SITC - NYSE

Good afternoon, and welcome to the SITE Centers business update call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Stephanie Ruys de Perez, VP of Capital Markets. Please go ahead.

Thank you, operator. Good evening, and welcome to SITE Centers conference call to discuss the spin-off of the company's convenience retail properties and third quarter 2023 earnings. Joining me today are Chief Executive Officer, David Lukes; and Chief Financial Officer, Conor Fennerty. In addition to the press release distributed this afternoon, we have posted our quarterly financial supplement and spin-off investor 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 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 today's press releases, the investor presentation posted to our website 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 reconciliation 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.

Thank you, Stephanie. Good evening, and thank you all for joining our call on such short notice. Tonight marks an exciting chapter for our company, and I'm thrilled to announce our plans to spin off the convenience portfolio from within site centers into a new, unique and focused growth company called Curbline Properties. Curbline will be initially seeded with 61 wholly owned convenience properties, no debt and $500 million of liquidity in the form of cash and a preferred investment in SITE Centers. We began investing in convenience assets over 5 years ago. And after a number of 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 the unique growth opportunity. Why do we like convenience retail? Three main reasons: first, the visibility and access that the real estate provides. Second, the economics of the business; and third, the depth and breadth of quality tenants. Let me expand on those 3 reasons. First, convenience itself. Location, visibility and access is our anchor. These assets are typically simple buildings consisting of a row of shops along the Curbline of major suburban in thoroughfares and traffic intersections. For convenience assets, the customer draw is not a traditional anchor, but rather easy access and visibility. We all know the difference between going shopping and running Aaron's. Convenience real estate caters to Aaron's. Data analytics using mobile phone geo-location data confirms this. To that point, our research has shown that convenience properties generate 3.5x the customer traffic per square foot than properties with larger units. And that half of those customers are in and out of our properties in less than 7 minutes. This short duration statistic has grown almost 40% in the past 5 years. These figures help highlight the behavior, which is an integral part of the suburban lifestyle, and which has only become more entrenched with increased suburban migration and the rise of hybrid work. Second, the convenience sector offers attractive economics, highlighted by occupancy-neutral NOI growth that's strong and high cash flow or AFFO due to limited CapEx needs. Because the shopper traffic per square foot is so high along the Curbline, these retail shops are in high demand from a significant number of tenants. This high level of tenant demand means, of course, that convenience retail command premium rents with attractive unit economics, which typically include annual fixed rent bumps. Furthermore, the elevated traffic and sales lead to high renewal rates, meaning less downtime, lower re-leasing CapEx and because these buildings are so simple, low CapEx in general. The historic CapEx of our convenience assets is just 7% of NOI, driving substantial free cash flow. CapEx is the cholesterol of real estate and the convenience format has very little in its veins. Third, convenience retail is characterized by a high-quality and well-diversified tenant mix. Because demand for the access and visibility offered by Curbline space is so high, strong credit tenants are competing for the best locations, especially for endcap spaces or suites with a drive-through. 65% of the properties in the Curbline portfolio today have a drive-through with 13% of the portfolio base rent generated by those drive-throughs. These units, along with the standardized nature of our site plan, have attracted a diversified mix of national and local service tenants such as Starbucks, Darden, JPMorgan Chase, Verizon and Chipotle for whom superior location attributes are critical. These 3 factors, convenience itself as an anchor, strong property economics and high tenant quality have given us strong conviction that the convenience business is a compelling one, a conviction proved out over our extensive analysis and investment in this property type. So why is now the right time to do this? Both Curbline and the high-quality site centers portfolio coexist within SITE Centers today. But these 2 businesses are different from each other, and we believe that together under one roof, they are not fully maximizing value for stakeholders and may not appeal to a single set of investors. This spin allows the company to unlock Curbline and allow investors to allocate capital into the opportunity that they find most compelling. It also allows for capital to be allocated exclusively in the convenience properties without the long-term dilution and headwind associated with asset recycling. So let's start with a few comments about SITE Centers itself. Excluding the convenience asset, that will be part of Curbline, the SITE portfolio is a carefully curated mix of grocery, power, lifestyle and net lease assets that are positioned in the top 15th percentile of the United States in terms of demographics with compelling long-term growth characteristics. The separation of Curbline from SITE that we are announcing tonight allows us to maximize the value and the opportunity for these properties. Highlighting the quality of the SITE assets, tonight, we are also announcing that since July 1, we have sold 11 properties for $646 million at a blended cap rate of 6.5%. We have an additional 6 properties for $242 million under contract and subject to standard closing conditions at a similar mid-6 cap rate. We have additional assets in the market today such that in aggregate, we expect to sell almost $1 billion of assets at compelling valuations versus the implied value today. Irrespective of market turbulence, high-quality assets are typically more liquid and remain desirable to strategic buyers even in the face of macro concerns. The SITE Centers portfolio fits that mold. Having been carefully selected via the retail value spinoff and joint venture unwinds and remains extremely attractive on an absolute and relative basis. Over the past 6 years, this management team has sold almost $7 billion of shopping centers. Through that process, we've gained a very good understanding of which strategic buyers are seeking high-quality assets. These parties include both private buyers and public REITs. And in all cases, these buyers know the assets, they know our submarkets, and they are often unlevered acquirers. Off-market execution has been our primary focus as we have deep relationships with those seeking high-quality assets. And in this regard, our CIO, John Cattonar and his team have done an amazing job. Going forward, I would expect SITE to continue to focus on maximizing value on the remaining properties. The retail operating environment has dramatically shifted post pandemic with limited supply and higher demand for a broader set of tenants, trends that should support fundamentals for the sector for years to come. These macro tailwinds, along with the company-specific factors like our signed but not open pipeline, which represents 4.5% of spin adjusted base rent, along with redevelopment deliveries and the lease-up of vacant units are expected to generate substantial forward NOI growth. This operational upside, along with value realization, should provide stakeholders with compelling value creation. SITE Centers, after the spin-off of Curbline line, will retain the flexibility of having more than 1 path to success. Recently, private market asset sales have been the best means to realize NAV, and I would expect us to continue to pursue these. However, the high-quality nature of our portfolio, of which almost 70% of the properties are grocery-anchored, may lead to other eventual outcomes. We will consider all options available to us to achieve our goals. So coming back to the question I posed earlier, why is now the right time to create Curbline as a stand-alone company. First, as I said before, we've been investing in convenience retail with insight for several years now. And in that time, we've assembled a portfolio of meaningful scale. Arguably, what we own today represents the largest high-quality convenience portfolio in the United States. Second, the announced asset sales position us to capitalize Curbline the right way for its growth aspirations. That is with no debt and substantial initial liquidity. The Third reason for why now is the size of the opportunity itself. The addressable market for convenience assets according to ICSC data is 950 million square feet. Curbline's initial portfolio comprising 2.1 million square feet represents 0.25% of total U.S. inventory, meaning we have plenty of room to grow. And while this sector has been largely untapped by institutional investors, we think the time is right to change that, and we intend for Curbline line to lead the way in bringing this mature, proven and liquids sector into the institutional ownership fold. 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 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 growth is expected to average greater than 3% for the next 3 years when factoring in all of these attributes. Each of the Curbline assets is well located on a well-trafficked suburban intersection or thoroughfare with almost 75% of these properties purchased as individual acquisitions and the remainder subdivided or in the process of being subdivided from existing larger format site center properties, a process that took almost 2 years of work to complete. And combined with the balance sheet that is truly unmatched with no outstanding debt and $0.5 billion of cash and preferred investment on hand, Curbline properties is expected to generate best-in-class growth and returns for stakeholders. Conor will talk a bit more about balance sheets of both companies but the transactions and financing commitments announced tonight, position the respective companies to execute on their business plans with no material additional capital needed after funding the mortgage. For SITE and for Curbline, these 2 distinct business plans with 2 distinct employee skill sets needed. As such, I would expect both organizations to have their own employee base upon conclusion of the shared services agreement, the executive leadership team will become employees of Curbline upon its formation, but some may continue to act as resources for site centers. That level of engagement will ultimately depend on the size of the 2 companies and strategic focus and direction from the Board of Directors. We strongly believe in the compelling opportunity in front of us to create significant stakeholder value and position both SITE Centers and Curbline properties for the future. Before turning the call over to Conor, I want to thank everyone at SITE Centers for their work over the past 2 years as we prepared for this important step. The spin-off of Curbline properties is possible due to the work of truly everyone across our organization to position us for growth. And with that, I'll turn it over to Conor.

Thank you, David. I'll start by calling out a few of the significant balance sheet items from the announcement as well as touch on third quarter earnings and operations before concluding with guidance and the special dividend. 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 transactions and financing commitment announced today, we have positioned both SITE and Curbline with the expected balance sheet to execute on their business plans. Starting with SITE. We have obtained a 1-year delayed draw $1.1 billion mortgage commitment from affiliates of Apollo, including Atlas SP. The mortgage facility, which has 3 years of fully extended term upon funding is expected to be utilized to repay all outstanding unsecured debt, including outstanding unsecured bonds prior to the spin, and will be secured by 40 properties that are expected to be part of SITE Centers post-spin. Funding is expected to occur in 2024, subject to satisfaction of closing conditions. The funded facility will improve duration and the commitment provides clarity on the expected outcome for SITE's bonds. It also allows the flexibility for SITE to sell properties where appropriate during the commitment period and retire bonds with disposition proceeds. In terms of leverage, at quarter end debt-to-EBITDA was 5.1x, with a debt yield north of 20%. In the period prior to the spin, we expect leverage to continue to decline with debt-to-EBITDA below 4x in the fourth quarter. We also expect to maintain a significant primarily unencumbered asset base during this period, providing additional scale and collateral for SITE's stakeholders. For Curbline properties, the company at the time of the spin is expected to have no debt, $200 million of cash and a $300 million preferred investment in SITE Centers. This highly liquid balance sheet allows Curbline to focus on scaling its platform while providing the capital to differentiate itself from the largely private buyer universe acquiring convenience properties. Curbline is also expected to be capitalized with an unsecured line of credit and will explore other financing options post spin to further improve its liquidity and access to capital. Additionally, we will take advantage of the next year to recycle assets further increasing the asset base and growth profile of Curbline. Details on the sources and uses and capital structure of this transaction can be found on Pages 5 and 6 of the presentation posted on the Investor Relations section of our website. Shifting to third quarter results. Third quarter OFFO was ahead of budget due to better-than-expected operations, highlighted by higher-than-expected occupancy along with just over $8 million or $0.04 per share of below-market lease adjustments. These adjustments primarily relates to the recapture space previously leased to Bed Bath & Beyond and are nonrecurring in nature. The third quarter also benefited from slightly lower-than-expected G&A as the savings from the previously announced restructuring plan are realized. Outside of these items, there were no other material call-outs in the quarter. Moving to operations. Third quarter leasing volume and spreads picked up from the first half of the year, driven by activity and a significant mark-to-market on the former Bed Bath & Beyond spaces with over 1.2 million square feet leased and 58% new leasing spreads. Overall leasing activity and economics remain elevated, and we remain confident on the backfill of the remaining Bed Bath spaces, highlighting the quality of the portfolio and depth of demand. To date, we've leased or at lease on just about half the lost Bed Bath ABR. And continue to make steady progress releasing the units to make sure of national credit users. In the third quarter, the lease rate was down 90 basis points sequentially to 94.6%. This sequential decline was due to recapture of Bed Bath units, which was a 120 basis point headwind, and the sale of assets at an average lease rate of 98.5%, partially offset by new leasing. Looking forward, we are increasing same-store NOI guidance to a range of 2.5% to 4.0% growth driven by results to date and earlier-than-expected rent commencements. This increase, despite the recapture of all square footage from Bed Bath, speaks to the strength of the portfolio and the embedded growth. We are also increasing OFFO guidance to a range of $1.16 to $1.18 per share, which includes the announced dispositions that have closed to date as well as the assets previously referenced by David that are under contract. In aggregate, these asset sales are expected to be a $0.02 to $0.03 headwind to full year results. And partially offset operational outperformance. Transaction activity, particularly the timing of asset sales, is expected to be the largest driver of where we end up in the full year range. Lastly, as a result of the significant disposition activity announced and forecast, site centers expected to declare a special dividend that will be payable in January of 2024. At this time, we expect that the special cash dividend will be at least $0.10 per share, and we expect to finalize details and declare the dividend prior to year-end. And with that, I'll turn it back to David.

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

[Operator Instructions] Our first question will come from Dori Kesten with Wells Fargo.

Congratulations on the announcement. Can you walk through the acquisitions and disposition plans you have ahead of the spin and the pricing you're seeing? And then just as a follow-up, what you envision Curbline's long-term net debt EBITDA to be?

Dori, can you just repeat that? You said the dispositions and acquisitions before the spin, is that what you said?

Yes.

Yes, Dori, it's Conor. So if you look at the investor presentation, I think it's the back of the SITE Centers section on Page 34. We've got the completed dispositions to date, the wholly on completed disposition to date. And then we also referenced another $240 million of assets under contract on top of that. We also, on Page 5 of the press release have some -- I'm sorry, the presentation, excuse me, have additional detail on the sources and uses and how those dispositions tie into the kind of business plan over the next year. You should expect, though, to David's comments and in my comments, that we will look to sell additional assets and to buy additional assets over the course of the next year prior to the spin. The ultimate magnitude of those asset sales will be dependent as well the acquisition. So to TBD on that front, but we've got quite a bit of detail on the deck. I appreciate it was a short window until this call, though.

No, I'm sorry, I was looking for the, yes, the incremental beyond what's already in the deck. And then as a follow-up to that, I think there's -- sorry, there's no debt on Curb when it spinned. But I guess, what's the long-term plan for leverage?

Yes, Dori, it's Conor again. We'll provide details on kind of the leverage path and leverage targets ahead of the spin or once we have some data at Curb. But I think it's fair to assume that it will operate in a manner that's consistent with how we've operated SITE Centers over the last 6-plus years, which we think there's incredible optionality and generally having lower leverage. All that said, as we put new debt in place, one thing that will be different with Curb is we will have duration, which is something we have not had in the last couple of years at SITE Centers as we've looked to maintain strategic optionality. So if we have additional or greater duration and we see an opportunity, we'd be happy moving up the leverage scale, but I think it's fair to assume that generally we'll run the business from a balance sheet perspective, similar to SITE Centers. But again, we'll provide a lot more detail as we get closer to the spin date.

Our next question will come from Craig Mailman with Citi.

A couple of questions here. Just on the cap rates of what you sold and what's under contract, the 6.5%, is that just today's cap rate? Or is that sort of -- should we think about a pretty good kind of bogey for where the stabilized Cap rate? I'm just trying to get a sense of what the market is really willing to pay for some of these assets versus just what it looks like on an initial.

Sure, Craig. I can take that. It's David. The way we're identifying cap rate is the traditional method, which means after management fees and its forward 12-month NOI. So when we quote the cap rate, we're saying that when the buyer agreed to an asset purchase and went under contract, that forward 12-month NOI is the basis for the cap rate. As far as the growth rate of those assets, I think you kind of look to the general corporate growth rate of this business, which is somewhere around a 2.5% CAGR on NOI. And so you can back into what the unlevered IRR expectations are. I do think with the sheer volume of activity we've had, I mean, over $880 million of assets either closed or under contract. And the closed average 6.5% on forward 12. When you add in the extra 240 or so on top of that, you're still in the mid-6s. So I think that gives you a pretty good guidance as to where the market was 4 or 5 weeks ago when these assets were either under contract or closed.

I mean where do you guys think pricing -- I guess some of these were struck before the 10-year really started to move, someone were struck after. I mean I know it's a lot of assets so it kind of blends out, but have you seen pricing move more recently and some of the stuff that has got under contract in the last couple of weeks is north of that 6.5%? Could you just kind of give any views of where cap rates are going and the assets you have gone to contract recently out versus some of the ones that went to contract a while back before rates start moving up again?

Yes. I think -- I mean, so far, we've continued going under contract as recently as Friday, so I haven't seen much movement in cap rates. So that contract is included in what we have going forward. It feels like the values are holding with what's gone under. And I would just say that there has been a gap of assets that were negotiated a month or 2 ago, and now they're under contract versus other assets that are in the market today. But I really don't have an update as to where those values are going. I will say that, remember, the size of this company 7 or 8 years ago was so much larger. And with the JV unwinds and the spin-off of RVI, we've curated it down to a pretty small portfolio of really high-quality assets. And the buyers of all this real estate, for the most part, have been unlevered buyers that are trophy hunting. So if you look through the portfolio today and you look at the assets that we've sold, they're a pretty good representation of our overall portfolio. We've sold some in the Midwest, some in the Southwest, some in the West, some in the East. And so I think what we're finding is that there's a lot of buyers out there that are still seeking really high-quality trophy assets. They're willing to do it without debt. And John has done a great job of attaching those buyers to the assets that we know people want with the good quality.

Yes. And just to piggyback on that, Craig. I think it's really good point because there are assets we will sell, which they might target a cash-on-cash buyer. To date, we haven't had any of those assets held. But you're right, they might be more sensitive to interest rates. To Dave's point, what we've been selling are for assets kind of a local or a strategic buyer that have a different way of underwriting or a different way of financing or capitalizing the assets. So I do think there's a very big differentiation. We were buying trophy assets, to use David's terminology, that have embedded NOI growth, embedded mark-to-market. It's a little bit different underwriting exercise than a cash-on-cash buyer.

No, I appreciate that. I wasn't trying to harp on it. I guess I was just trying to bridge the gap to my other question is you guys in the deck put the Curbline valuation using the 6% cap and the growth expectations there, the -- the $1 billion to $2 billion, presumably, you're going to get some of that with proceeds from SITE before the spin is effectuated. But after that, it seems like you're going to be using debt capacity. So I'm just trying to bridge with where rates are today, where you might be able to source debt to reinvest in the assets that you guys think are worth of 6, how the accretion math works kind of long term to grow Curbline in an accretive manner. I'm just trying to bridge that at this point.

Yes. It's a -- no, David. Go ahead. You start.

Well, I could say that, Craig, for the last 5 years, we've been tracking literally thousands of convenience assets. John's team has an awfully big log of all the assets we've underwritten. And to date, because our capital was not unlimited, we've been fairly selective on which ones we purchase. But we've got a pretty good handle on where the great volume of convenience properties trade. And it feels like even the really high-quality ones trade with a spread to borrowing rates. So although Curbline is going to have cash and a very liquid balance sheet so we can start buying immediately. I do expect that this asset class trades more similarly than you've seen high-quality real estate trade in the past where there is a spread to borrowing rate. And we've seen that in the past, and I would expect that to continue.

Next question will come from Connor Mitchell with Piper Sandler.

It's Alex Goldfarb on for Connor. So just a few questions here, David. A number of years ago, when you -- first one, when you guys took over the company, you did a significant repurposing of the portfolio. And then you said about buying the convenience assets because the NOI growth was faster than the traditional SITE Center shopping centers plus they work better with your cost of capital at the time and it was a -- turned out to be prescient just given with what happened during COVID. My question is, if we think about size and scale of management, because it sounds like you guys are going to be running both companies, cost of capital and just overall earnings growth. Why does it make sense to split the 2 entities apart versus keep them together and they both benefit the same way?

Yes. It's a totally understandable question, Alex. I think that the simple answer is it is a very unique asset class. It deserves to be aggregated. It has a lot of unique attributes that once they're separated from a traditional shopping center, they deserve to be aggregated into a company that has a pure-play motive, and that motivation is to go after the real estate that's servicing the errands or the number of short duration trips the customers are after. To me, in many cases, in retail real estate, back in the day, retail was retail. Now there's 4 or 5 different typologies or formats. This specific format is almost a forgotten format. And when you look at the fundamentals of what makes it tick, it is very unique. We strongly believe it is better off by itself. And at the same time, SITE Centers is a very high-quality anchored portfolio that deserves to achieve its real NAV. And if you look at where we're trading today, relative to the $600-something million that we just sold in the last couple of weeks, there's a huge spread between what the private markets value it at and what the public markets do. So I think separating the 2 now gives both companies a real shot at achieving growth for Curbline and NAV realization for SITE Centers.

And just to clarify the management comment, Alex. If you look back at David, in your prepared remarks, his comment was the level of engagement by the executive team will ultimately depend on the size of the 2 companies and the strategic focus and direction from the Board. So I just want to clarify that comment.

Okay. But that goes to the second question, Conor. I mean when you guys ran RVI, as memory serves, I think you guys did that pro bono. I don't think you got paid for that. Maybe I'm wrong. But it looks like you guys for right now are going to be running both companies so basically Curbline is sort of an external run entity, if you will. So maybe you could just comment a little bit more on how you guys plan to spend your time. Are you being paid out of both? And just if I hear your enthusiasm, David, it sounds like Curbline is the way of the future. It sounds like there's a much bigger opportunity to grow that given the roll-up potential versus the SITE Centers. So it almost sounds like Curbline is the future whereas SITE Centers, I don't want to say is the past, but is -- maybe gets merged into another entity or something like that. So maybe you could just, from a management perspective, how you guys are getting paid, how you guys are spending your time and why Curbline wouldn't garner more the focus for you?

Sure. Well, if I can tie back to your comments about RBI because the only similarity with RVI and this particular announcement is the fact that they're both spins. RVI was a method to, on the one hand, remove lower-quality assets from a public company and therefore, raise the standard of what we owned and use those proceeds to pay down debt and delever. So if you remember, we reduced leverage and we got rid of assets that we deem to be of a lesser quality in the same movement. That company was externally managed because it was a wind down right off the bat. This is very different. SITE Centers has all-time high demand. We've got very strong leasing spreads as exhibited by this quarter. A lot of demand, a lot of tactical redevelopment work. It just feels like everything is going well for the sector and for SITE Centers assets right now which means that realizing NAV is very important. And I do think that's exciting. What we don't know is what is the relative size of these 2 companies over the course of the next year because there will be additional recycling that happens. But you are right that I'm very, very excited and enthusiastic about Curbline because it's such a unique asset class, and we've spent a lot of time, as you know, studying what makes this asset class tick. So going forward, there's a job to do with SITE Centers and realizing NAV and there's a job to do at Curbline, which is growing the company. How that ties back into executive compensation honestly, is something the Board is well aware of that they would like to make sure that the company at large and management is being compensated for the work that's required. But it's too soon for them, honestly, to have any specifics around that. So I can't really give a whole lot of detail.

Our next question will come from Todd Thomas with KeyBanc Capital Markets.

A lot to digest here. A couple of questions. I guess following up on Alex's question. I hear your comments about the spin not being quite the same as the RVI spin off, which was executed on several years back, but there are some similarities. And I guess I wanted to ask about the shared services and the infrastructure, which here lie within SITE Centers, but you mentioned that they may continue to monetize assets over time and have flexibility to pay down the mortgage, can you just provide, I guess, a little bit more detail around what you're expecting for Curb to develop or acquire its own asset management and infrastructure over time and whether there's a specific time line or agreement on the shared services agreement?

Sure. Absolutely, Todd. I can start, and then Conor can follow up with some specifics. But if you think about the purpose of a shared services agreement in this case, it's to make sure that both of these companies have an orderly transition of resources and give both companies the time to reduce execution risk. So for Curbline, that means winding itself up. And for SITE Centers, that means realizing NAV, which still includes asset management, leasing, construction, development, all of those functions. It just so happens that all of these assets today are under the same umbrella. And our company at large, with all of our full-time employees, manage all of those assets today. So 3 or 4 quarters from now, when the spin actually concludes, there is a 2-year period at which time we'll be able to transition between those 2 companies. And by the time that those services burn off, I expect both companies to be able to stand on their own. That is very different than RVI, which was an externally managed vehicle from the get-go. This one, I believe that we're better off assuming that the company needs to have its own employees to run itself. The difference is with the executive side. And the reason I say that is I think the Board of Directors doesn't exactly know the full details of how big these 2 companies are going to be in 9 to 12 months. And therefore, it makes sense for them to delay that decision as to how the leadership transition works. And I think that's a wise decision given the fact that we've got a lot of balls in the air. I mean, look specifically at transactions alone. John and his team, Mike owned off on the legal side, have literally worked on hundreds of millions of dollars of transactions in the last 45 days. And that work is important. And that's why I think the transition services agreement gives time for both companies to transition.

Yes. And Todd, to put some numbers around that and piggyback on Craig's earlier question. If you look on Page 22 of our deck, at the time to spin today, and this is before we expect to acquire additional assets ahead of the spin, we think Curb has an asset value of, call it $2 billion. But once you fully invest that, and you can imagine we've taken of what we think is an appropriately cautious view on this, we think the enterprise could be as big a SITE Centers' is today. And so to David's point, you're just transitioning resources from SITE selling assets, realizing value to Curb as that business scales. And to David's point, it's a wind up per se, where you're adding assets and you're adding the appropriate resources as that company grows pretty significantly.

Okay. And then what's the planned sort of capital structure for Curb expected to be over time? Are you looking at sort of an unsecured capital structure secured? And I guess, just given that these assets, these convenience inventory assets are maybe less owned in the public markets today, can you just discuss how they're perceived in the debt markets and whether there are any sort of financing considerations or whether an unsecured capital structure would be an option?

Sure, Todd. Look, we think there's pros and cons of the secured and the unsecured path, and I would say we kind of like taking the middle approach. We think there's huge benefits to being unsecured borrower for a host of reasons. One of those is it's a lot simpler and straightforward and kind of maintenance per se on an ongoing quarterly basis. It's just frankly easier. We can raise hundreds of million dollars effectively overnight. That's a huge competitive advantage. And if you look at economies of scale, look at some of the larger REITs in the public REIT space, it's a big benefit for them. So look, our expectation, again, coming back to Dori's question, we're a long ways from the time to spin. But our expectation is the balance sheet of Curb would look really similar to SITE Centers where it is predominantly unsecured, very high-quality unencumbered pool, a really healthy debt yield. But we think there are times in the cycle and times in the market where having secured debt is a great thing. It's a competitive advantage or there's times where the one market is efficient or inefficient and vice versa. So I wouldn't commit us to saying we're just going to be unsecured or we're just going to be secured. But I do think we'll look eerily similar to SITE Centers. In terms of your question on the financing or capital available on the debt side for Curb, it's a really great question. We've been active in the financing market for the last 6-plus months on a couple of assets financing that closed, excuse me, and others that we have commitments and others that are to close, excuse me, in the fourth quarter and the first quarter of next year. And what's really interesting is that there are more lenders than I expected and much larger scale on the convenience side than I initially expected. So one is the bank side; two, [ LifeCos ] are active. It's a different approach in that you're looking at pooled assets as opposed to single assets just given the asset size, but they're attracted to the asset class for the exact same reasons that we are on the equity side in that really high credit quality, really high AFFO and really strong internal growth. So we've been pleasantly surprised by the interest and demand, but it's a little bit different structuring in the sense that traditionally, you're going for pools of assets just given the asset size versus a large-format power center or grocery, whatever it might be.

Okay. What is the rate on the $1.1 billion mortgage commitment that you've secured?

Sure, Todd. So the rate is dependent on how much we fund. So it's to be determined. We'll provide more details as we get closer to the time to spend. It's fair to assume though that rate will look like a market rate CMBS loan. Again, it's totally dependent on how much we fund, but it's probably fair to assume that's a market rate CMBS loan.

Our next question will come from Hong

For a while now, your acquisitions have primarily been focused on kind of these convenience assets. How should we think about acquisition volumes and pricing going forward since I presume convenience assets will be purchased through Curbline and SITE Centers will be focused more on traditional strip centers?

Yes, I think for the course of the next 9 to 12 months as we're recycling, we're putting an awful lot of energy into realizing NAV on the disposition side. And so I would say we're going to be more careful and selective on the acquisitions. But going forward, the reason we're establishing a capital structure for Curbline that's commensurate with its strategy is simply so that we can scale that business. And when we look through our thousands of deals we've underwritten in the last couple of years, we looked at the total addressable market of the convenience property type. I think we have a very high confidence level that, that business can acquire at a minimum $500 million a year of high-quality assets outside of what's totally available in the market. So it feels like there is a very large addressable market. And I think that the going-forward acquisition volume is certainly going to be one of our biggest strategic advantages.

Our next question will come from Ki Bin Kim with Truist.

Just to go back to an earlier topic. The SITE Centers pro forma will have about 4.5x more NOI than Curbline. And going back to kind of the management interest and alignment with shareholders. I just want to make sure I understand that as a shareholder, I'm going to own a lot more SITE than Curbline. I just want to make sure that the alignment with interest with shareholders kind of reflect that? Or do you think your incentive comp and G&A would be more aligned to Curb?

Ki Bin, it's Conor. So I point you to Page 4, which you're referencing on the NOI. Remember, that's as of September 30. So you should take the $313 million, subtract the $769 million of assets sold in the fourth quarter and under contract, and that will give you a kind of better run rate for NOI going forward. So that would be point one. Point 2, as David and I have mentioned in a number of occasions, we expect to be continuing to sell assets over the course of next year. So I'd expect that NOI figure to come down even more so from there. We also expect to be acquiring assets to earlier comments as well. So expect the Curb number to keep coming up. And so I think if you're looking at it as of September 30, you're right, it's a 4:1. If you look forward to -- fast forward to September 30 a year from now, I think you're going to see a materially different NOI kind of weighting between the 2. The second thing I'd say to you, and this is coming back to my comments to Todd and again, to kind of Craig's question, we expect the enterprise value of Curb to be equal to or greater than the enterprise value of SITE Centers today in a couple of years. So I do think -- correct. You're correct. At a moment in time, there's just different kind of imbalance, but that expects to kind of dramatically shift over the next couple of years as we reinvest that equity.

Okay. And currently, you're paying out about $120 million in dividends. And on a pro forma basis, what is the net payout in dividends going to look like? Because I realize there's probably going to be additional G&A to run both companies and there might be some other transactions that might be occurring. So just curious what the total dividend looks like.

Yes. Look, the dividend policy is something that's under the direction of the Board. But I would just say the management recommendation historically at SITE Centers is to maximize free cash flow. So I would assume for Curb, that is our goal, and we have a payout ratio consistent with what SITE has guided to or executed in the last couple of years, which is generally around 70%. Obviously, it's going to depend on tax, net income, et cetera. So I think it's fair to assume the payout ratio of Curb is something consistent. Again, that's under the direction of the Board, but that would be the management approach. For SITE, I don't want to say dividends are relevant, but there's going to be special dividends mixed in with common dividends. The common will obviously be a function of our tax net income and obviously, any gains or losses we have as a result of transactions I would expect special dividends are as big of a piece of the SITE kind of dividend strategy as they are the common dividend. So it remains to be seen, but it's -- this is not an income or a dividend story. This is much more about retained cash flow for Curb and special dividends for SITE.

Okay.

In terms of -- sorry, just come back to your G&A question because I think it's an important one. If you think back, we announced a restructuring, I think, 2 quarters ago, we have spent the last number of years intensely and acutely focused on G&A and minimizing G&A for SITE Centers. You should assume there are quite a few lessons learned to David's point and to our point from earlier, that how we can set up Curb and how we can set up SITE. And so you're right, there will be incremental public company costs as part of having 2 companies. But you should assume that we are intensely focusing on minimized G&A of the 2 organizations. And frankly, we think, based off what we've learned over the last couple of years, we could run Curb as efficiently, if not more efficiently than we can SITE Centers or we do with SITE Centers right now once we get to full realization of investment.

Our next question will come from Linda Tsai with Jefferies.

What kind of premium would you expect Curb to trade at relative to SITE as Curb sort of gets going on a multiple basis?

Well, Linda, it's a great question. I mean to our point from earlier, the ultimate size of Curb will be a little bit different is today. We'll find out as we get closer. We'll rely on folks like yourself and others to set that market. But you should assume we're excited about the opportunity and the growth potential and we'll go from there.

And what do you consider to be like the closest comps to Curb in terms of your peer set?

It's a great question. It's one that we're frankly excited about because we don't think there is a company like this. It's got attributes of net lease. It's got attributes, excuse me, of industrials, it's got attributes of other unique property types. And obviously, it's got some common tenancy with shopping centers. But David, I don't know if it'd add anything to it, but it's got a little bit of everything. But in our view, it has the best attributes too are the financial and the kind of economics of the model, which we obviously are really excited about. But other than that, I mean, it's got a little bit of everything.

Last question. Is there any differential in terms of the credit quality of the tenant base between the 2?

Yes. I guess rather than highlighted differential, I would just say, if you look at the tenant roster in the Curb section, it's something that we're incredibly excited about, 1 -- for a couple of reasons. One, the credit quality of the top 25 is just excellent, right? It's quite a few service QSRs, banks, et cetera. The second thing is there's massive tenant diversification or significant tenant of diversification, I should say. And so when you think about kind of some of the risk around certain tenants going away, it's mitigated by the simple fact that you have less concentration. The other aspect that is a real beneficiary to Curb is when you get space back, it's just easier to backfill. There are more tenants looking for that space and the CapEx to do so is just a lot lower. So in addition to having what we think is better credit than, let's call it, the shopping center average. We also think there's just better diversification and better economics and a lot of backfilling them. All that said, for SITE Centers, obviously, there's been some credit risk we've had that out being one of them. But I think our results tonight show that over the last 6-plus years, just like Sports Authority, just like toys, just like HS Greg, we found a way to profitably backfill that space. There's just a little more downtime. It's a little more expensive. It's just a different business model. That said, it's still a great business. It's just one that we're pivoting to the Curbline side.

Our next question will be a follow-up from Craig Mailman with Citi.

Just a couple of quick ones. Do you guys know what the pref pricing will be on Curbline's preferred and SITE?

Craig, it's Conor. As David mentioned, the kind of the goal of structuring that we've announced today is to position both the companies with balance sheets to accomplish their respective business plans. And so that means position Curb with cash and a preferred investment, which allows to have a lot of liquidity, like substantial liquidity, capitalizing convenience opportunity and scale. That preferred investment could take many forms, whether it's cash, if we sell more assets, it could be preferred, it could be a mortgage or it could be a mezzanine investment. Each of them have kind of pros and cons. So at this time, it's fair to assume there's no coupon. There's no maturity, but that remains to be seen as we work throughout the year. And that could evolve in different forms. Again, there's a very real chance that, that perhaps isn't "necessary" and just takes the place of cash, but we'll see how things progress over the next year.

Okay. That's helpful. And then just -- I know you guys said the Board still trying to figure out the ultimate kind of management agreement here or structure. I'm just kind of curious, I'm assuming it would probably be figured out by the time the spin is effectuated. I mean do you guys plan on long term managing both companies? I'm just trying to get a sense of from a conflict of interest standpoint or time spent standpoint. I heard your comments earlier, but just seeing if there's kind of a line on the sand on timing where the Board needs to make a decision.

I think that probably the short answer is, I don't see a situation where 1 executive team for a long term is externally managing another entity. I don't think that's the intent here. I think what we're saying is that the Board is being prudent and working with management to see what's the relative size of these 2 companies over the course of the next year. And I would kind of point to Exhibit A of how much we've sold in the last 2 months, 3 months, there could be a substantial difference in size of these 2 companies, which means that it would be an easier decision with respect to how those companies are managed. Remember, the shared services agreement buys a lot of time for the general company itself to be running 2 different entities. But from a leadership standpoint, it's not intended to be a long-term solution.

And I would add to that. Remember, these 2 companies will have independent Boards, right? So that's your inherent conflict tech. And even though RVI was externally managed by SITE, there was an independent Board of RVI that approved every asset sale, that approved major decisions. So in the same vein, you'd have that same checks and balances as part of SITE and Curb.

Okay. And if you guys were to manage SITE after the spin, do you guys think you'd still have the change of control in place? Or do you think the Board would ask you guys to get rid of that just from -- getting rid of that incentive of you guys probably got through this and then you could just sell SITE and kind of double dip? Or is that not even a consideration at this point?

I don't think that's a consideration at this point, Craig. I mean, you -- when you have a contract, an employment contract with a company, you have it with one company. I don't see 2 different employment contracts with 2 different companies. I think that the executive team is very excited about the growth vehicle, and we're also very responsible for the ultimate outcome of SITE Centers because today, we are shareholders in one company that has both portfolios under its tent. So that responsibility carries through to making sure that the outcome for SITE Centers is reasonable and as good as we can get for shareholders. I'll point again to the transactions that John has completed in the last couple of months to doing the right thing for stakeholders. But from a pure growth perspective, there's a lot of enthusiasm to be growing in Curbline space since it's so unique.

I would just add to that, Craig. There's extensive public market experience at this company on the Board side and at the management level. We're aware of the conflicts and the comments that you're pointing to. And I just -- to David's point, I think our track record speaks for itself on stakeholder value and capital allocation over the last 6-plus years.

That's fair. Just last one, Conor, for you. You mentioned industrial and net lease. And is this just your commentary around valuation that this is going to be the lowest CapEx kind of burden in the retail space, and that's why you guys feel like this should give you that multiple expansion relative to everyone else? Is that how I should take that comment?

I mean, implicitly by doing this, we think it's going to trade at better than a 9% implied cap rate, right? I mean so there's elements to this business that we just think are truly unique and differentiated. I mean, we obviously think there are retail peers, right? There are retail -- there's a close comp with some triple net companies in terms of tenant roster. But we've got a pretty incredible embedded growth profile that is a differentiation versus triple net. So again, it's not that we're dodging the question. It's just a sense that there's some attributes about this business that tie with a bunch of other different property types. So that's the kind of genesis the comments as opposed to trying to be evasive per se.

Our next question will be a follow-up from Todd Thomas with KeyBanc Capital Markets.

So my follow-up is it sounds like that there may be additional sales here from SITE Centers and that the acquisitions going forward will be geared towards Curb. So I hear you that SITE Centers is not planning to liquidate like RVI was designed to do. But can you help us understand what the growth outlook is like for SITE Centers? It sounds more likely to shrink than grow over time, particularly if the private market continues to value assets of pricing that's in the same ballpark perhaps as pricing was for the 3Q and 4Q dispositions that you announced?

Yes, I think, Todd, another way to look at it is what's really different about the SITE Centers assets pre this announcement and post. And the answer is we still have the same options. If the market is telling us that our anchored assets are worth x, and John and his team are finding out that they're actually worth 1.5x, we're going to listen to those market signals, and we've done so in the past quarter in a pretty sizable amount. So going forward, I would say that if the public markets are still telling us that they're worth less than the private markets, we're listening and we'll continue to transact. I do think that's continuing to happen. We're getting a lot of positive response on asset sales. And over the course of next year, we very much would like to recycle more capital out of the shopping center anchored business and into the convenience business. I think that's really where we're looking to allocate capital. And the more we can recycle over the course of the next year, I think that benefits both companies.

Yes. And Todd, I would just point you to the balance sheet of SITE. It's positioned for site to continue to sell assets to David's point, to pay off the mortgage, to pay off [ breadth ] investment. So I think there's probably a couple of pages we can highlight on additional factor on SITE Centers.

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

Thank you all very much for taking the time to join the call. I'm sure we'll speak to many of you soon.