Good afternoon, and welcome to the SITE Centers Business Update Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0 . After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star, then 1 on your touchtone phone. To withdraw your question, please press Star then 2 . Please note this event is being recorded. I would now like to turn the call 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 Q3 2023 earnings. Joining me today are Chief Executive Officer, David Lukes, and Chief Financial Officer, Conor Fennerty. In addition to the press releases 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 five 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 a 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 three 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 curb line of major suburban 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 errands. Convenience real estate caters to errands. Data analytics using mobile phone geolocation data confirms this. To that point, our research has shown that convenience properties generate 3.5x the customer traffic per sq ft 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 sq ft is so high along the curb line, 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 commands 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 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 end-cap 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 three 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 two 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 appear to 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 fifteenth 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 first, 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 spin-off and joint venture unwinds, and remains extremely attractive on an absolute and relative basis.
Over the past six 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. In this regard, our Chief Investment Officer, 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's 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, will retain the flexibility of having more than one 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 standalone company? First, as I said before, we've been investing in convenience retail within SITE 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 sq ft.
Curbline's initial portfolio, comprising 2.1 million sq ft, represents 0.25% of total U.S. inventory, meaning we have plenty of room to grow. While this sector has been largely untapped by institutional investors, we think the time is right to change that, and we intend for Curbline to lead the way in bringing this mature, proven, and liquid asset 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 three 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 Centers properties, a process that took almost two years of work to complete. And combined with the balance sheet that is truly unmatched, with no outstanding debt and $500 million 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 commitment 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 two distinct business plans with two 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 two 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 two years as we prepared for this important step. The spinoff of Curbline Properties is possible due to the work of truly everyone across our organization to position us for growth. 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 Q3 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 sheets to execute on their business plans. Starting with SITE, we have obtained a one-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 Q4 . 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 to this transaction can be found on pages 5 and 6 of the presentation posted on the Investor Relations section of our website. Shifting to Q3 results, Q3 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 relate to the recapture of space previously leased to Bed Bath & Beyond and are non-recurring in nature. The Q3 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. Q3 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 sq ft 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 are at lease on just about half the lost Bed Bath ABR and continue to make steady progress re-leasing the units to a mixture of national credit users. In the Q3 , the lease rate was down 90 basis points sequentially to 94.6%.
This sequential decline was due to the recapture of Bed Bath units, which was a 100 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%-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-$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-$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 in forecast, SITE Centers is expected to declare a special cash dividend that will be payable in January 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. With that, I'll turn it back to David.
Thanks, Conor. Operator, we're now ready to take questions.
We will now begin the question and answer session. To ask a question, press Star then 1 . If you're using a speakerphone, please pick up your headset before pressing the keys. To withdraw your question, please press Star then 2 . At this time, we'll pause momentarily to assemble our roster. Our first question will come from Dori Kesten with Wells Fargo. You may now go ahead.
Thanks, and 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 yield to be?
Good evening, Dori. Can you, can you just repeat that? You said the dispositions and acquisitions before the spin, is that what you said?
Yeah.
Yeah, Dori, it's Conor. So if you look in 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 uncompleted dispositions to date, and then we also reference another $240 million of assets under contract on top of that. We also, on page 5, 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 to 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, you know, magnitude of those asset sales would be dependent, as will the acquisition. So, so TBD on that front, but we've got quite a bit of detail on the deck. I appreciate it was a short, short window until until this call, though.
No, I'm sorry. I was looking for the, yeah, the incremental beyond what was already, in the deck. And then-
Yeah.
As a follow-up to that, I think there's, sorry, there's going to be no debt on Curb when it spins, but I guess what's the long-term plan for leverage?
Yeah, Dori, it's Conor again. We'll, we'll provide details on kind of a 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'll operate in a manner that's consistent with how we've operated SITE Centers over the last 6+ years, which we think there's incredible optionality in 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, you know, 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.
Okay. Thank you.
You're welcome.
Our next question will come from Craig Mailman with Citi. You may now go ahead.
Hey, guys. A couple questions here. Just on the, on the cap rates of what you've sold and, 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 is? Just trying to get a sense of what the market's 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 twelve-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 twelve-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, you know, 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, you know, 240 or so, on top of that, you're still in the mid-sixes. So I think that gives you a pretty good guidance as to where the market was, you know, 4 or 5 weeks ago, when these assets were either, you know, under contract or closed.
Right. I mean, what do you guys think pricing, I guess, some of these were struck before the 10-year rose started to move, some of them were struck after. I mean, it, I know it's a lot of assets, so it kind of blends out, but have you seen pricing move more recently in some of the stuff that, you know, it's got under contract in the last couple of weeks is, you know, north of that 6.5? Can you just kind of give any views of where cap rates are going on the assets you have gone to contract recently on, versus some of the ones that went to contract, you know, a while back before rates started moving up again?
Yeah, I think, I mean, so far, we've continued going under contract at least 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, you know, a month or two 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, you know, remember, the size of this company seven or eight 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's done a great job of attaching those buyers to the assets that we know people want with the good quality.
Yeah, and just to piggyback on that, Craig, I think it's a really good point because there, 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 sell, but you're right, they might be more sensitive to interest rates. To David's point, what we've been selling are our assets, kind of, to a local or strategic buyer that have a different, different way of underwriting or different way of financing or capitalizing the assets. So I do think there's a very big differentiation when you're buying trophy assets, to, 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, and 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. As you guys in the deck, you know, put the Curbline valuation using a 6 cap, and, you know, the growth expectations there, the $1.2, the $1 billion-$2 billion. Presumably, you're gonna get some of that with proceeds from SITE before the spin was effectuated, but after that, it seems like you're gonna be using debt capacity. So I'm just trying to bridge, you know, with where rates are today, where you might be able to source debt, you know, to reinvest in the assets that you guys think are worth a 6, how the accretion math works kind of long term to grow Curbline in a, you know, in accretive manner.
I'm just trying to bridge that at this point.
Yeah, go ahead, David. You start.
Well, I'll just say that, you know, Craig, for the last five 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 purchased. 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, you know, high-quality real estate trade in the past, where there is a spread to borrowing rate.
We've seen that in the past, and I would expect that to continue.
Great. Thank you.
Thanks, Craig.
Thanks, Craig.
Our next question will come from Connor Mitchell with Piper Sandler. You may now go ahead.
Hey, it's, it's Alex Goldfarb on for Connor. So just a few questions here, David. A number of years ago, when you. First of all, when you guys took over, you know, the company, you did a significant repurposing of the portfolio, and then you set about buying the convenience assets because the NOI growth was faster than the traditional, you know, SITE center, shopping centers, plus they worked 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, you know, management, because it sounds like you guys are gonna be running both companies, cost of capital, and just overall earnings growth, why, why does it make sense to split the two entities apart versus keep them together, and they both benefit the same way?
Yeah, 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, you know, back in the day, retail was retail. Now there's four or five 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.
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 two 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's prepared remarks, his comment was, the level of engagement by the executive team will ultimately depend on the size of the two 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, if 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 gonna be running both companies. So basically, you know, 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, is the way of the future. Sounds like there's 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, you know, 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 of the focus for you?
Yeah, sure. Well, if I can, if I can tie it back to, you know, your comment about RVI, 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 deemed 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, you know, 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's 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 two 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 is-- it's such a unique asset class, and we've spent a lot of time, as you know, studying you know, what makes this asset class tick.
Going forward, there's a job to do at SITE Centers en route to 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, you know, 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.
Thank you.
Thanks, Alex.
Our next question will come from Todd Thomas with KeyBanc Capital Markets. You may now go ahead.
Hi, thanks. Good afternoon. A lot to digest here. A couple of questions. I guess following up on Alex's question, you know, I hear your comments about this spin not being, you know, quite the same as the RVI spin-off, which was executed several years back, but there are some similarities. And you know, I guess I wanted to ask about the shared services and the infrastructure, which, you know, here lie within SITE Centers. You know, 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, you know, a little bit more detail around, you know, what you're expecting, you know, for Curb to develop or acquire its own asset management and infrastructure over time, and whether there's a specific timeline or agreement on the shared services agreement?
Sure. Absolutely, Todd. I can, I can start, and then, Conor can, 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, you know, 3 or 4 quarters from now, when the spin actually concludes, there is a two-year period at which time we'll be able to transition between those two 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.
Yes, that's it.
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 two companies are gonna be in 9-12 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. You know, John and his team, Mike and Owen Duff, 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.
Yeah, and Todd, to put some numbers around that and piggyback on Craig's earlier question, if you look on page 22 of our deck, you know, at the time of spin today, and this is before we expect to acquire additional assets ahead of spin, you know, we think Curb has an asset value of called $2 billion. But once you fully invest that, and you can imagine, we've taken what we think is an approach-appropriately cautious view on this, we think the enterprise could be as big as SITE Centers is today. And so to David's point, you're just transitioning resources from SITE, you know, selling assets, realizing value, to Curb as that business scales.
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, what's the planned, you know, sort of capital structure for Curb expected to be over time? You know, are you looking at, sort of an unsecured capital structure, secured? And I guess, you know, just given that these assets, these, you know, convenience-oriented assets are maybe less owned in the public markets today, can you just discuss, you know, how they're perceived in the debt markets and whether there are any sort of financing considerations or whether an unsecured capital structure, you know, 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 an 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. You know, we can raise hundreds of millions of dollars, you know, effectively overnight. That's a huge competitive advantage. And if you look at, you know, 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 way from the time to spend, but our expectation is the balance sheet of Curb would look eerily similar to SITE Centers, where it is predominantly unsecured, a 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's efficient or inefficient, and vice versa. So I wouldn't commit us to saying we're just gonna be unsecured or we're just gonna 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, you know, 6+ months on a couple of assets, financings that have closed, excuse me, and others that we have commitments and, and others that are to close, excuse me, in the Q4 , in the Q1 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, life cos 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, you know, large format, power center, or grocery, whatever it might be.
Okay. What is the rate on the $1.1 billion mortgage commitment that you 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 spin. 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.
Okay. All right. Thank you.
You're welcome.
Our next question will come from Hong Zhang with JPMorgan. You may now go ahead.
Yeah. Hey, guys. So 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 the Curbline and SITE Centers will be focused more on traditional strip centers?
Yeah. Hong, Hong, good evening. I think, you know, over the course of the next 9-12 months as we're recycling, you know, we're putting an awful lot of energy into realizing NAV on the disposition side. And so I would say we're gonna be more careful and selective on the acquisitions.
But going forward, the reason that 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 look 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, you know, what's totally available on the market. So it feels like there's a very large addressable market, and I think that the going forward acquisition volume is certainly gonna be one of our biggest strategic advantages.
Got it. Thank you.
Our next question will come from Ki Bin Kim with Truist. You may now go ahead.
Thanks. Good afternoon. Just to go back to an earlier topic, you know, the SITE Centers pro forma will have about 4.5x more NOI than Curbline. And going back to the kind of, the management interest and alignment with shareholders, I just want to make sure I understand that, you know, as a shareholder, I'm gonna own a lot more equity than Curbline. I just want to make sure that the alignment with interest with shareholders kind of reflects that, or, or do you think your incentive comp and, you know, G&A would be more aligned to Curb?
Hey, 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 Q4 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 two, as David and I have mentioned a number of occasions, we expect to be continue 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 our earlier comments as well, so to expect the Curb number to keep coming up.
And so I think if you're looking at it as of September 30th , you're right, it's, it's a 4-to-1. If you look forward to fast forward to September thirtieth, you know, a year from now, I think you're gonna see a materially different NOI kind of weighting between the two. The second thing I would say to you, and this is coming back to my comments to, to Todd, and again, to, 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. As a moment in time, there's this different kind of imbalance, but that expects to be to kind of dramatically shift over the next couple of years as we reinvest that equity.
Okay. Currently, you're paying out about $120 million in dividends. In a pro forma basis, what is the net payout in dividends gonna look like? Because I realize there's probably gonna 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.
Yeah, 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 irrelevant, but there's gonna 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. But 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, much more about retained cash flow for Curb and special dividends for SITE.
Okay, thank you.
In terms of, s orry, 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, two 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 two companies, but you should assume that we are intensely focusing on minimized G&A of the two organizations.
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 SITE Centers right now, once we get the full realization of investment.
Thank you again.
You're welcome.
Our next question will come from Linda Tsai with Jefferies. You may now go ahead.
Hi, thank you. What kind of premium would you expect Curb to trade at relative to SITE, as you know, 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 than it 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 that we're excited about the opportunity and the growth potential, and we'll go from there.
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 industrial, 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 you need to add anything to it, but it's got a little bit of everything. But in our view, it has the best-... the best attributes to it 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, the credit quality of the tenant base between the two?
Yeah, and I guess rather than highlighting a 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. One, for a couple 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 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 on backfilling them. All that said, for SITE Centers, obviously, there's been some credit risk we've had, Bed Bath being one of them. But I think our results tonight show that over the last six-plus years, just like Sports Authority, just like Toys, just like hhgregg , 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.
Thank you.
Our next question will be a follow-up from Craig Mailman with Citi. You may now go ahead.
Thanks for taking the follow-up, guys. Just a couple quick ones. Do you guys know what the pref pricing will be on Curbline's preferred in SITE?
Hey, Craig, it's Conor. As David mentioned, the kind of the goal of structuring that we've announced today is position both the companies with balance sheets to accomplish their respective business plans. And so that means positioning Curb with cash and a preferred investment, which allows to have a lot of liquidity, like substantial liquidity, capitalized and convenience, opportunity and scale. You know, that preferred investment could take many forms, whether it's cash, if we sell more assets, it could be a 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 pref isn't necessary, quote, unquote, "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's still trying to figure out the ultimate kind of management agreement here or structure. I'm just kind of curious. It--Y ou know, 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, you know, time spent standpoint. I heard your comments earlier, but just seeing if there's kind of a line to stand 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 one 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 two 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 two months, three months. There could be a substantial difference in size of these two 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 two different entities, but from a leadership standpoint, it's not intended to be a long-term solution.
Yeah, and I would just add to that. Remember, these two companies will have independent boards, right? So that's your inherent conflict check. 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 a, you know, getting rid of that incentive of you guys finally got through this and, and 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 two different employment contracts with two 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's 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 the Curbline space since it's, 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+ years.
That, 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 gonna be the lowest CapEx, kind of burdened 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?
Yeah, I mean, implicitly, by doing this, we think it's gonna trade at better than a 9% implied cap rate, right? I mean, so there's elements to this business that we just think are, are truly unique and differentiated. I mean, we obviously think there are retail peers, right? There are retails, there's a close comp with some, 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 the sense that there's some attributes about this business that, that, that tie with a bunch of other different property types. So that, that's to the, the kind of genesis, the comments, as opposed to trying to, to be evasive, per se.
Great. Appreciate the time.
Thank you, Craig.
Thank you, Craig.
Our next question will be a follow-up from Todd Thomas with KeyBanc Capital Markets. You may now go ahead.
Yeah. Hi, thanks. So, you know, my follow-up is, you know, 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, you know, 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, you know, growth outlook is like for SITE Centers? As it, you know, it sounds more likely to shrink than grow over time, particularly if the private market continues to value assets at pricing that's in the same ballpark, perhaps, as pricing was for the Q3 and Q4 dispositions that you announced.
Yeah, I think, Todd, you know, 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's 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 gonna 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.
Over the course of the 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.
Yeah, and Todd, I would just point you to the balance sheets of SITE. It's positioned for SITE to continue to sell assets, to David's point, to pay off the mortgage, to pay off the pref investment. So I, I think there's probably a couple other pages we can highlight on, additional facts around SITE Centers.
Okay. All right. That's all. Thank you.
Thanks, Todd.
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 very much for taking the time to join the call. I'm sure we'll speak to many of you soon.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.