Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SITE Centers Corp (SITC, Financial) closed nearly $1 billion of transactions in the quarter, showcasing strong deal-making capabilities.
- The company repurchased or retired over $50 million of debt, improving its balance sheet.
- Reported 24% trailing 12-month new leasing spreads for the turbine portfolio, indicating strong leasing performance.
- Same-store NOI for the curbside portfolio is expected to average greater than 3% for the next three years, reflecting stable growth.
- SITE Centers Corp (SITC) has a diversified portfolio with assets in major markets, supporting strong tenant sales and buyer interest.
Negative Points
- The leased rate was down 100 basis points sequentially, partly due to the sale of assets with higher lease rates.
- The company faces uncertainty in quantifying the portfolio at the time of the spin-off, indicating potential volatility.
- Operating metrics for both SITE Centers and curb remained volatile, reflecting some instability in operations.
- The significant expected transaction activity makes it challenging to provide a formal 2024 FFO guidance range.
- The acquisition of vacant space at Belmont Village negatively impacted the current lease rate, showing some operational challenges.
Q & A Highlights
Q: Can you remind us what the timing is and for the Form 10?
A: Sure, Dori, I would expect it would come out sometime in September. (David Lukes, CEO)
Q: For the assets under contract or letter of intent currently, can you give us a sense of the type of bidders you're seeing and the level of competition?
A: The bidders fit into three categories: private buyers (local families, family offices), private equity funds, and traditional spread investors (institutions). The pricing can be quite wide between these groups, but the level of interest has remained consistent. (David Lukes, CEO)
Q: Is there a significant or any kind of yield difference on taking that lease-up risk from maybe a local owner versus buying something fully stabilized?
A: Not really. There aren't many assets for sale with vacancy, and sellers are being paid for that vacancy. We find that buying existing tenants with renewal upside offers a better risk-adjusted return than paying extra for a vacancy. (David Lukes, CEO)
Q: How do you think the portfolio would perform if the economy were to go through a cycle where some of the and potential risk might be, you have about 30% of the portfolio occupied by national tenants, the relatively high exposure of food and restaurant tenants?
A: This portfolio had higher occupancy and lease rates than the anchor portfolio during the GFC. We solve for credit and generally tenants that operate on major vehicular corridors are credit tenants. We also look for seasoning in local tenants to ensure they have been through cycles. (David Lukes, CEO)
Q: Have you seen any changes in disposition activity given recent interest rate movements?
A: The level of interest from buyers over the last nine months has been high, and I don't see a notable change in temperament due to rates potentially going down. Many buyers have been unlevered, so interest rates haven't made a huge difference. (David Lukes, CEO)
Q: What has been the cap rate on the turbine convenience items you're paying?
A: Around 6.5% from a GAAP perspective, with no material difference between GAAP and cash. (David Lukes, CEO)
Q: How much of the 950 million square feet of total U.S. inventory for convenience centers qualifies with the high standards you mentioned?
A: About 15% of the total inventory passes our underwriting standards, which still represents a substantial growth opportunity. (David Lukes, CEO)
Q: What would be the normal lease to occupied gap for the curve line portfolio compared to the current 220 basis points?
A: Closer to 100 basis points. The timeline to backfill shop space is pretty short, leading to a tighter gap compared to other property types. (David Lukes, CEO)
Q: How do lease options differ in the core portfolio compared to the traditional anchored centers?
A: There is no significant difference except that the number of options in a lease will be dramatically lower. Most tenants will not have control for 30 or 40 years, and the number of tenants with control past 2030 is very low. (David Lukes, CEO)
Q: What was the cap rate for the assets that you sold in the quarter?
A: The cap rate for the assets sold in the quarter was around 7.1%. (David Lukes, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
