Will Retail's "Euphoric Moment" Continue For Site Centers?

A few years ago, many people were certain that it was time to write the eulogy for retail real estate. No one was going to the mall anymore, and surely Amazon and DoorDash could deliver anything we needed. But a funny thing happened on the way to the graveyard: Retail real estate has rebounded, first fueled by the rise of post-pandemic revenge spending and now sustained by consumer spending that has remained robust even as inflation rose. 

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In an interview with Nareit, David Lukes, CEO of Site Centers SITC, recently referred to retail as being in a euphoric moment with high tenant demand and little space left on the market. This speaks to a larger trend noted by real estate giant CBRE, which estimates that retail availability will remain tight, ending 2024 at 4.6%. This means there is a window of opportunity for many retail real estate providers until either more properties become available or something happens, and tenant demand shrinks. That should be a positive indicator for Site Centers and other mall operators. 

Site Centers has 101 properties, most anchored by a grocery store or discounter. The business targets affluent suburbs and relies heavily on large national tenants. As of the most recent earnings report, its properties were over 94% leased. Recent renewals and new customers have included Planet Fitness PLNT, Dick's Sporting Goods DKS, and Five Below FIVE. For any large mall retailer, the strength of its client base is heavily tied to its success, and retailer bankruptcies, like the high-profile filings of Express and Jo-Ann Fabrics earlier this year, can sometimes spell trouble. 

Site Centers currently offers a modest dividend of $0.13 per share, with a forward dividend yield of 3.62%. Like many retail REITs, it paused its dividend during the pandemic but has not yet returned to pre-pandemic levels. However, the share price has shown stability, with a 10% increase over the past five years. The analyst consensus for growth is promising, and the current stock price of $14.64 is in proximity to the consensus target of $14.86, hinting at potential growth. 

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Coming Soon: A Convenience Pure Play

Site Centers is not resting on its laurels. It is leveraging its bullish stance on real estate by venturing into a new domain. The company is set to launch a spinoff, Curbline, in the fourth quarter of this year. Curbline will focus on convenience properties in the same attractive markets that Site Centers already operates in. The name ‘Curbline’ is a nod to the properties’ proximity to the road, a strategic move that aligns with the growing demand for convenience. 

 The two companies will operate in tandem and already have $200 million in smaller properties set to transact. Site Centers has cleared the decks ahead of this move by selling over $1 billion in properties over the past year. The company has no consolidated maturities through the end of 2024 and has a $1 billion mortgage facility. 

The convenience portfolio is relatively modest at 2.3 million square feet but has a lease rate of over 96%. Convenience real estate also tends to be less sensitive to changes in consumer spending. The growing demand for drive-thru space is also a positive trend, with 62% of Curbline's current properties containing drive-thru space. 

Whenever a company is planning a spinoff, it's prudent to ask why. Site Centers believes the opportunity for convenience real estate is worth raising money for and sees a clear path for expansion. One potential concern is that a spinoff can be distracting for the core business. As Site Centers moves through this transition, it will be important to stay focused on attracting new tenants and customers to its larger shopping centers. 

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