This REIT Is About To Spin Off A New Company; Will It Be A Good Investment?

One thing Americans love to do is get into their cars and travel, whether on long or short trips. When they do, frequent stops at convenience stores such as TravelCenters of America or Petro Stopping Centers offer chances to buy gasoline, quickly pick up food, beverages, tobacco products, or buy a lotto ticket or two. At other times, they like to frequent restaurant chains right off the major highways, such as Starbucks Corp SBUX, McDonald's Corp MCD, or Chipotle Mexican Grill, Inc. CMG.

Most people never give it a second thought, but someone owns and operates all those convenience stores and restaurants. Those owners/operators are real estate investment trusts (REITs) that lease the properties to hundreds of entities.

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One REIT that owns and operates many of these establishments is SITE Centers Corp SITC, a Beachwood, OH-based retail REIT that wholly owns 57 open-air shopping centers, with 64% anchored by grocery stores or high-quality discount stores. Its retail tenants include TJX Companies Inc. TJX, Ross Stores Inc. ROSS, Burlington Stores Inc. BURL, Dollar Tree Inc. DLTR and Kroger Co. KR. 32% of its Annual Base Rent (ABR) comes from publicly traded companies.

In a few weeks, SITE Centers will spin off 67 properties into a new independent REIT called Curbline Properties Corp. A REIT spinoff occurs when a company places real estate assets into a subsidiary company, which it distributes as a REIT to shareholders.

The distribution of Curbline shares will be completed at 12:01 a.m. EST on October 1. Curbline will begin trading on the New York Stock Exchange under the symbol "CURB WI" on Sept. 26, 2024. The "WI" stands for "when issued." After October, the NYSE symbol will then become "CURB."

SITE Centers shareholders will receive two shares of Curbline common stock for each share of SITE Centers held at the close of business on Sept. 23, 2024. 

The spinoff will create a special dividend of $0.16 per share. SITE Centers expects Curbline to begin with a net cash position and zero debt. It will be a highly diversified portfolio of 2.3 million square feet. 43% of the portfolio's ABR will come from the Southeast, with 23% from the Southwest, Mountain regions and Texas. SITE Centers noted in its June investor presentation that 96.6% of these properties were presently leased.

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Other REIT spinoffs, such as Four Corners Properties Trust Inc. FCPT, VICI Properties Inc. VICI, and Net Lease Office Properties NLOP have performed very well for shareholders since their creation. For example, Net Lease Office Properties has had a 52.58% total return since it was spun off from WP Carey Inc. WPC in October 2023.

However, some spinoffs have not been lucrative for shareholders. In November 2021, Realty Income spun off its office properties into a REIT called Orion Office REIT Inc. ONL. Since then, Orion has declined from $18.60 per share to only $3.96, a principal loss of 78.7%. Only $1.00 per share in dividends was paid, reducing the total return to -78.43%. That's brutal.

Investors can assess Curbline’s performance by examining other REITs that own convenience stores. For example, Getty Realty Corp. GTY has developed a successful model in this niche. Getty is a net-lease REIT that acquires and develops convenience, automotive, and other single-tenant retail real estate. Getty owns 1,124 free-standing properties across 42 states and Washington, D.C. 63% of its properties are convenience and gas stations. 

Getty Realty’s average annual total return since 1995 is 7.45%, and its total return year-to-date is 11.32%.

However, Service Properties Trust SVC, a hotel and retail REIT that owns and operates 749 convenience retail centers and 220 hotels, is quite another story. Service Properties Trust owns net lease properties across 46 states, including Washington D.C., Puerto Rico, and Canada.

Since 2000, Service Properties Trust has had several peaks and valleys but recently traded near $4.50, the same price as 24 years ago. Year-to-date, Service Properties has had a dismal total return of -39.11%. However, since Service Properties is also a hotel REIT, other factors, such as COVID-19 and inflation, have contributed to its poor performance.

No one can say with certainty how a new REIT spinoff will perform. However, Curbline's portfolio's properties will cater to the growing suburban culture of convenience trips in high-density areas near major roads and highways. If inflation continues to moderate and gasoline prices decline, those could be major tail winds for Curbline Properties.

Better Yields Than Some REITs?

The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through publicly-traded REITs.

Arrived Homes, the Jeff Bezos-backed investment platform has launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. It paid 8.1% in July. The best part? Unlike other private credit funds, this one has a minimum investment of only $100. 

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