SITE Centers Corp.

Good morning and welcome to Site Center's second quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Stephanie Rouse de Perez, Vice President of Capital Markets and Asset Management at SightCenters. Please go ahead.

Thank you, Operator. Good morning and welcome to SightCenter's second quarter 2023 earnings conference call. Joining me today are Chief Executive Officer David Lukes and Chief Financial Officer Connor 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 and net operating income. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's quarterly financial supplements. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.

David Lukes Good morning, and thank you for joining our second quarter earnings call. We had another strong quarter with results ahead of budget, an uptick in leasing volume and demand across all unit sizes, and continued progress sourcing investments, which are additive to the long-term growth profile of the company. The net result of all this activity is a significant signed not open pipeline with commencements ramping over the next few quarters into 2024, which provides a tailwind for the next several years and an offset to the impact from recaptured space from bankrupt tenants. I'll start with some comments on leasing and tenant activity and then move to transactions before handing it over to Connor to give more details around the quarter and 2023 guidance. Leasing activity has remained strong over the past few quarters, And much of our conviction and continued demand has been the result of population movements to the suburbs and the choice by most retailers to favor a combination of in-store shopping, curbside pickup, and ship from store. When combined with the growth in service tenants following their customers in a hybrid work environment, it's not surprising that demand across our wealthy suburban portfolio has been elevated. And while the occupancy uplift has been nice, we are equally pleased to see rent growth move in tandem. In fact, the growth in rents has been supported by the lack of new construction, thereby putting a pretty tight cap on competitive new supply. There are two reasons why we believe this situation will continue for some time in the submarkets where we operate. First, it's notoriously difficult to achieve new open-air retail zoning in high-income neighborhoods so land available for development is low. Secondly, construction costs have surged with inflation, and the rents required to justify construction are well above our in-place rents. We recently priced a ground-up junior anchor building as part of a redevelopment plan, and the cost for that box came in at almost $300 per square foot. We also recently started construction on several multi-tenant TAD buildings whose average cost to build are just above $500 a square foot. As both of these examples exclude land, the total cost to build a blended new shopping center containing both shops and anchors remains a challenging math exercise, and it's a primary reason why we are seeing tenant retention at very high levels, as tenants with current leases are unwilling to relocate to more expensive space. Over the course of the last two years, our tenant retention, excluding forced move-outs, is well above historical averages. Of course, one form of new supply has come from bankruptcies, and our exposure to date remains limited to Cineworld, Party City, and Bed Bath. With Cineworld nearing its exit and no material updates on Party City, I'll limit my comments to Bed Bath and beyond, as we don't have real exposure to other tenants that have filed to date. As of the first quarter, we had 17 Bed Bath & Beyond locations, which represented 1.8% of base rent. Of the 17 locations in the first quarter, one lease was sold as part of a JV asset sale, four leases were acquired as part of the bankruptcy auction, and four leases were rejected, leaving eight remaining locations. As expected, the bankruptcy process has been drawn out with multiple rounds of auctions But we are nearing clarity on timing and control, and our leasing team is well underway with replacement tenants. Consistent with our prior commentary, inbound activity over the last several months has been elevated, and we expect that the majority of our stores will have executed leases over the next 12 months, with rents commencing in years and by 2024. We already signed one of our 12 available units in the second quarter, with two more at lease and two with executed LOIs. These five deals represent roughly 60 percent of our expected pro forma backfill rent and are all within a mixture of public national credit tenants. Moving to overall portfolio leasing for the quarter, as noted, the breadth and depth of tenant demand remains high, which translated into an acceleration in activity. In terms of total leasing, We signed over 1 million square feet of leases in the second quarter, including 170,000 square feet of new deals. Despite this uptick in volume, our lease rate was down 40 basis points sequentially to 95.5%, with the decline attributable to the rejection of four of our Bed Bath & Beyond leases. Looking forward, we have just over 250,000 square feet at share, in current lease negotiations, including the Bed Bath & Beyond deals that I mentioned, with blended spreads ahead of our toiling 12-month average. We expect this leasing pipeline to be completed over the next two quarters. That said, the absolute level of quarterly activity will remain volatile, as we simply have less space to lease until we take possession of all of our remaining Bed Bath locations in the third quarter. In terms of redevelopment, we are wrapping up the final phase of our West Bay project here in Cleveland. All three of our tenants are now open at the TGIF redevelopment at Shoppers World, and Starbucks is set to open at Carolina Pavilion and Shoppers World in the next few quarters as well. We've made quite a bit of progress on our tactical redevelopment pipeline in the last few quarters and are getting closer on a few more small-scale projects to be launched within the next 12 months in New Jersey, Florida, and Virginia, which include a handful of listed portfolio tenants. To my previous point about construction costs limiting supply, the aforementioned projects have signed leases or executed LOIs that average $60 per square foot net, which supports our required returns for construction. It also shows that shop tenant rents are growing due to the supply-demand imbalance. I'll end with transactions We acquired three convenience properties for $49 million. With two properties at our largest market of Atlanta and one property in Houston, we are finding quite a few opportunities since our first acquisition in that market in June of last year. The assets are consistent with investments to date centered around strong credit and low recurring capex located at the high traffic intersections within wealthy suburban communities. Average household incomes for the second quarter investments are over $125,000, and the lease rate of over 98% highlights our focus on acquiring properties where renewals and lease bumps drive growth without significant capex. Going forward, we remain encouraged by the unique opportunities in the convenience subsector that are a direct result of local relationships we've formed over the past several years. Because the cash flow growth profile and risk-adjusted IRRs of this property type are elevated with rents accelerating with inflation, we will continue, as we have in prior years, to utilize retained cash flow and proceeds from recycling fully stabilized assets into this sub-asset class when the right opportunities arise. That said, capital markets volatility and availability is having an impact across the real estate industry and I would expect overall transaction volume to remain low for the time being. In summary, we remain pleased with our company's position and outlook. Our team remains focused on growing occupancy, rents, and our convenience portfolio. We also want to wish a congratulations to those who retired or are retiring this year after successful careers at SightSense. We are extremely grateful for your dedication and your service which contributed to all of our accomplishments over the last several years. And with that, I'll turn it over to Connor.