focused on this matter. We are highly confident that we can eventually operate Curbline with a general and administrative efficiency that matches or surpasses that of SITE Centers today. However, there is a transition period, and we will share more details in the upcoming quarters, but I don't have much more to add this morning.

Yes, Craig, if you think about my earlier comments regarding projections, we have the NOI ranges. We are essentially providing you with some details. And to David's point, as we approach the spin, which is still over six months away, you'll begin to see us shift towards discussing earnings and sharing more of the relevant information. The Form 10 is certainly a key component of that. So I believe you will gradually see more information released, similar to how we provided additional details today compared to October, over the coming months.

Great. Thank you.

The next question comes from Todd Thomas with KeyBanc. Please go ahead.

Hi, thanks. Good morning. First, can you just expand a little bit on the investment pipeline for Curb Properties in the market today just in terms of product you're seeing in pricing? And I think, David, you said that you're emphasizing SITE Centers dispositions today, but I'm curious how we should think of the volume of acquisitions going forward for the Curb entity?

Yes, Todd, there's a certain amount of angst internally because we're all excited to be buying assets. We've got a lot of opportunities that we're underwriting. The volume of Curbline assets that are available at any given time in the U.S. is much higher than I would have thought. So it feels like the addressable market is there. We've been buying somewhere in the mid-6% cap rate range. We feel strongly about the financial returns of that investment. The challenge is simply one of time management. We've got an awful lot of disposition activity going on. Like I mentioned to Craig, the amount of capital that seems to be very intrigued with strip centers, as we turn the calendar to '24, it's been high. And so we've been allocating internal resources toward dispositions. And that's on the legal side, that's on the transaction side, that's on the due diligence and underwriting side. And so it has put a little bit of a governor on how much we can allocate to acquisitions. So I would expect the acquisitions to be a little bit slower over the next couple of months because we're awfully busy on selling.

Okay. And you said that Curb is expected to grow, I guess, on the quarter same-store basis around 3% or more over the next several years, but in '24, is expected to grow 3.5% to 5.5%, so 4.5% at the midpoint. Why is 2024 same-store growth more elevated relative to that long-term growth rate target? Can you just talk about what's driving that premium growth in the near term for the Curb segment?

Sure.

Good morning, Todd. There are a couple of significant factors at play. The primary one is the SNO pipeline alongside the drop in lease and occupancy rates. Similar to SITE Centers and our peers in the open-air sector, there has been considerable leasing activity in the Curb portfolio, and we anticipate that occupancy gap will narrow over time. Another advantage of the Curb portfolio is the reduced downtime. If we look at spaces that have been vacated over the last couple of years, the time needed to fill those spaces is noticeably shorter compared to anchor locations. This reduction in timeline is contributing to our growth. Additionally, it's important to remember that we are working with a small denominator, which presents significant mark-to-market opportunities that are also driving growth. Overall, I would say the reasons for growth in the Curb segment are on par with those seen in other open-air real estate, but we have a tighter timeline and a smaller base to work from.

Okay. That makes sense. And one last one, actually, David. So you've mentioned now, I think, twice an increase in appetite for retail real estate since the end of the year, the beginning of the year here. Is the disposition activity still best to be executed on a one-off property basis? Or is there any appetite for portfolio sale or something larger in the marketplace to take place today on the site dispositions?

It remains to be seen, Todd. We're certainly open-minded to portfolios because it makes our job a little bit easier. And there have been conversations with several groups about potential portfolios. But we're also price sensitive. And there's been a lot of private capital that's got a 1031 need or that knows a submarket and really likes an asset. And in certain cases, it just means that it's worth the extra work because of the value. I will be curious as well to see if portfolios increase or if we continue more with one-off transactions. I'll be curious, but I don't really know.

Okay. Thank you.

The next question comes from Samir Khanal with Evercore ISI. Please go ahead.

David, on the $750 million that's under contract, the power centers of a 7 cap, I mean that may be a positive read for the market out there considering that some people may think it was closer to an 8% kind of what you have remaining to sell. So maybe give us a little bit more color on, I don't know, like the geographic regions where these assets are located? Is this sort of a portfolio type deal? Or just trying to get a bit more color on these power centers?

Yes, Samir. First, I want to clarify that I did not mention anything about being under contract; I referred to being awarded under a letter of intent or negotiating a contract. Some of these may not go through and could be replaced by others, but we thought it was essential to provide some insight regarding the volume and the types of pricing we are currently dealing with, as it is relevant. What we are working on is generally in line with most of our portfolio. The assets we are negotiating for are located across the country and include various retail formats. Approximately 30% consist of traditional grocery stores, while around 70% do not. These assets vary in size, including both larger and smaller ones. Overall, it seems to represent a solid mix of our broader portfolio. There are some assets which we have not yet completed transactions for that are stronger, such as high-volume grocery stores, while others we haven't included might be less favorable, like a theater with high rent. However, overall, I believe it reflects a consistent overview of the majority of our portfolio.

Okay. Got it. And I guess my second question is around Curbline. I know you’ve said, have no debt initially. But I guess, what's the longer-term leverage plan or even sort of the capital structure for Curb at this time? Thanks.

Good morning, Samir. As both Dave and I mentioned, we are currently anticipating $300 million in cash at the time of the spin and an additional $300 million preferred investment. However, if we continue to sell assets, that could reduce to $600 million in cash. We estimate our Gross Asset Value at around $1.2 billion to $1.3 billion today. Additionally, we plan to acquire more assets, estimating between $25 million and $50 million per quarter. This would bring our Gross Asset Value to approximately $1.4 billion, with $600 million in cash, potentially leading to a $2 billion total at the time of the spin. Initially, we expect Curb to use this cash for capital deployment. After the cash has been utilized, we'll evaluate our leverage strategy moving forward. Historically, our company, SITE Centers, has aimed to maintain a balanced balance sheet that is consistent, if not slightly better, than our peers. I believe it’s reasonable to expect a similar approach for Curb. However, this is still some time away, so we will see how we proceed from here. Overall, I think it's fair to anticipate a consistent capital structure as we currently have with SITE. I'm not sure if that answers your question.

No, it does. That’s it for me. Thanks, guys.

The next question comes from Floris Van Dijkum with Compass Point. Please go ahead.

Good morning, everyone. It seems like you have an exciting couple of months ahead with new concepts and growth. I’m interested in some details about the costs involved. You mentioned a $1.1 billion commitment for mortgage debt. Can you provide information on the cost associated with that commitment and the debt itself? Also, you mentioned that this debt relates to 40 assets. Have those assets been identified, as lenders will likely want to know what they're providing credit for? Are these among your stronger assets, and could you share some details about what you expect to remain with SITE after the spin-off?

Good morning, Floris. It's Conor. On Page 12 of our slides, we have updated the sources and uses for the transaction as of year-end. As you may remember, we provided a similar slide during the spin announcement on October 30, which reflected the third quarter. We have continued this update each quarter to clarify the sources and uses. You are right that we have left out the commitment fee associated with that transaction from those costs. I believe we will provide further details in our upcoming filings in the next couple of weeks, and these will generally reflect market terms. We had a commitment as part of the RVI facility that closed about six years ago, and market commitment fees typically hover around one point upfront. It is reasonable to expect that the Apollo facility will be similar. Our counterparty in this case is Atlas SP, which is associated with the old Credit Suisse securitized products team we have worked with multiple times over the years, and we have built a strong level of trust with them. As part of our process for that commitment, we have identified those 40 assets and completed the underwriting with them. So, yes, that pool has been recognized and the lender is engaged. Additionally, there is a go-shop provision included in that commitment which allows us to explore other options in the market or continue collaborating with Atlas or Apollo. The final financials for that transaction are still to be determined. As David noted earlier, we will share more details as we approach the spin. There is a scenario where we could utilize a much smaller facility based on asset sales, or in a more optimistic scenario, we might not need any borrowings at the time of the spin if the transaction market remains strong. We will keep you updated as we move through 2024.

Hey, thanks, Conor. And maybe…

Go ahead, sorry.

No, no, you fire away.

I was going to say, let me know if I mentioned anything for your question here.

No, no, I think that answers that part of the question. The other question I had was regarding your curve portfolio. As far as I know, there is another sizable portfolio out there that's somewhat similar to yours, which is the core portfolio. You must have looked at that closely. Could you perhaps share a couple of potential differentiating factors between your portfolio and that one? Additionally, how should people think about the percentage of your net operating income, the $76 million of NOI that you have for the curb portfolio, that comes from carve-outs of your existing assets versus actual convenience assets that you've acquired separately as standalone assets? It's a two-part question, and I apologize.

I'll let Conor take Part B, which is the carve-out details. But on Part A, there's so much inventory in the U.S. in convenience. There are a number of smaller and midsized portfolios out there. I'd hate to get into a comparison between different portfolios just because you have imperfect information. I will say that we did hand select this portfolio. I mean we chose what to carve out. We chose what to leave behind. We chose what to buy in the last five years. So we're very happy with the credit quality, the growth quality, the submarkets, the locations, the daily traffic, the cell phone data that we've been tracking for years, as you know. So we're really happy with the portfolio we have. I hate to just start comparing it to other portfolios that we just don't have perfect information on.

And to David's point, I think it's a really important aspect of this. We built this from the ground up literally asset by asset. So every in here, we feel really good about the overall metrics on Page 15, Floris, which makes the comparisons, I guess, difficult to your point or David's point. The carve outs are about 25%, maybe marginally more than that of the overall portfolio in terms of ABR, but that's coming down every day, right, as we buy assets. And you think about, to Samir's question on the balance sheet, if we're $1.2 billion-ish of GAV today, and we carve outs are $300 million, $400 million of that as we deploy $2 billion to $3 billion, the carve-outs dropped to a fairly insignificant amount. So again, we feel really good about each of those carve-outs. We're happy to own them, and we hand-selected each of them. But that kind of subset of the portfolio will shrink over time as we lever operate at least deploy the cash.

Thanks guys.

The next question comes from Ki Bin Kim with Truist. Please go ahead.

Thanks. Just a couple of housekeeping items here. When you quote cap rates on your dispositions, can you just talk about what definition that is? And if you're including a property management charge and things like that?

Hey, Ki Bin, good morning. It's Conor. In our mind, there's only one definition of the cap rate, which is a 4 and 12-month NOI, including a management fee.

Okay. And on your $255 million NOI projection for the SITE Centers portfolio, I'm assuming that's as of a 12-31-2023 portfolio? And if you can provide just high level, like what does that translate to from a same-store NOI standpoint?

Yes, you're correct. It includes the two assets that were sold around January or February, which need to be factored in. We provided the balance sheet and the NOI as of December 31, so that's an important point to mention. Regarding same-store NOI, we didn't offer a projection for SITE Centers for several reasons. The primary reason, as both Dave and I noted in our prepared comments, is that it's becoming less relevant. We sold $1 billion of real estate in the fourth quarter, none of which included a Bed Bath & Beyond. If we factored these in for 2024, our same-store numbers would appear higher not due to the quality of the real estate, but merely because of the presence or absence of Bed Bath & Beyond. Similarly, when we sell some of our Bed Bath assets in the first half of the year, our same-store figures will likely increase. However, this does not indicate improvement for that portfolio; rather, it shows the growing volatility of operating metrics for SITE Centers, which is diminishing in relevance. For guidance on same-store performance throughout the year, you can reasonably expect that in a stable portfolio, growth will resemble that of the fourth quarter and the first half of the year as we compare against Bed Bath. There will then be a significant increase in the latter half of the year as the SMO pipeline and those Bed Bath backfills come into play. This should bring us to a level consistent with our performance in the back half of 2023, aligning with what some peers have forecasted for 2024. However, I must emphasize that we consider the relevance of this metric to be quite low, and the potential volatility in same-store figures throughout 2024 due to asset sales leads us to believe that it won't be a meaningful number to provide at this time.

Okay. Thank you, guys.

The next question comes from Dori Kesten with Wells Fargo. Please go ahead.

Thanks, good morning. Would you call October or rather firm timeline for the spin at this point? Or could material incremental sales move that forward?

Hey Dori, good morning. It's Conor. That's a great question. Right now, we believe October 1 is a solid placeholder. You're correct that if there are significant changes in transactions, either positive or negative, we might adjust that date. However, it's important to note that we don't need to sell another asset to complete this transaction. The financing essentially serves as that bridge. So from here on, any developments, as David mentioned earlier, will only benefit both SITE and Curb stakeholders, who remain the same. It's a great question, and we'll keep you updated as we progress. As of today, that date is our best estimate, and it seems that transactions are the main factor that could cause that date to shift by a month or so.

Okay. What level of asset sales from this point on would eliminate the preferred equity stake from the transaction?

It's probably a pretty close story to a dollar for dollar. I mean, if we sold an additional $300 million here, the preferred would go away. I think to David's point around the level of activity we're seeing, we feel pretty good that the likely Curb is just cash and no preferred. That said, again, like the financing, we have everything in place. We don't need to sell additional assets today, but it does feel likely based on the volume of activity we've got going on that it's likely that Curb is simply cash.

Okay. Thank you.

The next question comes from Paulina Rojas with Green Street. Please go ahead.

Good morning. And my question is about the in-place ABR for Curb. And I say it's 36-foot, which is towards the high end of what I see for your peers for small shop. So I was wondering where do you see the market rent for your space today?

Yes, it's a good question, Paulina. The reality is that shop rents can vary dramatically in a larger property. In other words, the shops that are along the Curbline up in the front of the property tend to have higher rents. The properties that we refer to as B shops, they're in the back of a property adjacent to a grocery store, adjacent to a larger format retailer tend to have lower rents. So it's not surprising that the outparcel buildings or multi-tenant pads that are along the high-traffic intersection tend to generate the higher rents. The mark-to-market is a really good question. And I don't have a succinct answer on that. Part of the reason is that market rents for shops have been growing, specifically coming out of the pandemic with a lot of the suburban migration. The cell phone data, which is telling us that a hybrid workforce is pretty entrenched. You're just seeing a lot more tenant demand. And so a lot of the rents are growing at a pace that we're not really sure we don't have great data, but the mark-to-market is certainly present.

Yes, Paulina, I think it’s important to note that our new lease spreads for the Curb portfolio have averaged over 30% in the last four years. One reason we favor this property type is that achieving mark-to-market is feasible; the lease durations allow us to access market rents. In contrast, with grocery-anchored or large format assets, the biggest mark-to-market potential often comes from major national tenants like grocers, which limits our ability to leverage those opportunities. This distinctive feature of the property type is something we value, as it allows for real mark-to-market adjustments, which are not always attainable in other open-air formats.

Thank you. And then my second question is, you made clear that you are prioritizing dispositions. And I wonder if it was at all a consideration trying to accelerate acquisitions to maximize during 1031s?

Yes. It's a really good question, Paulina. Just given this is a taxable spin, we're actually better off not 1031 gains because effectively then that gain is passed on to the stakeholders. So the other point I would just make is we actually don't have material gains, I should say, at the portfolio level. There are certain assets that have significant tax gains, but on an overall blended portfolio basis, I don't think it's significant relative to the enterprise. So for both of those reasons, the 1031 market is less of a focus for us today.

Thank you.

The next question comes from Mike Mueller with JPMorgan. Please go ahead.

Hi. Just a few questions on Curb. First of all, can you give us a sense as to when we look at your blended rent spreads, how they would compare if you would break them out between Curb and kind of the legacy SITE stuff that you want to sell?

Yes, we haven't broken them out again in response to your question, Paulina. The spreads for Curb were provided in the October presentation. I want to point out that there is a different approach for Curb. We are likely to include all spreads, not just those that have a tenant who moved out within the last 12 months, for various reasons. First, it's a larger pool, and secondly, we believe it's a more relevant metric. With this differentiated new approach, our spreads have averaged 30%. This is not dramatically different from SITE, but the capital needed to achieve that spread is significantly lower. I would direct you back to the October 30 presentation, noting that this approach includes all spaces, not just those that have been vacant for less than 12 months.

Sorry, I miss part of that. I think my signal went out for a little bit during the last question. And then one other question, too. I guess in the supplemental, you typically break out redevelopment expansion. And I guess when we're looking at that, is it safe to say that pretty much everything tied to that goes theoretically with the legacy site? Or when you look at the Curb portfolio a year out or so, would you envision having some activity like that, whether it's like a renovation or expansion spend as well?

Just what's in the site, the up today for SITE and or shops at framing him, that's new Starbucks pad. That is part of Curb, and University Hills that as part of Curb as well, but I'll defer to David on the old spend path.

Going forward, I certainly think that our redevelopment activity will be minimal at best at this point. It's a renewals business. The purpose of the business is to buy real estate where we can raise rents with low CapEx. Having said that, the larger the portfolio gets the more renovation work is required here and there. So I think we will have some activity, but I would not expect us to be having a large redevelopment component in this business.

Got it. Okay, thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to David Lukes for any closing remarks.

Thank you all for joining our call, and we will talk to you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.