SITE Centers Corp.

with TI packages for renewals. You know, there have been some tenants that don't want to exercise an option, but they want to, you know, renew flat. There have also been a number of tenants that skipped their option earlier in the summer and then by the end of the summer wished they hadn't and ended up paying more rent. So it's been a very interesting past couple of months, and I think you're sensing a little bit of a change in tone because this quarter really feels like there's been some – some tailwinds that I haven't seen in a long time. I personally think that the amount of the kind of work from home in white collar jobs in wealthier suburbs is having a somewhat dramatic impact. And I think the tenants recognize that.

And when you look towards 21 and 22, right, where you got a million square feet next year, a million seven the year after, at what point I guess where are you in those discussions with those tenants? Obviously a significant amount of that lease role does have renewal options and extension options available. How should we think about the cadence of putting those to bed?

At this point, I would say that I would look to the last couple of years and look at the renewal probability or the options exercise probability, and I don't think it's going to be better, but I don't think it's going to be significantly worse. In other words, a lot of the delay in these deferral conversations with larger anchor tenants is because we said, hey, we'll talk about a deferral, but let's look at the next 18 to 24 months of your role and And let's agree to options exercised in return for dealing with the spring pandemic rent that was due. Because we also want, like you, we also want some surety as to what's going to happen on a renewal. And even if we end up not agreeing, at least we get a window into how the tenant feels about that location. And for the most part, we've been pleasantly surprised. I think where you're going to see the struggle in our portfolio or the strip center space in general is that, you know, there are a number of chains that are shrinking their footprint, whether it's through bankruptcy or just naturally they want to shrink footprint. Instead of four units in a city, they want to get on to three units in a city. And in doing so, I do think that the spaces have value, and we're proving that there are backfill tenants there, but it's at a cost, and that cost is downtime and CapEx. Right. But it feels a lot like... the last couple of years with respect to move outs and move ins. It's just in the last quarter I feel like the move in story has gotten significantly better.

Yeah. Just two other quick ones. You spent a lot of time talking about the horse trading you're doing with tenants, being able to get something back in return for deferring their rent or having them pay some upfront. Is there a way to sort of summarize what that aggregate get that you got Is there a way that you can put it in totality? I assume each individual tenant is not material in and of itself, but perhaps when you've aggregated all this up, you can give us some sense of, hey, Michael, at our 69 wholly owned centers, we've been able to, you know, get this much, you know, space back or, you know, and things like that.

Yeah, that's actually a very creative idea. Yeah, I mean, it's hard, Michael. I mean, it's... it's funny on some things that it was a very modest get, meaning, you know, we rewrote some language in the lease or we allowed us to do a lease in the future, which is difficult to kind of quantify, but you're right for every single one of these modifications or agreements, we went tenant by tenant, ran the NPV pre and post and figured out what, what was a value to us. You know, for some of them, I alluded to actually Katie's question on, on some, some tactical rebound projects we've unlocked. It was a, the ability to do a pad and you're absolutely right. The value creation on those is a material. So, It's a really good question, something we should quantify, but we've done it. It's just a sense of kind of adding it all up.

Right. Well, that would be helpful. And then I guess once you're already doing one thing, maybe you can do another, which is I think having – I think all of the rent deferrals and collections and cash versus gap, I do think having just a table as we're moving quarter to quarter – just to understand the cash flow impacts of these things. And I recognize we can look at the net debt and see what happens sequentially, but there's a lot of other things going on, right? You're not paying a dividend today. It's just to strip out really what's happening on the rental line, what was collected, what was deferred, when was that deferral actually paid, actually having that each quarter to allow us to compare, okay, this is what it was in 2Q, this is how much has been recovered, I think having that information would be very helpful to the investment community.

Completely understand the point, Michael. I think the biggest challenge is going to be quarter end versus reporting date, meaning if we report two weeks from now, I guarantee you our collection rate will be higher than it is today, and then thus the impact of the balance sheet and the post-quarter end collections will be impacted as well. So completely understand the point. As you know, we are hyper-focused on disclosure and transparency, so As we kind of get into the meat of these deferrals in 2021, I think it's an excellent point, and we are laser-focused on figuring out the best way to disclose that to the investment community.

Okay. Thank you so much.

Thanks, Michael.

And our next question will come with Linda Tsai with Jefferies. Please go ahead.

Hi. Thanks for taking my question. In terms of redevelopments, would you expect to shift the split between major and tactical in the post-COVID recovery period?

Good morning, Linda. I think that you're going to see that a lot of the value that has been created from getting control back from some of the tenant leases is going to be tactical in nature. And so I think for our company, we're very focused on the highest return on capital at the lowest risk. And the tactical redevelopments for right now for us is the largest bucket of opportunity. I don't see us engaging on large mixed-use projects, going vertical with, you know, a lot of high density. I think for us, we're focused very, very much on the blocking and tackling of small projects because they're faster and they're more creative. And that's what we have inventory of because of a lot of these tenant negotiations in the last couple of months.

Thanks. That makes sense. And then just a quick follow-up on the store rationalization comment. You know, in terms of Gap Brand's announcement to focus more You know, on Athleta, Old Navy, you locate 80% outside of malls within a few years. You have 34 leases between your JV and wholly owned. Would you expect to be positively or negatively impacted on a net basis, or is it just kind of too early to tell?

Yeah, I mean, if there was one story that makes a strip center landlord happy, it was that story, because I think it's a verification that the open-air format achieves the same customer's at a much less expensive build-out and operational cost than the mall. And our company is almost entirely Old Navy. And I think that the sales we're seeing there is strong. The desire for that company to really focus on the open-air format is going to be a big benefit to us. And they're not the only ones. I mean, there are other mall tenants and, frankly, street retail tenants that are saying, you know what? the most important feature for customers for the future is convenience. And this asset class of suburban strip in high-income areas is 100% based on convenience. So I think it's a net benefit to us.

Thanks.

And our next question will come from Chris Lucas with Capital One. Please go ahead.

Hey, good morning, guys. Just a couple of quick ones. On the... 30% of the uncollectible rent that was in lease modifications, I'm assuming that those that triggered options show up in the leasing data you guys reported?

Chris, the answer is yes, if they've been executed. And just a small clarification, just the 30% of our uncollectible revenue is related to modifications. Just wanted to clarify that.

Right, okay. And then as it relates to the, I guess, $22 million of deferrals, is that the right number, Connor?

There's $22 million of accrued, in our receivables, there's $22 million of accrued deferrals, correct?

Okay. What is, I mean, I think you, so maybe I'm, I just make sure I'm understanding that. Of your deferrals, let's just go take a step back. What is the cash component versus the accrued component? In other words, what is the potential positive impact to future results based on the collection of the deferrals?

Yeah, so that's a great point. So the $22 million is just the accrual-based tenants, right? Cash basis tenants, I don't have the number off the top of my head. But implicitly, if we have them on cash basis, we are not expecting that to be paid. I don't think, Chris, it's going to be a kind of game changer for us from a cash flow perspective. We generally have not been executing deferrals for cash basis tenants. There are some. But typically, these are tenants that we want to keep on a very tight leash. And so instead of deferral, we might be looking for another alternative kind of inducement, for lack of a better word. So I don't have the number off the top of my head. I don't believe it's material, but also implicitly we do not expect to receive it, but it's something we can provide more disclosure on.

Okay, and the last question for me, just going back to the percentage of the uncollectible rent related to lease modifications, what was that for second quarter, just so I have a sort of comparative?

It was plus or minus 10%, just over 10%. Okay, great. Thank you.

And our next question will come from Katie McConnell with Citi. Please go ahead.

Hey, it's Michael Bellarmine again. Just wanted to quickly ask about external growth and what you're hearing from capital partners. You obviously did the foreign Chinese JV with the Chinese investors, I guess it was about 18 months ago. Are you finding much appetite for partners to want to co-invest in the sector today?

It feels, Michael, like speaking to common equity investors. There's a lot of curiosity and a lot of intrigue because things appear to be better than they had thought it would be. The yields are seemingly strong. But I think that in the middle of this pandemic with no real end in sight, I think it's hard for institutional investors to make that leap of faith. And so I would say that those that move from interest to, hey, let's talk, tend to be more opportunistic in nature. And for a partner like us, we really want institutional partners. The dilemma with opportunistic, of course, is that It just is – it's financially not as successful for us. So I think you'll see us wait to form new joint ventures until we feel like we have a really strong institutional partner that has an alignment of interest with us. In other words, long term.

Right. And then does – I guess, are you eager – is there anything to sell into this marketplace that you can continue to hone in on?

Explain, sorry.

I'm sorry. I mean, I guess – One hand is potentially on the buy, but is there anything that you feel is the market at all deep enough yet to be able to liquefy more assets?

I don't think meaningfully so. In other words, the net lease market is obviously very strong still, 1031 market. But when you really think about the labor required and does it really make a difference and what's left, I guess I feel like the transaction market is still really slow.

All right. Okay. Thank you.

Yep.

Ladies and gentlemen, this will conclude 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, and we'll speak to you next quarter.

And ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. And at this time, you may now