Site Centers Corp
NYSE:SITC
Earnings Call Analysis
Q4-2023 Analysis
Site Centers Corp
As the suburban lifestyle solidifies, driven by an ongoing migration to suburbs and the rise of hybrid work arrangements, Curbline Properties positions itself as a central player in this evolving landscape. Their portfolio, a beacon of convenience real estate, boasts a robust 65 wholly-owned properties projected to produce approximately $76 million in NOI for 2024. This figure is poised to expand with expected same-store NOI growth of 4.5% in 2024, and an average above 3% for the following years. With a healthy balance sheet, free of outstanding debt and rich in liquidity, the company is set to capitalize on these markets, offering superior growth and returns for stakeholders.
A flurry of activity marked the previous quarter, with the company divesting $736 million in properties at a 6.5% cap rate, and continuing the momentum post-year-end with $82 million more. Presently, an impressive $750 million worth is under negotiations or LOI, largely thanks to strong buyer demand and savvy market positioning in the face of sector-specific tailwinds. Meanwhile, acquisitions haven't been sidelined; $62 million was allocated to adding four notable convenience properties, signaling not just growth but selective, strategic enhancement to the portfolio. Nonetheless, dispositions are prioritized to capitalize on current demand, which may moderate acquisition activity in 2024.
The last quarter showed a dip in leasing volume, an outcome of having less space available due to the sale of assets. However, this hasn't dampened leasing demand or the ability to maintain high-quality portfolio standards – the leasing rate only dipped a marginal 10 basis points. The company's proactive stance is anticipated to continue driving same property NOI growth throughout 2024, supported by the lease negotiations currently in progress.
Curbline's leadership signaled a strategic patience in divestment, transacting when terms meet their standards and refraining otherwise, a choice influenced by a more favorable capital flow into core real estate this year. Twenty-four properties are prepped for future sale, potentially bringing in around $800 million. However, the timing of these transactions remains a dynamic puzzle, dependent on a variety of factors such as the desires of the buyers and internal resource allocation.
The company's meticulous financial planning reflects its intention to sustain market presence and investor confidence. For 2024, they project a total NOI of roughly $265 million before any property dispositions, with an expected same-store NOI growth ranging between 3.5% to 5.5%. In preparation for a forthcoming spin-off, average quarterly JV fees are estimated at $1.25 million, with general and administrative expenses rounding to about $12 million per quarter. An impressive cash balance suggests that interest income will remain high in the year's first half, offering an additional financial cushion.
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Good day, and welcome to SITE Centers Reports Fourth Quarter 2023 Operating Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Stephanie de Perez. Vice President, Capital Markets. Please go ahead.
Thank you. Good morning, and welcome to SITE Centers' Fourth Quarter 2023 Earnings Conference Call. Joining me today are Chief Executive Officer, David Lukes; and Chief Financial Officer, Conor Fennerty. In addition to the press release distributed this morning, we have posted our quarterly financial supplement and slide presentation on our website at www.sitecenters.com, which are intended to support our prepared remarks during today's call.
Please be aware that certain of our statements today may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties and actual results may differ materially from our forward-looking statements. Additional information may be found in our earnings press release, and in our filings with the SEC, including our most recent report on Form 10-K and 10-Q.
In addition, we will be discussing non-GAAP financial measures on today's call, including FFO, operating FFO, and same-store net operating income. Descriptions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's quarterly financial supplement and investor presentation.
At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.
Good morning, and thank you for joining our quarterly earnings call. The fourth quarter was significant for SITE Centers to say the least, highlighted by the announced planned spin-off of the convenience portfolio from within SITE Centers into a new and unique focused growth company called Curbline Properties. This announcement, along with nearly $1 billion of transaction activity has put us on a dual path of growing our Curbline portfolio through acquisitions and realizing NAV of the SITE Centers portfolio through dispositions and asset management. We are only 3 months past the spin-off announcement, but have made substantial progress on the business plans for both SITE and Curb with more progress to come.
I'll start with an update on Curbline, transition next to transactions, and then conclude with an update on the quarter in operations before turning it over to Conor to talk about how all of this impacts the balance sheet and 2024 results.
Starting with Curbline, we began investing in convenience assets over 5 years ago, and after several years of transaction activity, reviewing data analytics, and financial and tenant analysis, we are more convinced than ever that the convenience sector is both differentiated and a unique growth opportunity. As announced, to seize this opportunity, we are creating Curbline Properties as a unique first-mover REIT that is differentiated from all other retail REITs and has what we believe to be the highest organic cash flow growth potential driven by annual bumps, the ability to recapture and mark-to-market units, a high-quality and diversified tenant roster with minimal concentration risk and limited CapEx needs as compared to other property types.
Same-store NOI for the current Curbline portfolio is expected to grow 4.5% in 2024 and average greater than 3% for the next 3 years when factoring in all of these attributes. As of the year-end, the Curbline portfolio included 65 wholly-owned convenience properties expected to generate about $76 million of NOI in 2024. All these assets share common characteristics, including excellent visibility, access, and what we believe are compelling economics, highlighted by limited CapEx needs. Arguably, what we own today represents the largest, highest-quality convenience portfolio in the United States.
These properties, which primarily cater to daily customer errands are an integral part of the suburban lifestyle, which has only become more entrenched with increased suburban migration and the rise of hybrid work. And combined with the balance sheet that is truly unmatched with no outstanding debt and cash and a preferred investment on hand, Curbline Properties is expected to generate best-in-class growth and returns for stakeholders.
As of today, we expect the spinoff to be completed on or around October 1 of this year. Based on the transactions completed to date, we now expect Curb to be capitalized with $600 million of liquidity or $100 million more than a few months ago in the form of cash and the preferred investment in SITE Centers. Additionally, should we make more progress on the dispositions front, it is likely that Curb would not retain a preferred investment in SITE and would be capitalized simply with no debt and $600 million of cash.
To that point, moving to transactions. We sold $736 million of wholly-owned properties in the fourth quarter at a blended cap rate of 6.5%. Subsequent to year-end, we sold another $82 million. As of today, the pace of dispositions has remained robust, and the pricing of those assets has remained strong, resulting in almost $750 million of real estate currently either under LOI or in contract negotiation at a blended cap rate of roughly 7%.
The bulk of this inventory is primarily submarket dominant power centers, with roughly 30% of the assets by value containing a traditional grocer. Needless to say, the level of demand speaks to the quality of the SITE Centers portfolio and highlights the opportunity that we identified with the spin-off announcement.
Over the past 6 years, this management team has sold over $7 billion of shopping centers. Through that process, John Kokinchak and his team have gained a very good understanding of which buyers are seeking high-quality assets. These parties include a wide range of market participants, including both private buyers and public REITs. In all cases, these buyers know the assets, they know our submarkets, and they are often unlevered acquirers of high-quality real estate. The SITE Centers portfolio fits that mold, having been carefully selected via the RVI spin-off and our joint venture unwinds, and remained extremely attractive to a wide range of buyers looking to invest in open-air retail real estate.
The retail operating environment has dramatically shifted post-pandemic with limited supply and higher demand from a broader set of tenants, trends that should support fundamentals for the sector for years. The macro tailwinds, along with company-specific factors like SITE's SNO pipeline, which represents 4.2% of spin adjusted base rent, along with redevelopment deliveries and the lease-up of vacant units are expected to generate substantial forward NOI growth.
These 2 factors combined, our knowledge of the buyer universe plus sector and specific tailwinds, makes us very confident in maximizing value on additional sites on its properties via private market asset sales. Going forward, I would expect SITE to continue to focus on this compelling value creation opportunity and the NAV arbitrage.
In terms of acquisitions, we acquired 4 convenience properties for $62 million in the quarter in Charlotte, Cape Coral, Atlanta and Phoenix. Average household incomes for the fourth quarter investments were over $104,000 and a weighted average lease rate of almost 100%, highlighting our focus on acquiring properties where the renewals and lease bumps drive growth without significant CapEx.
Going forward, we remain encouraged by the unique opportunities in the convenience subsector, including the size of the opportunity itself. The addressable market for convenience assets according to ICSC is 950 million square feet. Curbline's current portfolio comprising 2.2 million square feet represents 1/4 of 1% of total U.S. inventory meaning we have plenty of room to grow.
That said, while we expect to acquire additional properties prior to the spin, we are prioritizing dispositions to take advantage of demand for SITE's assets, which will act as a governor of sorts to acquisitions volume in 2024.
Ending with the quarter and operations, we had a very productive fourth quarter with results ahead of budget. Our property operations teams continue to do a great job getting tenants open for business ahead of schedule, which drove part of our outperformance this quarter. Overall, quarterly leasing volume was down sequentially, but this was largely a function of a smaller portfolio and less availability.
Leasing demand continues to be very strong from both existing retailers and service tenants expanding into key suburban markets, along with new concepts competing for the same space. Despite the strength of execution from our leasing team, our lease rate was down 10% -- 10 basis points sequentially due to a 50-basis-point headwind from significant fourth quarter asset sales, which averaged 98% leased.
Looking forward, we have another 350,000 square feet at share in lease negotiation, including effectively all of our remaining Bed Bath square footage, which we expect to be completed over the next 2 quarters at similar spreads and economics than the trailing 12-month figures reported today. We continue to expect commencement of our signed leases to be the material driver of our same property NOI growth over the course of 2024.
Before turning the call over to Conor, I want to thank everyone at the SITE Centers team for their work leading into this announcement and over the last few months. The spin-off of Curbline Properties is possible due to the work of truly everyone across the organization, and it positions us for growth. We strongly believe that the compelling opportunity in front of us is to create significant value for the company's stakeholders.
And with that, I'll turn it over to Conor.
Thanks, David. I'll start with fourth quarter earnings and operations before concluding with the 2024 outlook and updates to the balance sheet. As David noted, the fourth quarter OFFO was ahead of budget due to better-than-expected operations and higher interest income, partially offset by higher operating and G&A expenses. Specific to operating expenses, we had about $2 million of higher landlord and CAM expenses in the quarter related in part to some seasonal items, including snow removal that we do not expect to reoccur. Outside of these items, there were no other material callouts in the quarter.
Moving to operations. Fourth quarter leasing volume was lower due to the significant dispositions that David highlighted in the back half of the year, along with less available space. With this small denominator, operating metrics will become more volatile. But based on the leasing pipeline at year-end, we expect spreads to be consistent with trailing 12-month levels over the course of the year. Overall, leasing activity and economics remain elevated, and we remain confident on the backfill of the remaining vacancies, highlighting the quality of the portfolio and depth of demand.
Moving to 2024. As David noted, we are extremely excited to form and scale the first publicly traded REIT focused exclusively on convenience assets. And based on the mortgage commitment announced in October, along with recent transaction and financing activity, we have positioned both SITE and Curbline with the balance sheets that they need to execute on their business plans. As a result of the planned spin-off and significant expected asset sales, we are not providing a formal 2024 FFO guidance range. We are providing projections though, for total portfolio NOI for the SITE and Curb portfolios that include all properties owned as of year-end. And as we move forward over the course of the year, we expect to update the projection ranges for transaction activity.
For the Curb portfolio, total NOI is expected to be roughly $76 million at the midpoint of the projected range before any additional acquisitions, and same-store NOI growth is expected to be between 3.5% and 5.5% for 2024. For the SITE portfolio, total NOI is expected to be roughly $265 million at the midpoint of the projected range before any dispositions. Additional details on the assumptions underpinning these ranges are in our press release and earnings slides.
In terms of other line items, we expect JV fees to average around $1.25 million per quarter and G&A to average around $12 million per quarter prior to the planned spin-off. Given the significant cash balance on hand, interest income is likely to remain elevated in the first half of the year, though will obviously be dependent on short-term rates and any debt repayment activity. Transaction volume, particularly the timing of asset sales, is expected to be the largest driver of quarterly FFO, and the fourth quarter included $4.5 million of NOI from assets sold in the quarter as detailed in the supplement.
Moving to the balance sheet. In terms of leverage, at quarter end, debt-to-EBITDA was 4.2x, with a net debt yield north of 20%. Over the course of 2024, we expect leverage to continue to decline with debt-to-EBITDA below 4x. Prior to drawing on the $1.1 billion mortgage commitment, we expect to maintain significant, primarily unencumbered asset base, providing additional scale and collateral for SITE stakeholders.
We repaid the 2024 notes and one wholly-owned mortgage in the fourth quarter and expect to retire the majority of outstanding consolidated debt prior to the spin with proceeds from the mortgage commitment. This mortgage will be secured by 40 properties that are expected to be part of SITE Centers post-spin. Funding is expected to occur prior to the spin-off, subject to the satisfaction of closing conditions.
For Curbline Properties, the company at the time of the spin is expected to have no debt, now $300 million of cash, and a $300 million preferred investment in SITE Centers. This highly liquid balance sheet will allow Curbline to focus on scaling its platform, while providing the capital to differentiate itself from the largely private buyer universe acquiring communities properties.
Additionally, as David noted, depending on the level of asset sales completed prior the spin, we may look to fund Curb entirely with cash and no preferred investment in sight. Details on sources and uses and projected capital structures can be found on Pages 12 and 13 of the earnings slides.
Lastly, as a result of 2023 transaction activity, SITE Centers paid in January 2024, a special dividend of $0.16 per share. The dividend was funded with cash on hand. The company also declared its first quarter dividend of $0.13 per share, which is unchanged from the fourth quarter.
And with that, I'll turn it back to David.
Thank you, Conor. Operator, we're now ready to take questions.
[Operator Instructions] The first question today comes from Alexander Goldfarb with Piper Sandler.
Just a few questions here. Just first, a big one, David. You're not outlining an RVI type entity for legacy SITE, but still it's hard not to think about SITE ultimately sort of going away, if you will, especially at the pace of dispositions that you're doing and clearly, management's focus on Curb. So can you just give a little bit more color on how we should think about SITE post October 1, 2024?
Sure, Alex. I'd be happy to. I think it really depends on what signals we're getting from the public markets and what signals we're getting from the private markets. And at this point, the signals are very strong that the private market values assets at a higher value. And so we're listening to those signals, and we continue to sell assets. Should that continue, then those asset sales, I think, probably pick up. You can see how much activity we have going on right now at values that I think are very strong.
So moving forward, all I can say is, in the time being between now and the spin date, we will continue to sell assets, and we'll reconsider what the strategy is and what the eventual outcome is at that time.
Okay. And then on cap rates, I think the prior batch that you sold year-end into early this year, I think you averaged the 6.5% on dispositions. You're saying now the next batch looks to be a 7%. And I don't recall what you said on the Curb asset acquisitions. But can you just talk a little bit more about cap rates? And then also, can you talk about IRR? So when you look at these assets, the ones you're selling and then the ones you're buying, it almost sounds like, based on your comments, literally, the convenience assets not only have lower CapEx needs, but actually have higher returns, which sounds incredible, but just wanted to get a little bit more perspective on that.
And then maybe as part of that, you could just talk about what you're finding on credit quality as far as expectations for bad debt as you underwrite the Curb assets.
Sure. Well, on cap rates, I think you and I have discussed numerous times. It's difficult to pin down cap rates when the number of transactions are a handful here and there. I will say that the assets closed in the fourth quarter that were averaging a 6.5% cap did have a wide range of formats as well as a wide range of cap rates. We sold some assets in the low 5s, and we sold some assets in the high 7s.
This next group where we're under LOI, we've awarded deals, and we're starting to negotiate contracts, it's the same thing. There are some properties that are low 6s. There's some properties that are high 7s. So I think the average is an interesting note, and I do think the average of 6.5% in the last batch, 7% in this batch, I don't know what that means going forward. I don't know if the additional properties we have are going to be higher or lower.
What I have found is that the private market participants are less focused on retail format, and they're more intrigued by the credit quality, the submarket that the asset lies in and the duration of the lease term. And in that sense, the SITE Centers' portfolio fits that mandate of a lot of private buyers because we are in high-income demographics. The lease-up has been so robust in the last 2 or 3 years that the duration is pretty strong. And the weaker tenants like Bed Bath & Beyond have largely left the portfolio. So it feels like the private market participants are putting a higher value on those assets, which means that we fit those mandates.
One of the things that, as you know, also contributes to a lot of activity is the presence of a grocery store. We still have more than 2 dozen centers that have a grocery store attached to them in the portfolio today and the average sales are quite high. There's a number of them that are more than $1,000 a square foot. So I do think that the valuation that we've been seeing feels to be consistent with what I would expect the next couple of months to be. So our view on cap rates is that buyers are seeing the value of this duration and this credit quality, and we're seeing the outcome of that.
On the buy side, where we're buying convenience properties, the main difference between what we're selling and buying is that growth and the cost of that growth. So if we can deliver a much higher same-store number, but the cost to generate that is significantly less, I do agree with you that the unlevered IRR of the convenience properties is higher than what we're selling today.
The next question comes from Craig Mailman with Citi.
Thank you sort of follow-up on the sales, at least the pace of it because you guys are the last couple of quarters have averaged almost $800 million a quarter. You guys have $750 million under contract. Just beyond the $750 million, how much is being marketed currently, and maybe not at the under contract or LOI phase, but kind of close to give us a sense of what the cadence could be for the balance of the year? Because it seems like you guys have, what, about $3.5 billion left to sell pro forma to $750 million. Is that about right from a volume perspective?
Sure, Craig, it's David. It's a little difficult to hear you, but I think what you're asking is what's the total volume of assets that we're marketing. Is that where you're going?
Yes, sorry. I'll talk louder on my phone. Yes, the total volume that you're marketing today and just the fact that the $750 million kind of that's a pretty similar cadence to what you did in the fourth quarter. So is that an achievable kind of quarterly run rate here? And as we think about what's left, it feels like about $3.5 billion. Is that also kind of the right way to think about kind of what's left here in the near term?
Well, let's say, right now, under LOI negotiating transactions, like I said, it's about $750 million. There's another 2 dozen properties that are in various forms of marketing with brokers. That equates to somewhere around an $800 million group that's going to be launching sometime in the next 30 days. The real question is how much of that transacts. There have been properties that we didn't like the pricing and we didn't transact. There have been situations where a buyer has wanted to group, a couple of assets together and do a small portfolio that has speeded up the process. So it really comes down to simply how much time does John's team have to transact, and is it one by one or is it in small groups or larger portfolios?
So it's really difficult for me to say, other than if we closed $800 million in the fourth quarter, we've got another $750 million that's spoken for, and then we've got another $800 million that's in an early stage of marketing it feels like there's still plenty of volume out there. What I don't know is how much of that closes and how much of it actually transacts.
Craig, the only thing I'd just slide from a timing perspective, just kind of the cadence of to David's point on when assets are being listed, et cetera. you're likely to see a lull between the December closings we had and then the next batch, meaning it's probably a month or 2 from now, just to give you context. So it's likely not a $750 million first quarter run rate. But to David's point, based off how much we have under LOI or contract, plus what's being listed, you could see a lot more volume in the second and third quarters.
In terms of your question on the valuation, we did provide the projected NOI ranges for SITE and Curb. So I'll defer to you on kind of what cap rate you want to put in there, but that should help give you a sense of sizing on the remaining asset base.
No, that's helpful. And David, to your point of the hit rate, kind of what do you think the hit rate is on the kind of decision to sell versus what's being marketed here? And how does that kind of translate into what you think ultimately, or what are the characteristics that are kind of driving the pricing that you're getting versus maybe some bids that don't fall in?
And how far outside of the kind of the parameters or some of these bids? And why not just at this point given the fact that you're effectuating a spin? I mean, are they so low ball as it doesn't make sense just to take them versus continue to hold out for better pricing here since you ultimately need to wind down this portfolio anyway?
Yes. I would say in the fourth quarter, the bid-ask spread was a little wider. And so there were some properties that we chose not to transact on. What feels like has changed, Craig, is capital flows. In the second half of last year, there were a number of value-add buyers that were looking at strips. And I think most of what we sold in the fourth quarter was off market where John have relationships with 1031 buyers or strategic buyers in a certain market.
What seems to have changed in the first quarter is that there's just more capital allocated to strips from core and core plus buyers. The increase in institutional interest in the last 30 days has been noticeable. So it feels to me like the bid-ask spread has come in, the amount of capital looking for core real estate has gone up, the confidence level of core buyers that the sector has really good fundamentals and tailwinds seems higher, and therefore, it feels to me like the transaction activity is likely to stay pretty high. And so I do think the hit rate is probably higher than it was in the back half of last year.
Okay. And then just 1 last one. Just I know we're a couple of months past the initial kind of announcement here. So do you guys have any more clarity on the management structure, G&A kind of fee structure that goes along with the spin between SITE and Curb?
Let's remember that the purpose of these 2 companies are very different. One is getting smaller and one is getting bigger. And in order to facilitate that transition, the shared services that we'll be putting in place between the 2 companies will allow for that G&A to migrate from 1 company to the other.
At the end of the day, once the shared services agreement burns off, I don't expect any overlap in staffing between the 2 companies. I think we're going to know a lot more in the next 6 months as to which company needs more staff and which type of leadership. And I would expect in the next couple of months, quarters, we would certainly be able to give more information to the market.
Our Board of Directors is very focused on the issue. Management is very focused on the G&A issue. And our confidence level that we can eventually run Curbline at a G&A level that's at least as efficient as SITE Centers today is very high. But there's a transition period, and I think we'll be giving you a lot more detail in the next few quarters, but I don't have a lot to add this morning.
Yes, Craig, if you think about -- just come back to my comment about projections, we've got the NOI ranges. We effectively giving you the pieces for some of the parts. And to David's point, as we get closer to that spin, they remember we're still 6-plus months off, you'll start to see us transition more towards the kind of earnings story and giving you the ingredients in pieces. The Form [indiscernible] is obviously an important part of that. So again, I think you'll kind of see a dripping out of information, much like we provide additional information today versus October over the next couple of months.
The next question comes from Todd Thomas with KeyBanc.
First, can you just expand a little bit on the investment pipeline for Curb Properties in the market today just in terms of product you're seeing in pricing? And I think, David, you said that you're emphasizing SITE Centers dispositions today, but I'm curious how we should think of the volume of acquisitions going forward for the Curb entity?
Yes. Todd, there's a certain amount of angst internally because we're all excited to be buying assets. We've got a lot of opportunities that we're underwriting. The volume of Curbline assets that are available at any given time in the U.S. is much higher than I would have thought. So it feels like the addressable market is there. We've been buying somewhere in the mid-6% cap rate range. We feel strongly about the financial returns of that investment.
The challenge is simply one of time management. We've got an awful lot of disposition activity going on. Like I mentioned to Craig, the amount of capital that seems to be very intrigued with strip centers, as we turn the calendar to '24, it's been high. And so we've been allocating internal resources towards dispositions. And that's on the legal side, that's on the transaction side, that's on the due diligence and underwriting side.
And so it has put a little bit of a governor on how much we can allocate to acquisitions. So I would expect the acquisitions to be a little bit slower over the next couple of months because we're awfully busy on selling.
Okay. And you said that Curb is expected to grow, I guess, on the quarter same-store basis around 3% or more over the next several years, but in '24, is expected to grow 3.5% to 5.5%, so 4.5% at the midpoint. Why is 2024 same-store growth more elevated relative to that long-term growth rate target? Can you just talk about what's driving that premium growth in the near term for the Curb segment?
Sure. Todd, it's Conor. There's a couple of factors there. The biggest one being simply just the SNO pipeline and the collapse of the kind of lease and occupancy rate. So much like SITE Centers, much like our peers, much like the open-air sector, there's just been a lot of leasing volume in the Curb portfolio, and we expect that kind of occupancy gap to compress over time.
The other member advantage of the Curb portfolio is you just have less downtime. And so if you think about if you got space back over the last couple of years, the downtime to backfill it is a lot shorter versus in anchor. And so you're just seeing kind of that compression or time line to get those spaces backfilled in a much shorter period, which is driving the growth.
The other thing is we have -- remember, it's a small denominator, some very, very significant mark-to-market opportunities as well. Those are driving as well. So again, I would say it's a similar boost or drivers versus other kind of open-air real estate. It's just a tighter time line and a smaller denominator.
Okay. That makes sense. And one last one, actually, David. So you've mentioned now, I think, twice an increase in appetite for retail real estate since the end of the year, the beginning of the year here. Is the disposition activity still best to be executed on a one-off property basis? Or is there any appetite for portfolio sale or something larger in the marketplace to take place today on the site dispositions?
It remains to be seen, Todd. We're certainly open-minded the portfolios because it makes our job a little bit easier. And there have been conversations with several groups about potential portfolios. But we're also price sensitive. And there's been a lot of private capital that's got a 1031 need or that knows a submarket and really likes an asset. And in certain cases, it just means that it's worth the extra work because of the value. I will be curious as well to see a portfolios increase or if we continue more with one-off transactions. I'll be curious, but I don't really know.
The next question comes from Samir Khanal with Evercore ISI.
David, on the $750 million that's under contract, the power centers of a 7% cap, I mean that may be a positive read for the market out there considering that some people may think it was closer to an 8% kind of what you have remaining to sell. So maybe give us a little bit more color on, I don't know, like the geographic regions where these assets are located? Is this sort of a portfolio type deal? Or just trying to get a bit more color on these power centers.
Yes. Samir, first of all, just remember I did not say under contract, I said, awarded under LOI or negotiating a contract. So some of those might fall out, they might get replaced by others, but we felt it was important to provide at least some disclosure around how much volume and approximately what type of pricing we're working on today since it is relevant. I feel like what we're working on today is fairly consistent with the majority of the portfolio. The assets that we're currently negotiating contracts are spread across the country. They're in various retail formats. About 30% of them have a traditional grocery store, about 70% don't. Some of them are larger assets, some are smaller assets. And so to me, it feels like a pretty good mix of the majority of our portfolio.
I would say there are some assets that we have not transacted yet that are better, i.e., very high-volume grocers. And there are some assets that are not included in that, that are probably worse. They might have a theater with a high rent. But for the most part, I feel like it's a pretty consistent read-through to the majority of the portfolio.
Okay. Got it. And I guess my second question is around Curbline. I know you have decided to have no debt initially. But I guess, what's the longer-term leverage plan or even sort of the capital structure for Curb at this time?
Samir, it's Conor. As Dave and I both mentioned, as of today, we're expecting $300 million of cash at the time to spin and a $300 million preferred investment. However, to David's point, if we continue to sell assets, that likely shift to just $600 million of cash, and let's call it, yes, I think we've got $1.2 billion or $1.3 billion of GAV today.
Now to Tom's point, we do expect to acquire more assets, let's call it, $25 million to $50 million a quarter going into it. So round numbers, you're talking about a GAV of, call it, $1.4 billion, and $600 million of cash and perhaps, call it, $2 billion to spin.
Initially, I think it's fair to assume that Curb would use that cash to deploy capital. And then once you have utilized that cash, the question is, what's your kind of leverage path or leverage trajectory? And there, we'll see how it plays out. I mean I think if you look at our company SITE Centers over the last 6 years, we've generally looked to maintain a balance sheet that was consistent, if not marginally better than the peer group.
And I think for curb it's fair to be seen -- fair to see fair to assume, excuse me, that it's a similar path. All that said, that's aways out from now. So we'll see what we're -- how we go from there. But again, I think it's fair to assume it's just a consistent cap structure as we have with SITE today. I don't know if that helps answer your question.
No, it does.
The next question comes from Floris Van Dijkum with Compass Point.
It looks like you're going to be busy for the next couple of months. Pretty exciting, new concepts, higher growth, as you say. Just curious on some of the costs involved. You mentioned the commitments that you've got for the $1.1 billion of debt, mortgage debt, could you tell us what the cost of that commitment is and what the cost of that debt would be?
And then secondly, as part of that, you said you've that debt is related to 40 assets, I think, post spin. Have you identified those assets already? Presumably, lenders will want to know what assets they're providing the credit on. And so does that -- are those assets some of your better assets or maybe give a little bit of detail on what's remaining that you expect to be part of SITE's post spin?
It's Conor. If you look at our slides on Page 12, we've got sources and uses for the transaction, which we updated as of year-end. If you recall, at the time of the spin announced on October 30, we provided a similar slide that was as of the third quarter. So we've kind of rolled this quarter to help with the sources and uses. You are correct to point out that we've excluded the commitment fee related to that transaction from those costs.
I think it's fair to assume there'll be additional details provided in our K, we filled out in the next couple of weeks from here. But they're generally market terms. We had a commitment as part of the RVI facility. If you recall back in 2018, I think it closed actually 6 years ago or 7 years ago this month, and kind of a market commitment fee is generally around a point upfront and it's fair to assume that the Apollo facility is something very similar.
If you come back to who are counter-party with that as is Atlas SP, that with our counter-party, the old [indiscernible] products team 6 or 7 years ago, as I just mentioned. So it's a group we've worked with for a number of occasions, a group we've done a number of deals with, and it's someone we have a lot of great deal trust in. As part of our process for that commitment, we identified those 40 assets. We've already gone through underwriting with them. So yes, that pool has been identified. Yes, the lender has worked through that.
If you recall, there's also a kind of effectively a go-shop provision as part of that commitment where we can take that to market and go in a different path, or we can continue to work with Atlas or Apollo. So the ultimate financials or ultimate economics, I should say, of that transaction are to be determined. To David's point, I think from Craig earlier, we'll provide more details as we get closer. But there's a world where we use a much smaller facility based off asset sales. There's even a -- even more aggressive world. We don't have any borrowings at time to spend if the transaction market really remains robust.
So Again, we'll provide more details as we get closer to spin, but it's a market -- it's fair to assume it's a market rate CMBS deal. And again, we'll provide updates as we progress through 2024.
Maybe....
Go ahead, sorry.
No, no, you fire away.
I was going to say, let me know if I missed anything for your question here.
No, no. I think that answers that part of the question, I think. The other question I had was in relation to your curve portfolio. There's one other, as far as I'm aware, there's one other sizable portfolio out there that's somewhat similar to yours, which is the [indiscernible] portfolio. You must have looked at that closely. Maybe could you give a couple of potential differentiating factors you -- for your portfolio versus that portfolio?
Or and how people should think about what's your -- what percentage of your NOI, the $76 million of NOI that you have for the Curb portfolio, how much of that was carve-outs from your existing assets versus actual convenience assets that you've acquired separately as standalone assets?
Two-part question. I apologize.
I'll let Conor take Part b, which is the carve-out details. But on Part a, there's so much inventory in the U.S. in convenience. There are a number of smaller and midsized portfolios out there. I'd hate to get into a comparison between different portfolios just because you have imperfect information. I will say that we did hand select this portfolio. I mean we chose what to carve out. We chose what to leave behind. We chose what to buy in the last 5 years. So we're very happy with the credit quality, the growth quality, the submarkets, the locations, the daily traffic, the cell phone data that we've been tracking for years, as you know. So we're really happy with the portfolio we have. I hate to just start comparing it to other portfolios that we just don't have perfect information on.
And to David's point, I think it's a really important aspect of this. We built this from a ground up literally asset by asset. So every in here, we feel really good about the overall metrics on Page 15, Floris, which makes the comparisons, I guess, difficult to your point or David's point. The carve outs are about 25%, maybe marginally more than that. of the overall portfolio in terms of ABR, but that's coming down every day, right, as we buy assets.
And you think about, to Samir's question on the balance sheet, if we're $1.2 billion-ish of GAV today, and we cave outs are $300 million, $400 million of that as we deployed $2 billion to $3 billion, the carve-outs dropped to a fairly insignificant amount. So again, we feel really good about each of those carve-outs. We're happy to own them, and we hand-selected each of them. But that kind of subset of the portfolio will shrink over time as we lever operate at least deploy the cash.
The next question comes from Ki Bin Kim with Truist.
Just a couple of housekeeping items here. When you quote cap rates on your dispositions, can you just talk about what definition that is? And if you're including a property management charge and things like that?
Ken, it's Conor. In our mind, there's only one definition of the cap rate, which is a 4 12-month NOI, including a management.
Okay. And on your [ $255 million ] NOI projection for the SITE Centers portfolio, I'm assuming that's as of a 12/31/2023 portfolio? And if you can provide just high level, like what does that translate to from a same-store NOI standpoint?
Yes, you're right. So it includes the 2 assets that were sold as of in January or February to date. And so you need to adjust for those. So effectively, we gave you the balance sheet and the NOI of 12/31. So it's a good point to call out. In terms of same-store NOI, we didn't provide a projection for site centers for a couple of reasons. And the biggest reason, and this is something Dave and I both alluded to in our prepared remarks, is it's just losing relevance.
So we sold $1 billion of real estate effectively in the fourth quarter. None of those assets had a Bed Bath & Beyond. If we included those in 2024, our same-store would be higher not because it's better real estate or worse real estate, but simply because of whether or not Bed Bath & Beyond in there or not. In the same vein, if we sell a number of our Bed Bath assets, which we expect to in the first half of the year, our seems will start to go up. Does that mean things are getting better for that portfolio? No. It's just the volatility around operating metrics for SITE Centers is really going to grow and as a result, it's dropped in terms of relatives.
Now if you think about some guideposts and how you should think about same-store for site over the course of the year, it's fair to assume in a static portfolio growth would be -- look similar to the fourth quarter and the first half of the year as we comp through Bad Bath. And then you start to see a pretty dramatic acceleration in the back half of the year as the SMO pipeline and also some of those Bed bath backfills come into place.
And that gets you to a level that I think is pretty consistent with what we did in 2023 in the back half, and what some of our peers are reporting for their guidance for '24. But I would just give you, again, that caveat that the relevance we think of the metric is pretty low and the volatility of same-store be so dramatic over the course of '24 based off asset sales that we just don't think it's a relevant number or to provide at this time.
The next question comes from Dori Kesten with Wells Fargo.
Would you call October or rather firm time line for the spin at this point? Or could material incremental sales move that forward?
It's one. It's a great question. At this time, we think October 1 is a great placeholder. You're absolutely right. If you saw some dramatic change in transactions positively or negatively, we might move up or move back that date. All that said, remember, we don't need to sell another asset to get this transaction done, right?
That was the financing is effectively that bridge. So everything from here to David's point or response from earlier is purely upside to both SITE and Curb stakeholders, which is the same stakeholder today. So it's a great question. We'll update you go along. As of today, it's our best guess. It feels like transactions are probably -- transactions remain the biggest variable to whether that date moves forward or back a month or so.
Okay. And what -- I guess, what level of asset sales from this point on would remove the preferred equity stake from the transaction?
It's probably a pretty close story to a dollar for dollar. I mean, if we sold an additional $300 million here, the preferred would go away. I think to David's point around the level of activity we're seeing, we feel pretty good that the likely Curb is just cash and no [indiscernible]. That said, again, like the financing, we have everything in place. We don't need to sell additional assets today, but it does feel likely based off the volume of activity we've got going on that it's likely that Curb is simply cash.
The next question comes from Paulina Roja with Green Street.
And my question is about the in-place ABR for Curb. And I say it's 36-foot, which is towards the high end of what I see for your peers for small shop. So I was wondering where do you see the market rent for your space today?
Yes, it's a good question, Paulina. The reality is that shop rents can vary dramatically in a larger property. In other words, the shops that are along the Curbline up in the front of the property tend to have higher rents. The properties that we refer to as B shops, they're in the back of a property adjacent to a grocery store, adjacent to a larger format retailer tend to have lower rents. So it's not surprising that the outparcel buildings or multi-tenant pads that are along the high-traffic intersection tend to generate the higher rents. The mark-to-market is a really good question.
And I don't have a succinct answer on that. Part of the reason is that market rents for shops have been growing, specifically coming out of the pandemic with a lot of the suburban migration. The cell phone data, which is telling us that a hybrid workforce is pretty entrenched. You're just seeing a lot more tenant demand. And so a lot of the rents are growing at a pace that we're not really sure we don't have great data, but the mark-to-market is certainly present.
Yes, Paulina, I think an important -- if you look back our disclosures from October 30, I think our new lease spreads averaged over 30% in the last 4 year Curb portfolio. I think one of the things we really like about the property type is that mark-to-market is achievable, meaning the duration of the leases is such that we can actually get at that market rent as opposed to you think about a grocery-anchored asset or a large formal asset, the biggest mark-to-market is with the biggest national tenants in the back, i.e., the grocer or someone else, and you're never going to get out that mark-to-market.
So it's an important differentiator of the property type that we really like is there's real mark-to-market, and we can get at it, which isn't always the case in other open-air formats.
And then my second question is, you made sure that you are prioritizing dispositions. And I wonder if it was at all a consideration trying to accelerate acquisitions to maximize during 1031s?
Yes. It's a really good question, Paulina. Just given this is a taxable spin, we're actually better off not 1031 gains because effectively then that gain is passed on to the stakeholders. So the other point I would just make is we actually don't have material gains, I should say, at the portfolio level. There're certain assets that have significant tax gains, but on an overall blended portfolio basis, I don't think it's significant relative to the enterprise. So for both of those reasons, the 1031 market is less of a focus for us today.
The next question comes from Mike Mueller with JPMorgan.
Just a few questions on Curb. First of all, can you give us a sense as to when we look at your blended rent spreads, how they would compare if you would break them out between Curb and kind of the legacy SITE stuff that you want to sell?
Yes, Mike, there's -- we haven't broken them out again to my question to Paulina -- or response to Paulina, the spreads for Curb we provided in -- with the October presentation, I will point out, though, there is a little bit different approach -- or not a little bit. There is a different approach for Curb. We are likely to include all spreads included in that, not just spreads that have a tenant that moved out within the last 12 months for a variety of reasons.
One, we just -- it's a bigger pool; and two, we think it's just a more relevant metric. But if you look with that kind of differentiated new approach, our spreads have averaged 30%. And that's not dramatically different than SITE. It's just the capital to get that spread is a lot lower. So again, I'd point you back to the October 30 presentation, just the only caveat being that's a little bit different approach, and that includes all spaces, not just those vacant less than 12 months.
Sorry, I miss part of that. I think my signal went out for a little bit during the last question. And then one other question, too. I guess in the supplemental, you typically break out redevelopment expansion. And I guess when we're looking at that, is it safe to say that pretty much everything tied to that goes theoretically with the legacy SITE? Or when you look at the Curb portfolio a year out or so, would you envision having some activity like that, whether it's like a renovation or expansion spend as well?
Just what's in the SITE, the up today for SITE and our shops at framing him, that's new Starbucks pad. That is part of Curb, and University Hills that is part of Curb as well, but I'll defer to David on the old spend path.
Going forward, I certainly think that our redevelopment activity will be minimal at best at this point. It's a renewals business. The purpose of the business is to buy real estate where we can raise rents with low CapEx. Having said that, the larger the portfolio gets the more renovation work is required here and there. So I think we will have some activity, but I would not expect us to be having a large redevelopment component in this business.
This concludes our question-and-answer session. I would like to turn the conference back over to David Lukes for any closing remarks.
Thank you all for joining our call, and we will talk to you next quarter.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.