It was just five years ago or so that Site Centers (SITC -1.03%), then known as DDR Corp, spun off a collection of properties that it basically didn't want to own anymore. Today, it is again looking to do a corporate action, this time splitting the business between strip malls with anchor tenants (usually a grocery store) and those without.
You can't control spinoffs, but you can control what you do about them, so it's time for Site Centers investors to think through what's happening here.
Site Centers is making yet another big change
Back in 2018, when Site Centers was still known as DDR, it spun off a collection of lower-quality assets into a real estate investment trust (REIT) named Retail Value. That entity's efforts since the spinoff have been, effectively, around selling the portfolio. It completed that task earlier in 2023, with a final liquidating dividend paid to shareholders.
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Back to the current effort -- the REIT is again looking to make a strategic move. This time, Site Centers is splitting up its assets between strip malls with anchors and those without anchors, which it calls convenience centers. The new REIT being created to own the unanchored properties will be called Curbline Properties.
Curbline is described as a "unique scalable investment opportunity with a balance sheet intended to fuel [the] company for significant growth in [a] fragmented yet liquid market." What remains at Site Centers will be around 80 mature strip malls located in and around major metropolitan markets. Management didn't provide a fancy explanation about the opportunity ahead for the portfolio that will remain with Site Centers.
What to make of the latest spinoff plan
The first thing shareholders need to know is that the Curbline spinoff is going to be a taxable event. So this isn't just something that's going to leave you with two companies (as a tax-free spinoff would); it could have a major impact on your personal finances. The final details aren't out yet, but you'll want to pay very close attention to the potential tax hit that comes along with this deal. If you don't want that headache, selling Site Centers ahead of the transaction is going to be your only option.
The next question you need to ask yourself is, what exactly are you going to end up with if you stick around? It seems like Curbline is going to be focused on expanding via acquisition, while Site Centers will be working on filling up older but well-located properties. Stepping back, it appears as though management is creating Curbline so the growth-oriented piece of Site Centers can be valued as a stand-alone entity unencumbered by its more boring assets, which are more foundational in nature. Sort of a tortoise versus a hare split-up.
That has notable implications. For example, a faster-growing Curbline REIT will likely have a lower yield but a faster-growing dividend. Site Centers will probably have a higher yield but perhaps limited dividend growth. Those two business models will appeal to different types of investors. But, on that note, Site Centers already has plans to sell some of the assets that it will be left with as it looks to reduce debt and continue to "maximize value." That suggests that Site Centers will still be a work in progress even after it spins off Curbline. That's not exactly as clean a solution as one might hope, given that its last spinoff ended up being liquidated over time.
More questions than answers right now
When faced with a spinoff, investors need to dig in and understand what is happening and how it will impact them. After doing that, an educated decision can be made about what action to take. The first issue here is that Site Centers' spinoff will be taxable, which may be enough information for some investors to make an action decision. After that, it looks like the split is between a growth REIT and a yield-oriented REIT that may actually continue to shrink itself via asset sales. You may want to own both, or you might decide that one of the REITs that comes out of this spinoff is a better fit with your investment needs and approach. Given the taxable nature of the spinoff, now is the time to start thinking this through.